| 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 800 Boylston Street Boston, Massachusetts 02199-3600 |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
| Date of fiscal year end: | August 31, 2011 |
| Date of reporting period: | September 1, 2010 — August 31, 2011 |
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: | |||
Putnam
Emerging Markets
Equity Fund
Annual report
8 | 31 | 11
| Message from the Trustees | 1 | ||
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| About the fund | 2 | ||
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| Performance snapshot | 4 | ||
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| Interview with your fund’s portfolio manager | 5 | ||
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| Your fund’s performance | 11 | ||
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| Your fund’s expenses | 13 | ||
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| Terms and definitions | 15 | ||
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| Trustee approval of management contract | 16 | ||
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| Other information for shareholders | 21 | ||
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| Financial statements | 22 | ||
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| Federal tax information | 41 | ||
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| About the Trustees | 42 | ||
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| Officers | 44 | ||
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Message from the Trustees
Dear Fellow Shareholder:
Markets around the world are grappling with heightened volatility. In the United States, persistently high unemployment and other weak economic data have fueled investors’ risk aversion, while in Europe the sovereign debt crisis shows little sign of abating. Certain bright spots do exist, but it is clear that volatility and uncertainty will remain with us for the near term.
We believe it is important to consult your financial advisor in times like these to consider whether your portfolio reflects an appropriate degree of diversification. In responding to this need, Putnam offers funds with strategies that seek to limit volatility and also employs an active, research-based investment approach that is designed to offer shareholders a potential advantage in this climate by looking for new growth opportunities and seeking to guard against downside risk.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancy’s Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
About the fund
Pursuing growth opportunities in developing economies
The world’s emerging markets — from Mexico and Brazil to Poland and Turkey — offer investors attractive opportunities. These markets can generate sustained economic growth in excess of most developed economies, and are home to stocks of world-class companies.
Putnam Emerging Markets Equity Fund pursues growth by investing mainly in stocks of companies that are located in or generate a majority of their revenues in a country included in the MSCI Emerging Markets Index.
During the 1990s, emerging markets were set back by several high-profile crises, caused in part by an over-reliance on capital from abroad and a lack of economic infrastructure to channel capital into productive purposes.
Following these crises, a number of the countries involved implemented structural reforms to stabilize investment and economic development potential.
Over the past decade, emerging markets have benefited from more locally generated economic growth. Infrastructure development, such as the construction of roads, port facilities, and urban centers, has provided many countries with greater production capacity. In addition, a higher level of domestic consumer spending has been a source of more sustainable growth.
The fund seeks to invest in companies benefiting from the rising wealth and infrastructure development in emerging markets. It targets stocks believed to be worth more than their current prices indicate. To identify these stocks, Putnam makes use of its extensive global research capabilities and more than 30 years of experience investing internationally.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The fund may invest a portion of its assets in small and/or midsize companies. Such investments increase the risk of greater price fluctuations. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound.
Stock selection relies on fundamental research and a thorough process
In selecting holdings for the portfolio, the fund manager works autonomously while taking advantage of Putnam’s global research resources, because investing in emerging economies requires consistent insights from multiple information sources. The investment process has three key stages:
Stock analysis
With support from Putnam’s global industry analysts, the fund’s manager screens over 1,000 stocks from across emerging markets to find the most attractive 250 candidates for the fund. He then analyzes these stocks with fundamental tools to find those with the most attractive valuations relative to their growth potential.
Macroeconomic factors
The fund’s manager incorporates valuable top-down, macroeconomic insights about individual emerging markets from Putnam’s global asset allocation group, emerging markets debt team, and currency investment unit.
Portfolio construction
Putnam’s proprietary risk management tools help in building a balanced portfolio of approximately 80 stocks, ensuring that the portfolio has exposure to diverse sources of return to mitigate risk.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See pages 5 and 11–12 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus. To obtain the most recent month-end performance, visit putnam.com.
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Interview with your fund’s portfolio manager
Daniel J. Graña, CFA
What drove Putnam Emerging Markets Equity Fund’s results for the annual period?
The fund underperformed its benchmark and Lipper peer group average during the period primarily because we believed inflation in China would peak by mid-2011. Markets were more concerned than we believed was warranted regarding China’s overheating growth and the potential for sustained high inflation, and a variety of our positions suffered as a result.
Did concerns over China’s inflation dominate the emerging-market investment landscape during the period?
At the beginning of 2011, markets were concerned that inflation pressures in emerging markets, particularly China, might become elevated and progressively worse throughout the year. In our analysis, we believed that was incorrect, and we expected inflation would peak by the middle of the year. While our timing was off, I believe China’s inflation is very near its peak, which would prove supportive for emerging markets around the world, as many regions are tied to China’s economic fortunes.
Recently, the major concern has shifted from inflation to the prospect of a hard landing in China. Specifically, the worry is that central bank policy intended to slow inflation will prove too robust, causing the economy to slow excessively. Contrary to this concern, we believe a soft landing is the most probable outcome for China, particularly as we see central banks on the verge of loosening policy to support growth. Indeed, Brazil recently lowered rates amid speculation that it would in fact raise them. In our opinion, this move should be supportive of growth in Brazil, and I would expect China, and later India, to follow Brazil’s lead.
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 8/31/11. See pages 4 and 11–12 for additional fund performance information. Index descriptions can be found on page 15.
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Other weights on emerging markets during the period included data on U.S. growth and the continuing debt crisis in Europe, neither of which we expected to be as disappointing or intractable as they proved to be. Nevertheless, from an emerging-market equity perspective, our degree of comfort and confidence is high, and ultimately we believe markets will reward our views. As we look at it, some of our best investment ideas have become more compelling as the market has retracted. Chinese banks, for example, are trading at valuations that are lower than they were during the worst of the financial crisis. The only way to feel these valuations are appropriate is to believe that the hard landing in China is the most likely outcome.
Generally speaking, the market consensus appears to expect a hard landing in China, a double-dip recession in the United States, and a prolonged recession in Europe. We do not agree with these views and, consequently, have added to a number of our positions in the financials sector, which we believe holds many attractively priced investment opportunities.
How did other emerging markets, such as Russia and Brazil, fare during the period?
They did not perform as well as we expected, largely because of their connection to China. We have a positive outlook for these countries, however, based on our assessment of their internal economic dynamics and because of our positive outlook for China. Brazil, for example, has underperformed other emerging markets for about 18 months, a situation we expect to turn around in the coming year due to the health of key domestic industries in Brazil. Brazilian home-builders are a case in point. These companies continue to beat expectations quarter after quarter, but the market has been unkind to their stock prices because of misplaced
Country allocations are shown as a percentage of the fund’s net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any. Weightings will vary over time.
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concerns that the Brazilian central bank would continue to raise interest rates. In addition, the market has overlooked the fact that there is a massive undersupply of new homes in Brazil and that a large number of potential homebuyers may soon enter the market. Access to credit is not an issue for many Brazilians, moreover, and mortgage rates are not tied to rates set by the central bank. We believe this positive structural story will continue to play out in Brazil’s favor.
Investing in Russia is an indirect play on China, and, therefore, it too suffered due to China-related concerns. In support of the investment case in Russia, however, is the fact that virtually every metal and mineral is in Russian ground, whereas commodity-hungry China is bereft of most materials other than coal and rare earth metals. This makes Russia a key exporter of commodities that China needs. Furthermore, structural issues in the energy markets are having an impact on Russia’s commodity-focused economic engine. Following the earthquake/tsunami-triggered nuclear disaster in Japan earlier this year, for example, countries are reevaluating their alternative energy plans and assessing whether they need to rely in the near term on the “safer” energy technologies, such as gas-fired thermal plants. Consequently, many signs point to a constructive view on investment opportunities in Russia, the world’s largest natural gas exporter and one of the world’s largest oil and metals exporters.
This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 8/31/11. Short-term holdings are excluded. Holdings will vary over time.
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Which stocks contributed positively to performance?
Kia Motors, which we discussed in the most recent semiannual report, was our top contributor to performance for the year. This South Korea-based automaker has gained market share in the United States and emerging markets, where the company is better positioned than various Japanese automakers. Overall, we think the company is in the sweet spot of the fuel-efficient car market, and the company benefited substantially as oil prices rose during the year. We believe the company is a structural winner in the United States as well as in the emerging markets, and we have maintained our overweight position in the stock relative to the benchmark.
Among financials, PT Bank Rakyat Indonesia was a top contributor to performance. This bank is an important lender to individuals and small businesses in rural areas in Indonesia and has taken strategic advantage of the country’s economic growth and stability. We had established a position in the stock at an attractive price point and later trimmed the fund’s position once the stock met our expectations. The stock went on to underperform during the period, at which point we increased our position, which helped the fund’s performance results.
Silvinit is a Russian potash producer that was acquired by a competitor and another fund holding, Uralkali, during the period, which led to strong results for our position in Silvinit stock. Potash is an important component in fertilizer and has enjoyed strong price appreciation given broad consolidation in the market and growing demand for agricultural products across the emerging markets — developments that we correctly foresaw. We sold our position in Silvinit to lock in profits before the close of the period.
This chart shows the fund’s largest allocation shifts, by percentage, over the past six months. Weightings are shown as a percentage of net assets. Current period summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any. Holdings will vary over time.
Data in the chart reflect a new calculation methodology put into effect within the past six months.
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Which stocks detracted from results during the period?
OGX, a Brazilian oil exploration and production company, has very interesting acreage in offshore Brazil and a very attractive portfolio of exploration blocks whose holdings of oil and gas are in the process of being evaluated. Also, we believed the company was a likely acquisition candidate during the period, as it needs money to develop its reserves, but the stock suffered as the evaluation of the company’s value by potential buyers proved lower than we expected. We continue to hold the position, however, as we believe continued high commodity prices will make OGX appear more attractive over time.
China WindPower also detracted from results. Fears of overcapacity in windpower generation and grid-connection issues more broadly caused the stock to underperform. We do not share the market’s concerns, though, as the company’s management has been very careful to plan its new capacity to avoid such problems. Additionally, concerns over access to and cost of debt financing for the company’s significant pipeline of projects have also been raised. However, the company has secured long-term funding from multinational organizations, such as the International Finance Corporation and the Asian Development Bank, which have backed the firm’s opportunities in windpower. We maintain our position in the stock.
Hon Hai, one of Apple’s major suppliers, also proved a drag on the fund’s results. We incorrectly assessed the margin pressures the company would face after they shifted their manufacturing base to inland China. Apple is not their only client, moreover, and as Apple has gained at the expense of its competitors, many of Hon Hai’s clients have been structural losers, which hurt Hon Hai’s results. As for Hon Hai’s relocation inland, the move may eventually benefit the company as it should help streamline its operational costs, and thus we continue to hold the position in the portfolio as we believe the worst is over for the stock.
What is your outlook for emerging markets and the fund?
The long-term story for emerging markets remains intact, and we believe emerging markets will continue to grow faster than developed markets. As market penetration for a variety of industries — everything from automobiles and cell phones to mortgages — is relatively low across emerging markets, there is a long runway for emerging markets to fulfill their potential as their populations gain in wealth and enjoy much improved access to credit.
Overall, emerging market companies have recently been faster growing and more profitable than their developed market peers, which makes us quite positive about long-term investment opportunities in this space. Also, given that balance sheets for emerging market consumers, corporations, banks, and governments are all healthier than their developed market counterparts, we believe emerging market companies present lower risks than many companies in developed markets. Importantly, too, emerging markets are no longer simply a platform for exports to the developed world. They contain their own domestic engines of growth. In other words, we believe that while recessions in the United States and debt problems in Europe are anything but helpful in the global macroeconomic arena, emerging markets today are far more resilient to macroeconomic pressures than they were 10 to 15 years ago.
Thank you, Daniel, for bringing us up to date.
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The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
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. Current and future portfolio holdings are subject to risk.
Portfolio Manager Daniel J. Graña has an M.B.A. from Kellogg School of Management at Northwestern University and two B.S. degrees from the Massachusetts Institute of Technology. A CFA charterholder, he joined Putnam in 1999 and has been in the investment industry since 1993.
IN THE NEWS
With economic storm clouds darkening, the Organisation for Economic Co-operation and Development (OECD) recently slashed its growth forecasts for the United States and many other countries for the remainder of 2011. In its interim forecast, released in early September, the OECD estimates that the United States economy will grow 1.1% in the third quarter and 0.4% in the fourth, down from the 2.9% and 3% growth it had predicted in May. Meanwhile, the OECD predicts that Japan will expand 4.1% in the third quarter before stagnating in the fourth, and that the German economy will grow 2.6% in the third quarter and shrink 1.4% in the fourth. For the third and fourth quarters, the United Kingdom is predicted to grow 0.4% and 0.3%, respectively. The OECD also said that central banks around the world should be ready to ease monetary policy if economies weaken further.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended August 31, 2011, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 8/31/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (9/29/08) | (9/29/08) | (9/29/08) | (9/29/08) | (9/29/08) | (9/29/08) | ||||
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| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
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| Life of fund | 22.14% | 15.12% | 19.60% | 16.60% | 19.57% | 19.57% | 20.51% | 16.32% | 21.27% | 23.13% |
| Annual average | 7.08 | 4.94 | 6.32 | 5.40 | 6.31 | 6.31 | 6.59 | 5.31 | 6.82 | 7.38 |
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| 1 year | 4.65 | –1.34 | 3.95 | –0.93 | 3.96 | 2.98 | 4.22 | 0.59 | 4.48 | 5.01 |
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 5.75% and 3.50% sales charge, respectively, levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus.
Comparative index returns For periods ended 8/31/11
| Lipper Emerging Markets Funds | ||
| MSCI Emerging Markets Index (ND) | category average* | |
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| Life of fund | 42.67% | 40.04% |
| Annual average | 12.93 | 12.04 |
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| 1 year | 9.07 | 8.07 |
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Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* Over the 1-year and life-of-fund periods ended 8/31/11, there were 390 and 298 funds, respectively, in this Lipper category.
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Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B shares would have been valued at $11,960 ($11,660 after contingent deferred sales charge). A $10,000 investment in the fund’s class C shares would have been valued at $11,957, and no contingent deferred sales charge would apply. A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $11,632. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $12,127 and $12,313, respectively.
Fund price and distribution information For the 12-month period ended 8/31/11
| Distributions | Class A | Class B | Class C | Class M | Class R | Class Y | ||
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| Number | 1 | 1 | 1 | 1 | 1 | 1 | ||
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| Income | — | — | — | — | — | — | ||
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| Capital gains — Long-term | $0.139 | $0.139 | $0.139 | $0.139 | $0.139 | $0.139 | ||
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| Capital gains — Short-term | 0.658 | 0.658 | 0.658 | 0.658 | 0.658 | 0.658 | ||
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| Total | $0.797 | $0.797 | $0.797 | 0.797 | $0.797 | $0.797 | ||
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| Before | After | Net | Net | Before | After | Net | Net | |
| sales | sales | asset | asset | sales | sales | asset | asset | |
| Share value | charge | charge | value | value | charge | charge | value | value |
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| 8/31/10 | $11.19 | $11.87 | $11.07 | $11.05 | $11.11 | $11.51 | $11.16 | $11.23 |
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| 8/31/11 | 11.00 | 11.67 | 10.80 | 10.78 | 10.87 | 11.26 | 10.95 | 11.08 |
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The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares and 3.50% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
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Fund performance as of most recent calendar quarter
Total return for periods ended 9/30/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (9/29/08) | (9/29/08) | (9/29/08) | (9/29/08) | (9/29/08) | (9/29/08) | ||||
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| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
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| Life of fund | –3.40% | –8.95% | –5.54% | –8.10% | –5.49% | –5.49% | –4.77% | –8.08% | –4.09% | –2.54% |
| Annual average | –1.15 | –3.07 | –1.88 | –2.77 | –1.86 | –1.86 | –1.61 | –2.77 | –1.38 | –0.85 |
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| 3 years | –3.30 | –8.87 | –5.45 | –8.01 | –5.40 | –5.40 | –4.68 | –7.99 | –3.99 | –2.45 |
| Annual average | –1.11 | –3.05 | –1.85 | –2.74 | –1.83 | –1.83 | –1.58 | –2.74 | –1.35 | –0.82 |
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| 1 year | –25.96 | –30.20 | –26.59 | –30.03 | –26.55 | –27.24 | –26.33 | –28.91 | –26.17 | –25.75 |
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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’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, 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 representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class R | Class Y | |
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| Net expenses for the fiscal year ended 8/31/10*† | 1.77% | 2.52% | 2.52% | 2.27% | 2.02% | 1.52% |
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| Total annual operating expenses for the fiscal year | ||||||
| ended 8/31/10† | 2.18% | 2.93% | 2.93% | 2.68% | 2.43% | 1.93% |
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| Annualized expense ratio for the six-month period | ||||||
| ended 8/31/11ठ| 1.63% | 2.38% | 2.38% | 2.13% | 1.88% | 1.38% |
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Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Reflects Putnam Management’s contractual obligation to limit expenses through 12/30/11.
† Restated to reflect projected expenses under a management contract effective 1/1/10.
‡ For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
§ Includes a decrease of 0.06% in annualized performance fees for the six months ended 8/31/11.
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Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from March 1, 2011, to August 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
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| Expenses paid per $1,000*† | $7.78 | $11.34 | $11.34 | $10.16 | $8.97 | $6.59 |
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| Ending value (after expenses) | $893.60 | $890.30 | $890.20 | $891.70 | $892.40 | $895.00 |
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* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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 August 31, 2011, use the following calculation method. To find the value of your investment on March 1, 2011, call Putnam at 1-800-225-1581.
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 following table 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 A | Class B | Class C | Class M | Class R | Class Y | |
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| Expenses paid per $1,000*† | $8.29 | $12.08 | $12.08 | $10.82 | $9.55 | $7.02 |
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| Ending value (after expenses) | $1,016.99 | $1,013.21 | $1,013.21 | $1,014.47 | $1,015.73 | $1,018.25 |
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* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
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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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
MSCI Emerging Markets Index (ND) is an unmanaged index of equity securities from emerging markets.
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.
15
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 with Putnam Investment Management (“Putnam Management”), the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), and the sub-advisory contract among Putnam Management, PIL, and another affiliate, Putnam Advisory Company (“PAC”).
The Board of Trustees, with the assistance of its Contract Committee, which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. Over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided 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 on a number of occasions. At the Trustees’ June 17, 2011 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management, sub-management and sub-advisory contracts, effective July 1, 2011. (Because PIL and PAC are affiliates of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL and PAC, the Trustees have not evaluated PIL or PAC as separate entities, and all subsequent references to Putnam Management below should be deemed to include reference to PIL and PAC as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented 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 services, and
• That the fee schedule represented 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 management 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 some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
16
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. In reviewing management fees, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund.
Most of the open-end Putnam funds have new management contracts, with new fee schedules reflecting the implementation of more competitive fee levels for many funds, complex-wide breakpoints for the open-end funds, and performance fees for some funds. These new management contracts have been in effect for a little over a year — since January or, for a few funds, February, 2010. The Trustees approved the new management contracts on July 10, 2009, and fund shareholders subsequently approved the contracts by overwhelming majorities of the shares voted.
Because these management contracts had been implemented only recently, the Contract Committee had limited practical experience with the operation of the new fee structures. Under its new management contract, your fund has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. In addition, your fund’s new management contract provides that its management fees will be adjusted up or down depending upon whether your fund’s performance is better or worse than the performance of an appropriate index of securities prices specified in the management contract. To ensure that the performance comparison was being made over a reasonable period of time, your fund did not begin accruing performance adjustments until January 2011, by which time there was a twelve month period under the new management contract based on which to determine performance adjustments. The Contract Committee observed that the complex-wide breakpoints of the open-end funds and your fund’s performance fee had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure and performance fee in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds had sufficiently low expenses that these expense limitations did not apply. However, in the case of your fund, both of the expense limitations applied during its fiscal year ending in 2010. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and
17
extraordinary expenses). Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management, sub-management and sub-advisory contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the 1st quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the 3rd quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2010 (the first quintile representing the least expensive funds and the fifth quintile the most expensive funds). The fee and expense data reported by Lipper as of December 31, 2010 reflected the most recent fiscal year-end data available in Lipper’s database at that time.
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 provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time. The information examined by the Trustees as part of their annual contract review for the Putnam funds 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, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and 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 may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes 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 its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
Investment performance
The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality
18
of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized 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 each fund’s performance with various benchmarks and with the performance of competitive funds.
The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered that its class A share cumulative total return performance at net asset value was in the 3rd quartile of its Lipper Inc. peer group (Lipper Emerging Markets Funds) for the one-year period ended December 31, 2010 (the first quartile representing the best-performing funds and the fourth quartile the worst-performing funds). Over this one-year period, there were 393 funds in your fund’s Lipper peer group. (When considering performance information, shareholders should be mindful that past performance is not a guarantee of future results.)
Brokerage and soft-dollar allocations; investor servicing
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 benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor
19
or distribution services. In conjunction with the annual review of your fund’s management contract, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
20
Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, 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 website 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 website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of August 31, 2011, Putnam employees had approximately $323,000,000 and the Trustees had approximately $70,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
21
Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 year.
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.
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 highlights table also includes the current reporting period.
22
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Funds Trust:
We have audited the accompanying statement of assets and liabilities of Putnam Emerging Markets Equity Fund (the fund), a series of Putnam Funds Trust, including the fund’s portfolio, as of August 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the two years ended August 31, 2011 and the period from September 29, 2008 (commencement of operations) to August 31, 2009. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2011 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Emerging Markets Equity Fund as of August 31, 2011, the results of its operations, the changes in its net assets, and the financial highlights for the periods specified in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 13, 2011
23
The fund’s portfolio 8/31/11
| COMMON STOCKS (97.7%)* | Shares | Value |
|
| ||
| Aerospace and defense (0.6%) | ||
| Embraer SA ADR (Brazil) | 11,105 | $282,848 |
|
| ||
| 282,848 | ||
| Airlines (0.6%) | ||
| Cebu Air, Inc. (Philippines) | 156,940 | 302,817 |
|
| ||
| 302,817 | ||
| Auto components (1.3%) | ||
| Hyundai Mobis (South Korea) | 1,902 | 604,730 |
|
| ||
| 604,730 | ||
| Automobiles (0.9%) | ||
| Kia Motors Corp. (South Korea) | 6,145 | 409,517 |
|
| ||
| 409,517 | ||
| Beverages (1.3%) | ||
| Synergy Co. (Russia) † | 18,106 | 633,710 |
|
| ||
| 633,710 | ||
| Capital markets (0.5%) | ||
| Yuanta Financial Holding Co., Ltd. (Taiwan) † | 425,774 | 250,720 |
|
| ||
| 250,720 | ||
| Chemicals (2.5%) | ||
| Formosa Chemicals & Fibre Corp. (Taiwan) | 86,000 | 262,327 |
|
| ||
| OCI Co., Ltd. (South Korea) | 1,118 | 328,296 |
|
| ||
| Uralkali (Russia) † | 58,722 | 588,289 |
|
| ||
| 1,178,912 | ||
| Commercial banks (23.5%) | ||
| Agricultural Bank of China, Ltd. (China) | 1,098,000 | 529,837 |
|
| ||
| Banco Bradesco SA ADR (Brazil) | 84,278 | 1,504,362 |
|
| ||
| China Construction Bank Corp. (China) | 2,269,000 | 1,687,918 |
|
| ||
| ICICI Bank, Ltd. (India) | 13,978 | 269,263 |
|
| ||
| Industrial and Commercial Bank of China, Ltd. (China) | 2,259,000 | 1,493,210 |
|
| ||
| Industrial Bank of Korea (IBK) (South Korea) | 42,950 | 642,121 |
|
| ||
| Itau Unibanco Holding SA ADR (Preference) (Brazil) | 60,402 | 1,096,900 |
|
| ||
| Kasikornbank PCL NVDR (Thailand) | 128,200 | 547,473 |
|
| ||
| KB Financial Group, Inc. (South Korea) | 20,301 | 837,989 |
|
| ||
| PT Bank Rakyat Indonesia (Persero) Tbk (Indonesia) | 697,000 | 557,942 |
|
| ||
| Sberbank of Russia ADR (Russia) † | 86,110 | 1,020,531 |
|
| ||
| Sberbank OJSC (Russia) | 172,220 | 514,956 |
|
| ||
| Shinhan Financial Group Co., Ltd. (South Korea) | 8,083 | 342,071 |
|
| ||
| 11,044,573 | ||
| Commercial services and supplies (0.8%) | ||
| KEPCO Plant Service & Engineering Co., Ltd. (South Korea) | 10,590 | 380,030 |
|
| ||
| 380,030 | ||
| Communications equipment (0.4%) | ||
| Wistron NeWeb Corp. (Taiwan) † | 70,348 | 179,192 |
|
| ||
| 179,192 | ||
| Computers and peripherals (1.3%) | ||
| Lenovo Group, Ltd. (China) | 426,000 | 286,243 |
|
| ||
| Wistron Corp. (Taiwan) † | 251,378 | 311,946 |
|
| ||
| 598,189 | ||
| Construction and engineering (1.5%) | ||
| China State Construction International Holdings, Ltd. (China) | 52,000 | 41,477 |
|
| ||
| Daelim Industrial Co., Ltd. (South Korea) | 3,679 | 401,141 |
|
| ||
| KEPCO Engineering & Construction Co., Inc. (South Korea) | 4,836 | 287,732 |
|
| ||
| 730,350 | ||
24
| COMMON STOCKS (97.7%)* cont. | Shares | Value |
|
| ||
| Construction materials (3.4%) | ||
| BBMG Corp. (China) | 338,000 | $381,976 |
|
| ||
| China National Building Material Co., Ltd. (China) | 296,000 | 499,471 |
|
| ||
| China Shanshui Cement Group, Ltd. (China) | 201,000 | 200,932 |
|
| ||
| Siam Cement PCL NVDR (Thailand) | 44,600 | 497,306 |
|
| ||
| 1,579,685 | ||
| Distributors (0.7%) | ||
| Imperial Holdings, Ltd. (South Africa) | 21,330 | 352,842 |
|
| ||
| 352,842 | ||
| Diversified financial services (1.0%) | ||
| African Bank Investments, Ltd. (South Africa) | 88,220 | 448,131 |
|
| ||
| 448,131 | ||
| Electric utilities (0.6%) | ||
| PGE SA (Poland) | 37,524 | 268,420 |
|
| ||
| 268,420 | ||
| Electrical equipment (0.7%) | ||
| Harbin Power Equipment Co., Ltd. (China) | 246,000 | 313,319 |
|
| ||
| 313,319 | ||
| Electronic equipment, instruments, and components (3.5%) | ||
| Hollysys Automation Technologies, Ltd. (China) † | 39,598 | 226,105 |
|
| ||
| Hon Hai Precision Industry Co., Ltd. (Taiwan) | 206,072 | 523,463 |
|
| ||
| LG Display Co., Ltd. (South Korea) | 6,840 | 135,105 |
|
| ||
| Tripod Technology Corp. (Taiwan) † | 99,900 | 335,380 |
|
| ||
| Unimicron Technology Corp. (Taiwan) | 288,000 | 418,029 |
|
| ||
| 1,638,082 | ||
| Food products (1.6%) | ||
| Indofood Sukses Makmur Tbk PT (Indonesia) | 433,500 | 317,514 |
|
| ||
| Zhongpin, Inc. (China) † | 43,896 | 416,573 |
|
| ||
| 734,087 | ||
| Hotels, restaurants, and leisure (2.0%) | ||
| Genting Bhd (Malaysia) | 150,000 | 478,056 |
|
| ||
| Home Inns & Hotels Management, Inc. ADR (China) † | 12,300 | 470,352 |
|
| ||
| 948,408 | ||
| Household durables (4.7%) | ||
| PDG Realty SA Empreendimentos e Participacoes (Brazil) | 228,254 | 1,124,079 |
|
| ||
| Rossi Residencial SA (Brazil) | 102,088 | 783,341 |
|
| ||
| Skyworth Digital Holdings, Ltd. (China) | 520,000 | 302,175 |
|
| ||
| 2,209,595 | ||
| Independent power producers and energy traders (1.3%) | ||
| China Power New Energy Development Co., Ltd. (China) † | 6,070,000 | 317,570 |
|
| ||
| China WindPower Group, Ltd. (China) † | 5,220,000 | 310,163 |
|
| ||
| 627,733 | ||
| Internet and catalog retail (1.0%) | ||
| CJ O Shopping Co., Ltd. (South Korea) | 1,794 | 469,014 |
|
| ||
| 469,014 | ||
| Internet software and services (1.7%) | ||
| SouFun Holdings, Ltd. ADR (China) | 8,895 | 163,223 |
|
| ||
| Tencent Holdings, Ltd. (China) | 26,200 | 625,113 |
|
| ||
| 788,336 | ||
| Machinery (2.5%) | ||
| BHI Co., Ltd. (South Korea) | 10,343 | 184,767 |
|
| ||
| China National Materials Co., Ltd. (China) | 685,000 | 416,788 |
|
| ||
| Lonking Holdings, Ltd. (China) | 557,000 | 227,673 |
|
| ||
| Samsung Heavy Industries Co., Ltd. (South Korea) | 10,610 | 348,369 |
|
| ||
| 1,177,597 | ||
25
| COMMON STOCKS (97.7%)* cont. | Shares | Value |
|
| ||
| Metals and mining (6.4%) | ||
| Freeport-McMoRan Copper & Gold, Inc. Class B (Indonesia) | 8,302 | $391,356 |
|
| ||
| Gold Fields, Ltd. (South Africa) | 18,561 | 309,267 |
|
| ||
| New World Resources PLC Class A (Czech Republic) | 21,540 | 211,992 |
|
| ||
| Sterlite Industries (India), Ltd. (India) | 75,342 | 214,085 |
|
| ||
| Sterlite Industries (India), Ltd. ADR (India) | 22,680 | 262,861 |
|
| ||
| Vale SA ADR (Brazil) | 32,833 | 927,204 |
|
| ||
| Vale SA ADR (Preference) (Brazil) | 27,414 | 708,104 |
|
| ||
| 3,024,869 | ||
| Multiline retail (1.4%) | ||
| Hyundai Department Store Co., Ltd. (South Korea) | 2,276 | 383,091 |
|
| ||
| PCD Stores Group, Ltd. (China) | 1,306,000 | 259,455 |
|
| ||
| 642,546 | ||
| Oil, gas, and consumable fuels (15.1%) | ||
| CNOOC, Ltd. (China) | 418,000 | 850,424 |
|
| ||
| Gazprom OAO ADR (Russia) | 121,398 | 1,510,553 |
|
| ||
| Gazprom OAO ADR (Russia) | 7,564 | 91,903 |
|
| ||
| Lukoil OAO ADR (Russia) | 19,738 | 1,187,803 |
|
| ||
| OGX Petroleo e Gas Participacoes SA (Brazil) † | 98,870 | 713,254 |
|
| ||
| Pacific Rubiales Energy Corp. (Colombia) | 16,600 | 408,368 |
|
| ||
| Petroleo Brasileiro SA ADR (Brazil) | 18,973 | 551,166 |
|
| ||
| Petroleo Brasileiro SA ADR (Preference) (Brazil) | 26,706 | 711,715 |
|
| ||
| Sasol, Ltd. (South Africa) | 17,398 | 838,357 |
|
| ||
| Tullow Oil PLC (United Kingdom) | 12,359 | 215,697 |
|
| ||
| 7,079,240 | ||
| Real estate management and development (4.4%) | ||
| BR Malls Participacoes SA (Brazil) | 80,571 | 899,484 |
|
| ||
| C C Land Holdings, Ltd. (China) | 1,044,000 | 300,883 |
|
| ||
| China Overseas Land & Investment, Ltd. (China) | 132,000 | 281,963 |
|
| ||
| Guangzhou R&F Properties Co., Ltd. (China) | 332,400 | 403,118 |
|
| ||
| LSR Group OJSC GDR (Russia) | 37,930 | 189,149 |
|
| ||
| 2,074,597 | ||
| Semiconductors and semiconductor equipment (4.8%) | ||
| Samsung Electronics Co., Ltd. (South Korea) | 2,573 | 1,804,348 |
|
| ||
| Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan) | 86,889 | 207,502 |
|
| ||
| Yingli Green Energy Holding Co., Ltd. ADR (China) † | 37,800 | 241,164 |
|
| ||
| 2,253,014 | ||
| Software (2.1%) | ||
| AsiaInfo-Linkage, Inc. (China) † | 34,332 | 392,758 |
|
| ||
| Perfect World Co., Ltd. ADR (China) † | 27,124 | 582,352 |
|
| ||
| 975,110 | ||
| Specialty retail (0.5%) | ||
| Lewis Group, Ltd. (South Africa) | 21,326 | 240,014 |
|
| ||
| 240,014 | ||
| Thrifts and mortgage finance (1.1%) | ||
| LIC Housing Finance, Ltd. (India) | 107,748 | 498,086 |
|
| ||
| 498,086 | ||
| Wireless telecommunication services (2.0%) | ||
| Bharti Airtel, Ltd. (India) | 33,412 | 296,443 |
|
| ||
| Empresa Nacional de Telecomunicaciones SA (ENTEL) (Chile) | 14,218 | 311,329 |
|
| ||
| Mobile Telesystems ADR (Russia) | 20,757 | 351,416 |
|
| ||
| 959,188 | ||
| Total common stocks (cost $48,956,569) | $45,897,501 | |
26
| INVESTMENT COMPANIES (0.5%)* | Shares | Value |
|
| ||
| Vanguard MSCI Emerging Markets ETF | 4,985 | $219,091 |
|
| ||
| Total investment companies (cost $241,422) | $219,091 | |
| SHORT-TERM INVESTMENTS (—%)* | Shares | Value |
|
| ||
| Putnam Money Market Liquidity Fund 0.05% e | 20,881 | $20,881 |
|
| ||
| Total short-term investments (cost $20,881) | $20,881 | |
| TOTAL INVESTMENTS | ||
|
| ||
| Total investments (cost $49,218,872) | $46,137,473 | |
| Key to holding’s abbreviations | |
| ADR | American Depository Receipts |
| ETF | Exchange Traded Fund |
| GDR | Global Depository Receipts |
| NVDR | Non-voting Depository Receipt |
| OAO | Open Joint Stock Company |
| OJSC | Open Joint Stock Company |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from September 1, 2010 through August 31, 2011 (the reporting period).
* Percentages indicated are based on net assets of $46,969,476.
† Non-income-producing security.
e See Note 5 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
ADR or GDR after the name of a foreign holding represents ownership of foreign securities on deposit with a custodian bank.
| DIVERSIFICATION BY COUNTRY | ||||
|
| ||||
| Distribution of investments by country of risk at the close of the reporting period (as a percentage of Portfolio Value): | ||||
| China | 26.5% | Malaysia | 1.0% | |
|
|
| |||
| Brazil | 20.2 | Colombia | 0.9 | |
|
|
| |||
| South Korea | 16.4 | Chile | 0.7 | |
|
|
| |||
| Russia | 13.2 | Philippines | 0.6 | |
|
|
| |||
| Taiwan | 5.4 | Poland | 0.6 | |
|
|
| |||
| South Africa | 4.7 | United States | 0.5 | |
|
|
| |||
| India | 3.3 | United Kingdom | 0.5 | |
|
|
| |||
| Indonesia | 2.7 | Czech Republic | 0.5 | |
|
|
| |||
| Thailand | 2.3 | Total | 100.0% | |
|
|
||||
27
Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| Valuation inputs | ||||||
|
| ||||||
| Investments in securities: | Level 1 | Level 2 | Level 3 | |||
|
| ||||||
| Common stocks: | ||||||
|
| ||||||
| Consumer discretionary | $2,377,772 | $3,498,894 | $— | |||
|
| ||||||
| Consumer staples | 416,573 | 951,224 | — | |||
|
| ||||||
| Energy | 2,476,406 | 4,602,834 | — | |||
|
| ||||||
| Financials | 3,500,746 | 10,815,361 | — | |||
|
| ||||||
| Industrials | 282,848 | 2,904,113 | — | |||
|
| ||||||
| Information technology | 1,605,602 | 4,826,321 | — | |||
|
| ||||||
| Materials | 2,877,814 | 2,905,652 | — | |||
|
| ||||||
| Telecommunication services | 662,745 | 296,443 | — | |||
|
| ||||||
| Utilities | — | 896,153 | — | |||
|
| ||||||
| Total common stocks | 14,200,506 | 31,696,995 | — | |||
| Investment companies | 219,091 | — | — | |||
|
| ||||||
| Short-term investments | 20,881 | — | — | |||
|
| ||||||
| Totals by level | $14,440,478 | $31,696,995 | $— | |||
At the start and/or close of the reporting period, Level 3 investments in securities were not considered a significant portion of the fund’s portfolio.
The accompanying notes are an integral part of these financial statements.
28
Statement of assets and liabilities 8/31/11
| ASSETS | |
|
| |
| Investment in securities, at value (Note 1): | |
| Unaffiliated issuers (identified cost $49,197,991) | $46,116,592 |
| Affiliated issuers (identified cost $20,881) (Note 5) | 20,881 |
|
| |
| Foreign currency (cost $360,390) (Note 1) | 360,706 |
|
| |
| Dividends, interest and other receivables | 122,302 |
|
| |
| Receivable for shares of the fund sold | 17,842 |
|
| |
| Receivable for investments sold | 1,769,094 |
|
| |
| Total assets | 48,407,417 |
| LIABILITIES | |
|
| |
| Payable to custodian | 11,707 |
|
| |
| Distributions payable to shareholders | 672 |
|
| |
| Payable for investments purchased | 1,196,359 |
|
| |
| Payable for shares of the fund repurchased | 53,737 |
|
| |
| Payable for compensation of Manager (Note 2) | 25,528 |
|
| |
| Payable for investor servicing fees (Note 2) | 13,439 |
|
| |
| Payable for custodian fees (Note 2) | 41,271 |
|
| |
| Payable for Trustee compensation and expenses (Note 2) | 2,529 |
|
| |
| Payable for administrative services (Note 2) | 207 |
|
| |
| Payable for distribution fees (Note 2) | 20,509 |
|
| |
| Other accrued expenses | 71,983 |
|
| |
| Total liabilities | 1,437,941 |
| Net assets | $46, 969,476 |
|
| |
| REPRESENTED BY | |
|
| |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $46,779,495 |
|
| |
| Accumulated net realized gain on investments and foreign currency transactions (Note 1) | 3,289,620 |
|
| |
| Net unrealized depreciation of investments and assets and liabilities in foreign currencies | (3,099,639) |
|
| |
| Total — Representing net assets applicable to capital shares outstanding | $46,969,476 |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
| |
| Net asset value and redemption price per class A share ($36,187,884 divided by 3,288,790 shares) | $11.00 |
|
| |
| Offering price per class A share (100/94.25 of $11.00)* | $11.67 |
|
| |
| Net asset value and offering price per class B share ($2,446,409 divided by 226,500 shares)** | $10.80 |
|
| |
| Net asset value and offering price per class C share ($2,279,439 divided by 211,413 shares)** | $10.78 |
|
| |
| Net asset value and redemption price per class M share ($433,137 divided by 39,853 shares) | $10.87 |
|
| |
| Offering price per class M share (100/96.50 of $10.87)* | $11.26 |
|
| |
| Net asset value, offering price and redemption price per class R share | |
| ($72,886 divided by 6,655 shares) | $10.95 |
|
| |
| Net asset value, offering price and redemption price per class Y share | |
| ($5,549,721 divided by 500,773 shares) | $11.08 |
|
| |
* On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
29
Statement of operations Year ended 8/31/11
| INVESTMENT INCOME | |
|
| |
| Dividends (net of foreign tax of $110,218) | $1,026,922 |
|
| |
| Interest (including interest income of $1,425 from investments in affiliated issuers) (Note 5) | 1,483 |
|
| |
| Total investment income | 1,028,405 |
| EXPENSES | |
|
| |
| Compensation of Manager (Note 2) | 456,144 |
|
| |
| Investor servicing fees (Note 2) | 160,912 |
|
| |
| Custodian fees (Note 2) | 77,772 |
|
| |
| Trustee compensation and expenses (Note 2) | 3,521 |
|
| |
| Administrative services (Note 2) | 1,337 |
|
| |
| Distribution fees — Class A (Note 2) | 96,468 |
|
| |
| Distribution fees — Class B (Note 2) | 30,487 |
|
| |
| Distribution fees — Class C (Note 2) | 22,770 |
|
| |
| Distribution fees — Class M (Note 2) | 3,847 |
|
| |
| Distribution fees — Class R (Note 2) | 230 |
|
| |
| Auditing | 64,755 |
|
| |
| Other | 31,596 |
|
| |
| Fees waived and reimbursed by Manager (Note 2) | (77,084) |
|
| |
| Total expenses | 872,755 |
| Expense reduction (Note 2) | (833) |
|
| |
| Net expenses | 871,922 |
| Net investment income | 156,483 |
|
| |
| Net realized gain on investments (net of foreign tax of $26,738) (Notes 1 and 3) | 4,332,073 |
|
| |
| Net realized loss on foreign currency transactions (Note 1) | (148,978) |
|
| |
| Net unrealized appreciation of assets and liabilities in foreign currencies during the year | 1,026 |
|
| |
| Net unrealized depreciation of investments (net of foreign tax of $18,413) during the year | (4,258,023) |
|
| |
| Net loss on investments | (73,902) |
| Net increase in net assets resulting from operations | $82,581 |
|
| |
The accompanying notes are an integral part of these financial statements.
30
Statement of changes in net assets
| INCREASE IN NET ASSETS | Year ended 8/31/11 | Year ended 8/31/10 |
|
| ||
| Operations: | ||
| Net investment income | $156,483 | $81,150 |
|
| ||
| Net realized gain on investments | ||
| and foreign currency transactions | 4,183,095 | 3,264,670 |
|
| ||
| Net unrealized depreciation of investments and assets | ||
| and liabilities in foreign currencies | (4,256,997) | (881,465) |
|
| ||
| Net increase in net assets resulting from operations | 82,581 | 2,464,355 |
|
| ||
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Net investment income | ||
|
| ||
| Class A | — | (93,679) |
|
| ||
| Class B | — | (419) |
|
| ||
| Class C | — | (1,250) |
|
| ||
| Class M | — | (630) |
|
| ||
| Class R | — | (13) |
|
| ||
| Class Y | — | (15,881) |
|
| ||
| Net realized short-term gain on investments | ||
|
| ||
| Class A | (1,907,120) | (901,398) |
|
| ||
| Class B | (160,854) | (90,616) |
|
| ||
| Class C | (106,279) | (28,482) |
|
| ||
| Class M | (23,327) | (14,365) |
|
| ||
| Class R | (1,383) | (433) |
|
| ||
| Class Y | (326,876) | (116,551) |
|
| ||
| From net realized long-term gain on investments | ||
| Class A | (402,872) | — |
|
| ||
| Class B | (33,980) | — |
|
| ||
| Class C | (22,451) | — |
|
| ||
| Class M | (4,927) | — |
|
| ||
| Class R | (293) | — |
|
| ||
| Class Y | (69,051) | — |
|
| ||
| Redemption fees (Note 1) | 8,265 | 11,650 |
|
| ||
| Increase from capital share transactions (Note 4) | 14,278,245 | 14,298,371 |
|
| ||
| Total increase in net assets | 11,309,678 | 15,510,659 |
| NET ASSETS | ||
|
| ||
| Beginning of year | 35,659,798 | 20,149,139 |
|
| ||
| End of year (including undistributed net investment | ||
| income of $— and distributions in excess of net investment | ||
| income of $119,420, respectively) | $46,969,476 | $35,659,798 |
|
| ||
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: | ||||||||||||
|
| ||||||||||||||
| Ratio | Ratio | |||||||||||||
| Net realized | From | of expenses | of net investment | |||||||||||
| Net asset value, | and unrealized | Total from | From | net realized | Total return | Net assets, | to average | income (loss) | Portfolio | |||||
| beginning | Net investment | gain (loss) | investment | net investment | gain | Total | Redemption | Net asset value, | at net asset | end of period | net assets | to average | turnover | |
| Period ended | of period | income (loss) a | on investments | operations | income | on investments | distributions | fees | end of period | value (%) b | (in thousands) | (%) c,d | net assets (%) c | (%) |
|
| ||||||||||||||
| Class A | ||||||||||||||
| August 31, 2011 | $11.19 | .04 | .57 | .61 | — | (.80) | (.80) | — e | $11.00 | 4.65 | $36,188 | 1.67 | .36 | 145 |
| August 31, 2010 | 10.32 | .04 | 1.31 | 1.35 | (.05) | (.43) | (.48) | — e | 11.19 | 13.09 | 27,796 | 1.77 | .31 | 212 |
| August 31, 2009† | 10.00 | .08 | .23 | .31 | — | — | — | .01 | 10.32 | 3.20 * | 15,707 | 1.72* | .94 * | 147 * |
|
| ||||||||||||||
| Class B | ||||||||||||||
| August 31, 2011 | $11.07 | (.05) | .58 | .53 | — | (.80) | (.80) | — e | $10.80 | 3.95 | $2,446 | 2.42 | (.41) | 145 |
| August 31, 2010 | 10.25 | (.06) | 1.31 | 1.25 | — e | (.43) | (.43) | — e | 11.07 | 12.25 | 2,194 | 2.52 | (.49) | 212 |
| August 31, 2009† | 10.00 | .02 | .22 | .24 | — | — | — | .01 | 10.25 | 2.50 * | 1,909 | 2.41 * | .20 * | 147 * |
|
| ||||||||||||||
| Class C | ||||||||||||||
| August 31, 2011 | $11.05 | (.04) | .57 | .53 | — | (.80) | (.80) | — e | $10.78 | 3.96 | $2,279 | 2.42 | (.31) | 145 |
| August 31, 2010 | 10.25 | (.04) | 1.29 | 1.25 | (.02) | (.43) | (.45) | — e | 11.05 | 12.22 | 1,295 | 2.52 | (.34) | 212 |
| August 31, 2009† | 10.00 | .01 | .23 | .24 | — | — | — | .01 | 10.25 | 2.50 * | 370 | 2.41 * | .05 * | 147 * |
|
| ||||||||||||||
| Class M | ||||||||||||||
| August 31, 2011 | $11.11 | (.02) | .58 | .56 | — | (.80) | (.80) | — e | $10.87 | 4.22 | $433 | 2.17 | (.13) | 145 |
| August 31, 2010 | 10.27 | (.02) | 1.31 | 1.29 | (.02) | (.43) | (.45) | — e | 11.11 | 12.59 | 362 | 2.27 | (.20) | 212 |
| August 31, 2009† | 10.00 | .04 | .22 | .26 | — | — | — | .01 | 10.27 | 2.70 * | 281 | 2.18 * | .41 * | 147 * |
|
| ||||||||||||||
| Class R | ||||||||||||||
| August 31, 2011 | $11.16 | .04 | .55 | .59 | — | (.80) | (.80) | — e | $10.95 | 4.48 | $73 | 1.92 | .31 | 145 |
| August 31, 2010 | 10.29 | .02 | 1.29 | 1.31 | (.01) | (.43) | (.44) | — e | 11.16 | 12.81 | 22 | 2.02 | .20 | 212 |
| August 31, 2009† | 10.00 | .06 | .23 | .29 | — | — | — | — e | 10.29 | 2.90 * | 10 | 1.95 * | .78 * | 147 * |
|
| ||||||||||||||
| Class Y | ||||||||||||||
| August 31, 2011 | $11.23 | .07 | .58 | .65 | — | (.80) | (.80) | — e | $11.08 | 5.01 | $5,550 | 1.42 | .60 | 145 |
| August 31, 2010 | 10.35 | .07 | 1.30 | 1.37 | (.06) | (.43) | (.49) | — e | 11.23 | 13.29 | 3,990 | 1.52 | .59 | 212 |
| August 31, 2009† | 10.00 | .11 | .23 | .34 | — | — | — | .01 | 10.35 | 3.50 * | 1,871 | 1.49 * | 1.19 * | 147 * |
|
| ||||||||||||||
* Not annualized.
† For the period September 29, 2008 (commencement of operations) to August 31, 2009.
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
c Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amounts (Note 2):
| Percentage of | ||
| average net assets | ||
|
|
||
| August 31, 2011 | 0.15% | |
|
|
||
| August 31, 2010 | 0.46 | |
|
|
||
| August 31, 2009 | 4.57 | |
|
|
||
d Includes amounts paid through expense offset and/or brokerage/service arrangements (Note 2).
e Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
| 32 | 33 |
Notes to financial statements 8/31/11
Note 1: Significant accounting policies
Putnam Emerging Markets Equity Fund (the fund), is a diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The fund seeks long-term capital appreciation. The fund invests mainly in common stocks (growth or value stocks or both) of emerging market companies that Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC, believes have favorable investment potential. For example, the fund may purchase stocks of companies with stock prices that reflect a value lower than that which Putnam Management places on the company. Putnam Management may also consider other factors that it believes will cause the stock price to rise and may consider, among other factors, a company’s valuation, financial strength, growth potential, competitive position in its industry, projected future earnings, cash flows and dividends when deciding whether to buy or sell investments. Emerging markets include countries in the MSCI Emerging Market Index or countries that Putnam Management considers to be equivalent to those in the MSCI Emerging Market Index based on their level of economic development or the size and experience of their securities markets. The fund invests significantly in small and midsize companies. The fund may also use derivatives, such as futures, options, certain foreign currency transactions, warrants and swap contracts, for both hedging and non-hedging purposes.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. 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’s management team 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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from September 1, 2010 through August 31, 2011.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
34
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
C) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
D) Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending
35
transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
E) Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
F) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (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. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. 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. Each of the fund’s federal tax returns for the prior periods remains subject to examination by the Internal Revenue Service.
G) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of losses on wash sale transactions, foreign currency gains and losses and foreign tax credits. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the reporting period ended, the fund reclassified $37,063 to decrease undistributed net investment income and $18,413 to increase paid-in-capital, with an increase to accumulated net realized gains of $18,650.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
| Unrealized appreciation | $2,840,424 |
| Unrealized depreciation | (6,111,337) |
|
| |
| Net unrealized depreciation | (3,270,913) |
| Undistributed long-term gain | 1,120,898 |
| Undistributed short-term gain | 2,358,816 |
| Cost for federal income tax purposes | $49,408,386 |
H) 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.
36
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a management fee (base fee) (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
| 1.080% | of the first $5 billion, |
| 1.030% | of the next $5 billion, |
| 0.980% | of the next $10 billion, |
| 0.930% | of the next $10 billion, |
| 0.880% | of the next $50 billion, |
| 0.860% | of the next $50 billion, |
| 0.850% | of the next $100 billion, |
| 0.845% | of any excess thereafter. |
In addition, beginning with the fund’s thirteenth complete calendar month of operation under the management contract (January 2011), the monthly management fee consists of the monthly base fee plus or minus a performance adjustment for the month. The performance adjustment is determined based on performance over the thirty-six month period then ended or, if the management contract has not yet been effective for thirty-six complete calendar months, the period from the date the management contract became effective to the end of the month for which the fee adjustment is being computed. Each month, the performance adjustment is calculated by multiplying the performance adjustment rate and the fund’s average net assets over the performance period and the result is divided by twelve. The resulting dollar amount is added to, or subtracted from the base fee for that month. The performance adjustment rate is equal to 0.03 multiplied by the difference between the fund’s annualized performance (measured by the fund’s class A shares) and the annualized performance of the MSCI Emerging Markets Index (Net Dividends), each measured over the performance period. The maximum annualized performance adjustment rates are +/–0.21%. The monthly base fee is determined based on the fund’s average net assets for the month, while the performance adjustment is determined based on the fund’s average net assets over the performance period of up to thirty-six months. This means it is possible that, if the fund underperforms significantly over the performance period, and the fund’s assets have declined significantly over that period, the negative performance adjustment may exceed the base fee. In this event, Putnam Management would make a payment to the fund.
For the reporting period, the base fee represented an effective rate (excluding the impact from any expense waivers in effect) of 0.93% of the fund’s average net assets before a decrease of $16,459 (0.03% of the fund’s average net assets) based on performance.
Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were reduced by $77,084 as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.
The Putnam Advisory Company, LLC (PAC), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. Putnam Management or PIL, as applicable, pays a quarterly sub-advisory fee to PAC for its services at the annual rate of 0.35% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.
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.
37
Custodial functions for the fund’s assets are provided by State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. The fund also reduced expenses through brokerage/service arrangements. For the reporting period, the fund’s expenses were reduced by $249 under the expense offset arrangements and by $584 under the brokerage/service arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $37, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years 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. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. 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 A, class B, class C, class M 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 Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $25,042 and $96 from the sale of class A and class M shares, respectively, and received $9,196 and $12 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A and class M redemptions.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $82,902,613 and $71,749,862, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
38
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class A | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 1,545,327 | $19,595,328 | 1,682,781 | $19,202,011 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 179,060 | 2,209,608 | 87,961 | 978,124 |
|
| ||||
| 1,724,387 | 21,804,936 | 1,770,742 | 20,180,135 | |
|
| ||||
| Shares repurchased | (920,690) | (11,243,466) | (808,079) | (9,019,327) |
|
| ||||
| Net increase | 803,697 | $10,561,470 | 962,663 | $11,160,808 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class B | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 149,272 | $1,874,556 | 173,329 | $1,956,741 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 14,766 | 179,706 | 8,074 | 89,301 |
|
| ||||
| 164,038 | 2,054,262 | 181,403 | 2,046,042 | |
|
| ||||
| Shares repurchased | (135,745) | (1,610,317) | (169,467) | (1,920,566) |
|
| ||||
| Net increase | 28,293 | $443,945 | 11,936 | $125,476 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class C | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 152,107 | $1,881,184 | 107,913 | $1,226,523 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 9,721 | 118,104 | 2,657 | 29,327 |
|
| ||||
| 161,828 | 1,999,288 | 110,570 | 1,255,850 | |
|
| ||||
| Shares repurchased | (67,537) | (809,721) | (29,585) | (327,002) |
|
| ||||
| Net increase | 94,291 | $1,189,567 | 80,985 | $928,848 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class M | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 22,255 | $280,684 | 24,398 | $280,607 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 2,233 | 27,315 | 1,348 | 14,937 |
|
| ||||
| 24,488 | 307,999 | 25,746 | 295,544 | |
|
| ||||
| Shares repurchased | (17,262) | (208,465) | (20,458) | (225,390) |
|
| ||||
| Net increase | 7,226 | $99,534 | 5,288 | $70,154 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class R | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 4,512 | $56,384 | 968 | $10,707 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 136 | 1,676 | 40 | 446 |
|
| ||||
| 4,648 | 58,060 | 1,008 | 11,153 | |
|
| ||||
| Shares repurchased | (1) | (12) | — | — |
|
| ||||
| Net increase | 4,647 | $58,048 | 1,008 | $11,153 |
|
| ||||
39
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class Y | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 311,457 | $4,005,482 | 290,097 | $3,316,307 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 31,930 | 395,927 | 11,877 | 132,432 |
|
| ||||
| 343,387 | 4,401,409 | 301,974 | 3,448,739 | |
|
| ||||
| Shares repurchased | (197,806) | (2,475,728) | (127,628) | (1,446,807) |
|
| ||||
| Net increase | 145,581 | $1,925,681 | 174,346 | $2,001,932 |
|
| ||||
At the close of the reporting period, Putnam Investments, LLC owned the following class shares of the fund:
| Shares owned | Percentage of ownership | Value | |
|
| |||
| Class A | 407,804 | 12.40% | $4,485,844 |
|
| |||
| Class R | 1,108 | 16.65 | 12,133 |
|
| |||
Note 5: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $1,425 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $31,103,097 and $31,267,642, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 6: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
40
Federal tax information (Unaudited)
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $1,203,228 as a capital gain dividend with respect to the taxable year ended August 31, 2011, or, if subsequently determined to be different, the net capital gain of such year.
For the period, interest and dividends from foreign countries were $1,100,097 or $0.26 per share (for all classes of shares). Taxes paid to foreign countries were $110,218 or $0.03 per share (for all classes of shares).
For its tax year ended August 31, 2011, the fund hereby designates 30.53%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
41
About the Trustees
| Independent Trustees | ||
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
| Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
| Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
| Shields, a multi-product investment management firm | focused on private | |
| with over $40 billion in assets under management. | equity advisory services; | |
| RAGE Frameworks, | ||
| Inc., a private software | ||
| company | ||
|
| ||
| Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
| Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
| Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
| College and member of the Investment Committee for the | company; UniSource | |
| college’s endowment. Former Chair and current board | Energy Corporation, | |
| member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
| the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
| refiner and fertilizer | ||
| manufacturer; Cody | ||
| Resources Management, | ||
| LLP, a privately held | ||
| energy, ranching, and | ||
| commercial real estate | ||
| company | ||
|
| ||
| Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
| Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
| Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
| Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
| to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
| since 2011 | ||
|
| ||
| Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
| Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
| Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
| for Strategic and International Studies. Member of the | ||
| Council on Foreign Relations. | ||
|
| ||
| Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
| Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
| Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
| Johnson & Johnson’s Chief Financial Officer for a decade. | ||
|
| ||
| John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
| Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
| Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
| Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
| to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
| of the Millstein Center for Corporate Governance and | ||
| Performance at the Yale School of Management. | ||
|
| ||
42
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
| Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
| Trustee since 1997 | on research and education on issues related to science, | company focused on |
| technology, and economic performance. Elizabeth and | natural gas transmission | |
| James Killian Professor of Economics, Emeritus at the | and power services; | |
| Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
| 2007, served as the Director of the Center for Energy and | energy company focused | |
| Environmental Policy Research at MIT. | on power services | |
|
| ||
| Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
| Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
| Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
| Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
| Massachusetts. Until November 2010, director of Ruder | ||
| Finn Group, a global communications and advertising firm. | ||
|
| ||
| Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
| Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
| Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
| Joslin Diabetes Center. | ||
|
| ||
| George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
| Born 1951 | of financial advisory and other research services, and | |
| Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
| a registered investment advisor to private funds. | ||
| Director of The Boston Family Office, LLC, a registered | ||
| investment advisor. | ||
|
| ||
| W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
| Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
| Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
| and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
| packaging products. | ||
|
| ||
| Interested Trustee | ||
|
| ||
| Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
| Born 1952 | Investments since 2008. Prior to joining Putnam | |
| Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
| President of the Putnam | Operating Officer of Fidelity Investments from | |
| Funds since July 2009 | 2000 to 2007. | |
|
| ||
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2011, there were 106 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
43
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
| Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
| Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
| Officer, Treasurer and Compliance Liaison | Since 2011 |
| Since 2004 | General Counsel, Putnam Investments and |
| Putnam Management | |
| Steven D. Krichmar (Born 1958) | |
| Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
| Since 2002 | Vice President |
| Chief of Operations, Putnam Investments and | Since 2004 |
| Putnam Management | Director of Trustee Relations, |
| Putnam Investments and Putnam Management | |
| Janet C. Smith (Born 1965) | |
| Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
| Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
| Since 2007 | Since 1993 |
| Director of Fund Administration Services, | |
| Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
| Vice President, Senior Associate Treasurer and | |
| Beth S. Mazor (Born 1958) | Assistant Clerk |
| Vice President | Since 2010 |
| Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
| Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
| Investments and Putnam Management | Management (2007–2008); Senior Financial |
| Analyst, Putnam Investments (1999–2007) | |
| Robert R. Leveille (Born 1969) | |
| Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
| Since 2007 | Vice President, Assistant Clerk, Assistant |
| Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
| Putnam Management, and Putnam Retail | Since 2000 |
| Management | |
| Susan G. Malloy (Born 1957) | |
| Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
| Vice President and BSA Compliance Officer | Since 2007 |
| Since 2002 | Director of Accounting & Control Services, |
| Director of Operational Compliance, | Putnam Management |
| Putnam Investments and Putnam | |
| Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
44
Fund information
Founded over 70 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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Trustees | Beth S. Mazor |
| Putnam Investment | Jameson A. Baxter, Chair | Vice President |
| Management, LLC | Ravi Akhoury | |
| One Post Office Square | Barbara M. Baumann | Robert R. Leveille |
| Boston, MA 02109 | Charles B. Curtis | Vice President and |
| Robert J. Darretta | Chief Compliance Officer | |
| Investment Sub-Manager | John A. Hill | |
| Putnam Investments Limited | Paul L. Joskow | Mark C. Trenchard |
| 57–59 St James’s Street | Kenneth R. Leibler | Vice President and |
| London, England SW1A 1LD | Robert E. Patterson | BSA Compliance Officer |
| George Putnam, III | ||
| Investment Sub-Advisor | Robert L. Reynolds | Robert T. Burns |
| The Putnam Advisory | W. Thomas Stephens | Vice President and |
| Company, LLC | Chief Legal Officer | |
| One Post Office Square | Officers | |
| Boston, MA 02109 | Robert L. Reynolds | James P. Pappas |
| President | Vice President | |
| Marketing Services | ||
| Putnam Retail Management | Jonathan S. Horwitz | Judith Cohen |
| One Post Office Square | Executive Vice President, | Vice President, Clerk and |
| Boston, MA 02109 | Principal Executive | Assistant Treasurer |
| Officer, Treasurer and | ||
| Custodian | Compliance Liaison | Michael Higgins |
| State Street Bank | Vice President, Senior Associate | |
| and Trust Company | Steven D. Krichmar | Treasurer and Assistant Clerk |
| Vice President and | ||
| Legal Counsel | Principal Financial Officer | Nancy E. Florek |
| Ropes & Gray LLP | Vice President, Assistant Clerk, | |
| Janet C. Smith | Assistant Treasurer and | |
| Independent Registered | Vice President, Assistant | Proxy Manager |
| Public Accounting Firm | Treasurer and Principal | |
| KPMG LLP | Accounting Officer | Susan G. Malloy |
| Vice President and | ||
| Assistant Treasurer |
This report is for the information of shareholders of Putnam Emerging Markets Equity 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 putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary 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.
| Item 2. Code of Ethics: |
| (a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund’s investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
| (c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
| Item 3. Audit Committee Financial Expert: |
| The Funds’ Audit and Compliance Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification. |
| Item 4. Principal Accountant Fees and Services: |
| The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor: |
| Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
| August 31, 2011 | $51,927 | $-- | $4,700 | $ — | |
| August 31, 2010 | $44,470 | $-- | $4,450 | $ — | |
| For the fiscal years ended August 31, 2011 and August 31, 2010, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $4,700 and $4,450 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
| Audit Fees represent fees billed for the fund’s last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
| Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
| Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
| Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
| The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
| The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. |
| Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
| August 31, 2011 | $ — | $ — | $ — | $ — | |
| August 31, 2010 | $ — | $ — | $ — | $ — | |
| 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: During the period, State Street Bank and Trust Company, which provides certain administrative, pricing and bookkeeping services for the Putnam funds pursuant to an agreement with Putnam Investment Management, LLC, began utilizing different accounting systems and systems support in providing services for the fund. |
| Item 12. Exhibits: |
| (a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
| (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/Janet C. Smith Janet C. Smith Principal Accounting Officer |
| Date: October 27, 2011 |
| 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/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
| Date: October 27, 2011 |
| By (Signature and Title): |
| /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: October 27, 2011 |
| 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 800 Boylston Street Boston, Massachusetts 02199-3600 |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
| Date of fiscal year end: | August 31, 2011 |
| Date of reporting period: | September 1, 2010 — August 31, 2011 |
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: | |||
Putnam
Global Consumer
Fund
Annual report
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| Message from the Trustees | 1 | |
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| About the fund | 2 | |
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| Performance snapshot | 4 | |
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| Interview with your fund’s portfolio managers | 5 | |
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| Your fund’s performance | 10 | |
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| Your fund’s expenses | 12 | |
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| Terms and definitions | 14 | |
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| Trustee approval of management contract | 15 | |
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| Other information for shareholders | 19 | |
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| Financial statements | 20 | |
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| Federal tax information | 42 | |
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| About the Trustees | 43 | |
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| Officers | 45 | |
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Message from the Trustees
Dear Fellow Shareholder:
Markets around the world are grappling with heightened volatility. In the United States, persistently high unemployment and other weak economic data have fueled investors’ risk aversion, while in Europe the sovereign debt crisis shows little sign of abating. Certain bright spots do exist, but it is clear that volatility and uncertainty will remain with us for the near term.
We believe it is important to consult your financial advisor in times like these to consider whether your portfolio reflects an appropriate degree of diversification. In responding to this need, Putnam offers funds with strategies that seek to limit volatility and also employs an active, research-based investment approach that is designed to offer shareholders a potential advantage in this climate by looking for new growth opportunities and seeking to guard against downside risk.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancy’s Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
About the fund
Pursuing growth opportunities in consumer companies worldwide
To understand where Putnam Global Consumer Fund invests, simply take a look around you. Everything you eat, drink, wear, or play with is considered a consumer product. The fund invests at least 80% of its assets in stocks of companies that are engaged in the consumer products and services industries.
The fund can invest in businesses of all sizes and at different stages of growth, from newer, rapidly growing companies to established global corporations. The managers focus primarily on large and midsize companies, and have the flexibility to invest in U.S. and international markets. The fund’s flexibility is an advantage in difficult economic environments, particularly because it can invest in both consumer staples and consumer cyclical stocks. The advantage of consumer staples is that they tend to stay in demand regardless of economic conditions. You are purchasing staples when you buy food, beverages, prescription drugs, or household products. On the other hand, if you are planning a vacation or shopping for a high-definition TV, you are considering cyclical products and services. Companies in cyclical industries —such as hotels, restaurants, media companies, and automobile makers — tend to be more sensitive to economic cycles, and struggle more in a slowing economy.
The fund’s managers analyze each company’s valuation, financial strength, competitive positioning, earnings, and cash flow. They conduct their intensive fundamental research with support from analysts on Putnam’s Global Equity Research team.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The use of short selling may result in losses if the securities appreciate in value. The fund’s policy of concentrating on a limited group of industries and the fund’s non-diversified status, which means the fund may invest in fewer issuers, can increase the fund’s vulnerability to common economic forces and may result in greater losses and volatility.
Sector investing at Putnam
In recent decades, innovation and business growth have propelled stocks in different industries to market-leading performance. Finding these stocks, many of which are in international markets, requires rigorous research and in-depth knowledge of global markets.
Putnam’s sector funds invest in nine sectors worldwide and offer active management, risk controls, and the expertise of dedicated sector analysts. The funds’ managers invest with flexibility and precision, using fundamental research to hand select stocks for the portfolios.
All sectors in one fund:
Putnam Global Sector Fund
A portfolio of individual Putnam Global Sector Funds that provides exposure to all sectors of the MSCI World Index.
Individual sector funds:
Global Consumer Fund
Retail, hotels, restaurants, media, food and beverages
Global Energy Fund
Oil and gas, energy equipment and services
Global Financials Fund
Commercial banks, insurance, diversified financial services, mortgage finance
Global Health Care Fund
Pharmaceuticals, biotechnology, health-care services
Global Industrials Fund
Airlines, railroads, trucking, aerospace and defense, construction, commercial services
Global Natural Resources Fund
Metals, chemicals, oil and gas, forest products
Global Technology Fund
Software, computers, Internet services
Global Telecommunications Fund
Diversified and wireless telecommunications services
Global Utilities Fund
Electric, gas, and water utilities
| 2 | 3 |
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See pages 5 and 10–11 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus. To obtain the most recent month-end performance, visit putnam.com.
4
Interview with your fund’s portfolio managers
Timothy E. Codrington and Walter D. Scully
Consumer stocks performed well overall during the annual period, but there was much volatility. What can you tell us about market conditions?
Tim: The period began and ended during turbulent times for the financial markets. When the fiscal year began, stocks had been declining sharply for several months, largely in response to Greece’s sovereign debt crisis, which led to broader worries about debt issues in other European Union countries. At the same time, investors had become discouraged about the slow pace of the U.S. economic recovery. However, the market soon reached a turning point, when the S&P 500 Index, a broad measure of U.S. stock performance, rallied to its best September in 71 years. From that point through the end of 2010, U.S. stocks delivered solid results.
In early 2011, the environment quickly grew turbulent and stocks worldwide struggled through a series of events, including a devastating earthquake, tsunami, and nuclear crisis in Japan; unrest in the Middle East and North Africa; spiking oil prices; and political turmoil in Europe stemming from ongoing sovereign debt issues. The closing months of the period were particularly volatile as the S&P 500 posted its longest losing streak since 2008 and debt issues escalated in the United States, followed by Standard & Poor’s unprecedented downgrade of U.S. sovereign debt to AA+ from AAA.
How did you position the fund during this time?
Tim: In market environments like this — and even in calmer times — we believe the key for every investor is to have patience and to maintain a long-term perspective. Walter and I manage the fund using disciplined research and bottom-up stock selection, which means we focus more on the long-term potential
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 8/31/11. See pages 4 and 10–11 for additional fund performance information. Index descriptions can be found on page 14.
5
of individual companies than on short-term developments in the markets or economy.
Walter: Also, the fund’s diversification is important. We continue to see the benefits of being able to invest in both consumer cyclicals — stocks that are more vulnerable to a downturn in the economy, and consumer staples — those that hold up better in recessionary periods. We also want to maintain a portfolio that is balanced in terms of geography and industry sectors. Rather than making big bets on one or two stocks or industries, we look for a range of companies in markets worldwide that we believe have durable competitive advantages that are not already priced into their stocks.
Can you highlight some holdings or strategies that helped performance?
Walter: Many of the top-performing stocks were those of companies that do not need an economic recovery to continue growing. A perfect example is Priceline.com, an online travel booking company that is one of the biggest beneficiaries of consumers’ growing preference for making travel plans via the Internet. A significant portion of the company’s profits are from its Booking.com subsidiary, which dominates the European online travel market and allows travelers to make reservations online at more than 150,000 hotels worldwide. Despite the recessionary environment, Priceline.com has been able to grow its profits at a healthy rate for the past five years.
Another company that has proven to be resilient in this challenging economic environment is retailer Bed Bath & Beyond. We attribute this to the fact that its merchandise — basic household items that aren’t too expensive —tends to stay in demand, even in downturns. More important, however, was the bankruptcy and liquidation of its main competitor, Linens & Things, which allowed Bed Bath & Beyond to gain significant additional market share. In a sluggish consumer environment,
Country allocations are shown as a percentage of the fund’s net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any. Weightings will vary over time.
6
the company has had above-average sales growth, has been generating a lot of cash, and has been aggressively buying back its stock. And although the company has delivered strong earnings growth, we believe its stock still remains attractively priced.
Tim: Rounding out the top contributors are two restaurant stocks: Domino’s Pizza and Arcos Dorados Holdings. The stock of Domino’s fell out of favor during the severe economic downturn, but has since recovered after a rebound in sales. The company remained focused on improving its products and was able to withstand commodity inflation better than expected. By the close of the period, we had sold Domino’s Pizza from the portfolio. Arcos Dorados owns more than 1,700 McDonald’s franchises in Latin America. We have found this to be a successful way to expose the fund to the growth potential in emerging markets. In our view, Arcos Dorados is a relatively established and stable business in a developing market with significant future growth opportunities.
Which holdings or strategies detracted from the fund’s returns during the period?
Tim: One disappointment was Huabao International Holdings, a China-based company that produces fragrances and flavorings for cigarettes. The stock declined when investors reacted negatively to its acquisition of a tobacco leaf manufacturing company, which is in a more capital-intensive segment of the tobacco industry. In addition, the company experienced slower-than-expected top-line sales growth. We sold this stock prior to the close of the fiscal year, as we became less confident about its
This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 8/31/11.
Short-term holdings are excluded. Holdings will vary over time.
7
growth prospects in an industry that is not consolidating as fast as we had expected.
Also detracting from the fund’s performance was the stock of Carlsberg, a Denmark-based brewing company. Russia accounts for a significant portion of Carlsberg’s beer sales, and volumes there have been weak as Russian consumers struggle with price inflation that isn’t accompanied by wage inflation. Skyrocketing excise taxes contributed to the problem. We believe this is a temporary setback for a strong consumer franchise in a growing economy, and Carlsberg remained in the portfolio at period-end.
Walter: We were not as optimistic about another Denmark-based company — Pandora, a designer and retailer of jewelry. Pandora has a brief history as a publicly traded company — its initial public offering was in September 2010. When we added it to the portfolio, we overestimated the growth potential of the company’s emerging-markets division, which we thought would compensate for its slowing growth in developed markets. The company’s earnings overall have been very disappointing, and its stock declined sharply. We sold the stock from the portfolio as our expectations changed for the continued success of Pandora products and its management’s ability to improve business fundamentals.
As the fund begins a new fiscal year, what is your outlook?
Walter: Economic growth has certainly slowed in most markets worldwide, and at the close of the fiscal year, markets remained very turbulent. While it can be challenging to invest in these conditions, we remain focused on the core strengths of the fund: a disciplined investment process that’s grounded in fundamental research and a diversified portfolio that can take advantage of opportunities in markets around the world.
This chart shows how the fund’s top weightings have changed over the past six months. Weightings are shown as a percentage of net assets. Current period summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any. Holdings will vary over time.
Data in the chart reflect a new calculation methodology put into effect within the past six months.
8
Perhaps most important, we have a team of analysts who have been covering consumer stocks for a long time, and their insight is extremely beneficial as we construct the portfolio for long-term growth. Regardless of what happens in the months ahead, we continue to take a balanced, bottom-up approach, seeking to benefit from a potential economic recovery without taking on undue risk.
Tim and Walter, thank you for your time and insights today.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
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. Current and future portfolio holdings are subject to risk.
Portfolio Manager Timothy E. Codrington has an M.B.A. from Harvard Business School and an A.B. from Harvard University. Timothy has been in the investment industry since he first joined Putnam in 1997.
Portfolio Manager Walter D. Scully has an M.B.A. from The University of Chicago Booth School of Business and a B.S. from Ohio State University. A Certified Public Accountant, he has been in the investment industry since he joined Putnam in 1996.
IN THE NEWS
With economic storm clouds darkening, the Organisation for Economic Co-operation and Development (OECD) recently slashed its growth forecasts for the United States and many other countries for the remainder of 2011. In its interim forecast, released in early September, the OECD estimates that the United States economy will grow 1.1% in the third quarter and 0.4% in the fourth, down from the 2.9% and 3% growth it had predicted in May. Meanwhile, the OECD predicts that Japan will expand 4.1% in the third quarter before stagnating in the fourth, and that the German economy will grow 2.6% in the third quarter and shrink 1.4% in the fourth. For the third and fourth quarters, the United Kingdom is predicted to grow 0.4% and 0.3%, respectively. The OECD also said that central banks around the world should be ready to ease monetary policy if economies weaken further.
9
Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended August 31, 2011, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 8/31/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
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| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
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| Life of fund | 61.01% | 51.75% | 57.74% | 54.74% | 57.72% | 57.72% | 58.76% | 53.24% | 59.93% | 62.04% |
| Annual average | 19.28 | 16.69 | 18.38 | 17.54 | 18.37 | 18.37 | 18.66 | 17.12 | 18.98 | 19.56 |
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| 1 year | 17.44 | 10.67 | 16.53 | 11.53 | 16.55 | 15.54 | 16.79 | 12.69 | 17.19 | 17.70 |
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 5.75% and 3.50% sales charge, respectively, levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus.
Comparative index returns For periods ended 8/31/11
| MSCI World Consumer Discretionary & | Lipper Consumer Goods Funds | |
| Consumer Staples Index (ND) | category average* | |
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| Life of fund | 54.46% | 57.83% |
| Annual average | 17.46 | 18.21 |
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| 1 year | 19.40 | 18.92 |
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Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* Over the 1-year and life-of-fund periods ended 8/31/11, there were 34 and 29 funds, respectively, in this Lipper category.
10
Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B shares would have been valued at $15,774 ($15,474 after contingent deferred sales charge). A $10,000 investment in the fund’s class C shares would have been valued at $15,772, and no contingent deferred sales charge would apply. A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $15,324. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $15,993 and $16,204, respectively.
Fund price and distribution information For the 12-month period ended 8/31/11
| Distributions | Class A | Class B | Class C | Class M | Class R | Class Y | ||
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| Number | 1 | 1 | 1 | 1 | 1 | 1 | ||
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| Income | $0.123 | $0.029 | $0.034 | $0.058 | $0.086 | $0.154 | ||
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| Capital gains — Long-term | 0.176 | 0.176 | 0.176 | 0.176 | 0.176 | 0.176 | ||
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| Capital gains — Short-term | 0.657 | 0.657 | 0.657 | 0.657 | 0.657 | 0.657 | ||
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| Total | $0.956 | $0.862 | $0.867 | $0.891 | $0.919 | $0.987 | ||
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| Before | After | Net | Net | Before | After | Net | Net | |
| sales | sales | asset | asset | sales | sales | asset | asset | |
| Share value | charge | charge | value | value | charge | charge | value | value |
|
| ||||||||
| 8/31/10 | $13.23 | $14.04 | $13.09 | $13.10 | $13.17 | $13.65 | $13.21 | $13.27 |
|
| ||||||||
| 8/31/11 | 14.62 | 15.51 | 14.43 | 14.44 | 14.53 | 15.06 | 14.60 | 14.67 |
|
| ||||||||
The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares and 3.50% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
Fund performance as of most recent calendar quarter
Total return for periods ended 9/30/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
|
| ||||||||||
| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
|
| ||||||||||
| Life of fund | 46.69% | 38.26% | 43.64% | 40.64% | 43.63% | 43.63% | 44.66% | 39.64% | 45.69% | 47.68% |
| Annual average | 14.76 | 12.35 | 13.90 | 13.04 | 13.90 | 13.90 | 14.19 | 12.75 | 14.48 | 15.04 |
|
| ||||||||||
| 1 year | –4.16 | –9.66 | –4.93 | –9.43 | –4.90 | –5.80 | –4.65 | –7.97 | –4.39 | –3.95 |
|
| ||||||||||
11
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’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, 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 representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Net expenses for the fiscal year ended 8/31/10*† | 1.45% | 2.20% | 2.20% | 1.95% | 1.70% | 1.20% |
|
| ||||||
| Total annual operating expenses for the fiscal year | ||||||
| ended 8/31/10† | 2.29% | 3.04% | 3.04% | 2.79% | 2.54% | 2.04% |
|
| ||||||
| Annualized expense ratio for the six-month period | ||||||
| ended 8/31/11‡ | 1.39% | 2.14% | 2.14% | 1.89% | 1.64% | 1.14% |
|
| ||||||
Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Reflects Putnam Management’s contractual obligation to limit expenses through 12/30/11.
† Restated to reflect projected expenses under a management contract effective 1/1/10.
‡ For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from March 1, 2011, to August 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $6.82 | $10.47 | $10.47 | $9.26 | $8.04 | $5.59 |
|
| ||||||
| Ending value (after expenses) | $945.70 | $941.90 | $941.90 | $942.90 | $944.40 | $946.40 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
12
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended August 31, 2011, use the following calculation method. To find the value of your investment on March 1, 2011, call Putnam at 1-800-225-1581.
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 following table 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 A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $7.07 | $10.87 | $10.87 | $9.60 | $8.34 | $5.80 |
|
| ||||||
| Ending value (after expenses) | $1,018.20 | $1,014.42 | $1,014.42 | $1,015.68 | $1,016.94 | $1,019.46 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
13
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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
MSCI World Consumer Discretionary & Consumer Staples Index (ND) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets in the consumer discretionary and consumer staples sector.
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.
14
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 with Putnam Investment Management (“Putnam Management”), the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), and the sub-advisory contract among Putnam Management, PIL, and another affiliate, Putnam Advisory Company (“PAC”).
The Board of Trustees, with the assistance of its Contract Committee, which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. Over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided 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 on a number of occasions. At the Trustees’ June 17, 2011 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management, sub-management and sub-advisory contracts, effective July 1, 2011. (Because PIL and PAC are affiliates of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL and PAC, the Trustees have not evaluated PIL or PAC as separate entities, and all subsequent references to Putnam Management below should be deemed to include reference to PIL and PAC as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented 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 services, and
• That the fee schedule represented 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 management 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 some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds,
15
including fee levels and breakpoints. In reviewing management fees, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund.
Most of the open-end Putnam funds have new management contracts, with new fee schedules reflecting the implementation of more competitive fee levels for many funds, complex-wide breakpoints for the open-end funds, and performance fees for some funds. These new management contracts have been in effect for a little over a year — since January or, for a few funds, February, 2010. The Trustees approved the new management contracts on July 10, 2009, and fund shareholders subsequently approved the contracts by overwhelming majorities of the shares voted.
Because these management contracts had been implemented only recently, the Contract Committee had limited practical experience with the operation of the new fee structures. Under its new management contract, your fund has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Contract Committee observed that the complex-wide breakpoints of the open-end funds had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds had sufficiently low expenses that these expense limitations did not apply. However, in the case of your fund, both of the expense limitations applied during its fiscal year ending in 2010. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and extraordinary expenses). Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management, sub-management and sub-advisory contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the 2nd quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the 2nd quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2010 (the first quintile representing the least expensive
16
funds and the fifth quintile the most expensive funds). The fee and expense data reported by Lipper as of December 31, 2010 reflected the most recent fiscal year-end data available in Lipper’s database at that time.
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 provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds 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, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and 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 may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes 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 its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
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 Putnam funds’ investment process and performance by the work of several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized 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 each fund’s
17
performance with various benchmarks and with the performance of competitive funds.
The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered information about the absolute return of your fund, and your fund’s performance relative to its internal benchmark. Putnam Global Consumer Fund’s class A shares’ return net of fees and expenses was positive over the one-year period ended December 31, 2010, and exceeded the return of its internal benchmark over the one-year period.
Brokerage and soft-dollar allocations; investor servicing
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 benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management contract, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
18
Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, 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 website 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 website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of August 31, 2011, Putnam employees had approximately $323,000,000 and the Trustees had approximately $70,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
19
Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 year.
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.
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 highlights table also includes the current reporting period.
20
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Funds Trust:
We have audited the accompanying statement of assets and liabilities of Putnam Global Consumer Fund (the fund), a series of Putnam Funds Trust, including the fund’s portfolio, as of August 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the two years ended August 31, 2011 and the period from December 18, 2008 (commencement of operations) to August 31, 2009. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2011 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Global Consumer Fund as of August 31, 2011, the results of its operations, the changes in its net assets, and the financial highlights for the periods specified in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 13, 2011
21
| The fund’s portfolio 8/31/11 | ||
| COMMON STOCKS (98.9%)* | Shares | Value |
|
| ||
| Airlines (1.4%) | ||
| Delta Air Lines, Inc. † | 14,660 | $110,390 |
|
| ||
| United Continental Holdings, Inc. † S | 5,470 | 101,687 |
|
| ||
| 212,077 | ||
| Automobiles (10.1%) | ||
| Bayerische Motoren Werke (BMW) AG (Germany) | 2,516 | 203,531 |
|
| ||
| Fiat SpA (Italy) | 21,785 | 135,653 |
|
| ||
| Ford Motor Co. † | 12,460 | 138,555 |
|
| ||
| General Motors Co. † | 3,810 | 91,554 |
|
| ||
| Nissan Motor Co., Ltd. (Japan) | 49,600 | 455,622 |
|
| ||
| Porsche Automobil Holding SE (Preference) (Germany) | 3,407 | 230,429 |
|
| ||
| Toyota Motor Corp. (Japan) | 7,100 | 254,979 |
|
| ||
| 1,510,323 | ||
| Beverages (11.1%) | ||
| Anheuser-Busch InBev NV (Belgium) | 7,926 | 438,091 |
|
| ||
| Britvic PLC (United Kingdom) | 37,101 | 191,296 |
|
| ||
| Carlsberg A/S Class B (Denmark) | 2,443 | 183,449 |
|
| ||
| Coca-Cola Co. (The) | 2,510 | 176,830 |
|
| ||
| Coca-Cola Enterprises, Inc. | 12,820 | 354,088 |
|
| ||
| Diageo PLC (United Kingdom) | 16,208 | 326,324 |
|
| ||
| 1,670,078 | ||
| Commercial services and supplies (1.0%) | ||
| Edenred (France) | 5,355 | 147,192 |
|
| ||
| 147,192 | ||
| Diversified consumer services (0.8%) | ||
| Apollo Group, Inc. Class A † | 2,730 | 127,832 |
|
| ||
| 127,832 | ||
| Food and staples retail (2.6%) | ||
| Jeronimo Martins, SGPS, SA (Portugal) | 9,105 | 169,799 |
|
| ||
| WM Morrison Supermarkets PLC (United Kingdom) | 47,096 | 221,025 |
|
| ||
| 390,824 | ||
| Food products (10.2%) | ||
| Danone (France) | 5,222 | 356,695 |
|
| ||
| Diamond Foods, Inc. | 1,500 | 118,290 |
|
| ||
| Kerry Group PLC Class A (Ireland) | 6,362 | 247,002 |
|
| ||
| Mead Johnson Nutrition Co. Class A | 1,870 | 133,238 |
|
| ||
| Nestle SA (Switzerland) | 5,520 | 342,158 |
|
| ||
| Suedzucker AG (Germany) | 4,166 | 145,775 |
|
| ||
| Toyo Suisan Kaisha, Ltd. (Japan) | 3,000 | 79,337 |
|
| ||
| Zhongpin, Inc. (China) † | 12,000 | 113,880 |
|
| ||
| 1,536,375 | ||
| Hotels, restaurants, and leisure (7.0%) | ||
| Arcos Dorados Holdings, Inc. Class A (Argentina) | 9,670 | 266,602 |
|
| ||
| Asia Entertainment & Resources, Ltd. (Hong Kong) † S | 27,110 | 209,018 |
|
| ||
| Compass Group PLC (United Kingdom) | 26,439 | 236,536 |
|
| ||
| Home Inns & Hotels Management, Inc. ADR (China) † | 2,850 | 108,984 |
|
| ||
| Wyndham Worldwide Corp. | 6,928 | 225,021 |
|
| ||
| 1,046,161 | ||
22
| COMMON STOCKS (98.9%)* cont. | Shares | Value |
|
| ||
| Household durables (2.3%) | ||
| Rossi Residencial SA (Brazil) | 17,100 | $131,212 |
|
| ||
| Sharp Corp. (Japan) | 9,000 | 74,655 |
|
| ||
| Sony Corp. (Japan) | 6,100 | 134,124 |
|
| ||
| 339,991 | ||
| Household products (9.2%) | ||
| Colgate-Palmolive Co. | 3,710 | 333,789 |
|
| ||
| Henkel AG & Co. KGaA (Germany) | 4,055 | 239,576 |
|
| ||
| Procter & Gamble Co. (The) | 9,469 | 602,984 |
|
| ||
| Reckitt Benckiser Group PLC (United Kingdom) | 3,994 | 212,114 |
|
| ||
| 1,388,463 | ||
| Internet and catalog retail (2.7%) | ||
| Priceline.com, Inc. † | 580 | 311,611 |
|
| ||
| Rakuten, Inc. (Japan) | 80 | 90,121 |
|
| ||
| 401,732 | ||
| Internet software and services (0.5%) | ||
| Tencent Holdings, Ltd. (China) | 2,900 | 69,192 |
|
| ||
| 69,192 | ||
| Leisure equipment and products (1.7%) | ||
| Hasbro, Inc. | 6,560 | 254,134 |
|
| ||
| 254,134 | ||
| Machinery (1.0%) | ||
| Stanley Black & Decker, Inc. | 2,500 | 154,950 |
|
| ||
| 154,950 | ||
| Media (9.4%) | ||
| British Sky Broadcasting Group PLC (United Kingdom) | 15,201 | 163,039 |
|
| ||
| Interpublic Group of Companies, Inc. (The) | 17,120 | 147,746 |
|
| ||
| Kabel Deutschland Vertrieb Und Service GmbH (Germany) † | 4 | 224 |
|
| ||
| Pearson PLC (United Kingdom) | 10,955 | 197,909 |
|
| ||
| Perform Group PLC (United Kingdom) † | 27,412 | 81,473 |
|
| ||
| Stroer Out-of-Home Media AG (Germany) † | 5,433 | 102,630 |
|
| ||
| Time Warner, Inc. | 9,820 | 310,901 |
|
| ||
| Trinity Mirror PLC (United Kingdom) † | 212,308 | 152,132 |
|
| ||
| WPP PLC (Ireland) | 24,338 | 254,768 |
|
| ||
| 1,410,822 | ||
| Multiline retail (3.9%) | ||
| Dollar General Corp. † | 4,570 | 167,262 |
|
| ||
| Target Corp. | 8,020 | 414,393 |
|
| ||
| 581,655 | ||
| Real estate management and development (2.1%) | ||
| BR Malls Participacoes SA (Brazil) | 11,500 | 128,385 |
|
| ||
| Daito Trust Construction Co., Ltd. (Japan) | 2,000 | 185,673 |
|
| ||
| 314,058 | ||
| Software (0.5%) | ||
| Perfect World Co., Ltd. ADR (China) † | 3,430 | 73,642 |
|
| ||
| 73,642 | ||
| Specialty retail (10.9%) | ||
| Bed Bath & Beyond, Inc. † | 7,040 | 400,294 |
|
| ||
| Best Buy Co., Inc. | 7,420 | 189,878 |
|
| ||
| Kingfisher PLC (United Kingdom) | 55,798 | 213,811 |
|
| ||
| Lowe’s Cos., Inc. | 8,660 | 172,594 |
|
| ||
23
| COMMON STOCKS (98.9%)* cont. | Shares | Value |
|
| ||
| Specialty retail cont. | ||
| Signet Jewelers, Ltd. (Bermuda) † | 6,190 | $241,039 |
|
| ||
| Staples, Inc. | 16,840 | 248,222 |
|
| ||
| TJX Cos., Inc. (The) | 1,600 | 87,392 |
|
| ||
| Urban Outfitters, Inc. † | 3,330 | 87,163 |
|
| ||
| 1,640,393 | ||
| Textiles, apparel, and luxury goods (1.8%) | ||
| Christian Dior SA (France) | 1,838 | 266,616 |
|
| ||
| 266,616 | ||
| Tobacco (8.7%) | ||
| British American Tobacco (BAT) PLC (United Kingdom) | 2,842 | 126,611 |
|
| ||
| Imperial Tobacco Group PLC (United Kingdom) | 6,990 | 231,606 |
|
| ||
| Japan Tobacco, Inc. (Japan) | 85 | 366,981 |
|
| ||
| Philip Morris International, Inc. | 8,380 | 580,902 |
|
| ||
| 1,306,100 | ||
| Total common stocks (cost $14,013,382) | $14,842,610 | |
| SHORT-TERM INVESTMENTS (2.9%)* | Shares | Value |
|
| ||
| Putnam Cash Collateral Pool, LLC 0.17% d | 255,925 | $255,925 |
|
| ||
| Putnam Money Market Liquidity Fund 0.05% e | 179,527 | 179,527 |
|
| ||
| Total short-term investments (cost $435,452) | $435,452 | |
| TOTAL INVESTMENTS | ||
|
| ||
| Total investments (cost $14,448,834) | $15,278,062 | |
| Key to holding’s abbreviations |
| ADR American Depository Receipts |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from September 1, 2010 through August 31, 2011 (the reporting period).
* Percentages indicated are based on net assets of $15,002,736.
† Non-income-producing security.
d See Note 1 to the financial statements regarding securities lending. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
e See Note 6 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
S Security on loan, in part or in entirety, at the close of the reporting period.
At the close of the reporting period, the fund maintained liquid assets totaling $42,214 to cover certain derivatives contracts.
ADR after the name of a foreign holding represents ownership of foreign securities on deposit with a custodian bank.
24
| DIVERSIFICATION BY COUNTRY* | ||||
|
| ||||
| Distribution of investments by country of risk at the close of the reporting period (as a percentage of Portfolio Value): | ||||
| United States | 41.5% | Switzerland | 2.3% | |
|
|
| |||
| United Kingdom | 15.7 | Argentina | 1.8 | |
|
|
| |||
| Japan | 10.9 | Brazil | 1.7 | |
|
|
| |||
| Germany | 6.1 | Bermuda | 1.6 | |
|
|
| |||
| France | 5.1 | Hong Kong | 1.4 | |
|
|
| |||
| Ireland | 3.4 | Denmark | 1.2 | |
|
|
| |||
| Belgium | 2.9 | Portugal | 1.1 | |
|
|
| |||
| China | 2.4 | Italy | 0.9 | |
|
|
| |||
| Total | 100.0% | |||
* Methodology differs from that used for purposes of complying with the fund’s policy regarding investments in securities of foreign issuers, as discussed further in the fund’s prospectus.
| FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $6,861,716) | ||||||
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Bank of America, N.A. | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | $120,926 | $123,476 | $(2,550) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 491,704 | 492,759 | 1,055 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 134,857 | 134,864 | 7 | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 55,560 | 57,110 | 1,550 | |
|
| ||||||
| Barclays Bank PLC | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 44,894 | 44,013 | 881 | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 183,333 | 183,784 | 451 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 128,962 | 127,361 | (1,601) | |
|
| ||||||
| Hong Kong Dollar | Buy | 9/21/11 | 205,685 | 205,448 | 237 | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 130,931 | 130,063 | 868 | |
|
| ||||||
| Singapore Dollar | Buy | 9/21/11 | 31,642 | 31,600 | 42 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 42,529 | 42,029 | 500 | |
|
| ||||||
| Citibank, N.A. | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 130,396 | 128,980 | (1,416) | |
|
| ||||||
| Danish Krone | Sell | 9/21/11 | 143,982 | 141,480 | (2,502) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 37,668 | 37,199 | (469) | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 105,316 | 105,202 | (114) | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 228,205 | 234,867 | (6,662) | |
|
| ||||||
| Credit Suisse AG | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 113,141 | 115,519 | (2,378) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 11,854 | 11,880 | (26) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 34,361 | 33,943 | (418) | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 148,603 | 147,479 | (1,124) | |
|
| ||||||
| Norwegian Krone | Sell | 9/21/11 | 31,986 | 31,615 | (371) | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 60,283 | 62,003 | (1,720) | |
|
| ||||||
| Deutsche Bank AG | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 134,131 | 134,423 | 292 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 261,231 | 258,014 | (3,217) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 46,692 | 45,818 | 874 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 34,927 | 35,924 | (997) | |
|
| ||||||
25
| FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $6,861,716) cont. | ||||||
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Goldman Sachs International | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | $256,244 | $256,848 | $(604) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 187,333 | 184,984 | (2,349) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 136,549 | 135,581 | 968 | |
|
| ||||||
| Norwegian Krone | Sell | 9/21/11 | 100,208 | 99,152 | (1,056) | |
|
| ||||||
| HSBC Bank USA, National Association | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 47,666 | 48,686 | (1,020) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 86,714 | 86,943 | 229 | |
|
| ||||||
| Euro | Buy | 9/21/11 | 82,524 | 81,522 | 1,002 | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 4,715 | 4,709 | (6) | |
|
| ||||||
| Singapore Dollar | Buy | 9/21/11 | 11,295 | 11,297 | (2) | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 38,531 | 39,667 | (1,136) | |
|
| ||||||
| JPMorgan Chase Bank, N.A. | ||||||
|
| ||||||
| Australian Dollar | Sell | 9/21/11 | 95,546 | 97,537 | 1,991 | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 38,323 | 38,408 | (85) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 52,363 | 53,570 | (1,207) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 185,752 | 183,342 | (2,410) | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 42,329 | 42,283 | (46) | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 222,080 | 220,536 | (1,544) | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 131,915 | 130,589 | 1,326 | |
|
| ||||||
| Singapore Dollar | Buy | 9/21/11 | 43,186 | 43,148 | 38 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 53,189 | 52,564 | 625 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 76,068 | 78,261 | (2,193) | |
|
| ||||||
| Royal Bank of Scotland PLC (The) | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 39,136 | 39,919 | (783) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 94,184 | 94,670 | 486 | |
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 11,432 | 11,680 | 248 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 94,745 | 94,508 | (237) | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 200,775 | 199,425 | (1,350) | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 47,978 | 56,259 | 8,281 | |
|
| ||||||
| State Street Bank and Trust Co. | ||||||
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 106,971 | 109,446 | (2,475) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 37,237 | 36,780 | (457) | |
|
| ||||||
| UBS AG | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 16,849 | 17,204 | (355) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 283,200 | 284,303 | 1,103 | |
|
| ||||||
| Euro | Buy | 9/21/11 | 172,237 | 170,135 | 2,102 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 50,215 | 51,678 | (1,463) | |
|
| ||||||
| Westpac Banking Corp. | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 29,752 | 30,367 | (615) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 87,201 | 87,391 | (190) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 69,817 | 71,435 | (1,618) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 199,841 | 197,404 | 2,437 | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 324,917 | 322,632 | 2,285 | |
|
| ||||||
| Total | $(18,888) | |||||
26
Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| Valuation inputs | |||
|
| |||
| Investments in securities: | Level 1 | Level 2 | Level 3 |
|
| |||
| Common stocks: | |||
|
| |||
| Consumer discretionary | $4,331,407 | $3,248,252 | $— |
|
| |||
| Consumer staples | 2,414,001 | 3,877,839 | — |
|
| |||
| Financials | 128,385 | 185,673 | — |
|
| |||
| Industrials | 367,027 | 147,192 | — |
|
| |||
| Information technology | 73,642 | 69,192 | — |
|
| |||
| Total common stocks | 7,314,462 | 7,528,148 | — |
| Short-term investments | 179,527 | 255,925 | — |
|
| |||
| Totals by level | $7,493,989 | $7,784,073 | $— |
| Valuation inputs | |||
|
| |||
| Other financial instruments: | Level 1 | Level 2 | Level 3 |
|
| |||
| Forward currency contracts | $— | $(18,888) | $— |
|
| |||
| Totals by level | $— | $(18,888) | $— |
The accompanying notes are an integral part of these financial statements.
27
| Statement of assets and liabilities 8/31/11 | |
| ASSETS | |
|
| |
| Investment in securities, at value, including $258,175 of securities on loan (Note 1): | |
| Unaffiliated issuers (identified cost $14,013,382) | $14,842,610 |
| Affiliated issuers (identified cost $435,452) (Notes 1 and 6) | 435,452 |
|
| |
| Cash | 8,830 |
|
| |
| Foreign currency (cost $600) (Note 1) | 600 |
|
| |
| Foreign tax reclaim | 5,408 |
|
| |
| Dividends, interest and other receivables | 18,455 |
|
| |
| Receivable for shares of the fund sold | 16,887 |
|
| |
| Receivable for investments sold | 192,908 |
|
| |
| Unrealized appreciation on forward currency contracts (Note 1) | 29,878 |
|
| |
| Receivable from Manager (Note 2) | 6,209 |
|
| |
| Total assets | 15,557,237 |
| LIABILITIES | |
|
| |
| Payable for investments purchased | 162,762 |
|
| |
| Payable for shares of the fund repurchased | 2,176 |
|
| |
| Payable for investor servicing fees (Note 2) | 3,934 |
|
| |
| Payable for custodian fees (Note 2) | 11,595 |
|
| |
| Payable for Trustee compensation and expenses (Note 2) | 1,382 |
|
| |
| Payable for administrative services (Note 2) | 63 |
|
| |
| Payable for distribution fees (Note 2) | 6,139 |
|
| |
| Unrealized depreciation on forward currency contracts (Note 1) | 48,766 |
|
| |
| Collateral on securities loaned, at value (Note 1) | 255,925 |
|
| |
| Payable for auditing | 51,400 |
|
| |
| Other accrued expenses | 10,359 |
|
| |
| Total liabilities | 554,501 |
| Net assets | $15,002,736 |
|
| |
| REPRESENTED BY | |
|
| |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $13,173,794 |
|
| |
| Undistributed net investment income (Note 1) | 161,606 |
|
| |
| Accumulated net realized gain on investments and foreign currency transactions (Note 1) | 856,827 |
|
| |
| Net unrealized appreciation of investments and assets and liabilities in foreign currencies | 810,509 |
|
| |
| Total — Representing net assets applicable to capital shares outstanding | $15,002,736 |
| (Continued on next page) | |
28
| Statement of assets and liabilities (Continued) | |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
| |
| Net asset value and redemption price per class A share ($12,058,078 divided by 825,024 shares) | $14.62 |
|
| |
| Offering price per class A share (100/94.25 of $14.62)* | $15.51 |
|
| |
| Net asset value and offering price per class B share ($335,116 divided by 23,228 shares)** | $14.43 |
|
| |
| Net asset value and offering price per class C share ($638,946 divided by 44,253 shares)** | $14.44 |
|
| |
| Net asset value and redemption price per class M share ($54,814 divided by 3,771 shares) | $14.53 |
|
| |
| Offering price per class M share (100/96.50 of $14.53)* | $15.06 |
|
| |
| Net asset value, offering price and redemption price per class R share | |
| ($24,340 divided by 1,667 shares) | $14.60 |
|
| |
| Net asset value, offering price and redemption price per class Y share | |
| ($1,891,442 divided by 128,927 shares) | $14.67 |
|
| |
* On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
29
| Statement of operations Year ended 8/31/11 | |
| INVESTMENT INCOME | |
|
| |
| Dividends (net of foreign tax of $10,739) | $260,771 |
|
| |
| Interest (including interest income of $436 from investments in affiliated issuers) (Note 6) | 436 |
|
| |
| Securities lending (Note 1) | 3,915 |
|
| |
| Total investment income | 265,122 |
| EXPENSES | |
|
| |
| Compensation of Manager (Note 2) | 92,971 |
|
| |
| Investor servicing fees (Note 2) | 46,652 |
|
| |
| Custodian fees (Note 2) | 18,896 |
|
| |
| Trustee compensation and expenses (Note 2) | 1,008 |
|
| |
| Administrative services (Note 2) | 387 |
|
| |
| Distribution fees — Class A (Note 2) | 31,144 |
|
| |
| Distribution fees — Class B (Note 2) | 3,192 |
|
| |
| Distribution fees — Class C (Note 2) | 3,102 |
|
| |
| Distribution fees — Class M (Note 2) | 433 |
|
| |
| Distribution fees — Class R (Note 2) | 101 |
|
| |
| Auditing | 51,678 |
|
| |
| Other | 16,607 |
|
| |
| Fees waived and reimbursed by Manager (Note 2) | (58,975) |
|
| |
| Total expenses | 207,196 |
| Expense reduction (Note 2) | (1,077) |
|
| |
| Net expenses | 206,119 |
| Net investment income | 59,003 |
|
| |
| Net realized gain on investments (Notes 1 and 3) | 1,185,104 |
|
| |
| Net realized gain on foreign currency transactions (Note 1) | 135,455 |
|
| |
| Net realized loss on written options (Notes 1 and 3) | (6,220) |
|
| |
| Net unrealized depreciation of assets and liabilities in foreign currencies during the year | (47,716) |
|
| |
| Net unrealized appreciation of investments during the year | 258,350 |
|
| |
| Net gain on investments | 1,524,973 |
| Net increase in net assets resulting from operations | $1,583,976 |
|
| |
The accompanying notes are an integral part of these financial statements.
30
| Statement of changes in net assets | ||
|
| ||
| INCREASE IN NET ASSETS | Year ended 8/31/11 | Year ended 8/31/10 |
|
| ||
| Operations: | ||
| Net investment income | $59,003 | $47,585 |
|
| ||
| Net realized gain on investments | ||
| and foreign currency transactions | 1,314,339 | 590,146 |
|
| ||
| Net unrealized appreciation (depreciation) of investments | ||
| and assets and liabilities in foreign currencies | 210,634 | (25,535) |
|
| ||
| Net increase in net assets resulting from operations | 1,583,976 | 612,196 |
|
| ||
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Net investment income | ||
|
| ||
| Class A | (91,515) | (55,415) |
|
| ||
| Class B | (519) | (730) |
|
| ||
| Class C | (376) | (298) |
|
| ||
| Class M | (192) | (88) |
|
| ||
| Class R | (93) | (49) |
|
| ||
| Class Y | (11,806) | (3,504) |
|
| ||
| Net realized short-term gain on investments | ||
|
| ||
| Class A | (488,828) | (233,626) |
|
| ||
| Class B | (11,758) | (4,440) |
|
| ||
| Class C | (7,273) | (2,356) |
|
| ||
| Class M | (2,178) | (933) |
|
| ||
| Class R | (711) | (371) |
|
| ||
| Class Y | (50,367) | (12,621) |
|
| ||
| From net realized long-term gain on investments | ||
| Class A | (130,950) | — |
|
| ||
| Class B | (3,150) | — |
|
| ||
| Class C | (1,948) | — |
|
| ||
| Class M | (583) | — |
|
| ||
| Class R | (191) | — |
|
| ||
| Class Y | (13,492) | — |
|
| ||
| Redemption fees (Note 1) | 6,365 | 3,417 |
|
| ||
| Increase from capital share transactions (Note 4) | 4,217,501 | 5,231,509 |
|
| ||
| Total increase in net assets | 4,991,912 | 5,532,691 |
| NET ASSETS | ||
|
| ||
| Beginning of year | 10,010,824 | 4,478,133 |
|
| ||
| End of year (including undistributed net investment income of | ||
| $161,606 and $71,651, respectively) | $15,002,736 | $10,010,824 |
|
| ||
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: | ||||||||||||
|
| ||||||||||||||
| Ratio | Ratio | |||||||||||||
| Net realized | From | of expenses | of net investment | |||||||||||
| Net asset value, | and unrealized | Total from | From | net realized | Total return | Net assets, | to average | income (loss) | Portfolio | |||||
| beginning | Net investment | gain (loss) | investment | net investment | gain | Total | Redemption | Net asset value, | at net asset | end of period | net assets | to average | turnover | |
| Period ended | of period | income (loss) a | on investments | operations | income | on investments | distributions | fees | end of period | value (%) b | (in thousands) | (%) c,d | net assets (%) d | (%) |
|
| ||||||||||||||
| Class A | ||||||||||||||
| August 31, 2011 | $13.23 | .06 | 2.27 | 2.33 | (.12) | (.83) | (.95) | .01 | $14.62 | 17.44 | $12,058 | 1.40 | .40 | 82 |
| August 31, 2010 | 12.23 | .07 | 1.38 | 1.45 | (.09) | (.37) | (.46) | .01 | 13.23 | 11.99 | 8,758 | 1.47 | .56 | 84 |
| August 31, 2009† | 10.00 | .11 | 2.13 | 2.24 | (.01) | — | (.01) | — e | 12.23 | 22.42* | 3,995 | .97* | 1.03* | 65* |
|
| ||||||||||||||
| Class B | ||||||||||||||
| August 31, 2011 | $13.09 | (.05) | 2.24 | 2.19 | (.03) | (.83) | (.86) | .01 | $14.43 | 16.53 | $335 | 2.15 | (.33) | 82 |
| August 31, 2010 | 12.17 | (.02) | 1.36 | 1.34 | (.06) | (.37) | (.43) | .01 | 13.09 | 11.15 | 239 | 2.22 | (.16) | 84 |
| August 31, 2009† | 10.00 | .05 | 2.13 | 2.18 | (.01) | — | (.01) | — e | 12.17 | 21.80* | 63 | 1.49* | .45* | 65* |
|
| ||||||||||||||
| Class C | ||||||||||||||
| August 31, 2011 | $13.10 | (.05) | 2.24 | 2.19 | (.03) | (.83) | (.86) | .01 | $14.44 | 16.55 | $639 | 2.15 | (.31) | 82 |
| August 31, 2010 | 12.17 | (.02) | 1.36 | 1.34 | (.05) | (.37) | (.42) | .01 | 13.10 | 11.11 | 127 | 2.22 | (.16) | 84 |
| August 31, 2009† | 10.00 | .05 | 2.13 | 2.18 | (.01) | — | (.01) | — e | 12.17 | 21.80* | 48 | 1.49* | .48* | 65* |
|
| ||||||||||||||
| Class M | ||||||||||||||
| August 31, 2011 | $13.17 | (.01) | 2.26 | 2.25 | (.06) | (.83) | (.89) | — e | $14.53 | 16.79 | $55 | 1.90 | (.09) | 82 |
| August 31, 2010 | 12.19 | — e | 1.39 | 1.39 | (.04) | (.37) | (.41) | — e | 13.17 | 11.41 | 44 | 1.97 | .02 | 84 |
| August 31, 2009† | 10.00 | .07 | 2.13 | 2.20 | (.01) | — | (.01) | — e | 12.19 | 22.01* | 30 | 1.32* | .71* | 65* |
|
| ||||||||||||||
| Class R | ||||||||||||||
| August 31, 2011 | $13.21 | .02 | 2.28 | 2.30 | (.09) | (.83) | (.92) | .01 | $14.60 | 17.19 | $24 | 1.65 | .16 | 82 |
| August 31, 2010 | 12.21 | .04 | 1.38 | 1.42 | (.05) | (.37) | (.42) | — e | 13.21 | 11.68 | 14 | 1.72 | .28 | 84 |
| August 31, 2009† | 10.00 | .09 | 2.13 | 2.22 | (.01) | — | (.01) | — e | 12.21 | 22.21* | 12 | 1.14* | .86* | 65* |
|
| ||||||||||||||
| Class Y | ||||||||||||||
| August 31, 2011 | $13.27 | .11 | 2.26 | 2.37 | (.15) | (.83) | (.98) | .01 | $14.67 | 17.70 | $1,891 | 1.15 | .69 | 82 |
| August 31, 2010 | 12.25 | .10 | 1.39 | 1.49 | (.10) | (.37) | (.47) | — e | 13.27 | 12.26 | 829 | 1.22 | .78 | 84 |
| August 31, 2009† | 10.00 | .10 | 2.16 | 2.26 | (.01) | — | (.01) | — e | 12.25 | 22.64* | 330 | .79* | .85* | 65* |
|
| ||||||||||||||
* Not annualized.
† For the period December 18, 2008 (commencement of operations) to August 31, 2009.
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
c Includes amounts paid through expense offset and brokerage/service arrangements (Note 2).
d Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amounts (Note 2):
| Percentage of | |
| average net assets | |
|
| |
| August 31, 2011 | 0.40% |
|
| |
| August 31, 2010 | 1.11 |
|
| |
| August 31, 2009 | 5.13 |
|
| |
e Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
| 32 | 33 |
Notes to financial statements 8/31/11
Note 1: Significant accounting policies
Putnam Global Consumer Fund (the fund) is a non-diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The investment objective of the fund is to seek capital appreciation. The fund concentrates its investments in the consumer staples and consumer discretionary products and services industries, and invests mainly in common stocks (growth or value stocks or both) of large and midsize companies worldwide that Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC, believes have favorable investment potential. Potential investments include companies involved in the manufacture, sale or distribution of consumer staples and consumer discretionary products and services. The fund may purchase stocks of companies with stock prices that reflect a value lower than that which Putnam Management places on the company. Putnam Management also considers other factors that it believes will cause the stock price to rise and may consider, among other factors, a company’s valuation, financial strength, growth potential, competitive position in its industry, projected future earnings, cash flows and dividends when deciding whether to buy or sell investments. The fund may also use derivatives, such as futures, options, certain foreign currency transactions, warrants and swap contracts, for both hedging and non-hedging purposes, and may engage in short sales of securities. The fund concentrates its investments in two sectors, which involves more risk than a fund that invests more broadly.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. 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’s management team 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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from September 1, 2010 through August 31, 2011.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
34
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
C) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
D) Options contracts The fund uses options contracts to further express our fundamental opinion on stocks we own or actively cover. The potential risk to the fund is that the change in value of options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the
35
underlying instruments if there is an illiquid secondary market for the contracts, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.
Exchange traded options are valued at the last sale price or, if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. Written option contracts outstanding at period end, if any, are listed after the fund’s portfolio. See Note 3 for the volume of written options contracts activity for the reporting period. The fund had an average contract amount of approximately 1,401 on purchased options contracts for the reporting period.
E) Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. The fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed when the contract matures or by delivery of the currency. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average contract amount of approximately $5,600,000 on forward currency contracts for the reporting period.
F) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty. Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund had a net liability position of $30,659 on derivative contracts subject to the Master Agreements. There was no collateral posted by the fund.
G) Securities lending The fund may lend securities, through its agent, to qualified borrowers in order to earn additional income. The loans are collateralized by cash in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agent; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. Cash collateral is invested in Putnam Cash Collateral Pool, LLC, a limited liability company managed by an affiliate of Putnam Management. Investments in Putnam Cash Collateral Pool, LLC are valued at its closing net asset value each business day. There are no management fees charged by Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the value of securities loaned amounted to $258,175 and the fund received cash collateral of $255,925.
H) Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending
36
transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
I) Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
J) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (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. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. 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. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
K) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of losses on wash sale transactions and foreign currency gains and losses. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the reporting period ended, the fund reclassified $135,453 to increase undistributed net investment income with a decrease to accumulated net realized gains of $135,453.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
| Unrealized appreciation | $1,955,881 |
| Unrealized depreciation | (1,136,100) |
|
| |
| Net unrealized appreciation | 819,781 |
| Undistributed ordinary income | 145,072 |
| Undistributed long-term gain | 748,236 |
| Undistributed short-term gain | 118,036 |
| Cost for federal income tax purposes | $14,458,281 |
L) 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
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end
37
funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
| 0.780% | of the first $5 billion, |
| 0.730% | of the next $5 billion, |
| 0.680% | of the next $10 billion, |
| 0.630% | of the next $10 billion, |
| 0.580% | of the next $50 billion, |
| 0.560% | of the next $50 billion, |
| 0.550% | of the next $100 billion, |
| 0.545% | of any excess thereafter. |
Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were reduced by $58,975 as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.
The Putnam Advisory Company, LLC (PAC), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. Putnam Management or PIL, as applicable, pays a quarterly sub-advisory fee to PAC for its services at the annual rate of 0.35% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. The fund also reduced expenses through brokerage/service arrangements. For the reporting period, the fund’s expenses were reduced by $48 under the expense offset arrangements and by $1,029 under the brokerage/service arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $11, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years 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. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense
38
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 A, class B, class C, class M 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 Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $8,148 and $1 from the sale of class A and class M shares, respectively, and received $761 and $265 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A and class M redemptions.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $15,254,465 and $11,588,653, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
Written option transactions during the reporting period are summarized as follows:
| Written equity option | Written equity option | |
| contract amounts | premiums received | |
|
| ||
| Written options outstanding at the | ||
| beginning of the reporting period | — | $— |
|
| ||
| Options opened | 11,743 | 535 |
|
| ||
| Options exercised | — | — |
|
| ||
| Options expired | — | — |
|
| ||
| Options closed | (11,743) | (535) |
|
| ||
| Written options outstanding at the | ||
| end of the reporting period | — | $— |
|
| ||
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized.
Transactions in capital shares were as follows:
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class A | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 485,148 | $7,458,827 | 452,096 | $5,992,525 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 45,410 | 691,589 | 22,033 | 287,095 |
|
| ||||
| 530,558 | 8,150,416 | 474,129 | 6,279,620 | |
|
| ||||
| Shares repurchased | (367,561) | (5,573,316) | (138,778) | (1,786,633) |
|
| ||||
| Net increase | 162,997 | $2,577,100 | 335,351 | $4,492,987 |
|
| ||||
39
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class B | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 17,459 | $264,454 | 17,552 | $226,081 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 882 | 13,324 | 399 | 5,170 |
|
| ||||
| 18,341 | 277,778 | 17,951 | 231,251 | |
|
| ||||
| Shares repurchased | (13,394) | (200,445) | (4,809) | (63,349) |
|
| ||||
| Net increase | 4,947 | $77,333 | 13,142 | $167,902 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class C | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 38,873 | $579,683 | 7,835 | $104,594 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 564 | 8,530 | 188 | 2,434 |
|
| ||||
| 39,437 | 588,213 | 8,023 | 107,028 | |
|
| ||||
| Shares repurchased | (4,847) | (72,966) | (2,290) | (30,034) |
|
| ||||
| Net increase | 34,590 | $515,247 | 5,733 | $76,994 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class M | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 1,350 | $19,790 | 1,804 | $24,034 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 194 | 2,947 | 78 | 1,021 |
|
| ||||
| 1,544 | 22,737 | 1,882 | 25,055 | |
|
| ||||
| Shares repurchased | (1,077) | (15,763) | (1,059) | (13,464) |
|
| ||||
| Net increase | 467 | $6,974 | 823 | $11,591 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class R | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 518 | $8,367 | 51 | $651 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 65 | 995 | 32 | 420 |
|
| ||||
| 583 | 9,362 | 83 | 1,071 | |
|
| ||||
| Shares repurchased | — | — | — | — |
|
| ||||
| Net increase | 583 | $9,362 | 83 | $1,071 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class Y | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 98,671 | $1,526,078 | 46,742 | $631,572 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 4,051 | 61,813 | 600 | 7,827 |
|
| ||||
| 102,722 | 1,587,891 | 47,342 | 639,399 | |
|
| ||||
| Shares repurchased | (36,253) | (556,406) | (11,823) | (158,435) |
|
| ||||
| Net increase | 66,469 | $1,031,485 | 35,519 | $480,964 |
|
| ||||
40
At the close of the reporting period, Putnam Investments, LLC owned the following class shares of the fund:
| Shares owned | Percentage of ownership | Value | |
| Class A | 192,340 | 23.31% | $2,812,011 |
|
| |||
| Class M | 1,093 | 28.98 | 15,881 |
|
| |||
| Class R | 1,095 | 65.69 | 15,987 |
|
| |||
| Class Y | 1,105 | 0.86 | 16,210 |
|
| |||
Note 5: Summary of derivative activity
The following is a summary of the market values of derivative instruments as of the close of the reporting period:
Market values of derivative instruments as of the close of the reporting period
| Asset derivatives | Liability derivatives | |||
|
| ||||
| Derivatives not | ||||
| accounted for as | Statement of | Statement of | ||
| hedging instruments | assets and | assets and | ||
| under ASC 815 | liabilities location | Market value | liabilities location | Market value |
|
| ||||
| Foreign exchange | ||||
| contracts | Receivables | $29,878 | Payables | $48,766 |
|
| ||||
| Total | $29,878 | $48,766 | ||
|
| ||||
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | ||
| instruments under ASC 815 | Options | contracts | Total |
|
| |||
| Foreign exchange contracts | $— | $97,567 | $97,567 |
|
| |||
| Equity contracts | 56,196 | — | $56,196 |
|
| |||
| Total | $56,196 | $97,567 | $153,763 |
|
| |||
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | ||
| instruments under ASC 815 | contracts | Total | |
|
| |||
| Foreign exchange contracts | $(47,801) | $(47,801) | |
|
| |||
| Total | $(47,801) | $(47,801) | |
|
| |||
Note 6: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $436 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $7,307,173 and $7,805,179, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 7: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
41
Federal tax information (Unaudited)
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $785,843 as a capital gain dividend with respect to the taxable year ended August 31, 2011, or, if subsequently determined to be different, the net capital gain of such year.
For the period, interest and dividends from foreign countries were $160,737 or $0.16 per share (for all classes of shares). Taxes paid to foreign countries were $10,739 or $0.01 per share (for all classes of shares).
The fund designated 19.70% of ordinary income distributions as qualifying for the dividends received deduction for corporations.
For its tax year ended August 31, 2011, the fund hereby designates 47.20%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
For the tax year ended August 31, 2011, pursuant to §871(k) of the Internal Revenue Code, the fund hereby designates $10 of distributions paid as qualifying to be taxed as interest-related dividends, and no monies to be taxed as short-term capital gain dividends for nonresident alien shareholders.
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
42
About the Trustees
Independent Trustees
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
| Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
| Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
| Shields, a multi-product investment management firm | focused on private | |
| with over $40 billion in assets under management. | equity advisory services; | |
| RAGE Frameworks, | ||
| Inc., a private software | ||
| company | ||
|
| ||
| Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
| Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
| Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
| College and member of the Investment Committee for the | company; UniSource | |
| college’s endowment. Former Chair and current board | Energy Corporation, | |
| member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
| the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
| refiner and fertilizer | ||
| manufacturer; Cody | ||
| Resources Management, | ||
| LLP, a privately held | ||
| energy, ranching, and | ||
| commercial real estate | ||
| company | ||
|
| ||
| Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
| Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
| Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
| Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
| to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
| since 2011 | ||
|
| ||
| Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
| Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
| Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
| for Strategic and International Studies. Member of the | ||
| Council on Foreign Relations. | ||
|
| ||
| Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
| Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
| Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
| Johnson & Johnson’s Chief Financial Officer for a decade. | ||
|
| ||
| John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
| Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
| Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
| Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
| to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
| of the Millstein Center for Corporate Governance and | ||
| Performance at the Yale School of Management. | ||
|
| ||
43
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
| Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
| Trustee since 1997 | on research and education on issues related to science, | company focused on |
| technology, and economic performance. Elizabeth and | natural gas transmission | |
| James Killian Professor of Economics, Emeritus at the | and power services; | |
| Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
| 2007, served as the Director of the Center for Energy and | energy company focused | |
| Environmental Policy Research at MIT. | on power services | |
|
| ||
| Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
| Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
| Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
| Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
| Massachusetts. Until November 2010, director of Ruder | ||
| Finn Group, a global communications and advertising firm. | ||
|
| ||
| Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
| Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
| Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
| Joslin Diabetes Center. | ||
|
| ||
| George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
| Born 1951 | of financial advisory and other research services, and | |
| Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
| a registered investment advisor to private funds. | ||
| Director of The Boston Family Office, LLC, a registered | ||
| investment advisor. | ||
|
| ||
| W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
| Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
| Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
| and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
| packaging products. | ||
|
| ||
| Interested Trustee | ||
|
| ||
| Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
| Born 1952 | Investments since 2008. Prior to joining Putnam | |
| Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
| President of the Putnam | Operating Officer of Fidelity Investments from | |
| Funds since July 2009 | 2000 to 2007. | |
|
| ||
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2011, there were 106 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
44
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
| Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
| Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
| Officer, Treasurer and Compliance Liaison | Since 2011 |
| Since 2004 | General Counsel, Putnam Investments and |
| Putnam Management | |
| Steven D. Krichmar (Born 1958) | |
| Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
| Since 2002 | Vice President |
| Chief of Operations, Putnam Investments and | Since 2004 |
| Putnam Management | Director of Trustee Relations, |
| Putnam Investments and Putnam Management | |
| Janet C. Smith (Born 1965) | |
| Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
| Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
| Since 2007 | Since 1993 |
| Director of Fund Administration Services, | |
| Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
| Vice President, Senior Associate Treasurer and | |
| Beth S. Mazor (Born 1958) | Assistant Clerk |
| Vice President | Since 2010 |
| Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
| Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
| Investments and Putnam Management | Management (2007–2008); Senior Financial |
| Analyst, Putnam Investments (1999–2007) | |
| Robert R. Leveille (Born 1969) | |
| Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
| Since 2007 | Vice President, Assistant Clerk, Assistant |
| Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
| Putnam Management, and Putnam Retail | Since 2000 |
| Management | |
| Susan G. Malloy (Born 1957) | |
| Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
| Vice President and BSA Compliance Officer | Since 2007 |
| Since 2002 | Director of Accounting & Control Services, |
| Director of Operational Compliance, | Putnam Management |
| Putnam Investments and Putnam | |
| Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
45
The Putnam family of funds
The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial advisor at 1-800-225-1581 and ask for a prospectus. Please read the prospectus carefully before investing.
| Growth | Value |
| Growth Opportunities Fund | Convertible Securities Fund |
| International Growth Fund | Prior to September 30, 2010, the fund was known as |
| Multi-Cap Growth Fund | Putnam Convertible Income-Growth Trust |
| Prior to September 1, 2010, the fund was known as | Equity Income Fund |
| Putnam New Opportunities Fund | George Putnam Balanced Fund |
| Small Cap Growth Fund | Prior to September 30, 2010, the fund was known as |
| Voyager Fund | The George Putnam Fund of Boston |
| The Putnam Fund for Growth and Income | |
| Blend | International Value Fund |
| Asia Pacific Equity Fund | Multi-Cap Value Fund |
| Capital Opportunities Fund | Prior to September 1, 2010, the fund was known as |
| Capital Spectrum Fund | Putnam Mid Cap Value Fund |
| Emerging Markets Equity Fund | Small Cap Value Fund |
| Equity Spectrum Fund | |
| Europe Equity Fund | Income |
| Global Equity Fund | American Government Income Fund |
| International Capital Opportunities Fund | Diversified Income Trust |
| International Equity Fund | Floating Rate Income Fund |
| Investors Fund | Global Income Trust |
| Multi-Cap Core Fund | High Yield Advantage Fund |
| Research Fund | High Yield Trust |
| Income Fund | |
| Money Market Fund* | |
| U.S. Government Income Trust |
* An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
46
| Tax-free income | Asset Allocation |
| AMT-Free Municipal Fund | Putnam Asset Allocation Funds — portfolios |
| Tax Exempt Income Fund | with allocations to stocks, bonds, and |
| Tax Exempt Money Market Fund* | money market instruments that are adjusted |
| Tax-Free High Yield Fund | dynamically within specified ranges as |
| market conditions change. | |
| State tax-free income funds: | |
| Arizona, California, Massachusetts, Michigan, | Asset Allocation: Balanced Portfolio |
| Minnesota, New Jersey, New York, Ohio, | Asset Allocation: Conservative Portfolio |
| and Pennsylvania | Asset Allocation: Growth Portfolio |
| Absolute Return | Putnam RetirementReady Funds — portfolios |
| Absolute Return 100 Fund | with automatically adjusting allocations to |
| Absolute Return 300 Fund | stocks, bonds, and money market instruments, |
| Absolute Return 500 Fund | becoming more conservative over time. |
| Absolute Return 700 Fund | |
| RetirementReady 2055 Fund | |
| Global Sector | RetirementReady 2050 Fund |
| Global Consumer Fund | RetirementReady 2045 Fund |
| Global Energy Fund | RetirementReady 2040 Fund |
| Global Financials Fund | RetirementReady 2035 Fund |
| Global Health Care Fund | RetirementReady 2030 Fund |
| Global Industrials Fund | RetirementReady 2025 Fund |
| Global Natural Resources Fund | RetirementReady 2020 Fund |
| Global Sector Fund | RetirementReady 2015 Fund |
| Global Technology Fund | |
| Global Telecommunications Fund | Putnam Retirement Income Lifestyle |
| Global Utilities Fund | Funds — portfolios with managed |
| allocations to stocks, bonds, and money | |
| market investments to generate | |
| retirement income. | |
| Retirement Income Fund Lifestyle 1 | |
| Prior to June 16, 2011, the fund was known as Putnam | |
| RetirementReady Maturity Fund | |
| Retirement Income Fund Lifestyle 2 | |
| Retirement Income Fund Lifestyle 3 | |
| Prior to June 16, 2011, the fund was known as Putnam | |
| Income Strategies Fund |
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund's prospectus.
Check your account balances and the most recent month-end performance in the Individual Investors section at putnam.com.
47
Services for shareholders
Investor services
Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.
Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.
Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.
Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.
Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.
Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.
Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.
Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.
For more information
Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.
Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.
48
Fund information
Founded over 70 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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Trustees | Beth S. Mazor |
| Putnam Investment | Jameson A. Baxter, Chair | Vice President |
| Management, LLC | Ravi Akhoury | |
| One Post Office Square | Barbara M. Baumann | Robert R. Leveille |
| Boston, MA 02109 | Charles B. Curtis | Vice President and |
| Robert J. Darretta | Chief Compliance Officer | |
| Investment Sub-Manager | John A. Hill | |
| Putnam Investments Limited | Paul L. Joskow | Mark C. Trenchard |
| 57–59 St James’s Street | Kenneth R. Leibler | Vice President and |
| London, England SW1A 1LD | Robert E. Patterson | BSA Compliance Officer |
| George Putnam, III | ||
| Investment Sub-Advisor | Robert L. Reynolds | Robert T. Burns |
| The Putnam Advisory | W. Thomas Stephens | Vice President and |
| Company, LLC | Chief Legal Officer | |
| One Post Office Square | Officers | |
| Boston, MA 02109 | Robert L. Reynolds | James P. Pappas |
| President | Vice President | |
| Marketing Services | ||
| Putnam Retail Management | Jonathan S. Horwitz | Judith Cohen |
| One Post Office Square | Executive Vice President, | Vice President, Clerk and |
| Boston, MA 02109 | Principal Executive | Assistant Treasurer |
| Officer, Treasurer and | ||
| Custodian | Compliance Liaison | Michael Higgins |
| State Street Bank | Vice President, Senior Associate | |
| and Trust Company | Steven D. Krichmar | Treasurer and Assistant Clerk |
| Vice President and | ||
| Legal Counsel | Principal Financial Officer | Nancy E. Florek |
| Ropes & Gray LLP | Vice President, Assistant Clerk, | |
| Janet C. Smith | Assistant Treasurer and | |
| Independent Registered | Vice President, Assistant | Proxy Manager |
| Public Accounting Firm | Treasurer and Principal | |
| KPMG LLP | Accounting Officer | Susan G. Malloy |
| Vice President and | ||
| Assistant Treasurer | ||
This report is for the information of shareholders of Putnam Global Consumer 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 putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary 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.
| Item 2. Code of Ethics: |
| (a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund’s investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
| (c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
| Item 3. Audit Committee Financial Expert: |
| The Funds’ Audit and Compliance Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification. |
| Item 4. Principal Accountant Fees and Services: |
| The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor: |
| Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
| August 31, 2011 | $51,308 | $-- | $4,100 | $ — | |
| August 31, 2010 | $43,906 | $-- | $3,900 | $ — | |
| For the fiscal years ended August 31, 2011 and August 31, 2010, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $4,100 and $3,900 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
| Audit Fees represent fees billed for the fund’s last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
| Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
| Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
| Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
| The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
| The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. |
| Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
| August 31, 2011 | $ — | $ — | $ — | $ — | |
| August 31, 2010 | $ — | $ — | $ — | $ — | |
| 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) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
| (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/Janet C. Smith Janet C. Smith Principal Accounting Officer |
| Date: October 27, 2011 |
| 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/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
| Date: October 27, 2011 |
| By (Signature and Title): |
| /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: October 27, 2011 |
| 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 800 Boylston Street Boston, Massachusetts 02199-3600 |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
| Date of fiscal year end: | August 31, 2011 |
| Date of reporting period: | September 1, 2010 — August 31, 2011 |
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: | |||
Putnam
Global Energy
Fund
Annual report
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| Message from the Trustees | 1 | ||
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| About the fund | 2 | ||
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| Performance snapshot | 4 | ||
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| Interview with your fund’s portfolio managers | 5 | ||
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| Your fund’s performance | 10 | ||
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| Your fund’s expenses | 12 | ||
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| Terms and definitions | 14 | ||
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| Trustee approval of management contract | 15 | ||
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| Other information for shareholders | 19 | ||
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| Financial statements | 20 | ||
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| Federal tax information | 40 | ||
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| About the Trustees | 41 | ||
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| Officers | 43 | ||
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Message from the Trustees
Dear Fellow Shareholder:
Markets around the world are grappling with heightened volatility. In the United States, persistently high unemployment and other weak economic data have fueled investors’ risk aversion, while in Europe the sovereign debt crisis shows little sign of abating. Certain bright spots do exist, but it is clear that volatility and uncertainty will remain with us for the near term.
We believe it is important to consult your financial advisor in times like these to consider whether your portfolio reflects an appropriate degree of diversification. In responding to this need, Putnam offers funds with strategies that seek to limit volatility and also employs an active, research-based investment approach that is designed to offer shareholders a potential advantage in this climate by looking for new growth opportunities and seeking to guard against downside risk.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancy’s Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
About the fund
Pursuing growth opportunities in energy companies worldwide
The global energy market is a dynamic sector, shaped by the ever-changing balance of geopolitical stability, technological development, and economic growth.
Putnam Global Energy Fund invests at least 80% of its assets in stocks of companies in energy-related industries. The fund’s portfolio managers look for companies around the world that can profit from the global demand for energy.
The fund’s portfolio may include companies engaged in the exploration and production of oil and gas, contractors or owners of oil- and gas-drilling rigs, manufacturers of drilling equipment, and providers of supplies and services to oil and gas companies. Fund holdings may also include coal-mining and production companies, oil-refining companies, and businesses that store and transport oil and gas.
While the fund’s managers focus primarily on large and midsize companies, the fund has the flexibility to invest in businesses of all sizes and at different stages of growth, from newer, rapidly growing companies to established global corporations.
To help temper volatility, the fund’s managers seek to diversify the portfolio — geographically and by industry — and to invest with a long-term view, looking for stocks that can help investors build wealth over time. The managers’ disciplined investment process includes analyzing each stock’s valuation as well as the company’s financial strength, competitive positioning, earnings, and cash flow. They conduct their intensive fundamental research with support from analysts in Putnam’s Global Equity Research group.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging market securities, including illiquidity and volatility. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the risk that the other party to the derivatives transaction will not meet its obligations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The use of short selling may result in losses if the securities appreciate in value. The fund’s policy of concentrating on a limited group of industries and the fund’s non-diversified status, which means the fund may invest in fewer issuers, can increase the fund’s vulnerability to common economic forces and may result in greater losses and volatility.
Sector investing at Putnam
In recent decades, innovation and business growth have propelled stocks in different industries to market-leading performance. Finding these stocks, many of which are in international markets, requires rigorous research and in-depth knowledge of global markets.
Putnam’s sector funds invest in nine sectors worldwide and offer active management, risk controls, and the expertise of dedicated sector analysts. The funds’ managers invest with flexibility and precision, using fundamental research to hand select stocks for the portfolios.
All sectors in one fund:
Putnam Global Sector Fund
A portfolio of individual Putnam Global Sector Funds that provides exposure to all sectors of the MSCI World Index.
Individual sector funds:
Global Consumer Fund
Retail, hotels, restaurants, media, food and beverages
Global Energy Fund
Oil and gas, energy equipment and services
Global Financials Fund
Commercial banks, insurance, diversified financial services, mortgage finance
Global Health Care Fund
Pharmaceuticals, biotechnology, health-care services
Global Industrials Fund
Airlines, railroads, trucking, aerospace and defense, construction, commercial services
Global Natural Resources Fund
Metals, chemicals, oil and gas, forest products
Global Technology Fund
Software, computers, Internet services
Global Telecommunications Fund
Diversified and wireless telecommunications services
Global Utilities Fund
Electric, gas, and water utilities
| 2 | 3 |
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See pages 5 and 10–12 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus. To obtain the most recent month-end performance, visit putnam.com.
4
Interview with your fund’s portfolio managers
Steven W. Curbow and Jessica L. Wirth
Putnam Global Energy Fund outperformed its Lipper peer group but not its benchmark during a volatile period for energy stocks. Steve, what contributed to performance?
Steve: Active management and stock selection were the key drivers. Two areas that we focused on were companies that supply technology and services to deepwater drilling operations and to extracting natural gas from shale deposits in North America. Our thesis was that both of these areas would deliver growth, and that strategy paid off. Another key factor in the fund’s performance was the result of a specific strategy in holding options in an exchange-traded fund [ETF], when we accurately predicted the spike in oil prices this spring.
How did you manage the fund with macroeconomic turmoil roiling the United States and Europe, civil unrest in North Africa and the Middle East, and volatile oil prices during the period?
Steve: The past 12 months can be divided into two distinct environments. During the first part, rising oil prices and an improving economy lifted energy stocks and spurred investment by energy companies that were confident they could be profitable in such an environment. In 2010, with signs that the economy might be recovering, a positive climate for energy stocks took hold. As global demand for oil increased, prices rose, and many stocks in the sector benefited.
As we entered 2011, however, disruptions began to occur. In short order, we experienced a government overthrow in Egypt and civil unrest in Libya, both oil-producing countries. Libya’s oil production ceased altogether, taking one million barrels of oil away from world supply overnight. As supply diminished and oil prices rose, economic
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 8/31/11. See pages 4 and 10–12 for additional fund performance information. Index descriptions can be found on page 14.
5
fears ensued, and demand for oil began to fall when consumers and businesses cut back. This led to demand destruction and then falling oil prices, both of which were negative for energy companies and their stocks.
Talk to us about some of the areas of opportunity within the sector. For example, what investment opportunities are you uncovering in companies that service deepwater drilling operations and natural gas extraction from shale rock in North America?
Jessica: The industry has recognized over the past few years that deepwater drilling presents an important opportunity. We are in the early stages of a new cycle of deepwater drilling exploration. Prior to this decade, the deep and “ultra-deep” water had been relatively under-explored frontiers. With new drilling technology and capabilities, this is now possible. Through exposure to oilfield services companies, we have been able to capitalize on this trend.
Another important area of growth within the sector is the extraction of natural gas from shale in North America. Shale gas finds are plentiful in North America and all over the world, and are being exploited on a large-scale in North America due to the availability of pipeline infrastructure to transport the gas to markets. Newer technologies — such as horizontal drilling and hydraulic fracturing, or “fracking” — have contributed to significant advances in getting more gas out of shale deposits. These processes enable energy companies to extract gas that had previously been inaccessible because it was trapped within the shale rock.
Both of these areas — deepwater drilling and natural gas shale extraction — have benefited the oilfield service companies. These companies provide on-site equipment, services, and technology. Those service companies that can provide the best technologies for deep-water drilling and natural gas shale extraction will be the most profitable, in our opinion.
Country allocations are shown as a percentage of the fund’s net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any. Weightings will vary over time.
6
Based on the macroeconomic backdrop and these sector trends, where did you find opportunities during the past 12 months?
Steve: In the spring, with global economic turmoil growing and rising oil prices, we made a move that helped performance. We had concerns that oil prices would continue to rise, but that energy stocks would actually struggle as investors worried that very high oil prices would hurt the global economy. As we moved the portfolio to more defensive stocks, we were seeking a way to benefit from rising oil prices.
We bought options in the United States Oil Fund, an ETF that owns oil futures in West Texas Intermediate oil prices. We were able to take a position in the ETF that allowed us to achieve returns when oil prices rose. Anticipating a sharp rise in oil this spring, the strategy allowed us to purchase oil futures at a lower price and then sell them at a higher price. We have since exited the position in the ETF.
Another top performer was an overweight position in National Oilwell Varco, a provider of land-based and offshore drilling rigs and related equipment and services. We believe that this company is positioned to benefit from both the offshore drilling trend, which will require the industry to build new rigs capable of exploring in deep water, and from the upgrades to the existing worldwide drilling fleet. More challenging drilling environments and a heightened awareness of safety are driving a replacement cycle for all classes of offshore rigs.
Schlumberger, an oilfield services company, was another top contributor and overweight position of the fund. We believe the company is strategically positioned to benefit from both the deepwater drilling and North American shale gas themes. Schlumberger
This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 8/31/11. Short-term holdings are excluded. Holdings will vary over time.
7
is the technology leader in providing well-site operations, research capabilities, and engineering services.
Which stock selections did you find disappointing?
Jessica: Cairn Energy, a U.K.-based exploration and production company, was the top detractor. We had an overweight position in Cairn during the period, and the stock suffered in large part because of a delayed sale of Cairn’s Indian subsidiary to Vedanta Resources, another U.K. company. Government regulators in India have prolonged approval of the sale, but we still hold the stock.
Petroleo Brasileiro [Petrobras], an out-of-benchmark holding, also hurt performance. The company is Latin America’s largest company and is majority-owned by the Brazilian government. During the period, the company did a very large secondary offering to raise capital for the purchase of additional offshore leases. This process served as an overhang on Petrobras shares. In addition, the Brazilian government held gasoline prices flat to curb inflation, and this weighed on Petrobras’s refining margins.
Tullow Oil, a U.K.-based oil explorer, was an overweight position that detracted from performance. Tullow shares were negatively impacted by a delay in the approval of an onshore oil development in Uganda. In addition, the company’s exploration and production activities offshore of Ghana have produced mixed results, although more recent exploration activities have yielded some success.
What is your outlook for the energy sector and the global economy?
Steve: Our outlook is constructive on the energy sector, provided that global demand for oil remains steady, and we maintain a healthy supply-demand balance and avoid any spikes in oil prices. If oil prices do spike, demand destruction will likely occur, with consumers cutting back on their driving and businesses curbing energy costs. A dramatic drop in oil demand, as we have seen during the
This chart shows how the fund’s top weightings have changed over the past six months. Weightings are shown as a percentage of net assets. Current period summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings will vary over time.
Data in the chart reflect a new calculation methodology put into effect within the past six months.
8
past 12 months, is generally not good for most energy stocks.
Of course, we are very cognizant of the unsettling nature of the economic picture in the United States and the ongoing European sovereign debt crisis. We recognize that a significant number of global economies are confronting serious challenges that will likely take years to resolve.
Our strategy with the Global Energy Fund will be to remain in the trenches and to uncover companies with solid assets and solid balance sheets. We will continue with our deepwater drilling and natural shale gas strategies already in place, believing that these trends should drive growth in the sector over time. With the fund, we will continue along the course that we were on at the end of this period, looking for the right positions and the right plays that work as long-term investments for our shareholders.
Thank you, Steve and Jessica, for your time and insights.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
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. Current and future portfolio holdings are subject to risk.
Portfolio Manager Steven W. Curbow has an M.B.A. from The University of Chicago Booth School of Business and a B.S. from the University of Southern California. Steven joined Putnam in 2008 and has been in the investment industry since 1996.
Portfolio Manager Jessica L. Wirth has an M.B.A. from the Wharton School of the University of Pennsylvania and a B.A. from Dartmouth College. Jessica joined Putnam in 2004 and has been in the investment industry since 2001.
IN THE NEWS
With economic storm clouds darkening, the Organisation for Economic Co-operation and Development (OECD) recently slashed its growth forecasts for the United States and many other countries for the remainder of 2011. In its interim forecast, released in early September, the OECD estimates that the United States economy will grow 1.1% in the third quarter and 0.4% in the fourth, down from the 2.9% and 3% growth it had predicted in May. Meanwhile, the OECD predicts that Japan will expand 4.1% in the third quarter before stagnating in the fourth, and that the German economy will grow 2.6% in the third quarter and shrink 1.4% in the fourth. For the third and fourth quarters, the United Kingdom is predicted to grow grow 0.4% and 0.3%, respectively. The OECD also said that central banks around the world should be ready to ease monetary policy if economies weaken further.
9
Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended August 31, 2011, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 8/31/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
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| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
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| Life of fund | 40.58% | 32.49% | 37.78% | 34.78% | 37.73% | 37.73% | 38.73% | 33.91% | 39.63% | 41.52% |
| Annual average | 13.44 | 10.98 | 12.60 | 11.68 | 12.58 | 12.58 | 12.88 | 11.41 | 13.15 | 13.72 |
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| 1 year | 24.94 | 17.74 | 24.09 | 19.09 | 24.02 | 23.02 | 24.40 | 20.10 | 24.67 | 25.22 |
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 5.75% and 3.50% sales charge, respectively, levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus.
Comparative index returns For periods ended 8/31/11
| Lipper Global Natural Resources Funds | ||
| MSCI World Energy Index (ND) | category average* | |
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| Life of fund | 38.49% | 61.76% |
| Annual average | 12.81 | 18.35 |
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| 1 year | 26.42 | 18.57 |
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Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* Over the 1-year and life-of-fund periods ended 8/31/11, there were 133 and 112 funds, respectively, in this Lipper category.
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Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B shares would have been valued at $13,778 ($13,478 after contingent deferred sales charge). A $10,000 investment in the fund’s class C shares would have been valued at $13,773, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $13,391. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $13,963 and $14,152, respectively.
Fund price and distribution information For the 12-month period ended 8/31/11
| Distributions | Class A | Class B | Class C | Class M | Class R | Class Y | ||
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| Number | 1 | 1 | 1 | 1 | 1 | 1 | ||
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| Income | $0.155 | $0.084 | $0.089 | $0.107 | $0.151 | $0.183 | ||
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| Capital gains — Long-term | 0.325 | 0.325 | 0.325 | 0.325 | 0.325 | 0.325 | ||
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| Capital gains — Short-term | 0.125 | 0.125 | 0.125 | 0.125 | 0.125 | 0.125 | ||
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| Total | $0.605 | $0.534 | $0.539 | $0.557 | $0.601 | $0.633 | ||
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| Before | After | Net | Net | Before | After | Net | Net | |
| sales | sales | asset | asset | sales | sales | asset | asset | |
| Share value | charge | charge | value | value | charge | charge | value | value |
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| 8/31/10 | $10.96 | $11.63 | $10.84 | $10.85 | $10.88 | $11.27 | $10.94 | $10.99 |
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| 8/31/11 | 13.10 | 13.90 | 12.93 | 12.93 | 12.99 | 13.46 | 13.05 | 13.14 |
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The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares and 3.50% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
11
Fund performance as of most recent calendar quarter
Total return for periods ended 9/30/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
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| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
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| Life of fund | 21.90% | 14.90% | 19.45% | 16.45% | 19.41% | 19.41% | 20.26% | 16.08% | 21.12% | 22.78% |
| Annual average | 7.38 | 5.12 | 6.60 | 5.63 | 6.58 | 6.58 | 6.86 | 5.51 | 7.13 | 7.66 |
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| 1 year | –2.35 | –7.95 | –3.06 | –7.72 | –3.11 | –4.04 | –2.88 | –6.29 | –2.55 | –2.13 |
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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’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, 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 representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class R | Class Y | |
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| Net expenses for the fiscal year ended 8/31/10*† | 1.45% | 2.20% | 2.20% | 1.95% | 1.70% | 1.20% |
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| Total annual operating expenses for the fiscal year | ||||||
| ended 8/31/10* | 2.29% | 3.04% | 3.04% | 2.79% | 2.54% | 2.04% |
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| Annualized expense ratio for the six-month period | ||||||
| ended 8/31/11‡ | 1.40% | 2.15% | 2.15% | 1.90% | 1.65% | 1.15% |
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Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Restated to reflect projected expenses under a management contract effective 1/1/10.
† Reflects Putnam Management’s contractual obligation to limit expenses through 12/30/11.
‡ For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
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Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from March 1, 2011, to August 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
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| Expenses paid per $1,000*† | $6.58 | $10.09 | $10.09 | $8.92 | $7.75 | $5.41 |
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| Ending value (after expenses) | $865.30 | $862.00 | $862.00 | $863.10 | $864.20 | $866.20 |
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| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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 August 31, 2011, use the following calculation method. To find the value of your investment on March 1, 2011, call Putnam at 1-800-225-1581.
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 following table 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 A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $7.12 | $10.92 | $10.92 | $9.65 | $8.39 | $5.85 |
|
| ||||||
| Ending value (after expenses) | $1,018.15 | $1,014.37 | $1,014.37 | $1,015.63 | $1,016.89 | $1,019.41 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
13
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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
MSCI World Energy Index (ND) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets in the energy sector.
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.
14
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 with Putnam Investment Management (“Putnam Management”), the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), and the sub-advisory contract among Putnam Management, PIL, and another affiliate, Putnam Advisory Company (“PAC”).
The Board of Trustees, with the assistance of its Contract Committee, which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. Over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided 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 on a number of occasions. At the Trustees’ June 17, 2011 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management, sub-management and sub-advisory contracts, effective July 1, 2011. (Because PIL and PAC are affiliates of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL and PAC, the Trustees have not evaluated PIL or PAC as separate entities, and all subsequent references to Putnam Management below should be deemed to include reference to PIL and PAC as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented 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 services, and
• That the fee schedule represented 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 management 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 some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. In reviewing
15
management fees, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund.
Most of the open-end Putnam funds have new management contracts, with new fee schedules reflecting the implementation of more competitive fee levels for many funds, complex-wide breakpoints for the open-end funds, and performance fees for some funds. These new management contracts have been in effect for a little over a year — since January or, for a few funds, February, 2010. The Trustees approved the new management contracts on July 10, 2009, and fund shareholders subsequently approved the contracts by overwhelming majorities of the shares voted.
Because these management contracts had been implemented only recently, the Contract Committee had limited practical experience with the operation of the new fee structures. Under its new management contract, your fund has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Contract Committee observed that the complex-wide breakpoints of the open-end funds had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds had sufficiently low expenses that these expense limitations did not apply. However, in the case of your fund, both of the expense limitations applied during its fiscal year ending in 2010. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and extraordinary expenses). Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management, sub-management and sub-advisory contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the 1st quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the 2nd quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2010 (the first quintile representing the least expensive funds and the fifth quintile the most expensive funds).
16
The fee and expense data reported by Lipper as of December 31, 2010 reflected the most recent fiscal year-end data available in Lipper’s database at that time.
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 provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds 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, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and 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 may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes 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 its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
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 Putnam funds’ investment process and performance by the work of several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized 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 each fund’s
17
performance with various benchmarks and with the performance of competitive funds.
The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered information about the absolute return of your fund, and your fund’s performance relative to its internal benchmark. Putnam Global Energy Fund’s class A shares’ return net of fees and expenses was positive over the one-year period ended December 31, 2010, and exceeded the return of its internal benchmark over the one-year period.
Brokerage and soft-dollar allocations; investor servicing
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 benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management contract, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
18
Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, 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 website 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 website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of August 31, 2011, Putnam employees had approximately $323,000,000 and the Trustees had approximately $70,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
19
Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 year.
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.
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 highlights table also includes the current reporting period.
20
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Funds Trust:
We have audited the accompanying statement of assets and liabilities of Putnam Global Energy Fund (the fund), a series of Putnam Funds Trust, including the fund’s portfolio, as of August 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and the period from December 18, 2008 (commencement of operations) to August 31, 2009. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2011 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Global Energy Fund as of August 31, 2011, the results of its operations, the changes in its net assets, and the financial highlights for the periods specified in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 11, 2011
21
The fund’s portfolio 8/31/11
| COMMON STOCKS (97.7%)* | Shares | Value |
|
| ||
| Construction and engineering (0.4%) | ||
| KBR, Inc. | 2,100 | $63,105 |
|
| ||
| 63,105 | ||
| Energy equipment and services (15.1%) | ||
| AMEC PLC (United Kingdom) | 12,431 | 184,378 |
|
| ||
| Baker Hughes, Inc. | 5,900 | 360,549 |
|
| ||
| Key Energy Services, Inc. † | 4,200 | 60,438 |
|
| ||
| National Oilwell Varco, Inc. | 7,100 | 469,452 |
|
| ||
| Oil States International, Inc. † | 1,100 | 72,688 |
|
| ||
| Schlumberger, Ltd. | 11,850 | 925,722 |
|
| ||
| Technip SA (France) | 4,591 | 448,520 |
|
| ||
| TGS-NOPEC Geophysical Co. ASA (Norway) | 5,742 | 144,033 |
|
| ||
| 2,665,780 | ||
| Oil, gas, and consumable fuels (81.9%) | ||
| Apache Corp. | 5,200 | 535,964 |
|
| ||
| BG Group PLC (United Kingdom) | 42,690 | 923,205 |
|
| ||
| BP PLC (United Kingdom) | 60,402 | 395,690 |
|
| ||
| Brigham Exploration Co. † | 3,200 | 93,120 |
|
| ||
| Cairn Energy PLC (United Kingdom) † | 52,066 | 282,995 |
|
| ||
| Canadian Natural Resources, Ltd. (Canada) | 16,900 | 638,550 |
|
| ||
| Chevron Corp. | 11,997 | 1,186,623 |
|
| ||
| CNOOC, Ltd. (China) | 40,000 | 81,380 |
|
| ||
| Cobalt International Energy, Inc. † | 10,248 | 99,098 |
|
| ||
| CONSOL Energy, Inc. | 6,900 | 315,054 |
|
| ||
| Devon Energy Corp. | 3,100 | 210,273 |
|
| ||
| Exxon Mobil Corp. | 33,698 | 2,495,000 |
|
| ||
| Gazprom OAO ADR (Russia) | 13,113 | 163,165 |
|
| ||
| Hess Corp. | 8,000 | 474,720 |
|
| ||
| Inpex Corp. (Japan) | 71 | 481,236 |
|
| ||
| Kosmos Energy, Ltd. † | 7,995 | 110,971 |
|
| ||
| Linn Energy, LLC (Units) | 2,480 | 93,868 |
|
| ||
| Newfield Exploration Co. † | 7,800 | 398,190 |
|
| ||
| Nexen, Inc. (Canada) | 15,505 | 331,238 |
|
| ||
| Noble Energy, Inc. | 4,300 | 379,948 |
|
| ||
| Occidental Petroleum Corp. | 6,929 | 601,021 |
|
| ||
| OGX Petroleo e Gas Participacoes SA (Brazil) † | 11,900 | 85,847 |
|
| ||
| Petroleo Brasileiro SA ADR (Preference) (Brazil) | 5,000 | 133,250 |
|
| ||
| QEP Resources, Inc. | 2,300 | 80,983 |
|
| ||
| Rosetta Resources, Inc. † S | 1,100 | 50,545 |
|
| ||
| Royal Dutch Shell PLC Class A (United Kingdom) | 29,621 | 993,167 |
|
| ||
| Royal Dutch Shell PLC Class B (United Kingdom) | 21,650 | 730,547 |
|
| ||
| Santos, Ltd. (Australia) | 11,150 | 140,824 |
|
| ||
| Saras SpA (Italy) † | 42,347 | 77,076 |
|
| ||
| Southwestern Energy Co. † | 4,200 | 159,390 |
|
| ||
| Sunoco, Inc. | 7,700 | 293,678 |
|
| ||
| Swift Energy Co. † | 2,900 | 89,465 |
|
| ||
| Total SA (France) | 17,763 | 868,094 |
|
| ||
| Tullow Oil PLC (United Kingdom) | 24,984 | 436,036 |
|
| ||
| 14,430,211 | ||
22
| COMMON STOCKS (97.7%)* cont. | Shares | Value |
|
| ||
| Semiconductors and semiconductor equipment (0.3%) | ||
| First Solar, Inc. † S | 500 | $49,989 |
|
| ||
| 49,989 | ||
| Total common stocks (cost $17,122,180) | $17,209,085 | |
| SHORT-TERM INVESTMENTS (2.7%)* | Shares | Value |
|
| ||
| Putnam Cash Collateral Pool, LLC 0.17% d | 88,161 | $88,161 |
|
| ||
| Putnam Money Market Liquidity Fund 0.05% e | 389,679 | 389,679 |
|
| ||
| Total short-term investments (cost $477,840) | $477,840 | |
| TOTAL INVESTMENTS | ||
|
| ||
| Total investments (cost $17,600,020) | $17,686,925 | |
Key to holding’s abbreviations
| ADR | American Depository Receipts |
| OAO | Open Joint Stock Company |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from September 1, 2010 through August 31, 2011 (the reporting period).
* Percentages indicated are based on net assets of $17,614,073.
† Non-income-producing security.
d See Note 1 to the financial statements regarding securities lending. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
e See Note 6 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
S Security on loan, in part or in entirety, at the close of the reporting period.
At the close of the reporting period, the fund maintained liquid assets totaling $58,255 to cover certain derivatives contracts.
ADR after the name of a foreign holding represents ownership of foreign securities on deposit with a custodian bank.
| DIVERSIFICATION BY COUNTRY* | ||||
|
| ||||
| Distribution of investments by country of risk at the close of the reporting period (as a percentage of Portfolio Value): | ||||
| United States | 57.2% | Russia | 0.9% | |
|
|
| |||
| United Kingdom | 22.4 | Norway | 0.8 | |
|
|
| |||
| France | 7.5 | Australia | 0.8 | |
|
|
| |||
| Canada | 5.5 | China | 0.5 | |
|
|
| |||
| Japan | 2.7 | Other | 0.5 | |
|
|
| |||
| Brazil | 1.2 | Total | 100.0% | |
|
|
||||
* Methodology differs from that used for purposes of complying with the fund’s policy regarding investments in securities of foreign issuers, as discussed further in the fund’s prospectus.
23
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $7,239,822)
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Bank of America, N.A. | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | $19,728 | $20,144 | $(416) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 232,211 | 232,710 | 499 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 412,573 | 422,084 | (9,511) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 32,780 | 32,392 | (388) | |
|
| ||||||
| Barclays Bank PLC | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 189,504 | 189,970 | 466 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 140,552 | 144,235 | (3,683) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 56,502 | 55,800 | 702 | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 51,880 | 51,566 | 314 | |
|
| ||||||
| Citibank, N.A. | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 28,579 | 29,183 | (604) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 527,591 | 529,861 | (2,270) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 69,000 | 70,604 | (1,604) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 30,767 | 30,384 | 383 | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 100,922 | 100,813 | (109) | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 114,848 | 118,200 | (3,352) | |
|
| ||||||
| Credit Suisse AG | ||||||
|
| ||||||
| Australian Dollar | Sell | 9/21/11 | 20,047 | 16,881 | (3,166) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 536,197 | 537,358 | 1,161 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 126,467 | 129,313 | (2,846) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 137,301 | 135,631 | 1,670 | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 107,574 | 106,761 | 813 | |
|
| ||||||
| Norwegian Krone | Sell | 9/21/11 | 48,762 | 48,196 | (566) | |
|
| ||||||
| Deutsche Bank AG | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 51,612 | 52,696 | (1,084) | |
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 2,552 | 2,610 | 58 | |
|
| ||||||
| Euro | Buy | 9/21/11 | 12,508 | 12,354 | 154 | |
|
| ||||||
| Goldman Sachs International | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 21,221 | 21,665 | (444) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 86,064 | 86,267 | (203) | |
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 344,389 | 352,234 | 7,845 | |
|
| ||||||
| Euro | Buy | 9/21/11 | 303,069 | 299,269 | 3,800 | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 233,473 | 231,818 | (1,655) | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 62,723 | 62,062 | 661 | |
|
| ||||||
| HSBC Bank USA, National Association | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 193,076 | 193,586 | 510 | |
|
| ||||||
| Norwegian Krone | Sell | 9/21/11 | 35,919 | 35,597 | (322) | |
|
| ||||||
| JPMorgan Chase Bank, N.A. | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 42,383 | 42,477 | 94 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 362,660 | 371,022 | (8,362) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 347,638 | 343,396 | (4,242) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 128,653 | 127,759 | 894 | |
|
| ||||||
24
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $7,239,822) cont.
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Royal Bank of Scotland PLC (The) | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | $78,164 | $79,728 | $(1,564) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 17,538 | 17,701 | 163 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 392,873 | 401,397 | (8,524) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 140,608 | 138,895 | (1,713) | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 97,865 | 97,207 | (658) | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 67,741 | 74,760 | 7,019 | |
|
| ||||||
| State Street Bank and Trust Co. | ||||||
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 41,237 | 50,946 | (9,709) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 29,185 | 28,828 | 357 | |
|
| ||||||
| UBS AG | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 8,104 | 8,275 | (171) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 307,883 | 309,342 | 1,459 | |
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 85,740 | 87,683 | 1,943 | |
|
| ||||||
| Euro | Buy | 9/21/11 | 53,339 | 52,688 | 651 | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 197,061 | 195,160 | 1,901 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 55,435 | 57,050 | (1,615) | |
|
| ||||||
| Westpac Banking Corp. | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 49,586 | 50,612 | (1,026) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 20,785 | 20,831 | (46) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 122,894 | 124,516 | (1,622) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 29,904 | 29,540 | 364 | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 178,989 | 177,765 | (1,224) | |
|
| ||||||
| Total | $(38,818) | |||||
Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| Valuation inputs | ||||
|
| ||||
| Investments in securities: | Level 1 | Level 2 | Level 3 | |
|
| ||||
| Common stocks: | ||||
|
| ||||
| Energy | $10,745,645 | $6,350,346 | $— | |
|
| ||||
| Industrials | 63,105 | — | — | |
|
| ||||
| Information technology | 49,989 | — | — | |
|
| ||||
| Total common stocks | 10,858,739 | 6,350,346 | — | |
| Short-term investments | 389,679 | 88,161 | — | |
|
| ||||
| Totals by level | $11,248,418 | $6,438,507 | $— | |
| Valuation inputs | ||||
|
| ||||
| Other financial instruments: | Level 1 | Level 2 | Level 3 | |
|
| ||||
| Forward currency contracts | $— | $(38,818) | $— | |
|
| ||||
| Totals by level | $— | $(38,818) | $— | |
The accompanying notes are an integral part of these financial statements.
25
Statement of assets and liabilities 8/31/11
| ASSETS | |
|
| |
| Investment in securities, at value, including $84,334 of securities on loan (Note 1): | |
| Unaffiliated issuers (identified cost $17,122,180) | $17,209,085 |
| Affiliated issuers (identified cost $477,840) (Notes 1 and 6) | 477,840 |
|
| |
| Cash | 23,829 |
|
| |
| Dividends, interest and other receivables | 61,110 |
|
| |
| Receivable for shares of the fund sold | 58,499 |
|
| |
| Receivable for investments sold | 248,395 |
|
| |
| Unrealized appreciation on forward currency contracts (Note 1) | 33,881 |
|
| |
| Receivable from Manager (Note 2) | 6,771 |
|
| |
| Total assets | 18,119,410 |
| LIABILITIES | |
|
| |
| Payable for investments purchased | 251,340 |
|
| |
| Payable for shares of the fund repurchased | 1,886 |
|
| |
| Payable for investor servicing fees (Note 2) | 4,808 |
|
| |
| Payable for custodian fees (Note 2) | 12,806 |
|
| |
| Payable for Trustee compensation and expenses (Note 2) | 1,385 |
|
| |
| Payable for administrative services (Note 2) | 75 |
|
| |
| Payable for distribution fees (Note 2) | 8,759 |
|
| |
| Payable for auditing fees | 51,400 |
|
| |
| Unrealized depreciation on forward currency contracts (Note 1) | 72,699 |
|
| |
| Collateral on securities loaned, at value (Note 1) | 88,161 |
|
| |
| Other accrued expenses | 12,018 |
|
| |
| Total liabilities | 505,337 |
| Net assets | $17,614,073 |
|
| |
| REPRESENTED BY | |
|
| |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $16,848,777 |
|
| |
| Undistributed net investment income (Note 1) | 185,032 |
|
| |
| Accumulated net realized gain on investments and foreign currency transactions (Note 1) | 532,283 |
|
| |
| Net unrealized appreciation of investments and assets and liabilities in foreign currencies | 47,981 |
|
| |
| Total — Representing net assets applicable to capital shares outstanding | $17,614,073 |
(Continued on next page)
26
Statement of assets and liabilities (Continued)
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
| |
| Net asset value and redemption price per class A share ($12,275,646 divided by 937,205 shares) | $13.10 |
|
| |
| Offering price per class A share (100/94.25 of $13.10)* | $13.90 |
|
| |
| Net asset value and offering price per class B share ($2,147,231 divided by 166,085 shares)** | $12.93 |
|
| |
| Net asset value and offering price per class C share ($990,960 divided by 76,628 shares)** | $12.93 |
|
| |
| Net asset value and redemption price per class M share ($379,037 divided by 29,188 shares) | $12.99 |
|
| |
| Offering price per class M share (100/96.50 of $12.99)* | $13.46 |
|
| |
| Net asset value, offering price and redemption price per class R share | |
| ($591,692 divided by 45,329 shares) | $13.05 |
|
| |
| Net asset value, offering price and redemption price per class Y share | |
| ($1,229,507 divided by 93,561 shares) | $13.14 |
|
| |
* On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
27
Statement of operations Year ended 8/31/11
| INVESTMENT INCOME | |
|
| |
| Dividends (net of foreign tax of $15,697) | $303,859 |
|
| |
| Interest (including interest income of $598 from investments in affiliated issuers) (Note 6) | 907 |
|
| |
| Securities lending (Note 1) | 1,206 |
|
| |
| Total investment income | 305,972 |
| EXPENSES | |
|
| |
| Compensation of Manager (Note 2) | 96,959 |
|
| |
| Investor servicing fees (Note 2) | 48,973 |
|
| |
| Custodian fees (Note 2) | 19,649 |
|
| |
| Trustee compensation and expenses (Note 2) | 966 |
|
| |
| Administrative services (Note 2) | 420 |
|
| |
| Distribution fees — Class A (Note 2) | 28,229 |
|
| |
| Distribution fees — Class B (Note 2) | 17,458 |
|
| |
| Distribution fees — Class C (Note 2) | 8,453 |
|
| |
| Distribution fees — Class M (Note 2) | 2,249 |
|
| |
| Distribution fees — Class R (Note 2) | 1,059 |
|
| |
| Auditing | 51,746 |
|
| |
| Other | 19,004 |
|
| |
| Fees waived and reimbursed by Manager (Note 2) | (60,578) |
|
| |
| Total expenses | 234,587 |
| Expense reduction (Note 2) | (807) |
|
| |
| Net expenses | 233,780 |
| Net investment income | 72,192 |
|
| |
| Net realized gain on investments (Notes 1 and 3) | 600,473 |
|
| |
| Net realized gain on foreign currency transactions (Note 1) | 148,547 |
|
| |
| Net realized gain on written options (Notes 1 and 3) | 147,552 |
|
| |
| Net unrealized depreciation of assets and liabilities in foreign currencies during the year | (24,665) |
|
| |
| Net unrealized appreciation of investments during the year | 343,934 |
|
| |
| Net gain on investments | 1,215,841 |
| Net increase in net assets resulting from operations | $1,288,033 |
|
| |
The accompanying notes are an integral part of these financial statements.
28
Statement of changes in net assets
| INCREASE IN NET ASSETS | Year ended 8/31/11 | Year ended 8/31/10 |
|
| ||
| Operations: | ||
| Net investment income | $72,192 | $64,683 |
|
| ||
| Net realized gain on investments | ||
| and foreign currency transactions | 896,572 | 270,876 |
|
| ||
| Net unrealized appreciation (depreciation) of investments | ||
| and assets and liabilities in foreign currencies | 319,269 | (868,413) |
|
| ||
| Net increase (decrease) in net assets resulting from operations | 1,288,033 | (532,854) |
|
| ||
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Net investment income | ||
|
| ||
| Class A | (101,468) | (78,152) |
|
| ||
| Class B | (6,391) | (5,133) |
|
| ||
| Class C | (3,998) | (2,142) |
|
| ||
| Class M | (1,800) | (1,412) |
|
| ||
| Class R | (396) | (109) |
|
| ||
| Class Y | (7,873) | (4,263) |
|
| ||
| Net realized short-term gain on investments | ||
|
| ||
| Class A | (81,829) | (101,818) |
|
| ||
| Class B | (9,510) | (8,258) |
|
| ||
| Class C | (5,616) | (3,738) |
|
| ||
| Class M | (2,103) | (2,123) |
|
| ||
| Class R | (328) | (185) |
|
| ||
| Class Y | (5,378) | (4,838) |
|
| ||
| From net realized long-term gain on investments | ||
| Class A | (212,754) | — |
|
| ||
| Class B | (24,726) | — |
|
| ||
| Class C | (14,601) | — |
|
| ||
| Class M | (5,467) | — |
|
| ||
| Class R | (852) | — |
|
| ||
| Class Y | (13,983) | — |
|
| ||
| Redemption fees (Note 1) | 6,786 | 2,533 |
|
| ||
| Increase from capital share transactions (Note 4) | 8,116,178 | 3,448,720 |
|
| ||
| Total increase in net assets | 8,911,924 | 2,706,228 |
| NET ASSETS | ||
|
| ||
| Beginning of year | 8,702,149 | 5,995,921 |
|
| ||
| End of year (including undistributed net investment | ||
| income of $185,032 and $87,121, respectively) | $17,614,073 | $8,702,149 |
|
| ||
The accompanying notes are an integral part of these financial statements.
29
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | ||||||||||||
|
| ||||||||||||||
| Ratio | Ratio | |||||||||||||
| Net realized | From | of expenses | of net investment | |||||||||||
| Net asset value, | and unrealized | Total from | From | net realized | Total return | Net assets, | to average | income (loss) | Portfolio | |||||
| beginning | Net investment | gain (loss) | investment | net investment | gain | Total | Redemption | Net asset value, | at net asset | end of period | net assets | to average | turnover | |
| Period ended | of period | income (loss) a | on investments | operations | income | on investments | distributions | fees b | end of period | value (%) c | (in thousands) | (%) d,e | net assets (%) e | (%) |
|
| ||||||||||||||
| Class A | ||||||||||||||
| August 31, 2011 | $10.96 | .08 | 2.67 | 2.75 | (.16) | (.45) | (.61) | — | $13.10 | 24.94 | $12,276 | 1.40 | .58 | 61 |
| August 31, 2010 | 11.53 | .10 | (.34) | (.24) | (.14) | (.19) | (.33) | — | 10.96 | (2.45) | 6,891 | 1.48 | .85 | 57 |
| August 31, 2009† | 10.00 | .13 | 1.40 | 1.53 | — b | — | — b | — | 11.53 | 15.34 * | 5,269 | 1.04* | 1.22* | 29* |
|
| ||||||||||||||
| Class B | ||||||||||||||
| August 31, 2011 | $10.84 | (.02) | 2.64 | 2.62 | (.08) | (.45) | (.53) | — | $12.93 | 24.09 | $2,147 | 2.15 | (.14) | 61 |
| August 31, 2010 | 11.47 | .02 | (.34) | (.32) | (.12) | (.19) | (.31) | — | 10.84 | (3.20) | 781 | 2.23 | .18 | 57 |
| August 31, 2009† | 10.00 | .08 | 1.39 | 1.47 | — b | — | — b | — | 11.47 | 14.71 * | 256 | 1.57* | .74* | 29* |
|
| ||||||||||||||
| Class C | ||||||||||||||
| August 31, 2011 | $10.85 | (.02) | 2.64 | 2.62 | (.09) | (.45) | (.54) | — | $12.93 | 24.02 | $991 | 2.15 | (.12) | 61 |
| August 31, 2010 | 11.47 | .02 | (.34) | (.32) | (.11) | (.19) | (.30) | — | 10.85 | (3.19) | 469 | 2.23 | .13 | 57 |
| August 31, 2009† | 10.00 | .08 | 1.39 | 1.47 | — b | — | — b | — | 11.47 | 14.71 * | 150 | 1.57* | .70* | 29* |
|
| ||||||||||||||
| Class M | ||||||||||||||
| August 31, 2011 | $10.88 | .02 | 2.65 | 2.67 | (.11) | (.45) | (.56) | — | $12.99 | 24.40 | $379 | 1.90 | .12 | 61 |
| August 31, 2010 | 11.49 | .05 | (.35) | (.30) | (.12) | (.19) | (.31) | — | 10.88 | (2.96) | 173 | 1.98 | .45 | 57 |
| August 31, 2009† | 10.00 | .10 | 1.39 | 1.49 | — b | — | — b | — | 11.49 | 14.92 * | 65 | 1.39* | .91* | 29* |
|
| ||||||||||||||
| Class R | ||||||||||||||
| August 31, 2011 | $10.94 | .09 | 2.62 | 2.71 | (.15) | (.45) | (.60) | — | $13.05 | 24.67 | $592 | 1.65 | .67 | 61 |
| August 31, 2010 | 11.51 | .07 | (.34) | (.27) | (.11) | (.19) | (.30) | — | 10.94 | (2.71) | 14 | 1.73 | .60 | 57 |
| August 31, 2009† | 10.00 | .10 | 1.41 | 1.51 | — b | — | — b | — | 11.51 | 15.12 * | 12 | 1.22* | 1.01* | 29* |
|
| ||||||||||||||
| Class Y | ||||||||||||||
| August 31, 2011 | $10.99 | .12 | 2.66 | 2.78 | (.18) | (.45) | (.63) | — | $13.14 | 25.22 | $1,230 | 1.15 | .88 | 61 |
| August 31, 2010 | 11.55 | .14 | (.35) | (.21) | (.16) | (.19) | (.35) | — | 10.99 | (2.19) | 373 | 1.23 | 1.14 | 57 |
| August 31, 2009† | 10.00 | .16 | 1.39 | 1.55 | — b | — | — b | — | 11.55 | 15.55 * | 244 | .86* | 1.49* | 29* |
|
| ||||||||||||||
* Not annualized.
† For the period December 18, 2008 (commencement of operations) to August 31, 2009.
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Amount represents less than $0.01 per share.
c Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
d Includes amounts paid through expense offset and brokerage/service arrangements (Note 2).
e Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amount (Note 2):
| Percentage of | |
| average net assets | |
|
| |
| August 31, 2011 | 0.39% |
|
| |
| August 31, 2010 | 1.14 |
|
| |
| August 31, 2009 | 4.00 |
|
| |
The accompanying notes are an integral part of these financial statements.
| 30 | 31 |
Notes to financial statements 8/31/11
Note 1: Significant accounting policies
Putnam Global Energy Fund (the fund) is a non-diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust which is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The investment objective of the fund is to seek capital appreciation by investing mainly in common stocks (growth or value stocks or both) of large and midsize companies worldwide that Putnam Investment Management, LLC (Putnam Management), the fund’s manager, a wholly-owned subsidiary of Putnam Investments, LLC, believes have favorable investment potential. The fund concentrates its investments in one sector which involves more risk than a fund that invests more broadly.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. 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’s management team 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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from September 1, 2010 through August 31, 2011.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
32
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management, does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
C) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
D) Options contracts The fund uses options contracts to generate additional income for the portfolio. The potential risk to the fund is that the change in value of options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments if there is an illiquid secondary market for the contracts, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.
Exchange traded options are valued at the last sale price or, if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. Written option contracts outstanding at period end, if any, are listed after the fund’s portfolio. See Note 3 for the volume of written options contracts activity for the reporting period. The fund had an average contract amount of approximately 100,000 on purchased options contracts for the reporting period.
33
E) Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. The fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed when the contract matures or by delivery of the currency. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average contract amount of approximately $5,500,000 on forward currency contracts for the reporting period.
F) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty. Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund had a net liability position of $53,181 on derivative contracts subject to the Master Agreements. There was no collateral posted by the fund.
G) Securities lending The fund may lend securities, through its agent, to qualified borrowers in order to earn additional income. The loans are collateralized by cash in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agent; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. Cash collateral is invested in Putnam Cash Collateral Pool, LLC, a limited liability company managed by an affiliate of Putnam Management. Investments in Putnam Cash Collateral Pool, LLC are valued at its closing net asset value each business day. There are no management fees charged by Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the value of securities loaned amounted to $84,334 and the fund received cash collateral of $88,161.
H) Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
I) Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a
34
commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
J) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (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. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. 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. Each of the fund’s federal tax returns for the prior three periods remains subject to examination by the Internal Revenue Service.
K) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of losses on wash sale transactions and foreign currency gains and losses. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the reporting period ended, the fund reclassified $147,645 to increase undistributed net investment income and $147,645 to decrease accumulated net realized gains.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
| Unrealized appreciation | $1,352,353 |
| Unrealized depreciation | (1,332,844) |
|
| |
| Net unrealized appreciation | 19,509 |
| Undistributed ordinary income | 141,800 |
| Undistributed short-term gain | 356,550 |
| Undistributed long-term gain | 247,654 |
| Cost for federal income tax purposes | $17,667,416 |
L) 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
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
| 0.780% | of the first $5 billion, |
| 0.730% | of the next $5 billion, |
| 0.680% | of the next $10 billion, |
| 0.630% | of the next $10 billion, |
| 0.580% | of the next $50 billion, |
| 0.560% | of the next $50 billion, |
| 0.550% | of the next $100 billion, |
| 0.545% | of any excess thereafter. |
Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing
35
contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were reduced by $60,578 as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.
The Putnam Advisory Company, LLC (PAC), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. Putnam Management or PIL, as applicable, pays a quarterly sub-advisory fee to PAC for its services at the annual rate of 0.35% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. The fund also reduced expenses through brokerage/service arrangements. For the reporting period, the fund’s expenses were reduced by $63 under the expense offset arrangements and by $744 under the brokerage/service arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $13, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years 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. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. 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 A, class B, class C, class M 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 Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
36
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $20,047 and $333 from the sale of class A and class M shares, respectively, and received $1,966 and $256 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A and class M redemptions.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $16,861,302 and $9,169,577, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
Written option transactions during the reporting period are summarized as follows:
| Written equity option | Written equity option | |
| contract amounts | premiums received | |
|
| ||
| Written options outstanding at the | ||
| beginning of the reporting period | — | $— |
|
| ||
| Options opened | 331,579 | 175,737 |
|
| ||
| Options exercised | — | — |
|
| ||
| Options expired | — | — |
|
| ||
| Options closed | (331,579) | (175,737) |
|
| ||
| Written options outstanding at the | ||
| end of the reporting period | — | $— |
|
| ||
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class A | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 535,578 | $7,688,519 | 315,909 | $3,893,076 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 28,846 | 385,101 | 14,215 | 176,971 |
|
| ||||
| 564,424 | 8,073,620 | 330,124 | 4,070,047 | |
|
| ||||
| Shares repurchased | (256,144) | (3,543,498) | (158,334) | (1,873,402) |
|
| ||||
| Net increase | 308,280 | $4,530,122 | 171,790 | $2,196,645 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class B | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 151,503 | $2,156,140 | 71,971 | $873,288 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 3,011 | 39,894 | 1,062 | 13,163 |
|
| ||||
| 154,514 | 2,196,034 | 73,033 | 886,451 | |
|
| ||||
| Shares repurchased | (60,487) | (804,560) | (23,250) | (277,958) |
|
| ||||
| Net increase | 94,027 | $1,391,474 | 49,783 | $608,493 |
|
| ||||
37
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class C | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 59,308 | $843,400 | 41,118 | $486,208 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 1,260 | 16,700 | 435 | 5,394 |
|
| ||||
| 60,568 | 860,100 | 41,553 | 491,602 | |
|
| ||||
| Shares repurchased | (27,177) | (374,434) | (11,368) | (129,529) |
|
| ||||
| Net increase | 33,391 | $485,666 | 30,185 | $362,073 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class M | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 16,056 | $228,447 | 13,717 | $170,868 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 688 | 9,133 | 285 | 3,535 |
|
| ||||
| 16,744 | 237,580 | 14,002 | 174,403 | |
|
| ||||
| Shares repurchased | (3,494) | (48,951) | (3,744) | (46,409) |
|
| ||||
| Net increase | 13,250 | $188,629 | 10,258 | $127,994 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class R | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 55,356 | $795,441 | 280 | $3,310 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 118 | 1,576 | 24 | 294 |
|
| ||||
| 55,474 | 797,017 | 304 | 3,604 | |
|
| ||||
| Shares repurchased | (11,436) | (167,028) | (13) | (145) |
|
| ||||
| Net increase | 44,038 | $629,989 | 291 | $3,459 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class Y | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 93,563 | $1,359,555 | 24,756 | $293,868 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 2,006 | 26,818 | 730 | 9,100 |
|
| ||||
| 95,569 | 1,386,373 | 25,486 | 302,968 | |
|
| ||||
| Shares repurchased | (35,994) | (496,075) | (12,667) | (152,912) |
|
| ||||
| Net increase | 59,575 | $890,298 | 12,819 | $150,056 |
|
| ||||
At the close of the reporting period, Putnam Investments, LLC owned the following class shares of the fund:
| Shares owned | Percent of ownership | Value | |
|
| |||
| Class A | 210,202 | 22.4% | $2,753,646 |
|
| |||
| Class R | 1,070 | 2.4 | 13,963 |
|
| |||
| Class Y | 1,077 | 1.2 | 14,152 |
|
| |||
38
Note 5: Summary of derivative activity
The following is a summary of the market values of derivative instruments as of the close of the reporting period:
Market values of derivative instruments as of the close of the reporting period
| Asset derivatives | Liability derivatives | |||
|
| ||||
| Derivatives not | ||||
| accounted for as | Statement of | Statement of | ||
| hedging instruments | assets and | assets and | ||
| under ASC 815 | liabilities location | Market value | liabilities location | Market value |
|
| ||||
| Foreign exchange | ||||
| contracts | Receivables | $33,881 | Payables | $72,699 |
|
| ||||
| Total | $33,881 | $72,699 | ||
|
| ||||
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | ||
| instruments under ASC 815 | Options | contracts | Total |
|
| |||
| Foreign exchange contracts | $— | $154,814 | $154,814 |
|
| |||
| Equity contracts | 6,631 | — | $6,631 |
|
| |||
| Total | $6,631 | $154,814 | $161,445 |
|
| |||
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | ||
| instruments under ASC 815 | contracts | Total | |
|
| |||
| Foreign exchange contracts | $(25,303) | $(25,303) | |
|
| |||
| Total | $(25,303) | $(25,303) | |
|
| |||
Note 6: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $598 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $6,959,597 and $6,924,215, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 7: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
39
Federal tax information (Unaudited)
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $392,240 as a capital gain dividend with respect to the taxable year ended August 31, 2011, or, if subsequently determined to be different, the net capital gain of such year.
The fund designated 21.52% of ordinary income distributions as qualifying for the dividends received deduction for corporations.
For its tax year ended August 31, 2011, the fund hereby designates 54.13%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
For the tax year ended August 31, 2011, pursuant to §871(k) of the Internal Revenue Code, the fund hereby designates $24 of distributions paid as qualifying to be taxed as interest-related dividends, and $104,764 to be taxed as short-term capital gain dividends for nonresident alien shareholders.
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
40
About the Trustees
| Independent Trustees | ||
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
| Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
| Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
| Shields, a multi-product investment management firm | focused on private | |
| with over $40 billion in assets under management. | equity advisory services; | |
| RAGE Frameworks, | ||
| Inc., a private software | ||
| company | ||
|
| ||
| Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
| Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
| Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
| College and member of the Investment Committee for the | company; UniSource | |
| college’s endowment. Former Chair and current board | Energy Corporation, | |
| member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
| the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
| refiner and fertilizer | ||
| manufacturer; Cody | ||
| Resources Management, | ||
| LLP, a privately held | ||
| energy, ranching, and | ||
| commercial real estate | ||
| company | ||
|
| ||
| Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
| Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
| Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
| Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
| to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
| since 2011 | ||
|
| ||
| Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
| Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
| Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
| for Strategic and International Studies. Member of the | ||
| Council on Foreign Relations. | ||
|
| ||
| Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
| Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
| Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
| Johnson & Johnson’s Chief Financial Officer for a decade. | ||
|
| ||
| John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
| Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
| Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
| Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
| to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
| of the Millstein Center for Corporate Governance and | ||
| Performance at the Yale School of Management. | ||
|
| ||
41
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
| Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
| Trustee since 1997 | on research and education on issues related to science, | company focused on |
| technology, and economic performance. Elizabeth and | natural gas transmission | |
| James Killian Professor of Economics, Emeritus at the | and power services; | |
| Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
| 2007, served as the Director of the Center for Energy and | energy company focused | |
| Environmental Policy Research at MIT. | on power services | |
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| Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
| Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
| Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
| Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
| Massachusetts. Until November 2010, director of Ruder | ||
| Finn Group, a global communications and advertising firm. | ||
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| Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
| Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
| Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
| Joslin Diabetes Center. | ||
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| George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
| Born 1951 | of financial advisory and other research services, and | |
| Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
| a registered investment advisor to private funds. | ||
| Director of The Boston Family Office, LLC, a registered | ||
| investment advisor. | ||
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| W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
| Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
| Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
| and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
| packaging products. | ||
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| Interested Trustee | ||
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| Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
| Born 1952 | Investments since 2008. Prior to joining Putnam | |
| Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
| President of the Putnam | Operating Officer of Fidelity Investments from | |
| Funds since July 2009 | 2000 to 2007. | |
|
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The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2011, there were 106 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
42
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
| Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
| Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
| Officer, Treasurer and Compliance Liaison | Since 2011 |
| Since 2004 | General Counsel, Putnam Investments and |
| Putnam Management | |
| Steven D. Krichmar (Born 1958) | |
| Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
| Since 2002 | Vice President |
| Chief of Operations, Putnam Investments and | Since 2004 |
| Putnam Management | Director of Trustee Relations, |
| Putnam Investments and Putnam Management | |
| Janet C. Smith (Born 1965) | |
| Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
| Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
| Since 2007 | Since 1993 |
| Director of Fund Administration Services, | |
| Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
| Vice President, Senior Associate Treasurer and | |
| Beth S. Mazor (Born 1958) | Assistant Clerk |
| Vice President | Since 2010 |
| Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
| Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
| Investments and Putnam Management | Management (2007–2008); Senior Financial |
| Analyst, Putnam Investments (1999–2007) | |
| Robert R. Leveille (Born 1969) | |
| Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
| Since 2007 | Vice President, Assistant Clerk, Assistant |
| Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
| Putnam Management, and Putnam Retail | Since 2000 |
| Management | |
| Susan G. Malloy (Born 1957) | |
| Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
| Vice President and BSA Compliance Officer | Since 2007 |
| Since 2002 | Director of Accounting & Control Services, |
| Director of Operational Compliance, | Putnam Management |
| Putnam Investments and Putnam | |
| Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
43
Services for shareholders
Investor services
Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.
Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.
Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.
Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.
Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.
Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.
Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.
Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.
For more information
Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.
Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.
44
Fund information
Founded over 70 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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Trustees | Beth S. Mazor |
| Putnam Investment | Jameson A. Baxter, Chair | Vice President |
| Management, LLC | Ravi Akhoury | |
| One Post Office Square | Barbara M. Baumann | Robert R. Leveille |
| Boston, MA 02109 | Charles B. Curtis | Vice President and |
| Robert J. Darretta | Chief Compliance Officer | |
| Investment Sub-Manager | John A. Hill | |
| Putnam Investments Limited | Paul L. Joskow | Mark C. Trenchard |
| 57–59 St James’s Street | Kenneth R. Leibler | Vice President and |
| London, England SW1A 1LD | Robert E. Patterson | BSA Compliance Officer |
| George Putnam, III | ||
| Investment Sub-Advisor | Robert L. Reynolds | Robert T. Burns |
| The Putnam Advisory | W. Thomas Stephens | Vice President and |
| Company, LLC | Chief Legal Officer | |
| One Post Office Square | Officers | |
| Boston, MA 02109 | Robert L. Reynolds | James P. Pappas |
| President | Vice President | |
| Marketing Services | ||
| Putnam Retail Management | Jonathan S. Horwitz | Judith Cohen |
| One Post Office Square | Executive Vice President, | Vice President, Clerk and |
| Boston, MA 02109 | Principal Executive | Assistant Treasurer |
| Officer, Treasurer and | ||
| Custodian | Compliance Liaison | Michael Higgins |
| State Street Bank | Vice President, Senior Associate | |
| and Trust Company | Steven D. Krichmar | Treasurer and Assistant Clerk |
| Vice President and | ||
| Legal Counsel | Principal Financial Officer | Nancy E. Florek |
| Ropes & Gray LLP | Vice President, Assistant Clerk, | |
| Janet C. Smith | Assistant Treasurer and | |
| Independent Registered | Vice President, Assistant | Proxy Manager |
| Public Accounting Firm | Treasurer and Principal | |
| KMPG LLP | Accounting Officer | Susan G. Malloy |
| Vice President and | ||
| Assistant Treasurer |
This report is for the information of shareholders of Putnam Global Energy 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 putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary 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.
| Item 2. Code of Ethics: |
| (a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund’s investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
| (c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
| Item 3. Audit Committee Financial Expert: |
| The Funds’ Audit and Compliance Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification. |
| Item 4. Principal Accountant Fees and Services: |
| The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor: |
| Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
| August 31, 2011 | $51,308 | $-- | $4,100 | $ — | |
| August 31, 2010 | $43,906 | $-- | $3,900 | $ — | |
| For the fiscal years ended August 31, 2011 and August 31, 2010, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $4,100 and $3,900 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
| Audit Fees represent fees billed for the fund’s last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
| Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
| Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
| Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
| The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
| The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. |
| Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
| August 31, 2011 | $ — | $ — | $ — | $ — | |
| August 31, 2010 | $ — | $ — | $ — | $ — | |
| 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) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
| (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/Janet C. Smith Janet C. Smith Principal Accounting Officer |
| Date: October 27, 2011 |
| 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/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
| Date: October 27, 2011 |
| By (Signature and Title): |
| /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: October 27, 2011 |
| 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 800 Boylston Street Boston, Massachusetts 02199-3600 |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
| Date of fiscal year end: | August 31, 2011 |
| Date of reporting period: | September 1, 2010 — August 31, 2011 |
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: | |||
Putnam
Global Financials
Fund
Annual report
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| About the fund | 2 | ||
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| Performance snapshot | 4 | ||
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| Interview with your fund’s portfolio manager | 5 | ||
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| Your fund’s performance | 10 | ||
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| Your fund’s expenses | 12 | ||
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| Terms and definitions | 14 | ||
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| Trustee approval of management contract | 15 | ||
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| Other information for shareholders | 19 | ||
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| Financial statements | 20 | ||
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| Federal tax information | 41 | ||
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| About the Trustees | 42 | ||
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| Officers | 44 | ||
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Message from the Trustees
Dear Fellow Shareholder:
Markets around the world are grappling with heightened volatility. In the United States, persistently high unemployment and other weak economic data have fueled investors’ risk aversion, while in Europe the sovereign debt crisis shows little sign of abating. Certain bright spots do exist, but it is clear that volatility and uncertainty will remain with us for the near term.
We believe it is important to consult your financial advisor in times like these to consider whether your portfolio reflects an appropriate degree of diversification. In responding to this need, Putnam offers funds with strategies that seek to limit volatility and also employs an active, research-based investment approach that is designed to offer shareholders a potential advantage in this climate by looking for new growth opportunities and seeking to guard against downside risk.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancy’s Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
About the fund
Pursuing growth opportunities in financial companies worldwide
In a market economy, the financials sector performs vital functions. For example, banks provide the flow of funding that allows all industries to grow and thrive, while insurance companies help businesses and households recover from unexpected problems. The importance of these roles means that well-managed financial institutions rarely become obsolete, a feature that can make them attractive investments.
As economies develop over time, the financials sector also evolves. From the popularization of credit cards in the 1960s to the introduction of ATMs, financial services advance along with technology and shifting consumer habits. With these changes comes new potential for investors.
Putnam Global Financials Fund pursues growth opportunities by investing in stocks of financial companies worldwide. The fund’s manager works with sector analysts who analyze companies to identify those best positioned to reward investors. The fund also seeks the most attractive industries within the sector, choosing primarily from banking, insurance, and real estate, as well as credit card companies and brokerage firms.
The fund’s global mandate enables it to benefit from investments in many different countries. Since finance is integrated with all other business sectors, the performance of financial companies often reflects the strength of a nation’s economy. Approximately one third of the financial stocks available to investors (measured by market capitalization) trade in the United States. Other large markets are Japan and the United Kingdom. Each country has a different set of financial regulations, which is why it is beneficial for the fund’s manager to compare opportunities across companies, industries, and countries.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The use of short selling may result in losses if the securities appreciate in value. The fund’s policy of concentrating on a limited group of industries and the fund’s non-diversified status, which means the fund may invest in fewer issuers, can increase the fund’s vulnerability to common economic forces and may result in greater losses and volatility.
Sector investing at Putnam
In recent decades, innovation and business growth have propelled stocks in different industries to market-leading performance. Finding these stocks, many of which are in international markets, requires rigorous research and in-depth knowledge of global markets.
Putnam’s sector funds invest in nine sectors worldwide and offer active management, risk controls, and the expertise of dedicated sector analysts. The funds’ managers invest with flexibility and precision, using fundamental research to hand select stocks for the portfolios.
All sectors in one fund:
Putnam Global Sector Fund
A portfolio of individual Putnam Global Sector Funds that provides exposure to all sectors of the MSCI World Index.
Individual sector funds:
Global Consumer Fund
Retail, hotels, restaurants, media, food and beverages
Global Energy Fund
Oil and gas, energy equipment and services
Global Financials Fund
Commercial banks, insurance, diversified financial services, mortgage finance
Global Health Care Fund
Pharmaceuticals, biotechnology, health-care services
Global Industrials Fund
Airlines, railroads, trucking, aerospace and defense, construction, commercial services
Global Natural Resources Fund
Metals, chemicals, oil and gas, forest products
Global Technology Fund
Software, computers, Internet services
Global Telecommunications Fund
Diversified and wireless telecommunications services
Global Utilities Fund
Electric, gas, and water utilities
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See pages 5 and 10–11 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus. To obtain the most recent month-end performance, visit putnam.com.
4
Interview with your fund’s portfolio manager
David Morgan
David, the financials sector has hit another rough stretch in the second half of the fiscal year. What were the issues that confronted the sector?
Three major risks have afflicted the financials sector for some time: sovereign debt risk, or national indebtedness in developed nations; new regulations and the uncertainty surrounding them; and the pace of economic development. All have played some role in the sector’s recent performance. Also, a new concern has emerged surrounding litigation against investment banks that sold mortgage-backed securities during the housing bubble. This litigation primarily affects U.S. investment banks but also has an impact among European financial institutions.
Without question, European sovereign debt risk is the biggest issue facing the financials sector today, and it has pushed down the prices of bank stocks in both Europe and the United States significantly since April. The fear is that Greece’s insolvency will cause a default and produce significant market turmoil. Greece, along with Ireland and Portugal, has received financial support from the European Union, the European Central Bank, and the International Monetary Fund. In July, the European Financial Stability Facility (EFSF) was created as a backstop. However, since July new doubts have emerged.
How can a small economy such as Greece have such a major impact?
Investors fear that a default by Greece could have unforeseeable consequences, which could include bank failures and additional sovereign defaults by Portugal or Ireland, and perhaps even Spain or Italy. These last two countries are too large for the financing that European nations have so far assembled under the EFSF. Spain has approximately $750 billion in sovereign debt and Italy has $1.8 trillion. At
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 8/31/11. See pages 4 and 10–11 for additional fund performance information. Index descriptions can be found on page 14.
5
this point, the EFSF has about $250 billion, since nearly $200 billion has been extended to Greece, Ireland, and Portugal.
Additionally, the EFSF itself is subject to wide-ranging political contingencies. While national leaders agreed to the EFSF, it must also gain parliamentary ratification in the 17 nations that use the euro, and political resistance is building. Today, politics, rather than business fundamentals, can have a significant impact on bank stock prices. This problem is likely to last until the EFSF establishes a successful track record, or Greece’s situation is resolved in an orderly manner that reassures the market that contagion is unlikely.
How are banks connected to the sovereign debt problem?
The crisis influences banks in two ways: funding and capital levels. European banks, significantly more than their U.S. counterparts, are highly reliant on wholesale funding, such as deposits from money market fund and debt investors, to supplement customer deposit accounts, where the cost of funding is linked to the cost at which the domestic government can borrow. For many banks, increasing concerns about sovereign debt issues have raised the cost of this funding and, in some cases, access to wholesale funding has been shut off completely. Hence, as government debts have increased, so have their borrowing costs. In turn, this trend has raised the cost of this funding for banks.
Second, many European banks have large direct ownership of sovereign bonds, whose declining values could represent a significant hit to the banks’ capital. As bond prices drop, the banks have less capital, but regulations require certain minimum capital levels. Banks can turn to equity markets to raise capital, but given the risks, raising capital in this manner would be expensive and potentially could dilute value for current shareholders. Also, the problem is large. Should contagion spread to Spain and Italy, I estimate that stabilizing Europe’s banking system would require $250 billion in capital in short order.
Given the capital situation, the ultimate problem is that, while a Greek default in
Country allocations are shown as a percentage of the fund’s net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any. Weightings will vary over time.
6
isolation is theoretically manageable, there is a possibility of such a crisis spreading and threatening the solvency of Italy and Spain. This contagion would be quite destructive, such that one or more banks could become insolvent and fail, as Lehman Brothers did in 2008. This possibility puts the banking system at risk, and it is why the market has pushed down valuations across the banking industry. In my view, bank stock prices now reflect the likelihood of a default by Greece, but they do not yet fully reflect the risk of Spain or Italy defaulting.
Let’s turn to the fund. How has Europe’s situation influenced your portfolio decisions?
The fund has a significant underweight position in Europe’s banking industry relative to our sector index benchmark, and we have continued to trim and remove stocks from the portfolio during the course of this fiscal year.
We prefer banks in the United States, Asia, and emerging markets over European banks. The fund has significant positions in Industrial and Commercial Bank of China, China Construction Bank, Sberbank in Russia, and Banco Bradesco in Brazil. In the emerging markets and Asia, the fundamental business conditions for banks are more attractive. These regions have experienced financial crises in the past 25 years that have led to tighter regulations, and I believe the banks are more solid as businesses. In addition, I believe that the emerging economies themselves have stronger long-term growth potential, and they have not yet been fully penetrated with banking or other financial services.
This positioning generally helped the fund’s performance during the annual period, although as the crisis worsened in August, we saw a decline in relative performance and the fund fell behind the benchmark. With a majority of fund assets invested in non-U.S. stocks,
This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 8/31/11. Short-term holdings are excluded. Holdings will vary over time.
7
foreign currency exposure added slightly to performance. We selectively hedged the exposures with forward currency contracts, a type of derivative. We also used another type of derivative — total return swaps — to manage and hedge industry risk.
For fund performance, were banks contributors or detractors?
The fund has had an underweight position in European banks during the period, where exposure has been primarily to non-eurozone economies such as the United Kingdom, Sweden, and Norway. Within the eurozone, I preferred French banks, such as Société Générale and BNP Paribas, over more problematic Italian and Spanish banks, among others on Europe’s periphery. However, as the crisis worsened it quickly engulfed the French banks. To reduce risk, I sold the position in Société Générale during the period and sold down BNP Paribas to an underweight position.
Also, as part of my underweight strategy, I sold positions in Deutsche Bank of Germany and UBS of Switzerland during the period. These moves helped results relative to the benchmark.
Outside the eurozone, banks had mixed results. An underweight position in Standard Chartered of the United Kingdom added to results. However, an overweight position in Barclays, a U.K. investment bank, was a detractor because of the company’s indirect exposure to Europe.
What is your view of other industries within the sector, such as insurance, consumer finance, and real estate?
At this time, these areas are more attractive than banking. They are less affected by the risks I outlined at the beginning of this commentary — sovereign debt, regulation, economic growth, and litigation. In Asia, in particular, insurance companies stand to benefit as a growing middle class takes advantage of these services. The fund has an overweight position in AIA Group, a pan-Asian life insurer based in Hong Kong, and an out-of-benchmark position in Ping An Insurance of China, and both contributed positively
This chart shows how the fund’s top weightings have changed over the past six months. Weightings are shown as a percentage of net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings will vary over time.
Chart data reflect a new calculation method put into effect within the past six months.
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to performance. XL Group of the United Kingdom, a diversified insurance company, and Marsh & McLennan, a U.S. insurance broker, were overweight positions relative to the index and were positive contributors.
The fund’s real estate holdings generally fared well. Contributors included Simon Property Group of the United States and Henderson Land Development of Hong Kong, both overweight positions versus the index.
What is your outlook for the sector and for the fund in the coming months?
Pressure is on policymakers in Europe to address Greece’s insolvency in an orderly way and to prevent contagion, since no other nation is currently insolvent. However, until a credible plan is agreed upon, the sector may remain at very low valuations. For investors, these low valuations are quite tempting, but for now the risk is too great, in my view, to increase investments in Europe’s banks.
Since the crisis has dragged down the whole sector, opportunities in other industries now offer attractive valuations. In the United States, for example, valuations are attractive, in my opinion, even when I assess the risks. U.S. banks have limited direct exposure to the problems within Europe, and the risk of tighter regulation has largely been resolved over the past year. Credit card companies also generally appear to be in much better condition than they were two to three years ago during the recession. Stocks of banks and insurance companies in emerging markets also have generally compelling prospects as well, in my view.
David, thanks for this update on the financials sector and the fund.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
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. Current and future portfolio holdings are subject to risk.
Portfolio Manager David Morgan has a B.S. from Bristol University. He joined Putnam in 2004 and has been in the investment industry since 1995.
IN THE NEWS
With economic storm clouds darkening, the Organisation for Economic Co-operation and Development (OECD) recently slashed its growth forecasts for the United States and many other countries for the remainder of 2011. In its interim forecast, released in early September, the OECD estimates that the United States economy will grow 1.1% in the third quarter and 0.4% in the fourth, down from the 2.9% and 3% growth it had predicted in May. Meanwhile, the OECD predicts that Japan will expand 4.1% in the third quarter before stagnating in the fourth, and that the German economy will grow 2.6% in the third quarter and shrink 1.4% in the fourth. For the third and fourth quarters, the United Kingdom is predicted to grow 0.4% and 0.3%, respectively. The OECD also said that central banks around the world should be ready to ease monetary policy if economies weaken further.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended August 31, 2011, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 8/31/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
|
| ||||||||||
| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
|
| ||||||||||
| Life of fund | 18.94% | 12.11% | 16.63% | 13.63% | 16.61% | 16.61% | 17.42% | 13.34% | 18.26% | 19.79% |
| Annual average | 6.63 | 4.32 | 5.86 | 4.84 | 5.85 | 5.85 | 6.12 | 4.74 | 6.40 | 6.91 |
|
| ||||||||||
| 1 year | –2.42 | –8.05 | –3.08 | –7.54 | –3.10 | –4.00 | –2.77 | –6.18 | –2.57 | –2.14 |
|
| ||||||||||
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 5.75% and 3.50% sales charge, respectively, levied at the time of purchase. Class B share returns after CDSC reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus.
Comparative index returns For periods ended 8/31/11
| Lipper Global Financial Services Funds | ||
| MSCI World Financials Index (ND) | category average* | |
|
| ||
| Life of fund | 21.26% | 44.67% |
| Annual average | 7.40 | 14.15 |
|
| ||
| 1 year | 0.35 | 4.07 |
|
| ||
Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* Over the 1-year and life-of-fund periods ended 8/31/11, there were 36 and 28 funds, respectively, in this Lipper category.
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Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B shares would have been valued at $11,663 ($11,363 after contingent deferred sales charge). Class C shares would have been valued at $11,661, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $11,334. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $11,826 and $11,979, respectively.
Fund price and distribution information For the 12-month period ended 8/31/11
| Distributions | Class A | Class B | Class C | Class M | Class R | Class Y | ||
|
| ||||||||
| Number | 1 | 1 | 1 | 1 | 1 | 1 | ||
|
| ||||||||
| Income | $0.1275 | $0.0485 | $0.0445 | $0.0625 | $0.1435 | $0.1615 | ||
|
| ||||||||
| Capital gains — Long-term | $0.3730 | $0.3730 | $0.3730 | $0.3730 | $0.3730 | $0.3730 | ||
|
| ||||||||
| Capital gains — Short-term | $0.5996 | $0.5996 | $0.5996 | $0.5996 | $0.5996 | $0.5996 | ||
|
| ||||||||
| Total | $1.1001 | $1.0211 | $1.0171 | $1.0351 | $1.1161 | $1.1341 | ||
|
| ||||||||
| Before | After | Net | Net | Before | After | Net | Net | |
| sales | sales | asset | asset | sales | sales | asset | asset | |
| Share value | charge | charge | value | value | charge | charge | value | value |
|
| ||||||||
| 8/31/10 | $11.59 | $12.30 | $11.47 | $11.48 | $11.54 | $11.96 | $11.57 | $11.62 |
|
| ||||||||
| 8/31/11 | 10.36 | 10.99 | 10.24 | 10.25 | 10.33 | 10.70 | 10.31 | 10.39 |
|
| ||||||||
The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares and 3.50% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
Fund performance as of most recent calendar quarter
Total return for periods ended 9/30/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
|
| ||||||||||
| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
|
| ||||||||||
| Life of fund | 1.72% | –4.13% | –0.45% | –3.08% | –0.46% | –0.46% | 0.26% | –3.23% | 0.94% | 2.38% |
| Annual average | 0.61 | –1.50 | –0.16 | –1.12 | –0.17 | –0.17 | 0.09 | –1.17 | 0.34 | 0.85 |
|
| ||||||||||
| 1 year | –22.87 | –27.33 | –23.54 | –27.06 | –23.54 | –24.25 | –23.29 | –25.96 | –23.15 | –22.75 |
|
| ||||||||||
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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’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, 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 representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Net expenses for the fiscal year ended 8/31/10*† | 1.45% | 2.20% | 2.20% | 1.95% | 1.70% | 1.20% |
|
| ||||||
| Total annual operating expenses for the fiscal year | ||||||
| ended 8/31/10† | 2.61% | 3.36% | 3.36% | 3.11% | 2.86% | 2.36% |
|
| ||||||
| Annualized expense ratio for the six-month period | ||||||
| ended 8/31/11‡ | 1.39% | 2.14% | 2.14% | 1.89% | 1.64% | 1.14% |
|
| ||||||
Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Reflects Putnam Management’s contractual obligation to limit expenses through 12/30/11.
† Restated to reflect projected expenses under a management contract effective 1/1/10.
‡ For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from March 1, 2011, to August 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $6.30 | $9.69 | $9.69 | $8.56 | $7.44 | $5.17 |
|
| ||||||
| Ending value (after expenses) | $799.40 | $796.90 | $796.40 | $797.70 | $799.20 | $800.50 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
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Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended August 31, 2011, use the following calculation method. To find the value of your investment on March 1, 2011, call Putnam at 1-800-225-1581.
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 following table 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 A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $7.07 | $10.87 | $10.87 | $9.60 | $8.34 | $5.80 |
|
| ||||||
| Ending value (after expenses) | $1,018.20 | $1,014.42 | $1,014.42 | $1,015.68 | $1,016.94 | $1,019.46 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
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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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
MSCI World Financials Index (ND) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets in the financials sector.
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 with Putnam Investment Management (“Putnam Management”), the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), and the sub-advisory contract among Putnam Management, PIL, and another affiliate, Putnam Advisory Company (“PAC”).
The Board of Trustees, with the assistance of its Contract Committee, which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. Over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided 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 on a number of occasions. At the Trustees’ June 17, 2011 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management, sub-management and sub-advisory contracts, effective July 1, 2011. (Because PIL and PAC are affiliates of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL and PAC, the Trustees have not evaluated PIL or PAC as separate entities, and all subsequent references to Putnam Management below should be deemed to include reference to PIL and PAC as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented 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 services, and
• That the fee schedule represented 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 management 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 some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
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Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. In reviewing management fees, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund.
Most of the open-end Putnam funds have new management contracts, with new fee schedules reflecting the implementation of more competitive fee levels for many funds, complex-wide breakpoints for the open-end funds, and performance fees for some funds. These new management contracts have been in effect for a little over a year — since January or, for a few funds, February, 2010. The Trustees approved the new management contracts on July 10, 2009, and fund shareholders subsequently approved the contracts by overwhelming majorities of the shares voted.
Because these management contracts had been implemented only recently, the Contract Committee had limited practical experience with the operation of the new fee structures. Under its new management contract, your fund has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Contract Committee observed that the complex-wide breakpoints of the open-end funds had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds had sufficiently low expenses that these expense limitations did not apply. However, in the case of your fund, both of the expense limitations applied during its fiscal year ending in 2010. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and extraordinary expenses). Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management, sub-management and sub-advisory contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the 1st quintile in effective management fees (determined for your fund and the other funds
16
in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the 2nd quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2010 (the first quintile representing the least expensive funds and the fifth quintile the most expensive funds). The fee and expense data reported by Lipper as of December 31, 2010 reflected the most recent fiscal year-end data available in Lipper’s database at that time.
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 provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds 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, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and 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 may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes 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 its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
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 Putnam funds’ investment process and performance by the work of several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality
17
personnel — but also recognized 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 each fund’s performance with various benchmarks and with the performance of competitive funds.
The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered information about the absolute return of your fund, and your fund’s performance relative to its internal benchmark. Putnam Global Financials Fund’s class A shares’ return net of fees and expenses was positive over the one-year period ended December 31, 2010, but trailed the return of its internal benchmark over the one-year period.
Brokerage and soft-dollar allocations; investor servicing
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 benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management contract, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
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Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, 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 website 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 website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of August 31, 2011, Putnam employees had approximately $323,000,000 and the Trustees had approximately $70,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
19
Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 year.
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.
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 highlights table also includes the current reporting period.
20
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Funds Trust:
We have audited the accompanying statement of assets and liabilities of Putnam Global Financials Fund (the fund), a series of Putnam Funds Trust, including the fund’s portfolio, as of August 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the two years in the period then ended and the period from December 18, 2008 (commencement of operations) to August 31, 2009. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2011 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Putnam Global Financials Fund as of August 31, 2011, the results of its operations, the changes in its net assets, and the financial highlights for the periods specified in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 11, 2011
21
The fund’s portfolio 8/31/11
| COMMON STOCKS (96.3%)* | Shares | Value |
|
| ||
| Capital markets (10.0%) | ||
| Apollo Global Management, LLC. Class A | 1,400 | $18,158 |
|
| ||
| BlackRock, Inc. | 562 | 92,590 |
|
| ||
| Blackstone Group LP (The) | 2,600 | 35,646 |
|
| ||
| Fortress Investment Group LLC Class A † | 5,700 | 20,178 |
|
| ||
| Franklin Resources, Inc. | 500 | 59,960 |
|
| ||
| Goldman Sachs Group, Inc. (The) | 987 | 114,709 |
|
| ||
| Julius Baer Group, Ltd. (Switzerland) † | 1,289 | 52,799 |
|
| ||
| Macquarie Group, Ltd. (Australia) | 2,668 | 74,444 |
|
| ||
| Morgan Stanley | 2,916 | 51,030 |
|
| ||
| Schroders PLC (United Kingdom) | 3,396 | 81,831 |
|
| ||
| State Street Corp. | 2,200 | 78,144 |
|
| ||
| 679,489 | ||
| Commercial banks (40.4%) | ||
| Australia & New Zealand Banking Group, Ltd. (Australia) | 9,344 | 203,814 |
|
| ||
| Banco Bradesco SA (Preference) (Brazil) | 5,400 | 95,607 |
|
| ||
| Barclays PLC (United Kingdom) | 33,731 | 93,054 |
|
| ||
| BNP Paribas SA (France) | 2,344 | 120,522 |
|
| ||
| China Construction Bank Corp. (China) | 173,000 | 128,695 |
|
| ||
| Comerica, Inc. | 1,700 | 43,503 |
|
| ||
| DBS Group Holdings, Ltd. (Singapore) | 13,248 | 145,779 |
|
| ||
| DnB NOR ASA (Norway) | 11,161 | 134,485 |
|
| ||
| Fifth Third Bancorp | 5,800 | 61,596 |
|
| ||
| HSBC Holdings PLC (London Exchange) (United Kingdom) | 11,149 | 97,119 |
|
| ||
| Industrial and Commercial Bank of China, Ltd. (China) | 195,000 | 128,896 |
|
| ||
| Kasikornbank PCL NVDR (Thailand) | 18,800 | 80,285 |
|
| ||
| KB Financial Group, Inc. (South Korea) | 2,081 | 85,900 |
|
| ||
| Mitsubishi UFJ Financial Group, Inc. (Japan) | 46,300 | 209,513 |
|
| ||
| National Australia Bank, Ltd. (Australia) | 4,513 | 115,144 |
|
| ||
| National Bank of Canada (Canada) | 983 | 72,808 |
|
| ||
| PNC Financial Services Group, Inc. | 850 | 42,619 |
|
| ||
| Popular, Inc. (Puerto Rico) † | 15,600 | 32,448 |
|
| ||
| Sberbank of Russia ADR (Russia) † | 6,188 | 73,337 |
|
| ||
| Sberbank OJSC (Russia) | 13,944 | 41,694 |
|
| ||
| Standard Chartered PLC (United Kingdom) | 7,540 | 171,402 |
|
| ||
| Swedbank AB Class A (Sweden) | 5,520 | 75,892 |
|
| ||
| Toronto-Dominion Bank (Canada) | 1,941 | 153,556 |
|
| ||
| Wells Fargo & Co. | 12,891 | 336,455 |
|
| ||
| 2,744,123 | ||
| Consumer finance (1.4%) | ||
| Discover Financial Services | 3,899 | 98,099 |
|
| ||
| 98,099 | ||
| Diversified financial services (12.0%) | ||
| Bank of America Corp. | 7,600 | 62,092 |
|
| ||
| BGP Holdings PLC (Malta) † F | 82,319 | 118 |
|
| ||
| Citigroup, Inc. | 9,870 | 306,464 |
|
| ||
22
| COMMON STOCKS (96.3%)* cont. | Shares | Value |
|
| ||
| Diversified financial services cont. | ||
| ING Groep NV GDR (Netherlands) † | 8,897 | $77,650 |
|
| ||
| JPMorgan Chase & Co. | 5,547 | 208,345 |
|
| ||
| ORIX Corp. (Japan) | 1,330 | 120,644 |
|
| ||
| Warsaw Stock Exchange (Poland) | 2,595 | 42,805 |
|
| ||
| 818,118 | ||
| Household durables (0.5%) | ||
| Persimmon PLC (United Kingdom) | 4,494 | 33,149 |
|
| ||
| 33,149 | ||
| Insurance (22.7%) | ||
| ACE, Ltd. | 1,100 | 71,038 |
|
| ||
| Aflac, Inc. | 2,288 | 86,303 |
|
| ||
| AIA Group, Ltd. (Hong Kong) † | 37,200 | 131,270 |
|
| ||
| Allianz SE (Germany) | 1,006 | 103,872 |
|
| ||
| AXA SA (France) | 4,052 | 65,105 |
|
| ||
| Brown & Brown, Inc. | 1,500 | 31,515 |
|
| ||
| Employers Holdings, Inc. | 2,200 | 26,906 |
|
| ||
| Intact Financial Corp. (Canada) | 2,000 | 112,535 |
|
| ||
| Marsh & McLennan Cos., Inc. | 3,500 | 104,020 |
|
| ||
| MetLife, Inc. | 3,900 | 131,040 |
|
| ||
| Old Mutual PLC (United Kingdom) | 21,140 | 41,155 |
|
| ||
| Ping An Insurance (Group) Co. of China, Ltd. (China) | 8,000 | 64,414 |
|
| ||
| Progressive Corp. (The) | 4,400 | 84,392 |
|
| ||
| Prudential Financial, Inc. | 2,137 | 107,299 |
|
| ||
| Prudential PLC (United Kingdom) | 11,973 | 120,347 |
|
| ||
| SCOR (France) | 3,348 | 78,941 |
|
| ||
| Swiss Reinsurance Co., Ltd. (Switzerland) † | 2,105 | 108,772 |
|
| ||
| XL Group PLC | 3,372 | 70,171 |
|
| ||
| 1,539,095 | ||
| Real estate investment trusts (REITs) (3.4%) | ||
| CreXus Investment Corp. | 2,200 | 20,570 |
|
| ||
| Digital Realty Trust, Inc. | 875 | 52,281 |
|
| ||
| Prologis, Inc. | 2,008 | 54,678 |
|
| ||
| Simon Property Group, Inc. | 909 | 106,808 |
|
| ||
| 234,337 | ||
| Real estate management and development (5.9%) | ||
| CB Richard Ellis Group, Inc. Class A † | 2,200 | 33,352 |
|
| ||
| Henderson Land Development Co., Ltd. (Hong Kong) | 22,201 | 130,187 |
|
| ||
| Mitsubishi Estate Co., Ltd. (Japan) | 8,000 | 132,286 |
|
| ||
| Mitsui Fudosan Co., Ltd. (Japan) | 5,000 | 84,674 |
|
| ||
| Savills PLC (United Kingdom) | 4,014 | 20,404 |
|
| ||
| 400,903 | ||
| Total common stocks (cost $6,711,269) | $6,547,313 | |
| WARRANTS (0.2%)* † | Expiration | Strike | ||
| date | price | Warrants | Value | |
|
| ||||
| JPMorgan Chase & Co. W | 10/28/18 | $42.42 | 1,309 | $16,768 |
|
| ||||
| Total warrants (cost $14,072) | $16,768 | |||
23
| SHORT-TERM INVESTMENTS (4.0%)* | Shares | Value |
|
| ||
| Putnam Money Market Liquidity Fund 0.05% e | 271,493 | $271,493 |
|
| ||
| Total short-term investments (cost $271,493) | $271,493 | |
| TOTAL INVESTMENTS | ||
|
| ||
| Total investments (cost $6,996,834) | $6,835,574 | |
| Key to holding’s abbreviations | |
| ADR | American Depository Receipts |
| GDR | Global Depository Receipts |
| NVDR | Non-voting Depository Receipt |
| OJSC | Open Joint Stock Company |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from September 1, 2010 through August 31, 2011 (the reporting period).
* Percentages indicated are based on net assets of $6,795,598.
† Non-income-producing security.
e See Note 6 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
F Is valued at fair value following procedures approved by the Trustees. Securities may be classified as Level 2 or Level 3 for Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) based on the securities’ valuation inputs. At the close of the reporting period, fair value pricing was also used for certain foreign securities in the portfolio (Note 1).
W Warrants issued to the U.S. Treasury under the Troubled Asset Relief Program (TARP).
At the close of the reporting period, the fund maintained liquid assets totaling $19,640 to cover certain derivatives contracts.
ADR or GDR after the name of a foreign holding represents ownership of foreign securities on deposit with a custodian bank.
| DIVERSIFICATION BY COUNTRY* |
|
|
Distribution of investments by country of risk at the close of the reporting period (as a percentage of Portfolio Value):
| United States | 42.3% | Norway | 2.0% | |
|
|
| |||
| United Kingdom | 9.6 | Russia | 1.7 | |
|
|
| |||
| Japan | 8.0 | Germany | 1.5 | |
|
|
| |||
| Australia | 5.8 | Brazil | 1.4 | |
|
|
| |||
| Canada | 5.0 | South Korea | 1.3 | |
|
|
| |||
| China | 4.7 | Thailand | 1.2 | |
|
|
| |||
| France | 3.9 | Netherlands | 1.1 | |
|
|
| |||
| Hong Kong | 3.8 | Sweden | 1.1 | |
|
|
| |||
| Switzerland | 2.4 | Poland | 0.6 | |
|
|
| |||
| Singapore | 2.1 | Puerto Rico | 0.5 | |
|
|
| |||
| Total | 100.0% | |||
* Methodology differs from that used for purposes of complying with the fund’s policy regarding investments in securities of foreign issuers, as discussed further in the fund’s prospectus.
24
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $3,229,115)
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Barclays Bank PLC | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | $9,276 | $9,473 | $(197) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 41,570 | 41,673 | 103 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 141,577 | 144,811 | (3,234) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 161,166 | 159,731 | 1,435 | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 61,048 | 60,976 | (72) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 6,583 | 6,541 | 42 | |
|
| ||||||
| Norwegian Krone | Sell | 9/21/11 | 48,873 | 48,381 | (492) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 21,146 | 20,898 | 248 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 42,014 | 43,238 | (1,224) | |
|
| ||||||
| Citibank, N.A. | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 120,976 | 122,006 | (1,030) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 12,249 | 12,533 | (284) | |
|
| ||||||
| Danish Krone | Buy | 9/21/11 | 22,193 | 21,926 | 267 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 71,166 | 70,281 | (885) | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 262,870 | 262,597 | (273) | |
|
| ||||||
| Norwegian Krone | Sell | 9/21/11 | 24,437 | 24,210 | (227) | |
|
| ||||||
| Singapore Dollar | Sell | 9/21/11 | 18,520 | 18,556 | 36 | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 126,041 | 129,714 | 3,673 | |
|
| ||||||
| Credit Suisse AG | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 43,607 | 44,531 | (924) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 34,263 | 34,338 | 75 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 100,747 | 103,012 | (2,265) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 33,355 | 32,949 | (406) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 18,329 | 18,190 | 139 | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 37,764 | 37,326 | 438 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 497 | 511 | (14) | |
|
| ||||||
| Deutsche Bank AG | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 29,853 | 30,485 | (632) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 69,153 | 68,302 | 851 | |
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 5,629 | 5,561 | (68) | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 39,528 | 40,655 | (1,127) | |
|
| ||||||
| Goldman Sachs International | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 5,521 | 5,534 | 13 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 22,428 | 22,147 | (281) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 85,530 | 84,922 | 608 | |
|
| ||||||
| Norwegian Krone | Sell | 9/21/11 | 44,474 | 44,006 | (468) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 18,544 | 18,299 | 245 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 61,653 | 63,428 | (1,775) | |
|
| ||||||
| JPMorgan Chase Bank, N.A. | ||||||
|
| ||||||
| Australian Dollar | Sell | 9/21/11 | 45,846 | 45,925 | 79 | |
|
| ||||||
| Euro | Buy | 9/21/11 | 78,211 | 77,343 | 868 | |
|
| ||||||
| Hong Kong Dollar | Buy | 9/21/11 | 45,889 | 45,831 | 58 | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 96,314 | 95,643 | (671) | |
|
| ||||||
25
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $3,229,115) cont.
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Royal Bank of Scotland PLC (The) | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | $103,527 | $105,616 | $(2,089) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 80,867 | 81,075 | (208) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 18,169 | 18,563 | (394) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 260,798 | 258,981 | 1,817 | |
|
| ||||||
| Israeli Shekel | Buy | 9/21/11 | 5,387 | 5,495 | (108) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 51,397 | 51,051 | 346 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 35,426 | 36,415 | (989) | |
|
| ||||||
| State Street Bank and Trust Co. | ||||||
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 37,972 | 37,471 | (501) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 12,795 | 12,639 | 156 | |
|
| ||||||
| Israeli Shekel | Buy | 9/21/11 | 5,415 | 5,514 | (99) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 17,582 | 17,378 | 204 | |
|
| ||||||
| UBS AG | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 47,339 | 48,345 | (1,006) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 138,188 | 138,742 | 554 | |
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 5,206 | 5,324 | 118 | |
|
| ||||||
| Euro | Buy | 9/21/11 | 76,342 | 75,411 | 931 | |
|
| ||||||
| Israeli Shekel | Buy | 9/21/11 | 5,415 | 5,517 | (102) | |
|
| ||||||
| Norwegian Krone | Sell | 9/21/11 | 17,447 | 17,279 | (168) | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 31,200 | 32,107 | (907) | |
|
| ||||||
| Westpac Banking Corp. | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 24,309 | 24,816 | (507) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 1,949 | 1,953 | 4 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 55,937 | 57,232 | (1,295) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 58,946 | 58,227 | (719) | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 17,601 | 17,481 | (120) | |
|
| ||||||
| Total | $(12,453) | |||||
TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 8/31/11
| Fixed payments | Total return | Unrealized | ||||
| Swap counterparty / | Termination | received (paid) by | received by | appreciation/ | ||
| Notional amount | date | fund per annum | or paid by fund | (depreciation) | ||
|
| ||||||
| Goldman Sachs International | ||||||
| baskets | 826 | 4/9/12 | (1 month USD- | A basket | $3,485 | |
| LIBOR-BBA plus | (GSCBPBAT) of | |||||
| 40 bps) | common stocks | |||||
|
| ||||||
| Total | $3,485 | |||||
26
ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| Valuation inputs | ||||||
|
| ||||||
| Investments in securities: | Level 1 | Level 2 | Level 3 | |||
|
| ||||||
| Common stocks: | ||||||
|
| ||||||
| Consumer discretionary | $— | $33,149 | $— | |||
|
| ||||||
| Financials | 3,076,915 | 3,437,131 | 118 | |||
|
| ||||||
| Total common stocks | 3,076,915 | 3,470,280 | 118 | |||
| Warrants | 16,768 | — | — | |||
|
| ||||||
| Short-term investments | 271,493 | — | — | |||
|
| ||||||
| Totals by level | $3,365,176 | $3,470,280 | $118 | |||
| Valuation inputs | ||||||
|
| ||||||
| Other financial instruments: | Level 1 | Level 2 | Level 3 | |||
|
| ||||||
| Forward currency contracts | $— | $(12,453) | $— | |||
|
| ||||||
| Total return swap contracts | — | 3,485 | — | |||
|
| ||||||
| Totals by level | $— | $(8,968) | $— | |||
At the start and/or close of the reporting period, Level 3 investments in securities were not considered a significant portion of the fund’s portfolio.
The accompanying notes are an integral part of these financial statements.
27
Statement of assets and liabilities 8/31/11
| ASSETS | |
|
| |
| Investment in securities, at value (Note 1): | |
| Unaffiliated issuers (identified cost $6,725,341) | $6,564,081 |
| Affiliated issuers (identified cost $271,493) (Note 6) | 271,493 |
|
| |
| Cash | 21,081 |
|
| |
| Foreign currency (cost $3) (Note 1) | 4 |
|
| |
| Dividends, interest and other receivables | 12,658 |
|
| |
| Receivable for shares of the fund sold | 5,519 |
|
| |
| Receivable for investments sold | 3,031 |
|
| |
| Unrealized appreciation on swap contracts (Note 1) | 3,485 |
|
| |
| Unrealized appreciation on forward currency contracts (Note 1) | 13,308 |
|
| |
| Foreign tax reclaim | 2,824 |
|
| |
| Receivable from Manager (Note 2) | 13,477 |
|
| |
| Total assets | 6,910,961 |
| LIABILITIES | |
|
| |
| Payable for investments purchased | 7,772 |
|
| |
| Payable for shares of the fund repurchased | 280 |
|
| |
| Payable for investor servicing fees (Note 2) | 1,938 |
|
| |
| Payable for custodian fees (Note 2) | 14,533 |
|
| |
| Payable for Trustee compensation and expenses (Note 2) | 1,223 |
|
| |
| Payable for administrative services (Note 2) | 30 |
|
| |
| Payable for distribution fees (Note 2) | 3,111 |
|
| |
| Payable for auditing fees | 51,400 |
|
| |
| Payable for reports to shareholders | 8,689 |
|
| |
| Unrealized depreciation on forward currency contracts (Note 1) | 25,761 |
|
| |
| Other accrued expenses | 626 |
|
| |
| Total liabilities | 115,363 |
| Net assets | $6,795,598 |
|
| |
| REPRESENTED BY | |
|
| |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $6,858,829 |
|
| |
| Undistributed net investment income (Note 1) | 137,810 |
|
| |
| Accumulated net realized loss on investments and foreign currency transactions (Note 1) | (30,902) |
|
| |
| Net unrealized depreciation of investments and assets and liabilities in foreign currencies | (170,139) |
|
| |
| Total — Representing net assets applicable to capital shares outstanding | $6,795,598 |
(Continued on next page)
28
Statement of assets and liabilities (Continued)
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
| |
| Net asset value and redemption price per class A share ($4,838,488 divided by 466,844 shares) | $10.36 |
|
| |
| Offering price per class A share (100/94.25 of $10.36)* | $10.99 |
|
| |
| Net asset value and offering price per class B share ($344,170 divided by 33,613 shares)** | $10.24 |
|
| |
| Net asset value and offering price per class C share ($446,154 divided by 43,520 shares)** | $10.25 |
|
| |
| Net asset value and redemption price per class M share ($68,011 divided by 6,585 shares) | $10.33 |
|
| |
| Offering price per class M share (100/96.50 of $10.33)* | $10.70 |
|
| |
| Net asset value, offering price and redemption price per class R share | |
| ($250,009 divided by 24,260 shares) | $10.31 |
|
| |
| Net asset value, offering price and redemption price per class Y share | |
| ($848,766 divided by 81,662 shares) | $10.39 |
|
| |
* On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
29
Statement of operations Year ended 8/31/11
| INVESTMENT INCOME | |
|
| |
| Dividends (net of foreign tax of $12,103) | $175,021 |
|
| |
| Interest (including interest income of $151 from investments in affiliated issuers) (Note 6) | 151 |
|
| |
| Securities lending (Note 1) | 156 |
|
| |
| Total investment income | 175,328 |
| EXPENSES | |
|
| |
| Compensation of Manager (Note 2) | 46,701 |
|
| |
| Investor servicing fees (Note 2) | 23,338 |
|
| |
| Custodian fees (Note 2) | 22,470 |
|
| |
| Trustee compensation and expenses (Note 2) | 517 |
|
| |
| Administrative services (Note 2) | 193 |
|
| |
| Distribution fees — Class A (Note 2) | 13,584 |
|
| |
| Distribution fees — Class B (Note 2) | 3,928 |
|
| |
| Distribution fees — Class C (Note 2) | 4,425 |
|
| |
| Distribution fees — Class M (Note 2) | 245 |
|
| |
| Distribution fees — Class R (Note 2) | 1,194 |
|
| |
| Reports to shareholders | 10,484 |
|
| |
| Auditing | 51,535 |
|
| |
| Other | 1,508 |
|
| |
| Fees waived and reimbursed by Manager (Note 2) | (71,848) |
|
| |
| Total expenses | 108,274 |
| Expense reduction (Note 2) | (31) |
|
| |
| Net expenses | 108,243 |
| Net investment income | 67,085 |
|
| |
| Net realized gain on investments (Notes 1 and 3) | 18,143 |
|
| |
| Net realized loss on swap contracts (Note 1) | (15,613) |
|
| |
| Net realized gain on foreign currency transactions (Note 1) | 127,811 |
|
| |
| Net unrealized depreciation of assets and liabilities in foreign currencies during the year | (1,213) |
|
| |
| Net unrealized depreciation of investments and swap contracts during the year | (491,983) |
|
| |
| Net loss on investments | (362,855) |
| Net decrease in net assets resulting from operations | $(295,770) |
|
| |
The accompanying notes are an integral part of these financial statements.
30
Statement of changes in net assets
| INCREASE (DECREASE) IN NET ASSETS | Year ended 8/31/11 | Year ended 8/31/10 |
|
| ||
| Operations: | ||
| Net investment income | $67,085 | $73,060 |
|
| ||
| Net realized gain on investments | ||
| and foreign currency transactions | 130,341 | 703,041 |
|
| ||
| Net unrealized depreciation of investments and assets | ||
| and liabilities in foreign currencies | (493,196) | (1,628,053) |
|
| ||
| Net decrease in net assets resulting from operations | (295,770) | (851,952) |
|
| ||
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Net investment income | ||
|
| ||
| Class A | (51,683) | (131,322) |
|
| ||
| Class B | (1,492) | (4,436) |
|
| ||
| Class C | (1,215) | (3,869) |
|
| ||
| Class M | (116) | (201) |
|
| ||
| Class R | (2,296) | (194) |
|
| ||
| Class Y | (9,714) | (4,729) |
|
| ||
| Net realized short-term gain on investments | ||
|
| ||
| Class A | (243,121) | (247,780) |
|
| ||
| Class B | (18,463) | (9,845) |
|
| ||
| Class C | (16,391) | (9,054) |
|
| ||
| Class M | (1,112) | (534) |
|
| ||
| Class R | (9,595) | (428) |
|
| ||
| Class Y | (36,073) | (8,134) |
|
| ||
| From net realized long-term gain on investments | ||
| Class A | (151,236) | — |
|
| ||
| Class B | (11,485) | — |
|
| ||
| Class C | (10,196) | — |
|
| ||
| Class M | (692) | — |
|
| ||
| Class R | (5,969) | — |
|
| ||
| Class Y | (22,439) | — |
|
| ||
| Redemption fees (Note 1) | 2,407 | 1,239 |
|
| ||
| Increase (decrease) from capital share transactions (Note 4) | 1,818,104 | (1,102,873) |
|
| ||
| Total increase (decrease) in net assets | 931,453 | (2,374,112) |
| NET ASSETS | ||
|
| ||
| Beginning of year | 5,864,145 | 8,238,257 |
|
| ||
| End of year (including undistributed net investment income of | ||
| $137,810 and $12,798, respectively) | $6,795,598 | $5,864,145 |
|
| ||
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: | ||||||||||||
|
| ||||||||||||||
| Ratio | Ratio | |||||||||||||
| Net realized | From | of expenses | of net investment | |||||||||||
| Net asset value, | and unrealized | Total from | From | net realized | Total return | Net assets, | to average | income (loss) | Portfolio | |||||
| beginning | Net investment | gain (loss) | investment | net investment | gain | Total | Redemption | Net asset value, | at net asset | end of period | net assets | to average | turnover | |
| Period ended | of period | income (loss) a | on investments | operations | income | on investments | distributions | fees b | end of period | value (%) c | (in thousands) | (%) d,e | net assets (%) e | (%) |
|
| ||||||||||||||
| Class A | ||||||||||||||
| August 31, 2011 | $11.59 | .12 | (.25) | (.13) | (.13) | (.97) | (1.10) | — | $10.36 | (2.42) | $4,838 | 1.40 | .95 | 103 |
| August 31, 2010 | 13.64 | .14 | (1.53) | (1.39) | (.23) | (.43) | (.66) | — | 11.59 | (10.71) | 4,647 | 1.49 | 1.05 | 101 |
| August 31, 2009† | 10.00 | .12 | 3.53 | 3.65 | (.01) | — | (.01) | — | 13.64 | 36.51* | 7,166 | 1.06* | 1.12* | 46* |
|
| ||||||||||||||
| Class B | ||||||||||||||
| August 31, 2011 | $11.47 | .02 | (.23) | (.21) | (.05) | (.97) | (1.02) | — | $10.24 | (3.08) | $344 | 2.15 | .18 | 103 |
| August 31, 2010 | 13.57 | .03 | (1.51) | (1.48) | (.19) | (.43) | (.62) | — | 11.47 | (11.38) | 326 | 2.24 | .25 | 101 |
| August 31, 2009† | 10.00 | .03 | 3.55 | 3.58 | (.01) | — | (.01) | — | 13.57 | 35.78* | 226 | 1.58* | .23* | 46* |
|
| ||||||||||||||
| Class C | ||||||||||||||
| August 31, 2011 | $11.48 | .04 | (.25) | (.21) | (.05) | (.97) | (1.02) | — | $10.25 | (3.10) | $446 | 2.15 | .33 | 103 |
| August 31, 2010 | 13.57 | .03 | (1.51) | (1.48) | (.18) | (.43) | (.61) | — | 11.48 | (11.37) | 345 | 2.24 | .21 | 101 |
| August 31, 2009† | 10.00 | .01 | 3.57 | 3.58 | (.01) | — | (.01) | — | 13.57 | 35.78* | 233 | 1.58* | .12* | 46* |
|
| ||||||||||||||
| Class M | ||||||||||||||
| August 31, 2011 | $11.54 | .07 | (.24) | (.17) | (.07) | (.97) | (1.04) | — | $10.33 | (2.77) | $68 | 1.90 | .54 | 103 |
| August 31, 2010 | 13.59 | .08 | (1.54) | (1.46) | (.16) | (.43) | (.59) | — | 11.54 | (11.20) | 23 | 1.99 | .59 | 101 |
| August 31, 2009† | 10.00 | .08 | 3.52 | 3.60 | (.01) | — | (.01) | — | 13.59 | 36.00* | 22 | 1.41* | .74* | 46* |
|
| ||||||||||||||
| Class R | ||||||||||||||
| August 31, 2011 | $11.57 | .11 | (.25) | (.14) | (.15) | (.97) | (1.12) | — | $10.31 | (2.57) | $250 | 1.65 | .89 | 103 |
| August 31, 2010 | 13.61 | .10 | (1.52) | (1.42) | (.19) | (.43) | (.62) | — | 11.57 | (10.88) | 13 | 1.74 | .80 | 101 |
| August 31, 2009† | 10.00 | .11 | 3.51 | 3.62 | (.01) | — | (.01) | — | 13.61 | 36.20* | 14 | 1.23* | 1.07* | 46* |
|
| ||||||||||||||
| Class Y | ||||||||||||||
| August 31, 2011 | $11.62 | .16 | (.26) | (.10) | (.16) | (.97) | (1.13) | — | $10.39 | (2.14) | $849 | 1.15 | 1.27 | 103 |
| August 31, 2010 | 13.66 | .18 | (1.54) | (1.36) | (.25) | (.43) | (.68) | — | 11.62 | (10.47) | 509 | 1.24 | 1.38 | 101 |
| August 31, 2009† | 10.00 | .12 | 3.55 | 3.67 | (.01) | — | (.01) | — | 13.66 | 36.72* | 578 | .88* | 1.05* | 46* |
|
| ||||||||||||||
* Not annualized.
† For the period December 18, 2008 (commencement of operations) to August 31, 2009.
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Amount represents less than $0.01 per share.
c Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
d Includes amounts paid through expense offset arrangements (Note 2).
e Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amounts (Note 2):
| Percentage of | ||
| average net assets | ||
|
|
||
| August 31, 2011 | 0.97% | |
|
|
||
| August 31, 2010 | 1.50 | |
|
|
||
| August 31, 2009 | 3.88 | |
|
|
||
The accompanying notes are an integral part of these financial statements.
| 32 | 33 |
Notes to financial statements 8/31/11
Note 1: Significant accounting policies
Putnam Global Financials Fund (the fund) is a non-diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The investment objective of the fund is to seek capital appreciation by investing mainly in common stocks of companies worldwide in the financial industries that Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC, believes have favorable potential. The fund concentrates its investments in one sector which involves more risk than a fund that invests more broadly.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. 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’s management team 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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from September 1, 2010 through August 31, 2011.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
34
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
C) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
D) Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average contract amount of approximately $2,700,000 on forward currency contracts for the reporting period.
E) Total return swap contracts The fund entered into total return swap contracts, which are arrangements to exchange a market linked return for a periodic payment, both based on a notional principal amount to hedge
35
exposures back to benchmark. To the extent that the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. Total return swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain total return swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. The fund’s maximum risk of loss from counterparty risk is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. Total return swap contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average notional amount of approximately $100,000 on total return swap contracts for the reporting period.
F) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty. Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund had a net liability position of $12,403 on derivative contracts subject to the Master Agreements. There was no collateral posted by the fund.
G) Securities lending The fund may lend securities, through its agent, to qualified borrowers in order to earn additional income. The loans are collateralized by cash in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agent; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. Cash collateral is invested in Putnam Cash Collateral Pool, LLC, a limited liability company managed by an affiliate of Putnam Management. Investments in Putnam Cash Collateral Pool, LLC are valued at its closing net asset value each business day. There are no management fees charged by Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the fund had no securities out on loan.
H) Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
I) Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of
36
credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
J) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (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. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. 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. Each of the fund’s federal tax returns for the prior periods remains subject to examination by the Internal Revenue Service.
K) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of losses on wash sales transactions, foreign currency gains and losses, realized and unrealized gains and losses on passive foreign investment companies, income on swap contracts and redesignation of taxable income. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the reporting period ended, the fund reclassified $124,443 to increase undistributed net investment income and $466 to increase paid-in-capital, with a decrease to accumulated net realized gains of $124,909.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
| Unrealized appreciation | $427,796 |
| Unrealized depreciation | (682,809) |
|
| |
| Net unrealized depreciation | (255,013) |
| Undistributed ordinary income | 128,751 |
| Undistributed long-term gain | 62,852 |
| Cost for federal income tax purposes | $7,090,587 |
L) 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
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
| 0.780% | of the first $5 billion, |
| 0.730% | of the next $5 billion, |
| 0.680% | of the next $10 billion, |
| 0.630% | of the next $10 billion, |
| 0.580% | of the next $50 billion, |
| 0.560% | of the next $50 billion, |
| 0.550% | of the next $100 billion, |
| 0.545% | of any excess thereafter. |
Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest,
37
taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were reduced by $71,848 as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.
The Putnam Advisory Company, LLC (PAC), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. Putnam Management or PIL, as applicable, pays a quarterly sub-advisory fee to PAC for its services at the annual rate of 0.35% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $31 under the expense offset arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $5, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years 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. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. 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 A, class B, class C, class M 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 Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $2,294 and $3 from the sale of class A and class M shares, respectively, and received $3,116 and no monies in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
38
A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A and class M redemptions.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $8,571,431 and $7,330,348, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class A | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 128,452 | $1,555,361 | 131,021 | $1,770,746 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 36,800 | 441,598 | 29,205 | 376,155 |
|
| ||||
| 165,252 | 1,996,959 | 160,226 | 2,146,901 | |
|
| ||||
| Shares repurchased | (99,565) | (1,220,696) | (284,627) | (3,552,402) |
|
| ||||
| Net increase (decrease) | 65,687 | $776,263 | (124,401) | $(1,405,501) |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class B | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 18,600 | $229,216 | 24,540 | $329,724 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 2,628 | 31,321 | 1,115 | 14,280 |
|
| ||||
| 21,228 | 260,537 | 25,655 | 344,004 | |
|
| ||||
| Shares repurchased | (16,043) | (201,530) | (13,881) | (181,793) |
|
| ||||
| Net increase | 5,185 | $59,007 | 11,774 | $162,211 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class C | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 35,255 | $425,138 | 23,142 | $289,471 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 2,324 | 27,723 | 994 | 12,741 |
|
| ||||
| 37,579 | 452,861 | 24,136 | 302,212 | |
|
| ||||
| Shares repurchased | (24,138) | (279,727) | (11,196) | (140,276) |
|
| ||||
| Net increase | 13,441 | $173,134 | 12,940 | $161,936 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class M | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 5,118 | $53,013 | 885 | $11,225 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 160 | 1,920 | 57 | 735 |
|
| ||||
| 5,278 | 54,933 | 942 | 11,960 | |
|
| ||||
| Shares repurchased | (724) | (9,146) | (498) | (6,629) |
|
| ||||
| Net increase | 4,554 | $45,787 | 444 | $5,331 |
|
| ||||
39
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class R | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 25,665 | $320,898 | 106 | $1,352 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 1,495 | 17,860 | 48 | 622 |
|
| ||||
| 27,160 | 338,758 | 154 | 1,974 | |
|
| ||||
| Shares repurchased | (4,055) | (45,183) | — | — |
|
| ||||
| Net increase | 23,105 | $293,575 | 154 | $1,974 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class Y | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 66,485 | $834,062 | 38,090 | $488,157 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 5,681 | 68,226 | 998 | 12,862 |
|
| ||||
| 72,166 | 902,288 | 39,088 | 501,019 | |
|
| ||||
| Shares repurchased | (34,279) | (431,950) | (37,653) | (529,843) |
|
| ||||
| Net increase (decrease) | 37,887 | $470,338 | 1,435 | $(28,824) |
|
| ||||
At the close of the reporting period, Putnam Investments, LLC owned the following class shares:
| Shares owned | Percentage of ownership | Value | |
|
| |||
| Class A | 247,792 | 53.1% | $2,562,125 |
|
| |||
| Class M | 1,137 | 17.3 | 11,745 |
|
| |||
| Class R | 1,147 | 4.7 | 11,826 |
|
| |||
| Class Y | 1,153 | 1.4 | 11,980 |
|
| |||
Note 5: Summary of derivative activity
The following is a summary of the market values of derivative instruments as of the close of the reporting period:
Market values of derivative instruments as of the close of the reporting period
| Asset derivatives | Liability derivatives | |||
|
| ||||
| Derivatives not | ||||
| accounted for as | Statement of | Statement of | ||
| hedging instruments | assets and | assets and | ||
| under ASC 815 | liabilities location | Market value | liabilities location | Market value |
|
| ||||
| Foreign exchange | ||||
| contracts | Receivables | $13,308 | Payables | $25,761 |
|
| ||||
| Equity contracts | Investments, Receivables | 20,253 | Payables | — |
|
| ||||
| Total | $33,561 | $25,761 | ||
|
| ||||
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
| Derivatives not | ||||
| accounted for as | Forward | |||
| hedging instruments | currency | |||
| under ASC 815 | Warrants* | contracts | Swaps | Total |
|
| ||||
| Foreign exchange contracts | — | $129,340 | $— | $129,340 |
|
| ||||
| Equity contracts | 34,006 | — | (15,613) | $18,393 |
|
| ||||
| Total | $34,006 | $129,340 | $(15,613) | $147,733 |
|
| ||||
40
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
| Derivatives not | ||||
| accounted for as | Forward | |||
| hedging instruments | currency | |||
| under ASC 815 | Warrants* | contracts | Swaps | Total |
|
| ||||
| Foreign exchange contracts | — | (1,184) | — | (1,184) |
|
| ||||
| Equity contracts | (11,523) | — | 3,485 | (8,038) |
|
| ||||
| Total | $(11,523) | $(1,184) | $3,485 | $(9,222) |
|
| ||||
* For the reporting period, the transaction volume for warrants was minimal.
Note 6: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $151 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $3,276,430 and $3,128,780, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 7: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
Federal tax information (Unaudited)
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $62,852 as a capital gain dividend with respect to the taxable year ended August 31, 2011, or, if subsequently determined to be different, the net capital gain of such year.
The fund designated 15.75% of ordinary income distributions as qualifying for the dividends received deduction for corporations.
For its tax year ended August 31, 2011, the fund hereby designates 74.47%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
For the tax year ended August 31, 2011, pursuant to §871(k) of the Internal Revenue Code, the fund hereby designates $20 of distributions paid as qualifying to be taxed as interest-related dividends, and $324,754 to be taxed as short-term capital gain dividends for nonresident alien shareholders.
For the period, interest and dividends from foreign countries were $147,543 or $0.22 per share (for all classes of shares). Taxes paid to foreign countries were $12,103 or $0.02 per share (for all classes of shares).
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
41
About the Trustees
| Independent Trustees | ||
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
| Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
| Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
| Shields, a multi-product investment management firm | focused on private | |
| with over $40 billion in assets under management. | equity advisory services; | |
| RAGE Frameworks, | ||
| Inc., a private software | ||
| company | ||
|
| ||
| Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
| Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
| Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
| College and member of the Investment Committee for the | company; UniSource | |
| college’s endowment. Former Chair and current board | Energy Corporation, | |
| member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
| the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
| refiner and fertilizer | ||
| manufacturer; Cody | ||
| Resources Management, | ||
| LLP, a privately held | ||
| energy, ranching, and | ||
| commercial real estate | ||
| company | ||
|
| ||
| Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
| Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
| Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
| Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
| to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
| since 2011 | ||
|
| ||
| Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
| Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
| Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
| for Strategic and International Studies. Member of the | ||
| Council on Foreign Relations. | ||
|
| ||
| Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
| Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
| Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
| Johnson & Johnson’s Chief Financial Officer for a decade. | ||
|
| ||
| John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
| Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
| Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
| Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
| to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
| of the Millstein Center for Corporate Governance and | ||
| Performance at the Yale School of Management. | ||
|
| ||
42
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
| Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
| Trustee since 1997 | on research and education on issues related to science, | company focused on |
| technology, and economic performance. Elizabeth and | natural gas transmission | |
| James Killian Professor of Economics, Emeritus at the | and power services; | |
| Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
| 2007, served as the Director of the Center for Energy and | energy company focused | |
| Environmental Policy Research at MIT. | on power services | |
|
| ||
| Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
| Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
| Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
| Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
| Massachusetts. Until November 2010, director of Ruder | ||
| Finn Group, a global communications and advertising firm. | ||
|
| ||
| Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
| Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
| Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
| Joslin Diabetes Center. | ||
|
| ||
| George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
| Born 1951 | of financial advisory and other research services, and | |
| Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
| a registered investment advisor to private funds. | ||
| Director of The Boston Family Office, LLC, a registered | ||
| investment advisor. | ||
|
| ||
| W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
| Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
| Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
| and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
| packaging products. | ||
|
| ||
| Interested Trustee | ||
|
| ||
| Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
| Born 1952 | Investments since 2008. Prior to joining Putnam | |
| Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
| President of the Putnam | Operating Officer of Fidelity Investments from | |
| Funds since July 2009 | 2000 to 2007. | |
|
| ||
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2011, there were 106 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
43
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
| Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
| Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
| Officer, Treasurer and Compliance Liaison | Since 2011 |
| Since 2004 | General Counsel, Putnam Investments and |
| Putnam Management | |
| Steven D. Krichmar (Born 1958) | |
| Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
| Since 2002 | Vice President |
| Chief of Operations, Putnam Investments and | Since 2004 |
| Putnam Management | Director of Trustee Relations, |
| Putnam Investments and Putnam Management | |
| Janet C. Smith (Born 1965) | |
| Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
| Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
| Since 2007 | Since 1993 |
| Director of Fund Administration Services, | |
| Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
| Vice President, Senior Associate Treasurer and | |
| Beth S. Mazor (Born 1958) | Assistant Clerk |
| Vice President | Since 2010 |
| Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
| Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
| Investments and Putnam Management | Management (2007–2008); Senior Financial |
| Analyst, Putnam Investments (1999–2007) | |
| Robert R. Leveille (Born 1969) | |
| Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
| Since 2007 | Vice President, Assistant Clerk, Assistant |
| Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
| Putnam Management, and Putnam Retail | Since 2000 |
| Management | |
| Susan G. Malloy (Born 1957) | |
| Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
| Vice President and BSA Compliance Officer | Since 2007 |
| Since 2002 | Director of Accounting & Control Services, |
| Director of Operational Compliance, | Putnam Management |
| Putnam Investments and Putnam | |
| Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
44
Fund information
Founded over 70 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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Trustees | Beth S. Mazor |
| Putnam Investment | Jameson A. Baxter, Chair | Vice President |
| Management, LLC | Ravi Akhoury | |
| One Post Office Square | Barbara M. Baumann | Robert R. Leveille |
| Boston, MA 02109 | Charles B. Curtis | Vice President and |
| Robert J. Darretta | Chief Compliance Officer | |
| Investment Sub-Manager | John A. Hill | |
| Putnam Investments Limited | Paul L. Joskow | Mark C. Trenchard |
| 57–59 St James’s Street | Kenneth R. Leibler | Vice President and |
| London, England SW1A 1LD | Robert E. Patterson | BSA Compliance Officer |
| George Putnam, III | ||
| Investment Sub-Advisor | Robert L. Reynolds | Robert T. Burns |
| The Putnam Advisory | W. Thomas Stephens | Vice President and |
| Company, LLC | Chief Legal Officer | |
| One Post Office Square | Officers | |
| Boston, MA 02109 | Robert L. Reynolds | James P. Pappas |
| President | Vice President | |
| Marketing Services | ||
| Putnam Retail Management | Jonathan S. Horwitz | Judith Cohen |
| One Post Office Square | Executive Vice President, | Vice President, Clerk and |
| Boston, MA 02109 | Principal Executive | Assistant Treasurer |
| Officer, Treasurer and | ||
| Custodian | Compliance Liaison | Michael Higgins |
| State Street Bank | Vice President, Senior Associate | |
| and Trust Company | Steven D. Krichmar | Treasurer and Assistant Clerk |
| Vice President and | ||
| Legal Counsel | Principal Financial Officer | Nancy E. Florek |
| Ropes & Gray LLP | Vice President, Assistant Clerk, | |
| Janet C. Smith | Assistant Treasurer and | |
| Independent Registered | Vice President, Assistant | Proxy Manager |
| Public Accounting Firm | Treasurer and Principal | |
| KPMG LLP | Accounting Officer | Susan G. Malloy |
| Vice President and | ||
| Assistant Treasurer |
This report is for the information of shareholders of Putnam Global Financials 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 putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary 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.
| Item 2. Code of Ethics: |
| (a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund’s investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
| (c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
| Item 3. Audit Committee Financial Expert: |
| The Funds’ Audit and Compliance Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification. |
| Item 4. Principal Accountant Fees and Services: |
| The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor: |
| Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
| August 31, 2011 | $47,304 | $-- | $4,100 | $ — | |
| August 31, 2010 | $43,906 | $-- | $3,900 | $ — | |
| For the fiscal years ended August 31, 2011 and August 31, 2010, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $4,100 and $3,900 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
| Audit Fees represent fees billed for the fund’s last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
| Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
| Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
| Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
| The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
| The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. |
| Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
| August 31, 2011 | $ — | $ — | $ — | $ — | |
| August 31, 2010 | $ — | $ — | $ — | $ — | |
| 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) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
| (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/Janet C. Smith Janet C. Smith Principal Accounting Officer |
| Date: October 27, 2011 |
| 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/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
| Date: October 27, 2011 |
| By (Signature and Title): |
| /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: October 27, 2011 |
| 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 800 Boylston Street Boston, Massachusetts 02199-3600 |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
| Date of fiscal year end: | August 31, 2011 |
| Date of reporting period: | September 1, 2010 — August 31, 2011 |
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: | |||
Putnam
Global Industrials
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Annual report
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| Message from the Trustees | 1 | ||
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| About the fund | 2 | ||
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| Performance snapshot | 4 | ||
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| Interview with your fund’s portfolio managers | 5 | ||
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| Your fund’s performance | 10 | ||
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| Your fund’s expenses | 12 | ||
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| Terms and definitions | 14 | ||
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| Trustee approval of management contract | 15 | ||
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| Other information for shareholders | 19 | ||
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| Financial statements | 20 | ||
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| Federal tax information | 42 | ||
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| About the Trustees | 43 | ||
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| Officers | 45 | ||
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Message from the Trustees
Dear Fellow Shareholder:
Markets around the world are grappling with heightened volatility. In the United States, persistently high unemployment and other weak economic data have fueled investors’ risk aversion, while in Europe the sovereign debt crisis shows little sign of abating. Certain bright spots do exist, but it is clear that volatility and uncertainty will remain with us for the near term.
We believe it is important to consult your financial advisor in times like these to consider whether your portfolio reflects an appropriate degree of diversification. In responding to this need, Putnam offers funds with strategies that seek to limit volatility and also employs an active, research-based investment approach that is designed to offer shareholders a potential advantage in this climate by looking for new growth opportunities and seeking to guard against downside risk.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancy’s Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
About the fund
Pursuing opportunities in industrial products and services worldwide
When Wilbur and Orville Wright successfully flew the first airplane in 1903, they introduced to the world more than fuel-powered flight. Their innovative thinking also helped to found the aerospace industry. Today, aerospace companies are creating state-of-the-art commercial airplanes and developing advanced engineering solutions that reach across businesses. At the same time, companies in a broad range of manufacturing industries — among them electronics, machinery, and construction — are designing groundbreaking technologies that increase efficiency while reducing the impact of industrial production on the environment. Together, these industries help to drive demand in the industrials sector.
Putnam Global Industrials Fund seeks companies that can profit from the worldwide demand for industrial products, services, and equipment.
This can include those companies that produce aerospace and defense equipment, building and home improvement products, electrical components and machinery, and other commodities. The fund may also invest in service providers such as civil engineering firms and contractors, commercial printers, and transportation companies.
The fund’s portfolio managers conduct their fundamental research with support from analysts across Putnam’s Global Equity Research organization. Their disciplined process includes analyzing each company’s valuation, financial strength, competitive positioning, earnings, and cash flow.
The fund invests primarily in midsize and large companies, but can invest in companies of any size. The fund also diversifies geographically, targeting stocks in markets around the world.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the risk that the other party to the derivatives transaction will not meet its obligations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The use of short selling may result in losses if the securities appreciate in value. The fund’s policy of concentrating on a limited group of industries and the fund’s non-diversified status, which means the fund may invest in fewer issuers, can increase the fund’s vulnerability to common economic forces and may result in greater losses and volatility.
Sector investing at Putnam
In recent decades, innovation and business growth have propelled stocks in different industries to market-leading performance. Finding these stocks, many of which are in international markets, requires rigorous research and in-depth knowledge of global markets.
Putnam’s sector funds invest in nine sectors worldwide and offer active management, risk controls, and the expertise of dedicated sector analysts. The funds’ managers invest with flexibility and precision, using fundamental research to hand select stocks for the portfolios.
All sectors in one fund:
Putnam Global Sector Fund
A portfolio of individual Putnam Global Sector Funds that provides exposure to all sectors of the MSCI World Index.
Individual sector funds:
Global Consumer Fund
Retail, hotels, restaurants, media, food and beverages
Global Energy Fund
Oil and gas, energy equipment and services
Global Financials Fund
Commercial banks, insurance, diversified financial services, mortgage finance
Global Health Care Fund
Pharmaceuticals, biotechnology, health-care services
Global Industrials Fund
Airlines, railroads, trucking, aerospace and defense, construction, commercial services
Global Natural Resources Fund
Metals, chemicals, oil and gas, forest products
Global Technology Fund
Software, computers, Internet services
Global Telecommunications Fund
Diversified and wireless telecommunications services
Global Utilities Fund
Electric, gas, and water utilities
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See pages 5 and 10–11 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus. To obtain the most recent month-end performance, visit putnam.com.
4
Interview with your fund’s portfolio managers
Ferat Ongoren and Nathaniel N. (Ned) Salter
Industrial stocks posted positive performance for the year. How did Putnam Global Industrials Fund perform for the 12 months ended August 31, 2011?
Ned: Overall, the fiscal year was marked by positive performance within the industrials sector, with stocks benefiting from positive fundamentals as well as from an equity rally that reaccelerated in the fourth quarter of 2010 and continued through the early period of 2011. Despite a sharp increase in market volatility in the period’s final two months, the fund outperformed its Lipper peer group, Industrials Funds category, but did not outperform its benchmark, the MSCI World Industrials Index (ND). We attribute the outperformance to contributions from several subsectors including mining equipment, automobiles, and commercial aerospace, which were among the leading drivers. Also, the fund benefited from stock picking, where many holdings were the result of identifying out-of-benchmark opportunities. In addition, foreign currency positioning had a modest overall impact on performance. As a global fund, the portfolio has exposure to more than 15 currencies. We use forward currency contracts to selectively hedge foreign exchange risk.
How would you characterize the investment environment during the period?
Ferat: As mentioned, the rally in equity markets reaccelerated late last year as economic indicators became more positive, and confidence grew that the economic recovery was sustainable. The rally continued through the early part of 2011. Since then multiple issues have emerged as headwinds pressuring cyclical stocks, including industrials. Concerns about potential contagion from the sovereign debt crisis in peripheral eurozone countries to larger
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 8/31/11. See pages 4 and 10–11 for additional fund performance information. Index descriptions can be found on page 14.
5
economies such as Italy and Spain have been a major factor. An earthquake and a tsunami in Japan and civil unrest in the Middle East began to fuel market uncertainty as well. In addition, economic reports illuminated a slowdown in global economic recovery, and uncertainty grew about whether certain emerging-market countries, such as China, would be able to rein in inflation. At the same time, the United States’ debt problems sparked a controversial debate over raising the nation’s debt ceiling, which was followed by a downgrade of U.S. long-term debt by Standard & Poor’s. In August, global equity markets were rocked by volatility and concerns were raised about the likelihood of a double-dip recession. Near-term promises — including the European Union’s commitment to additional bailout support for Greece and the Federal Reserve’s commitment to additional policy action if the economic situation in the United States worsened — seemed to alleviate some uncertainty in the markets by the end of the reporting period.
How did the fund use derivatives during the reporting period?
Ned: We used equity derivatives to further express our fundamental view on specific investments. We typically are buyers of options, thereby limiting potential losses to specifically the premium paid for each contract.
Commodities, such as oil, food, and raw materials including copper, nickel, and iron ore, have experienced rising prices this year. How has this affected the industrials sector?
Ned: Typically, rising commodities prices add to businesses’ costs. But at the same time, industrials companies may benefit from this trend. Prices tend to rise with demand and tightening supply. Growth in emerging markets in particular has been a key driver of demand for raw materials to build infrastructure. In the United States and other developed countries, manufacturing continues to expand, but at a slower pace. Industrials companies are a common thread among all commodities because they supply
Country allocations are shown as a percentage of the fund’s net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Weightings will vary over time.
6
the equipment, systems, and services needed to retrieve, process, and transport these materials. For example, the fund significantly benefited from investments in the mining equipment sector.
How have the sovereign debt issues in Europe and in the United States affected government spending and the industrials sector?
Ferat: There are concerns about the implications of austerity initiatives on the overall global growth environment. Beyond that, there is particular concern regarding defense, health-care, and local government spending levels going forward. While consumer and fiscal deleveraging may hurt growth in the short term, a sound credit profile is key for a healthy long-term growth rate. The reality is that most of the incremental growth within the industrials sector has been coming from emerging markets, and we do not see a major change in that trend so far.
What are some of the holdings that contributed to performance during the period?
Ferat: Overall, we benefited from our exposure to mining equipment in the United States and China. One of the fund’s holdings, Bucyrus International, was acquired by Caterpillar, which is the largest manufacturer of construction and mining equipment in the world. Bucyrus makes both surface and underground mining equipment. Another holding, International Mining Machinery, was one of the top contributors to fund performance. Headquartered in China, the company is a leading manufacturer of coal mining equipment. Since its formation just five years ago, the company has made several acquisitions to expand its capabilities
This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 8/31/11. Short-term holdings are excluded. Holdings will vary over time.
7
and benefit from the growing demand for coal. As of the end of the reporting period, International Mining Machinery was not held by the fund.
Sensata Technologies also contributed to performance. The company makes sensors and controls to enhance safety and energy efficiency for a range of businesses including aircraft, automobiles, heavy equipment, industrials, and telecommunications. During the reporting period, Sensata announced some acquisitions to expand its position as a market leader in many areas, including serving the automotive sector.
Another contributing holding was Dongfeng Motor Group of China. China has grown to become one of the biggest auto markets in the world. In fact, auto sales in China reached 18 million in 2010 and outpaced sales in the United States. The automobile industry in China has benefited from its growing middle class and increased domestic consumer demand. As of August 31, 2011, Dongfeng Motor Group was not held by the fund.
What were some of the holdings that detracted from performance?
Ned: Metso Oyj, a Finnish mining equipment company, posted very strong order growth during the period. However, concerns about future mining capital expenditures weighed on the shares.
General Electric also detracted from the fund’s performance. Concerns about global growth as well as the company’s exposure to the financial services sector, which has underperformed the general market significantly, hurt the value of GE’s shares. GE derives a significant portion of revenues from its financial services businesses.
US Airways suffered recently, after being a major contributor to fund performance in prior reporting periods, as oil prices worked against it due to price volatility from the civil unrest in the Middle East. The company also recently lost some of its pricing power. As of the end of the reporting period, US Airways was not held by the fund.
This chart shows how the fund’s top weightings have changed over the past six months. Weightings are shown as a percentage of net assets. Current period summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings will vary over time.
Data in the chart reflect a new calculation methodology put into effect within the past six months.
8
What is your outlook for the industrials sector?
Ferat: Corporate profits, particularly in the United States, have remained strong, with most large-cap companies on average beating estimates to date in 2011. Capital spending has been another positive factor for the sector. In emerging markets, growth continues to be strong, fueling a demand for raw materials and equipment, which is also supportive of the industrials sector.
There continues to be varied performance among the subsectors. In our view, the industrials sector is now in the mid-cycle of the recovery. We believe there are opportunities left in the cycle.
Ned: Risks remain, including the impact of evolving sovereign debt issues, slow economic growth, and policy measures that resulted in budget tightening in the United States and other countries dealing with massive debt. These actions could lead to downward trends in government spending and pressure on the industrials sector. As a result, careful stock selection will be needed to navigate changes in the economic landscape and identify opportunities.
Thank you, Ferat and Ned, for your time and insights today.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
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. Current and future portfolio holdings are subject to risk.
Portfolio Manager Ferat Ongoren has an M.B.A. from the Stern School of Business at New York University and a B.A. from Bosphorus University in Istanbul, Turkey. He joined Putnam in 2009 and has been in the investment industry since 1997.
Portfolio Manager Nathaniel N. Salter has an M.B.A. from Harvard Business School and an A.B. from Kenyon College. He has been in the investment industry since he joined Putnam in 2001.
IN THE NEWS
With economic storm clouds darkening, the Organisation for Economic Co-operation and Development (OECD) recently slashed its growth forecasts for the United States and many other countries for the remainder of 2011. In its interim forecast, released in early September, the OECD estimates that the United States economy will grow 1.1% in the third quarter and 0.4% in the fourth, down from the 2.9% and 3% growth it had predicted in May. Meanwhile, the OECD predicts that Japan will expand 4.1% in the third quarter before stagnating in the fourth, and that the German economy will grow 2.6% in the third quarter and shrink 1.4% in the fourth. For the third and fourth quarters, the United Kingdom is predicted to grow 0.4% and 0.3%, respectively. The OECD also said that central banks around the world should be ready to ease monetary policy if economies weaken further.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended August 31, 2011, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 8/31/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
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| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
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| Life of fund | 50.85% | 42.18% | 48.02% | 45.02% | 47.96% | 47.96% | 49.17% | 43.99% | 50.14% | 52.00% |
| Annual average | 16.44 | 13.91 | 15.62 | 14.75 | 15.61 | 15.61 | 15.95 | 14.45 | 16.23 | 16.76 |
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| 1 year | 15.62 | 9.00 | 14.82 | 9.82 | 14.81 | 13.81 | 15.24 | 11.21 | 15.52 | 16.00 |
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 5.75% and 3.50% sales charge, respectively, levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus.
Comparative index returns For periods ended 8/31/11
| MSCI World | Lipper Industrials Funds | |
| Industrials Index (ND) | category average* | |
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| Life of fund | 46.67% | 49.71% |
| Annual average | 15.23 | 15.85 |
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| 1 year | 15.70 | 14.18 |
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Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* Over the 1-year and life-of-fund periods ended 8/31/11, there were 49 and 41 funds, respectively, in this Lipper category.
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Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B shares would have been valued at $14,802 ($14,502 after contingent deferred sales charge). A $10,000 investment in the fund’s class C shares would have been valued at $14,796, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $14,399. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $15,014 and $15,200, respectively.
Fund price and distribution information For the 12-month period ended 8/31/11
| Distributions | Class A | Class B | Class C | Class M | Class R | Class Y | ||
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| Number | 1 | 1 | 1 | 1 | 1 | 1 | ||
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| Income | $0.2873 | $0.2163 | $0.2383 | $0.2373 | $0.2503 | $0.3103 | ||
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| Capital gains — Long-term | 0.1460 | 0.1460 | 0.1460 | 0.1460 | 0.1460 | 0.1460 | ||
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| Capital gains — Short-term | 0.9327 | 0.9327 | 0.9327 | 0.9327 | 0.9327 | 0.9327 | ||
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| Total | $1.3660 | $1.2950 | $1.3170 | $1.3160 | $1.3290 | 1.3890 | ||
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| Before | After | Net | Net | Before | After | Net | Net | |
| sales | sales | asset | asset | sales | sales | asset | asset | |
| Share value | charge | charge | value | value | charge | charge | value | value |
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| 8/31/10 | $12.51 | $13.27 | $12.38 | $12.38 | $12.44 | $12.89 | $12.49 | $12.54 |
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| 8/31/11 | 13.24 | 14.05 | 13.06 | 13.04 | 13.16 | 13.64 | 13.24 | 13.30 |
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The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares and 3.50% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
Fund performance as of most recent calendar quarter
Total return for periods ended 9/30/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
|
| ||||||||||
| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
|
| ||||||||||
| Life of fund | 31.59% | 24.03% | 28.98% | 25.98% | 28.90% | 28.90% | 29.90% | 25.39% | 30.87% | 32.57% |
| Annual average | 10.37 | 8.05 | 9.58 | 8.66 | 9.55 | 9.55 | 9.86 | 8.47 | 10.15 | 10.66 |
|
| ||||||||||
| 1 year | –11.39 | –16.50 | –12.03 | –16.07 | –12.05 | –12.86 | –11.77 | –14.84 | –11.56 | –11.09 |
|
| ||||||||||
11
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’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, 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 representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Net expenses for the fiscal year ended 8/31/10*† | 1.45% | 2.20% | 2.20% | 1.95% | 1.70% | 1.20% |
|
| ||||||
| Total annual operating expenses for the fiscal year | ||||||
| ended 8/31/10† | 3.11% | 3.86% | 3.86% | 3.61% | 3.36% | 2.86% |
|
| ||||||
| Annualized expense ratio for the six-month period | ||||||
| ended 8/31/11‡ | 1.40% | 2.15% | 2.15% | 1.90% | 1.65% | 1.15% |
|
| ||||||
Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Reflects Putnam Management’s contractual obligation to limit expenses through 12/30/11.
† Restated to reflect projected expenses under a management contract effective 1/1/10.
‡ For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from March 1, 2011, to August 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $6.47 | $9.93 | $9.93 | $8.78 | $7.63 | $5.32 |
|
| ||||||
| Ending value (after expenses) | $834.80 | $831.80 | $831.60 | $833.40 | $834.30 | $836.00 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
12
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended August 31, 2011, use the following calculation method. To find the value of your investment on March 1, 2011, call Putnam at 1-800-225-1581.
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 following table 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 A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $7.12 | $10.92 | $10.92 | $9.65 | $8.39 | $5.85 |
|
| ||||||
| Ending value (after expenses) | $1,018.15 | $1,014.37 | $1,014.37 | $1,015.63 | $1,016.89 | $1,019.41 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
13
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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
MSCI World Industrials Index (ND) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets in the industrials sector.
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.
14
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 with Putnam Investment Management (“Putnam Management”), the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), and the sub-advisory contract among Putnam Management, PIL, and another affiliate, Putnam Advisory Company (“PAC”).
The Board of Trustees, with the assistance of its Contract Committee, which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. Over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided 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 on a number of occasions. At the Trustees’ June 17, 2011 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management, sub-management and sub-advisory contracts, effective July 1, 2011. (Because PIL and PAC are affiliates of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL and PAC, the Trustees have not evaluated PIL or PAC as separate entities, and all subsequent references to Putnam Management below should be deemed to include reference to PIL and PAC as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented 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 services, and
• That the fee schedule represented 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 management 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 some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
15
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. In reviewing management fees, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund.
Most of the open-end Putnam funds have new management contracts, with new fee schedules reflecting the implementation of more competitive fee levels for many funds, complex-wide breakpoints for the open-end funds, and performance fees for some funds. These new management contracts have been in effect for a little over a year — since January or, for a few funds, February, 2010. The Trustees approved the new management contracts on July 10, 2009, and fund shareholders subsequently approved the contracts by overwhelming majorities of the shares voted.
Because these management contracts had been implemented only recently, the Contract Committee had limited practical experience with the operation of the new fee structures. Under its new management contract, your fund has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Contract Committee observed that the complex-wide breakpoints of the open-end funds had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds had sufficiently low expenses that these expense limitations did not apply. However, in the case of your fund, both of the expense limitations applied during its fiscal year ending in 2010. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and extraordinary expenses). Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management, sub-management and sub-advisory contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the 2nd quintile in effective management fees (determined for your fund and the other funds
16
in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the 3rd quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2010 (the first quintile representing the least expensive funds and the fifth quintile the most expensive funds). The fee and expense data reported by Lipper as of December 31, 2010 reflected the most recent fiscal year-end data available in Lipper’s database at that time.
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 provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds 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, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and 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 may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes 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 its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
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 Putnam funds’ investment process and performance by the work of several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality
17
personnel — but also recognized 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 each fund’s performance with various benchmarks and with the performance of competitive funds.
The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered information about the absolute return of your fund, and your fund’s performance relative to its internal benchmark. Putnam Global Industrials Fund’s class A shares’ return net of fees and expenses was positive over the one-year period ended December 31, 2010, and exceeded the return of its internal benchmark over the one-year period.
Brokerage and soft-dollar allocations; investor servicing
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 benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management contract, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
18
Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, 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 website 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 website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of August 31, 2011, Putnam employees had approximately $323,000,000 and the Trustees had approximately $70,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
19
Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 year.
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.
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 highlights table also includes the current reporting period.
20
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Funds Trust:
We have audited the accompanying statement of assets and liabilities of the Putnam Global Industrials Fund (the fund), a series of Putnam Funds Trust, including the fund’s portfolio, as of August 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and the period from December 18, 2008 (commencement of operations) to August 31, 2009. These financial statements and financial highlights are the responsibility of management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2011, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Putnam Global Industrials Fund as of August 31, 2011, the results of its operations, the changes in its net assets, and the financial highlights for the periods specified in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 11, 2011
21
The fund’s portfolio 8/31/11
| COMMON STOCKS (99.7%)* | Shares | Value |
|
| ||
| Aerospace and defense (29.1%) | ||
| Embraer SA ADR (Brazil) | 24,248 | $618,082 |
|
| ||
| General Dynamics Corp. | 2,595 | 166,288 |
|
| ||
| Goodrich Corp. | 1,311 | 116,915 |
|
| ||
| Honeywell International, Inc. | 17,339 | 828,978 |
|
| ||
| L-3 Communications Holdings, Inc. | 3,631 | 246,254 |
|
| ||
| MTU Aero Engines Holding AG (Germany) | 3,595 | 244,652 |
|
| ||
| Northrop Grumman Corp. | 6,719 | 366,992 |
|
| ||
| Precision Castparts Corp. | 1,996 | 327,045 |
|
| ||
| Safran SA (France) | 10,078 | 391,516 |
|
| ||
| Textron, Inc. | 1,200 | 20,244 |
|
| ||
| 3,326,966 | ||
| Air freight and logistics (0.9%) | ||
| Deutsche Post AG (Germany) | 7,019 | 107,237 |
|
| ||
| 107,237 | ||
| Airlines (1.7%) | ||
| Deutsche Lufthansa AG (Germany) | 11,673 | 197,481 |
|
| ||
| 197,481 | ||
| Auto components (0.5%) | ||
| Aisin Seiki Co., Ltd. (Japan) | 1,800 | 60,415 |
|
| ||
| 60,415 | ||
| Automobiles (0.6%) | ||
| Fiat SpA (Italy) | 11,507 | 71,653 |
|
| ||
| 71,653 | ||
| Commercial services and supplies (0.1%) | ||
| Iron Mountain, Inc. | 463 | 15,066 |
|
| ||
| 15,066 | ||
| Construction and engineering (3.0%) | ||
| Daelim Industrial Co., Ltd. (South Korea) | 806 | 87,882 |
|
| ||
| Fluor Corp. | 1,600 | 97,152 |
|
| ||
| JGC Corp. (Japan) | 3,000 | 85,425 |
|
| ||
| KEPCO Engineering & Construction Co., Inc. (South Korea) | 1,153 | 68,601 |
|
| ||
| 339,060 | ||
| Construction materials (0.5%) | ||
| China Shanshui Cement Group, Ltd. (China) | 63,000 | 62,979 |
|
| ||
| 62,979 | ||
| Electrical equipment (7.6%) | ||
| Cooper Industries PLC | 3,285 | 155,643 |
|
| ||
| Mitsubishi Electric Corp. (Japan) | 32,000 | 320,796 |
|
| ||
| Schneider Electric SA (France) | 2,001 | 267,762 |
|
| ||
| Sensata Technologies Holding NV (Netherlands) † | 3,119 | 101,180 |
|
| ||
| Sun King Power Electronics Group (China) † | 282,000 | 24,688 |
|
| ||
| 870,069 | ||
| Electronic equipment, instruments, and components (1.4%) | ||
| Yokogawa Electric Corp. (Japan) † | 19,100 | 164,147 |
|
| ||
| 164,147 | ||
| Independent power producers and energy traders (0.4%) | ||
| China WindPower Group, Ltd. (China) † | 680,000 | 40,404 |
|
| ||
| 40,404 | ||
22
| COMMON STOCKS (99.7%)* cont. | Shares | Value |
|
| ||
| Industrial conglomerates (18.1%) | ||
| General Electric Co. | 63,160 | $1,030,140 |
|
| ||
| Siemens AG (Germany) | 6,882 | 709,077 |
|
| ||
| Tyco International, Ltd. | 8,043 | 334,428 |
|
| ||
| 2,073,645 | ||
| IT services (0.3%) | ||
| Mantech International Corp. Class A | 1,000 | 37,490 |
|
| ||
| 37,490 | ||
| Machinery (31.1%) | ||
| China National Materials Co., Ltd. (China) | 72,000 | 43,808 |
|
| ||
| Cummins, Inc. | 990 | 91,991 |
|
| ||
| Dover Corp. | 1,000 | 57,520 |
|
| ||
| Eaton Corp. | 7,114 | 305,546 |
|
| ||
| Fiat Industrial SpA (Italy) † | 25,343 | 246,616 |
|
| ||
| Flowserve Corp. | 400 | 37,736 |
|
| ||
| Hitachi Construction Machinery Co., Ltd. (Japan) | 4,000 | 75,280 |
|
| ||
| Illinois Tool Works, Inc. | 1,008 | 46,912 |
|
| ||
| Ingersoll-Rand PLC | 10,492 | 351,587 |
|
| ||
| Invensys PLC (United Kingdom) | 26,821 | 120,622 |
|
| ||
| Joy Global, Inc. | 2,335 | 194,856 |
|
| ||
| Metso Corp. OYJ (Finland) | 7,552 | 286,584 |
|
| ||
| Parker Hannifin Corp. | 9,192 | 674,969 |
|
| ||
| SPX Corp. | 1,459 | 83,003 |
|
| ||
| Sumitomo Heavy Industries, Ltd. (Japan) | 34,000 | 205,889 |
|
| ||
| Timken Co. | 10,780 | 424,193 |
|
| ||
| Volvo AB Class B (Sweden) | 9,223 | 114,744 |
|
| ||
| Zardoya Otis SA (Spain) | 13,085 | 198,103 |
|
| ||
| 3,559,959 | ||
| Road and rail (1.2%) | ||
| Swift Transportation Co. † | 15,689 | 135,239 |
|
| ||
| 135,239 | ||
| Semiconductors and semiconductor equipment (0.3%) | ||
| First Solar, Inc. † S | 400 | 39,992 |
|
| ||
| 39,992 | ||
| Trading companies and distributors (2.4%) | ||
| Mitsui & Co., Ltd. (Japan) | 13,600 | 233,810 |
|
| ||
| WESCO International, Inc. † | 1,000 | 43,090 |
|
| ||
| 276,900 | ||
| Transportation infrastructure (0.5%) | ||
| Wesco Aircraft Holdings, Inc. † | 5,000 | 61,548 |
|
| ||
| 61,548 | ||
| Total common stocks (cost $11,994,694) | $11,440,250 | |
| PURCHASED OPTIONS | Expiration date/ | Contract | |
| OUTSTANDING (0.3%)* | strike price | amount | Value |
|
| |||
| General Electric Co. (Call) | Sep-11/$21.00 | 164,269 | $161 |
|
| |||
| Ingersoll-Rand PLC (Call) | Sep-11/55.00 | 157,259 | 3,821 |
|
| |||
| Parker Hannifin Corp. (Call) | Sep-11/80.00 | 76,846 | 32,706 |
|
| |||
| Total purchased options outstanding (cost $127,542) | $36,688 | ||
23
| SHORT-TERM INVESTMENTS (0.7%)* | Shares | Value |
|
| ||
| Putnam Cash Collateral Pool, LLC 0.17% d | 31,200 | $31,200 |
|
| ||
| Putnam Money Market Liquidity Fund 0.05% e | 46,046 | 46,046 |
|
| ||
| Total short-term investments (cost $77,246) | $77,246 | |
| TOTAL INVESTMENTS | ||
|
| ||
| Total investments (cost $12,199,482) | $11,554,184 | |
| Key to holding’s abbreviations | |
| ADR | American Depository Receipts |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from September 1, 2010 through August 31, 2011 (the reporting period).
* Percentages indicated are based on net assets of $11,477,324.
† Non-income-producing security.
d See Note 1 to the financial statements regarding securities lending. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
e See Note 6 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
S Security on loan, in part or in entirety, at the close of the reporting period.
At the close of the reporting period, the fund maintained liquid assets totaling $55,053 to cover certain derivatives contracts.
ADR after the name of a foreign holding represents ownership of foreign securities on deposit with a custodian bank.
| DIVERSIFICATION BY COUNTRY* | ||||
|
| ||||
| Distribution of investments by country of risk at the close of the reporting period (as a percentage of Portfolio Value): | ||||
| United States | 55.3% | Spain | 1.7% | |
|
|
| |||
| Germany | 10.9 | China | 1.5 | |
|
|
| |||
| Japan | 9.9 | South Korea | 1.4 | |
|
|
| |||
| France | 5.7 | United Kingdom | 1.0 | |
|
|
| |||
| Brazil | 5.4 | Sweden | 1.0 | |
|
|
| |||
| Italy | 2.8 | Netherlands | 0.9 | |
|
|
| |||
| Finland | 2.5 | Total | 100.0% | |
|
|
||||
* Methodology differs from that used for purposes of complying with the fund’s policy regarding investments in securities of foreign issuers, as discussed further in the fund’s prospectus.
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $8,024,155)
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Bank of America, N.A. | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | $43,294 | $44,207 | $(913) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 18,025 | 18,063 | 38 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 55,425 | 56,702 | (1,277) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 159,298 | 157,416 | 1,882 | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 6,673 | 6,609 | 64 | |
|
| ||||||
| Singapore Dollar | Buy | 9/21/11 | 48,667 | 48,634 | 33 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 261,481 | 258,518 | 2,963 | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 48,848 | 50,294 | 1,446 | |
|
| ||||||
24
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $8,024,155) cont.
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Barclays Bank PLC | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | $41,482 | $42,357 | $(875) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 97,431 | 97,671 | (240) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 48,484 | 49,593 | (1,109) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 72,748 | 71,683 | 1,065 | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 27,325 | 27,293 | (32) | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 197,510 | 196,184 | (1,326) | |
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 52,590 | 51,971 | (619) | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 56,927 | 58,589 | 1,662 | |
|
| ||||||
| Citibank, N.A. | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 124,875 | 125,159 | (284) | |
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 19,394 | 19,844 | 450 | |
|
| ||||||
| Danish Krone | Buy | 9/21/11 | 99,037 | 97,777 | 1,260 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 558,693 | 551,738 | (6,955) | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 347,806 | 347,407 | (399) | |
|
| ||||||
| Singapore Dollar | Sell | 9/21/11 | 11,129 | 11,121 | (8) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 7,049 | 6,968 | 81 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 194,024 | 199,688 | (5,664) | |
|
| ||||||
| Credit Suisse AG | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 39,947 | 40,033 | 86 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 85,638 | 87,565 | (1,927) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 85,831 | 84,787 | (1,044) | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 9,855 | 9,780 | (75) | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 14,129 | 13,965 | 164 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 18,497 | 18,269 | 228 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 51,458 | 52,926 | (1,468) | |
|
| ||||||
| Deutsche Bank AG | ||||||
|
| ||||||
| Euro | Buy | 9/21/11 | 19,840 | 19,596 | 244 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 107,844 | 106,526 | 1,318 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 100,181 | 103,043 | (2,862) | |
|
| ||||||
| Goldman Sachs International | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 45,747 | 46,704 | (957) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 29,229 | 29,298 | 69 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 85,740 | 87,693 | (1,953) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 102,221 | 100,939 | (1,282) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 639,758 | 635,222 | 4,536 | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 21,734 | 21,505 | 229 | |
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 121,153 | 116,821 | (4,332) | |
|
| ||||||
| HSBC Bank USA, National Association | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 26,446 | 27,011 | (565) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 164,984 | 165,419 | (435) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 41,837 | 41,329 | (508) | |
|
| ||||||
| Hong Kong Dollar | Buy | 9/21/11 | 195,280 | 195,044 | 236 | |
|
| ||||||
| Norwegian Krone | Sell | 9/21/11 | 15,508 | 15,369 | (139) | |
|
| ||||||
25
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $8,024,155) cont.
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| HSBC Bank USA, National Association cont. | ||||||
|
| ||||||
| Singapore Dollar | Buy | 9/21/11 | $67,353 | $67,368 | $(15) | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 44,995 | 46,321 | (1,326) | |
|
| ||||||
| JPMorgan Chase Bank, N.A. | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 94,833 | 95,044 | 211 | |
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 26,130 | 26,752 | 622 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 89,713 | 88,317 | (1,396) | |
|
| ||||||
| Hong Kong Dollar | Buy | 9/21/11 | 144,960 | 144,801 | 159 | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 335,318 | 332,986 | 2,332 | |
|
| ||||||
| Norwegian Krone | Sell | 9/21/11 | 18,155 | 17,973 | (182) | |
|
| ||||||
| Singapore Dollar | Buy | 9/21/11 | 68,931 | 69,613 | (682) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 56,548 | 55,884 | 664 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 113,730 | 117,008 | (3,278) | |
|
| ||||||
| Royal Bank of Scotland PLC (The) | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 74,535 | 75,161 | (626) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 26,743 | 27,323 | (580) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 107,828 | 107,530 | 298 | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 264,727 | 263,193 | 1,534 | |
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 52,684 | 52,625 | (59) | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 66,373 | 78,169 | 11,796 | |
|
| ||||||
| State Street Bank and Trust Co. | ||||||
|
| ||||||
| Australian Dollar | Sell | 9/21/11 | 12,903 | 13,174 | 271 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 17,454 | 20,414 | (2,960) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 215,656 | 213,012 | (2,644) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 130,283 | 128,769 | 1,514 | |
|
| ||||||
| UBS AG | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 29,218 | 29,834 | (616) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 28,093 | 28,159 | (66) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 25,620 | 26,200 | (580) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 503,485 | 497,340 | (6,145) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 70,135 | 69,647 | 488 | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 14,278 | 14,140 | 138 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 56,057 | 57,690 | (1,633) | |
|
| ||||||
| Westpac Banking Corp. | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 87,526 | 87,716 | (190) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 10,513 | 10,757 | (244) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 291,998 | 288,438 | 3,560 | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 192,405 | 191,374 | (1,031) | |
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 67,870 | 67,093 | (777) | |
|
| ||||||
| Total | $(20,637) | |||||
26
Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| Valuation inputs | ||||||
|
| ||||||
| Investments in securities: | Level 1 | Level 2 | Level 3 | |||
|
| ||||||
| Common stocks: | ||||||
|
| ||||||
| Consumer discretionary | $— | $132,068 | $— | |||
|
| ||||||
| Industrials | 6,932,597 | 4,030,573 | — | |||
|
| ||||||
| Information technology | 77,482 | 164,147 | — | |||
|
| ||||||
| Materials | — | 62,979 | — | |||
|
| ||||||
| Utilities | — | 40,404 | — | |||
|
| ||||||
| Total common stocks | 7,010,079 | 4,430,171 | — | |||
| Purchased options outstanding | — | 36,688 | — | |||
|
| ||||||
| Short-term investments | 46,046 | 31,200 | — | |||
|
| ||||||
| Totals by level | $7,056,125 | $4,498,059 | $— | |||
| Valuation inputs | ||||||
|
| ||||||
| Other financial instruments: | Level 1 | Level 2 | Level 3 | |||
|
| ||||||
| Forward currency contracts | $— | $(20,637) | $— | |||
|
| ||||||
| Totals by level | $— | $(20,637) | $— | |||
The accompanying notes are an integral part of these financial statements.
27
Statement of assets and liabilities 8/31/11
| ASSETS | |
|
| |
| Investment in securities, at value, including $29,994 of securities on loan (Note 1): | |
| Unaffiliated issuers (identified cost $12,122,236) | $11,476,938 |
| Affiliated issuers (identified cost $77,246) (Notes 1 and 6) | 77,246 |
|
| |
| Cash | 20,641 |
|
| |
| Foreign currency (cost $882) (Note 1) | 878 |
|
| |
| Dividends, interest and other receivables | 24,143 |
|
| |
| Receivable for shares of the fund sold | 24,148 |
|
| |
| Unrealized appreciation on forward currency contracts (Note 1) | 41,641 |
|
| |
| Receivable from Manager (Note 2) | 6,693 |
|
| |
| Total assets | 11,672,328 |
| LIABILITIES | |
|
| |
| Payable for shares of the fund repurchased | 15,407 |
|
| |
| Payable for investor servicing fees (Note 2) | 3,477 |
|
| |
| Payable for custodian fees (Note 2) | 13,929 |
|
| |
| Payable for Trustee compensation and expenses (Note 2) | 1,309 |
|
| |
| Payable for administrative services (Note 2) | 63 |
|
| |
| Payable for distribution fees (Note 2) | 5,721 |
|
| |
| Payable for audit expense | 51,400 |
|
| |
| Unrealized depreciation on forward currency contracts (Note 1) | 62,278 |
|
| |
| Collateral on securities loaned, at value (Note 1) | 31,200 |
|
| |
| Other accrued expenses | 10,220 |
|
| |
| Total liabilities | 195,004 |
| Net assets | $11,477,324 |
|
| |
| REPRESENTED BY | |
|
| |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $11,709,040 |
|
| |
| Undistributed net investment income (Note 1) | 254,489 |
|
| |
| Accumulated net realized gain on investments and foreign currency transactions (Note 1) | 179,769 |
|
| |
| Net unrealized depreciation of investments and assets and liabilities in foreign currencies | (665,974) |
|
| |
| Total — Representing net assets applicable to capital shares outstanding | $11,477,324 |
(Continued on next page)
28
Statement of assets and liabilities (Continued)
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
| |
| Net asset value and redemption price per class A share ($9,243,069 divided by 697,906 shares) | $13.24 |
|
| |
| Offering price per class A share (100/94.25 of $13.24)* | $14.05 |
|
| |
| Net asset value and offering price per class B share ($375,720 divided by 28,767 shares)** | $13.06 |
|
| |
| Net asset value and offering price per class C share ($648,199 divided by 49,700 shares)** | $13.04 |
|
| |
| Net asset value and redemption price per class M share ($81,691 divided by 6,209 shares) | $13.16 |
|
| |
| Offering price per class M share (100/96.50 of $13.16)* | $13.64 |
|
| |
| Net asset value, offering price and redemption price per class R share | |
| ($15,013 divided by 1,134 shares) | $13.24 |
|
| |
| Net asset value, offering price and redemption price per class Y share | |
| ($1,113,632 divided by 83,733 shares) | $13.30 |
|
| |
* On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
29
Statement of operations Year ended 8/31/11
| INVESTMENT INCOME | |
|
| |
| Dividends (net of foreign tax of $15,689) | $269,453 |
|
| |
| Interest (including interest income of $425 from investments in affiliated issuers) (Note 6) | 536 |
|
| |
| Securities lending (Note 1) | 6,964 |
|
| |
| Total investment income | 276,953 |
| EXPENSES | |
|
| |
| Compensation of Manager (Note 2) | 85,620 |
|
| |
| Investor servicing fees (Note 2) | 43,145 |
|
| |
| Custodian fees (Note 2) | 25,231 |
|
| |
| Trustee compensation and expenses (Note 2) | 884 |
|
| |
| Administrative services (Note 2) | 395 |
|
| |
| Distribution fees — Class A (Note 2) | 29,024 |
|
| |
| Distribution fees — Class B (Note 2) | 3,612 |
|
| |
| Distribution fees — Class C (Note 2) | 5,290 |
|
| |
| Distribution fees — Class M (Note 2) | 473 |
|
| |
| Distribution fees — Class R (Note 2) | 95 |
|
| |
| Auditing | 51,722 |
|
| |
| Other | 14,107 |
|
| |
| Fees waived and reimbursed by Manager (Note 2) | (65,081) |
|
| |
| Total expenses | 194,517 |
| Expense reduction (Note 2) | (1,182) |
|
| |
| Net expenses | 193,335 |
| Net investment income | 83,618 |
|
| |
| Net realized gain on investments (Notes 1 and 3) | 390,013 |
|
| |
| Net realized gain on foreign currency transactions (Note 1) | 321,130 |
|
| |
| Net realized gain on written options (Notes 1 and 3) | 18,555 |
|
| |
| Net unrealized depreciation of assets and liabilities in foreign currencies during the year | (28,574) |
|
| |
| Net unrealized depreciation of investments during the year | (837,952) |
|
| |
| Net loss on investments | (136,828) |
| Net decrease in net assets resulting from operations | $(53,210) |
|
| |
The accompanying notes are an integral part of these financial statements.
30
Statement of changes in net assets
| INCREASE IN NET ASSETS | Year ended 8/31/11 | Year ended 8/31/10 |
|
| ||
| Operations: | ||
| Net investment income | $83,618 | $2,854 |
|
| ||
| Net realized gain on investments | ||
| and foreign currency transactions | 729,698 | 731,310 |
|
| ||
| Net unrealized depreciation of investments and assets | ||
| and liabilities in foreign currencies | (866,526) | (384,377) |
|
| ||
| Net increase (decrease) in net assets resulting | ||
| from operations | (53,210) | 349,787 |
|
| ||
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Net investment income | ||
|
| ||
| Class A | (163,249) | (58,808) |
|
| ||
| Class B | (3,807) | (1,406) |
|
| ||
| Class C | (6,085) | (591) |
|
| ||
| Class M | (631) | (228) |
|
| ||
| Class R | (303) | (137) |
|
| ||
| Class Y | (15,393) | (2,322) |
|
| ||
| Net realized short-term gain on investments | ||
|
| ||
| Class A | (532,748) | (119,042) |
|
| ||
| Class B | (16,422) | (3,238) |
|
| ||
| Class C | (23,822) | (1,410) |
|
| ||
| Class M | (2,480) | (555) |
|
| ||
| Class R | (1,128) | (335) |
|
| ||
| Class Y | (46,277) | (4,125) |
|
| ||
| From net realized long-term gain on investments | ||
| Class A | (83,390) | — |
|
| ||
| Class B | (2,570) | — |
|
| ||
| Class C | (3,729) | — |
|
| ||
| Class M | (388) | — |
|
| ||
| Class R | (177) | — |
|
| ||
| Class Y | (7,244) | — |
|
| ||
| Redemption fees (Note 1) | 7,643 | 620 |
|
| ||
| Increase from capital share transactions (Note 4) | 6,965,953 | 1,289,192 |
|
| ||
| Total increase in net assets | 6,010,543 | 1,447,402 |
| NET ASSETS | ||
|
| ||
| Beginning of year | 5,466,781 | 4,019,379 |
|
| ||
| End of year (including undistributed net investment | ||
| income of $254,489 and $39,209, respectively) | $11,477,324 | $5,466,781 |
|
| ||
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: | ||||||||||||
|
| ||||||||||||||
| Ratio | Ratio | |||||||||||||
| Net realized | From | of expenses | of net investment | |||||||||||
| Net asset value, | and unrealized | Total from | From | net realized | Total return | Net assets, | to average | income (loss) | Portfolio | |||||
| beginning | Net investment | gain (loss) | investment | net investment | gain | Total | Redemption | Net asset value, | at net asset | end of period | net assets | to average | turnover | |
| Period ended | of period | income (loss) a | on investments | operations | income | on investments | distributions | fees | end of period | value (%) b | (in thousands) | (%) c,d | net assets (%) d | (%) |
|
| ||||||||||||||
| Class A | ||||||||||||||
| August 31, 2011 | $12.51 | .10 | 1.99 f | 2.09 | (.29) | (1.08) | (1.37) | .01 | $13.24 | 15.62 | $9,243 | 1.40 | .65 | 122 |
| August 31, 2010 | 11.67 | .01 | 1.33 | 1.34 | (.17) | (.33) | (.50) | — e | 12.51 | 11.55 | 4,749 | 1.46 | .08 | 129 |
| August 31, 2009† | 10.00 | .12 | 1.57 | 1.69 | (.02) | — | (.02) | — e | 11.67 | 16.96 * | 3,787 | .94 * | 1.22 * | 211 * |
|
| ||||||||||||||
| Class B | ||||||||||||||
| August 31, 2011 | $12.38 | (.02) | 1.99 f | 1.97 | (.22) | (1.08) | (1.30) | .01 | $13.06 | 14.82 | $376 | 2.15 | (.11) | 122 |
| August 31, 2010 | 11.61 | (.08) | 1.33 | 1.25 | (.15) | (.33) | (.48) | — e | 12.38 | 10.81 | 128 | 2.21 | (.64) | 129 |
| August 31, 2009† | 10.00 | .05 | 1.58 | 1.63 | (.02) | — | (.02) | — e | 11.61 | 16.34 * | 45 | 1.47 * | .44 * | 211 * |
|
| ||||||||||||||
| Class C | ||||||||||||||
| August 31, 2011 | $12.38 | (.02) | 1.99 f | 1.97 | (.24) | (1.08) | (1.32) | .01 | $13.04 | 14.81 | $648 | 2.15 | (.10) | 122 |
| August 31, 2010 | 11.62 | (.08) | 1.31 | 1.23 | (.14) | (.33) | (.47) | — e | 12.38 | 10.67 | 145 | 2.21 | (.63) | 129 |
| August 31, 2009† | 10.00 | .05 | 1.59 | 1.64 | (.02) | — | (.02) | — e | 11.62 | 16.44 * | 21 | 1.47 * | .54 * | 211 * |
|
| ||||||||||||||
| Class M | ||||||||||||||
| August 31, 2011 | $12.44 | .02 | 2.01 f | 2.03 | (.24) | (1.08) | (1.32) | .01 | $13.16 | 15.24 | $82 | 1.90 | .12 | 122 |
| August 31, 2010 | 11.64 | (.05) | 1.32 | 1.27 | (.14) | (.33) | (.47) | — e | 12.44 | 10.98 | 24 | 1.96 | (.41) | 129 |
| August 31, 2009† | 10.00 | .09 | 1.57 | 1.66 | (.02) | — | (.02) | — e | 11.64 | 16.64 * | 12 | 1.29 * | .88 * | 211 * |
|
| ||||||||||||||
| Class R | ||||||||||||||
| August 31, 2011 | $12.49 | .05 | 2.02 f | 2.07 | (.25) | (1.08) | (1.33) | .01 | $13.24 | 15.52 | $15 | 1.65 | .30 | 122 |
| August 31, 2010 | 11.66 | (.02) | 1.32 | 1.30 | (.14) | (.33) | (.47) | — e | 12.49 | 11.22 | 13 | 1.71 | (.16) | 129 |
| August 31, 2009† | 10.00 | .10 | 1.58 | 1.68 | (.02) | — | (.02) | — e | 11.66 | 16.85 * | 12 | 1.12 * | 1.06 * | 211 * |
|
| ||||||||||||||
| Class Y | ||||||||||||||
| August 31, 2011 | $12.54 | .13 | 2.01 f | 2.14 | (.31) | (1.08) | (1.39) | .01 | $13.30 | 16.00 | $1,114 | 1.15 | .86 | 122 |
| August 31, 2010 | 11.69 | .04 | 1.33 | 1.37 | (.19) | (.33) | (.52) | — e | 12.54 | 11.82 | 408 | 1.21 | .33 | 129 |
| August 31, 2009† | 10.00 | .12 | 1.59 | 1.71 | (.02) | — | (.02) | — e | 11.69 | 17.18 * | 144 | .76 * | 1.15 * | 211 * |
|
| ||||||||||||||
* Not annualized.
† For the period December 18, 2008 (commencement of operations) to August 31, 2009.
a Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
c Includes amounts paid through expense offset and brokerage/service arrangements (Note 2).
d Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation the expenses of each class, reflect a reduction of the following amounts (Note 2):
| Percentage of | ||
| average net assets | ||
|
|
||
| August 31, 2011 | 0.48% | |
|
|
||
| August 31, 2010 | 2.16 | |
|
|
||
| August 31, 2009 | 5.57 | |
|
|
||
e Amount represents less than $0.01 per share.
f The amount of net realized and unrealized gain shown for a share outstanding for the period ending August 31, 2011, does not correspond with the aggregate net loss on investments for the period due to the timing of sales and repurchases of fund shares in relation to fluctuating market values of the investments of the portfolio.
The accompanying notes are an integral part of these financial statements.
| 32 | 33 |
Notes to financial statements 8/31/11
Note 1: Significant accounting policies
Putnam Global Industrials Fund (the fund), is a non-diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The investment objective of the fund is to seek capital appreciation by concentrating in the industrial products, services or equipment industries. The fund invests mainly in common stocks (growth or value stocks or both) of large and midsize companies worldwide that Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC, believes have favorable investment potential. The fund concentrates its investments in one sector, which involves more risk than a fund that invests more broadly.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. 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’s management team 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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from September 1, 2010 through August 31, 2011.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant
34
extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio.
Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
C) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
D) Options contracts The fund uses options contracts to further express our fundamental opinion on stocks we own or actively cover. The potential risk to the fund is that the change in value of options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments if there is an illiquid secondary market for the contracts, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.
Exchange traded options are valued at the last sale price or, if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. Written option contracts outstanding at period end, if any, are listed after the fund’s portfolio. See
35
Note 3 for the volume of written options contracts activity for the reporting period. Outstanding contracts on purchased options contracts at the close of the reporting period are indicative of the volume of activity during the reporting period.
E) Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. The fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed when the contract matures or by delivery of the currency. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average contract amount of approximately $6,200,000 on forward currency contracts for the reporting period.
F) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty. Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund had a net liability position of $23,349 on derivative contracts subject to the Master Agreements. There was no collateral posted by the fund.
G) Securities lending The fund may lend securities, through its agent, to qualified borrowers in order to earn additional income. The loans are collateralized by cash in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agent; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. Cash collateral is invested in Putnam Cash Collateral Pool, LLC, a limited liability company managed by an affiliate of Putnam Management. Investments in Putnam Cash Collateral Pool, LLC are valued at its closing net asset value each business day. There are no management fees charged by Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the value of securities loaned amounted to $29,994 and the fund received cash collateral of $31,200.
H) Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
I) Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s
36
borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
J) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (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. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. 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. Each of the fund’s federal tax returns for the prior periods remains subject to examination by the Internal Revenue Service.
K) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of losses on wash sale transactions, foreign currency gains and losses and straddle loss deferrals. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the reporting period ended, the fund reclassified $321,130 to increase undistributed net investment income, with a decrease to accumulated net realized gains of $321,130.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
| Unrealized appreciation | $573,563 |
| Unrealized depreciation | (1,396,414) |
|
| |
| Net unrealized depreciation | (822,851) |
| Undistributed ordinary income | 233,299 |
| Undistributed long-term gain | 357,323 |
| Cost for federal income tax purposes | $12,377,035 |
L) 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
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
| 0.780% | of the first $5 billion, |
| 0.730% | of the next $5 billion, |
| 0.680% | of the next $10 billion, |
| 0.630% | of the next $10 billion, |
| 0.580% | of the next $50 billion, |
| 0.560% | of the next $50 billion, |
| 0.550% | of the next $100 billion, |
| 0.545% | of any excess thereafter. |
37
Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were reduced by $65,081 as a result of this limit.
Putnam Management had also contractually agreed, through December 30, 2010, to limit the management fee for the fund to an annual rate of 0.642% of the fund’s average net assets. During the reporting period, the fund’s expenses were not reduced as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.
The Putnam Advisory Company, LLC (PAC), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. Putnam Management or PIL, as applicable, pays a quarterly sub-advisory fee to PAC for its services at the annual rate of 0.35% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. The fund also reduced expenses through brokerage/service arrangements. For the reporting period, the fund’s expenses were reduced by $40 under the expense offset arrangements and by $1,142 under the brokerage/service arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $11, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years 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. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. 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 A, class B, class C, class M 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 Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund.
38
The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $14,619 and $14 from the sale of class A and class M shares, respectively, and received $637 and $119 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A and class M redemptions.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $21,987,481 and $15,858,249, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
Written option transactions during the reporting period are summarized as follows:
| Written equity option | Written equity option | ||
| contract amounts | premiums received | ||
|
| |||
| Written options outstanding at the | |||
| beginning of the reporting period | USD | — | $— |
|
| |||
| DKK | — | $— | |
|
| |||
| Options opened | USD | 68,679 | 17,812 |
|
| |||
| DKK | 19,720 | 1,108 | |
|
| |||
| Options expired | USD | (68,679) | (17,812) |
|
| |||
| DKK | — | — | |
|
| |||
| Options closed | USD | — | — |
|
| |||
| DKK | (19,720) | (1,108) | |
|
| |||
| Written options outstanding at the end | |||
| of the reporting period | USD | — | $— |
|
| |||
| DKK | — | $— | |
|
| |||
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class A | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 787,677 | $12,211,385 | 142,659 | $1,842,936 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 50,894 | 752,215 | 14,471 | 177,850 |
|
| ||||
| 838,571 | 12,963,600 | 157,130 | 2,020,786 | |
|
| ||||
| Shares repurchased | (520,216) | (7,728,646) | (101,936) | (1,230,775) |
|
| ||||
| Net increase | 318,355 | $5,234,954 | 55,194 | $790,011 |
|
| ||||
39
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class B | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 30,335 | $456,872 | 12,862 | $162,138 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 1,551 | 22,728 | 380 | 4,644 |
|
| ||||
| 31,886 | 479,600 | 13,242 | 166,782 | |
|
| ||||
| Shares repurchased | (13,434) | (185,410) | (6,830) | (87,099) |
|
| ||||
| Net increase | 18,452 | $294,190 | 6,412 | $79,683 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class C | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 48,087 | $729,214 | 17,108 | $227,161 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 2,262 | 33,095 | 164 | 2,001 |
|
| ||||
| 50,349 | 762,309 | 17,272 | 229,162 | |
|
| ||||
| Shares repurchased | (12,344) | (185,340) | (7,350) | (91,275) |
|
| ||||
| Net increase | 38,005 | $576,969 | 9,922 | $137,887 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class M | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 4,164 | $65,635 | 828 | $10,302 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 238 | 3,499 | 64 | 783 |
|
| ||||
| 4,402 | 69,134 | 892 | 11,085 | |
|
| ||||
| Shares repurchased | (87) | (1,298) | — | — |
|
| ||||
| Net increase | 4,315 | $67,836 | 892 | $11,085 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class R | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 201 | $3,001 | — | $— |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 109 | 1,607 | 39 | 472 |
|
| ||||
| 310 | 4,608 | 39 | 472 | |
|
| ||||
| Shares repurchased | (217) | (2,630) | — | — |
|
| ||||
| Net increase | 93 | $1,978 | 39 | $472 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class Y | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 68,349 | $1,062,226 | 22,606 | $301,741 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 4,650 | 68,913 | 524 | 6,447 |
|
| ||||
| 72,999 | 1,131,139 | 23,130 | 308,188 | |
|
| ||||
| Shares repurchased | (21,818) | (341,113) | (2,853) | (38,134) |
|
| ||||
| Net increase | 51,181 | $790,026 | 20,277 | $270,054 |
|
| ||||
40
At the close of the reporting period, Putnam Investments, LLC owned the following class shares:
| Shares owned | Percentage of ownership | Value at 8/31/11 | |
|
| |||
| Class A | 196,001 | 28.08% | $2,595,050 |
|
| |||
| Class M | 1,134 | 18.26 | 14,917 |
|
| |||
| Class R | 1,134 | 100.00 | 15,013 |
|
| |||
Note 5: Summary of derivative activity
The following is a summary of the market values of derivative instruments as of the close of the reporting period:
Market values of derivative instruments as of the close of the reporting period
| Asset derivatives | Liability derivatives | |||
|
| ||||
| Derivatives not | ||||
| accounted for as | Statement of | Statement of | ||
| hedging instruments | assets and | assets and | ||
| under ASC 815 | liabilities location | Market value | liabilities location | Market value |
|
| ||||
| Foreign exchange | ||||
| contracts | Receivables | $41,641 | Payables | $62,278 |
|
| ||||
| Equity contracts | Investments | 36,688 | — | |
|
| ||||
| Total | $78,329 | $62,278 | ||
|
| ||||
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | ||
| instruments under ASC 815 | Options | contracts | Total |
|
| |||
| Foreign exchange contracts | $— | $323,326 | $323,326 |
|
| |||
| Equity contracts | (204,782) | — | $(204,782) |
|
| |||
| Total | $(204,782) | $323,326 | $118,544 |
|
| |||
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | ||
| instruments under ASC 815 | Options | contracts | Total |
|
| |||
| Foreign exchange contracts | $— | $(28,616) | $(28,616) |
|
| |||
| Equity contracts | (90,854) | — | $(90,854) |
|
| |||
| Total | $(90,854) | $(28,616) | $(119,470) |
|
| |||
Note 6: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $425 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $8,935,237 and $8,933,685, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 7: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
41
Federal tax information (Unaudited)
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $361,826 as a capital gain dividend with respect to the taxable year ended August 31, 2011, or, if subsequently determined to be different, the net capital gain of such year.
The fund designated 22.92% of ordinary income distributions as qualifying for the dividends received deduction for corporations.
For its tax year ended August 31, 2011, the fund hereby designates 50.05%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
For the tax year ended August 31, 2011, pursuant to §871(k) of the Internal Revenue Code, the fund hereby designates $57 of distributions paid as qualifying to be taxed as interest-related dividends, and $622,877 to be taxed as short-term capital gain dividends for nonresident alien shareholders.
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
42
About the Trustees
| Independent Trustees | ||
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
| Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
| Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
| Shields, a multi-product investment management firm | focused on private | |
| with over $40 billion in assets under management. | equity advisory services; | |
| RAGE Frameworks, | ||
| Inc., a private software | ||
| company | ||
|
| ||
| Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
| Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
| Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
| College and member of the Investment Committee for the | company; UniSource | |
| college’s endowment. Former Chair and current board | Energy Corporation, | |
| member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
| the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
| refiner and fertilizer | ||
| manufacturer; Cody | ||
| Resources Management, | ||
| LLP, a privately held | ||
| energy, ranching, and | ||
| commercial real estate | ||
| company | ||
|
| ||
| Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
| Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
| Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
| Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
| to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
| since 2011 | ||
|
| ||
| Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
| Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
| Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
| for Strategic and International Studies. Member of the | ||
| Council on Foreign Relations. | ||
|
| ||
| Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
| Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
| Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
| Johnson & Johnson’s Chief Financial Officer for a decade. | ||
|
| ||
| John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
| Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
| Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
| Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
| to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
| of the Millstein Center for Corporate Governance and | ||
| Performance at the Yale School of Management. | ||
|
| ||
43
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
| Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
| Trustee since 1997 | on research and education on issues related to science, | company focused on |
| technology, and economic performance. Elizabeth and | natural gas transmission | |
| James Killian Professor of Economics, Emeritus at the | and power services; | |
| Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
| 2007, served as the Director of the Center for Energy and | energy company focused | |
| Environmental Policy Research at MIT. | on power services | |
|
| ||
| Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
| Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
| Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
| Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
| Massachusetts. Until November 2010, director of Ruder | ||
| Finn Group, a global communications and advertising firm. | ||
|
| ||
| Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
| Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
| Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
| Joslin Diabetes Center. | ||
|
| ||
| George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
| Born 1951 | of financial advisory and other research services, and | |
| Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
| a registered investment advisor to private funds. | ||
| Director of The Boston Family Office, LLC, a registered | ||
| investment advisor. | ||
|
| ||
| W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
| Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
| Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
| and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
| packaging products. | ||
|
| ||
| Interested Trustee | ||
|
| ||
| Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
| Born 1952 | Investments since 2008. Prior to joining Putnam | |
| Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
| President of the Putnam | Operating Officer of Fidelity Investments from | |
| Funds since July 2009 | 2000 to 2007. | |
|
| ||
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2011, there were 106 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
44
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
| Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
| Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
| Officer, Treasurer and Compliance Liaison | Since 2011 |
| Since 2004 | General Counsel, Putnam Investments and |
| Putnam Management | |
| Steven D. Krichmar (Born 1958) | |
| Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
| Since 2002 | Vice President |
| Chief of Operations, Putnam Investments and | Since 2004 |
| Putnam Management | Director of Trustee Relations, |
| Putnam Investments and Putnam Management | |
| Janet C. Smith (Born 1965) | |
| Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
| Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
| Since 2007 | Since 1993 |
| Director of Fund Administration Services, | |
| Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
| Vice President, Senior Associate Treasurer and | |
| Beth S. Mazor (Born 1958) | Assistant Clerk |
| Vice President | Since 2010 |
| Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
| Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
| Investments and Putnam Management | Management (2007–2008); Senior Financial |
| Analyst, Putnam Investments (1999–2007) | |
| Robert R. Leveille (Born 1969) | |
| Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
| Since 2007 | Vice President, Assistant Clerk, Assistant |
| Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
| Putnam Management, and Putnam Retail | Since 2000 |
| Management | |
| Susan G. Malloy (Born 1957) | |
| Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
| Vice President and BSA Compliance Officer | Since 2007 |
| Since 2002 | Director of Accounting & Control Services, |
| Director of Operational Compliance, | Putnam Management |
| Putnam Investments and Putnam | |
| Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
45
The Putnam family of funds
The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial advisor at 1-800-225-1581 and ask for a prospectus. Please read the prospectus carefully before investing.
| Growth | Value |
| Growth Opportunities Fund | Convertible Securities Fund |
| International Growth Fund | Prior to September 30, 2010, the fund was known as |
| Multi-Cap Growth Fund | Putnam Convertible Income-Growth Trust |
| Prior to September 1, 2010, the fund was known as | Equity Income Fund |
| Putnam New Opportunities Fund | George Putnam Balanced Fund |
| Small Cap Growth Fund | Prior to September 30, 2010, the fund was known as |
| Voyager Fund | The George Putnam Fund of Boston |
| The Putnam Fund for Growth and Income | |
| Blend | International Value Fund |
| Asia Pacific Equity Fund | Multi-Cap Value Fund |
| Capital Opportunities Fund | Prior to September 1, 2010, the fund was known as |
| Capital Spectrum Fund | Putnam Mid Cap Value Fund |
| Emerging Markets Equity Fund | Small Cap Value Fund |
| Equity Spectrum Fund | |
| Europe Equity Fund | Income |
| Global Equity Fund | American Government Income Fund |
| International Capital Opportunities Fund | Diversified Income Trust |
| International Equity Fund | Floating Rate Income Fund |
| Investors Fund | Global Income Trust |
| Multi-Cap Core Fund | High Yield Advantage Fund |
| Research Fund | High Yield Trust |
| Income Fund | |
| Money Market Fund* | |
| U.S. Government Income Trust |
* An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
46
| Tax-free income | Asset Allocation |
| AMT-Free Municipal Fund | Putnam Asset Allocation Funds — portfolios |
| Tax Exempt Income Fund | with allocations to stocks, bonds, and |
| Tax Exempt Money Market Fund* | money market instruments that are adjusted |
| Tax-Free High Yield Fund | dynamically within specified ranges as |
| market conditions change. | |
| State tax-free income funds: | |
| Arizona, California, Massachusetts, Michigan, | Asset Allocation: Balanced Portfolio |
| Minnesota, New Jersey, New York, Ohio, | Asset Allocation: Conservative Portfolio |
| and Pennsylvania | Asset Allocation: Growth Portfolio |
| Absolute Return | Putnam RetirementReady Funds — portfolios |
| Absolute Return 100 Fund | with automatically adjusting allocations to |
| Absolute Return 300 Fund | stocks, bonds, and money market instruments, |
| Absolute Return 500 Fund | becoming more conservative over time. |
| Absolute Return 700 Fund | |
| RetirementReady 2055 Fund | |
| Global Sector | RetirementReady 2050 Fund |
| Global Consumer Fund | RetirementReady 2045 Fund |
| Global Energy Fund | RetirementReady 2040 Fund |
| Global Financials Fund | RetirementReady 2035 Fund |
| Global Health Care Fund | RetirementReady 2030 Fund |
| Global Industrials Fund | RetirementReady 2025 Fund |
| Global Natural Resources Fund | RetirementReady 2020 Fund |
| Global Sector Fund | RetirementReady 2015 Fund |
| Global Technology Fund | |
| Global Telecommunications Fund | Putnam Retirement Income Lifestyle |
| Global Utilities Fund | Funds — portfolios with managed |
| allocations to stocks, bonds, and money | |
| market investments to generate | |
| retirement income. | |
| Retirement Income Fund Lifestyle 1 | |
| Prior to June 16, 2011, the fund was known as Putnam | |
| RetirementReady Maturity Fund | |
| Retirement Income Fund Lifestyle 2 | |
| Retirement Income Fund Lifestyle 3 | |
| Prior to June 16, 2011, the fund was known as Putnam | |
| Income Strategies Fund |
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund's prospectus.
Check your account balances and the most recent month-end performance in the Individual Investors section at putnam.com.
47
Services for shareholders
Investor services
Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.
Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.
Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.
Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.
Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.
Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.
Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.
Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.
For more information
Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.
Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.
48
Fund information
Founded over 70 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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Trustees | Beth S. Mazor |
| Putnam Investment | Jameson A. Baxter, Chair | Vice President |
| Management, LLC | Ravi Akhoury | |
| One Post Office Square | Barbara M. Baumann | Robert R. Leveille |
| Boston, MA 02109 | Charles B. Curtis | Vice President and |
| Robert J. Darretta | Chief Compliance Officer | |
| Investment Sub-Manager | John A. Hill | |
| Putnam Investments Limited | Paul L. Joskow | Mark C. Trenchard |
| 57–59 St James’s Street | Kenneth R. Leibler | Vice President and |
| London, England SW1A 1LD | Robert E. Patterson | BSA Compliance Officer |
| George Putnam, III | ||
| Investment Sub-Advisor | Robert L. Reynolds | Robert T. Burns |
| The Putnam Advisory | W. Thomas Stephens | Vice President and |
| Company, LLC | Chief Legal Officer | |
| One Post Office Square | Officers | |
| Boston, MA 02109 | Robert L. Reynolds | James P. Pappas |
| President | Vice President | |
| Marketing Services | ||
| Putnam Retail Management | Jonathan S. Horwitz | Judith Cohen |
| One Post Office Square | Executive Vice President, | Vice President, Clerk and |
| Boston, MA 02109 | Principal Executive | Assistant Treasurer |
| Officer, Treasurer and | ||
| Custodian | Compliance Liaison | Michael Higgins |
| State Street Bank | Vice President, Senior Associate | |
| and Trust Company | Steven D. Krichmar | Treasurer and Assistant Clerk |
| Vice President and | ||
| Legal Counsel | Principal Financial Officer | Nancy E. Florek |
| Ropes & Gray LLP | Vice President, Assistant Clerk, | |
| Janet C. Smith | Assistant Treasurer and | |
| Independent Registered | Vice President, Assistant | Proxy Manager |
| Public Accounting Firm | Treasurer and Principal | |
| KPMG LLP | Accounting Officer | Susan G. Malloy |
| Vice President and | ||
| Assistant Treasurer |
This report is for the information of shareholders of Putnam Global Industrials 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 putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary 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.
| Item 2. Code of Ethics: |
| (a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund’s investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
| (c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
| Item 3. Audit Committee Financial Expert: |
| The Funds’ Audit and Compliance Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification. |
| Item 4. Principal Accountant Fees and Services: |
| The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor: |
| Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
| August 31, 2011 | $51,308 | $-- | $4,100 | $ — | |
| August 31, 2010 | $43,906 | $-- | $3,900 | $ — | |
| For the fiscal years ended August 31, 2011 and August 31, 2010, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $4,100 and $3,900 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
| Audit Fees represent fees billed for the fund’s last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
| Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
| Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
| Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
| The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
| The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. |
| Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
| August 31, 2011 | $ — | $ — | $ — | $ — | |
| August 31, 2010 | $ — | $ — | $ — | $ — | |
| 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) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
| (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/Janet C. Smith Janet C. Smith Principal Accounting Officer |
| Date: October 27, 2011 |
| 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/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
| Date: October 27, 2011 |
| By (Signature and Title): |
| /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: October 27, 2011 |
| 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 800 Boylston Street Boston, Massachusetts 02199-3600 |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
| Date of fiscal year end: | August 31, 2011 |
| Date of reporting period: | September 1, 2010 — August 31, 2011 |
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: | |||
Putnam
Global Technology
Fund
Annual report
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| Message from the Trustees | 1 | ||
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| About the fund | 2 | ||
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| Performance snapshot | 4 | ||
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| Interview with your fund’s portfolio manager | 5 | ||
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| Your fund’s performance | 11 | ||
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| Your fund’s expenses | 13 | ||
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| Terms and definitions | 15 | ||
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| Trustee approval of management contract | 16 | ||
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| Other information for shareholders | 20 | ||
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| Financial statements | 21 | ||
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| Federal tax information | 41 | ||
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| About the Trustees | 42 | ||
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| Officers | 44 | ||
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Message from the Trustees
Dear Fellow Shareholder:
Markets around the world are grappling with heightened volatility. In the United States, persistently high unemployment and other weak economic data have fueled investors’ risk aversion, while in Europe the sovereign debt crisis shows little sign of abating. Certain bright spots do exist, but it is clear that volatility and uncertainty will remain with us for the near term.
We believe it is important to consult your financial advisor in times like these to consider whether your portfolio reflects an appropriate degree of diversification. In responding to this need, Putnam offers funds with strategies that seek to limit volatility and also employs an active, research-based investment approach that is designed to offer shareholders a potential advantage in this climate by looking for new growth opportunities and seeking to guard against downside risk.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancy’s Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
About the fund
Pursuing growth opportunities in technology companies worldwide
In 1937, the year Putnam Investments was founded, a law student named Chester Carlson developed an innovative process for reproducing words on a page in just minutes. Despite the usefulness of his invention, he had a difficult time finding investors for his photocopier — which did not become commercially available until the Xerox Corporation began selling it in 1950. Successful investing, particularly in the technology sector, requires the ability to identify the value of a product, service, or business, and to capitalize on its long-term growth potential.
The magnitude of technological advances since Mr. Carlson invented his photocopier is astounding. Putnam Global Technology Fund seeks to capitalize on the potential of this sector — and the many innovations that are still to come. The fund combines the growth potential of technology stocks with Putnam’s investment expertise, research capabilities, and global reach.
The fund can invest worldwide in small entrepreneurial firms, midsize companies with significant market share in new industries, and well-established giants with years of profitability.
Most areas of the economy are influenced by technology — from emerging companies with revolutionary new products to traditional businesses dependent on technological innovation. The fund’s manager, with support from analysts in Putnam’s Global Equity Research group, looks across industries to find stocks that can help investors build wealth over time. Companies in the portfolio may range from computer hardware, software, storage, and security to technology consulting and Internet services.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the risk that the other party to the derivatives transaction will not meet its obligations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The use of short selling may result in losses if the securities appreciate in value. The fund’s policy of concentrating on a limited group of industries and the fund’s non-diversified status, which means the fund may invest in fewer issuers, can increase the fund’s vulnerability to common economic forces and may result in greater losses and volatility.
Sector investing at Putnam
In recent decades, innovation and business growth have propelled stocks in different industries to market-leading performance. Finding these stocks, many of which are in international markets, requires rigorous research and in-depth knowledge of global markets.
Putnam’s sector funds invest in nine sectors worldwide and offer active management, risk controls, and the expertise of dedicated sector analysts. The funds’ managers invest with flexibility and precision, using fundamental research to hand select stocks for the portfolios.
All sectors in one fund:
Putnam Global Sector Fund
A portfolio of individual Putnam Global Sector Funds that provides exposure to all sectors of the MSCI World Index.
Individual sector funds:
Global Consumer Fund
Retail, hotels, restaurants, media, food and beverages
Global Energy Fund
Oil and gas, energy equipment and services
Global Financials Fund
Commercial banks, insurance, diversified financial services, mortgage finance
Global Health Care Fund
Pharmaceuticals, biotechnology, health-care services
Global Industrials Fund
Airlines, railroads, trucking, aerospace and defense, construction, commercial services
Global Natural Resources Fund
Metals, chemicals, oil and gas, forest products
Global Technology Fund
Software, computers, Internet services
Global Telecommunications Fund
Diversified and wireless telecommunications services
Global Utilities Fund
Electric, gas, and water utilities
| 2 | 3 |
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See pages 5 and 11–12 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus. To obtain the most recent month-end performance, visit putnam.com.
4
Interview with your fund’s portfolio manager
George Gianarikas
Despite market volatility during the period, Putnam Global Technology Fund posted positive performance, although it underperformed its benchmark and Lipper peer category. What were the drivers of fund performance?
It was a positive year for the technology sector overall, although the stock market experienced a great deal of volatility. Some areas of the sector performed very well for most of the period, but were hit in the latter part of the year. For example, by the end of 2010, many so-called cloud computing companies performed well. The “cloud” is a virtual platform that allows users to access applications over a broadband connection. The market had high expectations for these stocks. But many of these stocks have not performed well to date in 2011 as stock market performance weakened. The fund underperformed its Lipper peer category, in part because many members of the category follow different benchmarks, some of which are focused solely on the United States. Putnam Global Technology Fund has a global investment approach.
What was the investment environment like during the period?
Positive economic reports and improved investor confidence in the strength of the economic recovery lifted stocks in the fourth quarter of 2010. This continued into 2011, but the stock market weakened again in the spring after Japan’s earthquake-tsunami disaster and growing civil unrest in the Middle East. These events added to market uncertainty and risk aversion because it was unclear how they would affect global economic growth. In addition, the first half of the fiscal year was marked by growing concerns about Europe’s sovereign debt
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 8/31/11. See pages 4 and 11–12 for additional fund performance information. Index descriptions can be found on page 15.
5
woes, as well as those in the United States, where Congress engaged in a lengthy debt ceiling debate before finalizing a deficit reduction plan. We believe reductions in government spending in both Europe and in the United States will likely have an impact on the technology sector.
What trends have you observed in mergers and acquisitions among technology companies?
There has been a great deal of M&A activity throughout the reporting period, with technology leading the top 10 industry sectors in the number of deals in the first quarter of 2011 alone. Among some of the largest deals this year were Google’s plans to acquire Motorola, Hewlett-Packard’s acquisition of Autonomy Corp., Microsoft’s deal to buy Skype, and Texas Instruments’ deal to buy National Semiconductor. Much of the M&A activity has been driven by larger companies, which are experiencing a slowdown in growth and seeking ways to supplement that growth by enhancing their business models. In our view, M&A activity is likely to continue in the technology sector. At the same time, some technology firms in the social media subsector have postponed launching IPOs this year due to the weak equity market.
Given the slowdown in global growth, how has business spending on technology held up during the year?
Business spending had increased in the fourth quarter of 2010, as companies that had put technology upgrades and new equipment purchasing on hold during the recession began to spend again. Moderate spending continued in 2011 as businesses grew more cautious in the latter part of the reporting period, with U.S. and European debt issues becoming more prominent, leading to uncertainty about future economic growth. Pockets of weakness have emerged around government spending on technology in Europe due to sovereign debt
Country allocations are shown as a percentage of the fund’s net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any. Weightings will vary over time.
6
issues. In the United States, a slowdown took place in spending across all levels of government, as federal, state, and local bodies dealt with budget issues.
How would you describe consumer spending activity during the period?
Consumer spending on technology in the United States experienced a boost in 2010 from holiday spending, but has remained largely flat since early 2011. The personal computer market has been fairly weak, primarily due to competition from smartphones and tablets. The television market is also fairly lackluster and has experienced falling prices. In Europe, consumer spending has also been weak.
In Asia and emerging markets, however, consumer spending is strong and, in fact, Asia has outpaced the United States.
What holdings contributed to fund performance?
Apple, a leader in product innovation, was the top contributor to performance during the period, thanks to the continued popularity and success of the iPhone and the iPad. Smartphones have driven growth in wireless technology. In many parts of the world, smartphones are supplanting personal computers as the gateway to the Internet.
Another contributor, Qualcomm, also has gained from this smartphone trend. Qualcomm manufactures computer chips used for smartphones. In addition, the company collects royalties when its patents are used to make chips. As growth in the smartphone market continues to expand, Qualcomm’s stock has benefited.
This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 8/31/11. Short-term holdings are excluded. Holdings will vary over time.
7
Research in Motion [RIM], developer of the BlackBerry smartphone, has been losing market share to Apple. An underweight position in RIM contributed to the fund’s relative performance. By the end of the reporting period, the stock was no longer held by the fund.
EMC, an information-management company, also contributed to the fund’s performance. EMC benefited from its capability to provide data storage in the cloud-computing sector. As I mentioned, cloud computing has become a significant theme within the sector. We decided that we didn’t want to participate in the expensive cloud stocks. We looked instead for stocks that have much more reasonable valuations, and are positioned to benefit from growth in cloud computing. We viewed EMC as a company that will likely benefit from the same trends, but at a more reasonable price.
What were some of the holdings that detracted from performance?
An underweight position in IBM hurt performance. We were underweight because we believed that the stock was expensive relative to the other older, large-cap tech stocks. However, the stock outperformed based on delivering consistent results in the face of market and earnings uncertainty.
An overweight position in Cisco also detracted from the fund’s performance, but the issues were more specific to the company than market trends. Cisco has a large market share in the manufacturing of switching for computer networks. With increased competition, there is speculation that the firm could lose market share, and this could put pressure on its margins. The market has discounted the stock, but we continue to hold the stock because we believe the company can grow revenues in the next few years. We also believe that Cisco has a good management team.
This chart shows how the fund’s top weightings have changed over the past six months. Weightings are shown as a percentage of net assets. Current period summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings will vary over time.
Data in the chart reflect a new calculation methodology put into effect within the past six months.
8
Hewlett-Packard, another detractor in which the fund had an overweight position, did not execute as it had planned based on several issues, including a difficult environment for personal computer sales. In the final months of the reporting period, the management team also decided to explore alternatives to its PC business and announced plans to acquire Autonomy Corp., an enterprise software developer, for $10 billion. Some analysts viewed the acquisition as an expensive move. Hewlett-Packard also has a new management team, and the company is trying to recharge the business. We continue to hold the stock because we believe in its potential. In the month following the reporting period, Hewlett-Packard named a new chief executive officer. We continue to monitor developments at the company.
Glassmaker Corning also detracted from fund performance. Television, which is one of its significant end markets, has been weak this year. Instead of TVs, consumers are buying other items with their technology dollars. In addition, the housing market is still weak and housing sales tend to drive television sales. We still think Corning is a good holding and believe that the company has a good management team and strong market share. Corning also makes glass for tablets and smartphones and, in our view, is poised to benefit in the long term if sales for these items continue to be robust.
How do you identify investment opportunities?
We try to find companies with strong strategic positions and management, as well as solid end markets. In addition, we look for companies whose stocks are reasonably valued and have the ability to grow a profit in the next few years.
What is your outlook for the sector?
I believe there is a lot of value in technology stocks. I also think we are at a critical juncture for technology firms, where there will be winners and losers. Many changes are occurring in the sector. We are at a shift in cloud computing, and the ways we use computers are changing. Instead of working on a computer with the hard drive nearby, it is located somewhere else completely, and more frequently in the virtual space of the cloud. Cloud computing changes the way we buy software and hardware. Within consumer spending, smartphones and tablets are taking over how technology dollars are spent. While not every company or business model will succeed, there are many new opportunities where there are tectonic shifts going on within the technology sector.
Thank you, George, for your time and insights.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
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. Current and future portfolio holdings are subject to risk.
Portfolio Manager George Gianarikas has an M.A. in Economics from Boston University and a B.A. from Boston University. George joined Putnam in 2009 and has been in the investment industry since 1998.
9
IN THE NEWS
With economic storm clouds darkening, the Organisation for Economic Co-operation and Development (OECD) recently slashed its growth forecasts for the United States and many other countries for the remainder of 2011. In its interim forecast, released in early September, the OECD estimates that the United States economy will grow 1.1% in the third quarter and 0.4% in the fourth, down from the 2.9% and 3% growth it had predicted in May. Meanwhile, the OECD predicts that Japan will expand 4.1% in the third quarter before stagnating in the fourth, and that the German economy will grow 2.6% in the third quarter and shrink 1.4% in the fourth. For the third and fourth quarters, the United Kingdom economy is predicted to grow 0.4% and 0.3%, respectively. The OECD also said that central banks around the world should be ready to ease monetary policy if economies weaken further.
10
Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended August 31, 2011, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 8/31/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
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| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
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| Life of fund | 61.57% | 52.29% | 58.34% | 55.34% | 58.42% | 58.42% | 59.40% | 53.86% | 60.55% | 62.67% |
| Annual average | 19.43 | 16.85 | 18.54 | 17.71 | 18.57 | 18.57 | 18.84 | 17.29 | 19.15 | 19.73 |
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| 1 year | 14.78 | 8.17 | 13.93 | 8.93 | 13.93 | 12.93 | 14.18 | 10.17 | 14.50 | 15.04 |
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 5.75% and 3.50% sales charge, respectively, levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus.
Comparative index returns For periods ended 8/31/11
| MSCI World Information | Lipper Global Science/Technology Funds | |
| Technology Index (ND) | category average* | |
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| Life of fund | 61.05% | 82.63% |
| Annual average | 19.29 | 24.81 |
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| 1 year | 17.76 | 16.71 |
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Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* Over the 1-year and life-of-fund periods ended 8/31/11, there were 42 and 31 funds, respectively, in this Lipper category.
11
Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B shares would have been valued at $15,834 ($15,534 after contingent deferred sales charge). A $10,000 investment in the fund’s class C shares would have been valued at $15,842, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $15,386. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $16,055 and $16,267, respectively.
Fund price and distribution information For the 12-month period ended 8/31/11
| Distributions | Class A | Class B | Class C | Class M | Class R | Class Y | ||
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| Number | 1 | 1 | 1 | 1 | 1 | 1 | ||
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| Income | — | — | — | — | — | — | ||
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| Capital gains — Long-term | $0.096 | $0.096 | $0.096 | $0.096 | $0.096 | $0.096 | ||
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| Capital gains — Short-term | 0.284 | 0.284 | 0.284 | 0.284 | 0.284 | 0.284 | ||
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| Total | $0.380 | $0.380 | $0.380 | $0.380 | $0.380 | $0.380 | ||
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| Before | After | Net | Net | Before | After | Net | Net | |
| sales | sales | asset | asset | sales | sales | asset | asset | |
| Share value | charge | charge | value | value | charge | charge | value | value |
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| 8/31/10 | $13.26 | $14.07 | $13.12 | $13.12 | $13.18 | $13.66 | $13.24 | $13.30 |
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| 8/31/11 | 14.86 | 15.77 | 14.59 | 14.59 | 14.69 | 15.22 | 14.80 | 14.94 |
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The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares and 3.50% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
Fund performance as of most recent calendar quarter
Total return for periods ended 9/30/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
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| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
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| Life of fund | 51.35% | 42.65% | 48.24% | 45.24% | 48.32% | 48.32% | 49.30% | 44.12% | 50.35% | 52.43% |
| Annual average | 16.06 | 13.62 | 15.20 | 14.36 | 15.22 | 15.22 | 15.49 | 14.04 | 15.79 | 16.36 |
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| 1 year | –4.12 | –9.65 | –4.86 | –9.50 | –4.79 | –5.72 | –4.57 | –7.93 | –4.34 | –3.84 |
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12
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’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, 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 representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class R | Class Y | |
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| Net expenses for the fiscal year ended 8/31/10*† | 1.45% | 2.20% | 2.20% | 1.95% | 1.70% | 1.20% |
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| Total annual operating expenses for the fiscal year | ||||||
| ended 8/31/10† | 2.35% | 3.10% | 3.10% | 2.85% | 2.60% | 2.10% |
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| Annualized expense ratio for the six-month period | ||||||
| ended 8/31/11‡ | 1.39% | 2.14% | 2.14% | 1.89% | 1.64% | 1.14% |
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Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Reflects Putnam Management’s contractual obligation to limit expenses through 12/30/11.
† Restated to reflect projected expenses under a management contract effective 1/1/10.
‡ For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from March 1, 2011, to August 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $6.64 | $10.20 | $10.20 | $9.01 | $7.83 | $5.45 |
|
| ||||||
| Ending value (after expenses) | $894.10 | $890.70 | $891.30 | $891.90 | $893.20 | $895.10 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
13
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended August 31, 2011, use the following calculation method. To find the value of your investment on March 1, 2011, call Putnam at 1-800-225-1581.
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 following table 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 A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $7.07 | $10.87 | $10.87 | $9.60 | $8.34 | $5.80 |
|
| ||||||
| Ending value (after expenses) | $1,018.20 | $1,014.42 | $1,014.42 | $1,015.68 | $1,016.94 | $1,019.46 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
14
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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
MSCI World Information Technology Index (ND) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets in the information technology sector.
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.
15
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 with Putnam Investment Management (“Putnam Management”), the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), and the sub-advisory contract among Putnam Management, PIL, and another affiliate, Putnam Advisory Company (“PAC”).
The Board of Trustees, with the assistance of its Contract Committee, which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. Over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided 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 on a number of occasions. At the Trustees’ June 17, 2011 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management, sub-management and sub-advisory contracts, effective July 1, 2011. (Because PIL and PAC are affiliates of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL and PAC, the Trustees have not evaluated PIL or PAC as separate entities, and all subsequent references to Putnam Management below should be deemed to include reference to PIL and PAC as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented 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 services, and
• That the fee schedule represented 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 management 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 some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
16
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. In reviewing management fees, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund.
Most of the open-end Putnam funds have new management contracts, with new fee schedules reflecting the implementation of more competitive fee levels for many funds, complex-wide breakpoints for the open-end funds, and performance fees for some funds. These new management contracts have been in effect for a little over a year — since January or, for a few funds, February, 2010. The Trustees approved the new management contracts on July 10, 2009, and fund shareholders subsequently approved the contracts by overwhelming majorities of the shares voted.
Because these management contracts had been implemented only recently, the Contract Committee had limited practical experience with the operation of the new fee structures. Under its new management contract, your fund has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Contract Committee observed that the complex-wide breakpoints of the open-end funds had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds had sufficiently low expenses that these expense limitations did not apply. However, in the case of your fund, both of the expense limitations applied during its fiscal year ending in 2010. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and extraordinary expenses). Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management, sub-management and sub-advisory contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the 1st quintile in effective management fees (determined for your fund and the other funds
17
in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the 3rd quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2010 (the first quintile representing the least expensive funds and the fifth quintile the most expensive funds). The fee and expense data reported by Lipper as of December 31, 2010 reflected the most recent fiscal year-end data available in Lipper’s database at that time.
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 provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds 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, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and 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 may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes 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 its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
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 Putnam funds’ investment process and performance by the work of several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized that this does
18
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 each fund’s performance with various benchmarks and with the performance of competitive funds.
The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered information about the absolute return of your fund, and your fund’s performance relative to its internal benchmark. Putnam Global Technology Fund’s class A shares’ return net of fees and expenses was positive over the one-year period ended December 31, 2010, and equaled the return of its internal benchmark over the one-year period.
Brokerage and soft-dollar allocations; investor servicing
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 benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management contract, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
19
Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, 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 website 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 website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of August 31, 2011, Putnam employees had approximately $323,000,000 and the Trustees had approximately $70,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
20
Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 year.
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.
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 highlights table also includes the current reporting period.
21
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of
Putnam Funds Trust:
We have audited the accompanying statement of assets and liabilities of Putnam Global Technology Fund (the fund), a series of Putnam Funds Trust, including the fund’s portfolio, as of August 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and the period from December 18, 2008 (commencement of operations) to August 31, 2009. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2011 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Global Technology Fund as of August 31, 2011, the results of its operations, the changes in its net assets, and the financial highlights for the periods specified in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 11, 2011
The fund’s portfolio 8/31/11
| COMMON STOCKS (98.9%)* | Shares | Value |
|
| ||
| Communications equipment (18.1%) | ||
| ADTRAN, Inc. | 1,376 | $42,739 |
|
| ||
| Alcatel-Lucent ADR (France) † | 25,185 | 92,177 |
|
| ||
| Cisco Systems, Inc. | 54,730 | 858,166 |
|
| ||
| HTC Corp. (Taiwan) | 105 | 2,757 |
|
| ||
| Juniper Networks, Inc. † | 6,300 | 131,859 |
|
| ||
| Polycom, Inc. † | 728 | 17,326 |
|
| ||
| Qualcomm, Inc. | 7,971 | 410,188 |
|
| ||
| Sycamore Networks, Inc. † | 3,300 | 56,727 |
|
| ||
| Telefonaktiebolaget LM Ericsson ADR (Sweden) | 28,369 | 318,016 |
|
| ||
| 1,929,955 | ||
| Computers and peripherals (26.9%) | ||
| Apple, Inc. † | 4,630 | 1,781,763 |
|
| ||
| Asustek Computer, Inc. (Taiwan) † | 2,440 | 20,708 |
|
| ||
| Compal Electronics, Inc. (Taiwan) | 217 | 234 |
|
| ||
| EMC Corp. † | 6,951 | 157,023 |
|
| ||
| Fujitsu, Ltd. (Japan) | 21,000 | 106,862 |
|
| ||
| Hewlett-Packard Co. | 14,210 | 369,886 |
|
| ||
| Lenovo Group, Ltd. (China) | 154,000 | 103,478 |
|
| ||
| NetApp, Inc. † | 1,200 | 45,144 |
|
| ||
| SanDisk Corp. † | 5,076 | 186,035 |
|
| ||
| Stratasys, Inc. † S | 800 | 18,512 |
|
| ||
| Toshiba Corp. (Japan) | 17,000 | 74,331 |
|
| ||
| Wistron Corp. (Taiwan) † | 580 | 720 |
|
| ||
| 2,864,696 | ||
| Diversified telecommunication services (2.8%) | ||
| Verizon Communications, Inc. | 8,120 | 293,700 |
|
| ||
| 293,700 | ||
| Electronic equipment, instruments, and components (8.9%) | ||
| Corning, Inc. | 22,816 | 342,924 |
|
| ||
| Hitachi, Ltd. (Japan) | 35,000 | 189,613 |
|
| ||
| KEMET Corp. † | 2,700 | 24,894 |
|
| ||
| Kyocera Corp. (Japan) | 1,000 | 92,295 |
|
| ||
| LG Display Co., Ltd. ADR (South Korea) | 1,600 | 15,904 |
|
| ||
| Multi-Fineline Electronix, Inc. † | 1,800 | 34,254 |
|
| ||
| Murata Manufacturing Co., Ltd. (Japan) | 2,000 | 122,862 |
|
| ||
| Nippon Electric Glass Co., Ltd. (Japan) | 7,000 | 71,489 |
|
| ||
| TE Connectivity, Ltd. (Switzerland) | 1,600 | 48,992 |
|
| ||
| 943,227 | ||
| Household durables (0.7%) | ||
| Pace Micro Technology PLC (United Kingdom) | 10,474 | 17,943 |
|
| ||
| Skyworth Digital Holdings, Ltd. (China) | 92,000 | 53,462 |
|
| ||
| 71,405 | ||
| Internet and catalog retail (0.3%) | ||
| Amazon.com, Inc. † | 147 | 31,648 |
|
| ||
| 31,648 | ||
| Internet software and services (8.0%) | ||
| Baidu, Inc. ADR (China) † | 1,268 | 184,849 |
|
| ||
| DeNA Co., Ltd. (Japan) | 900 | 46,723 |
|
| ||
| eBay, Inc. † | 2,560 | 79,027 |
|
| ||
23
| COMMON STOCKS (98.9%)* cont. | Shares | Value |
|
| ||
| Internet software and services cont. | ||
| Google, Inc. Class A † | 944 | $510,669 |
|
| ||
| Mail.ru Group, Ltd. 144A GDR (Russia) | 353 | 12,701 |
|
| ||
| Tencent Holdings, Ltd. (China) | 800 | 19,087 |
|
| ||
| 853,056 | ||
| IT services (5.7%) | ||
| Accenture PLC Class A | 1,500 | 80,385 |
|
| ||
| IBM Corp. | 1,242 | 213,512 |
|
| ||
| Mastercard, Inc. Class A | 415 | 136,830 |
|
| ||
| Unisys Corp. † | 1,505 | 26,473 |
|
| ||
| Visa, Inc. Class A | 1,704 | 149,748 |
|
| ||
| 606,948 | ||
| Leisure equipment and products (0.3%) | ||
| Nikon Corp. (Japan) | 1,300 | 28,495 |
|
| ||
| 28,495 | ||
| Office electronics (1.4%) | ||
| Canon, Inc. (Japan) | 700 | 33,050 |
|
| ||
| Canon, Inc. ADR (Japan) | 2,512 | 118,667 |
|
| ||
| 151,717 | ||
| Semiconductors and semiconductor equipment (4.9%) | ||
| Advanced Micro Devices, Inc. † S | 7,722 | 52,741 |
|
| ||
| ASML Holding NV (Netherlands) | 1,297 | 45,971 |
|
| ||
| Cymer, Inc. † | 1,000 | 40,460 |
|
| ||
| First Solar, Inc. † S | 1,238 | 123,775 |
|
| ||
| JinkoSolar Holding Co., Ltd. ADR (China) † | 1,800 | 29,538 |
|
| ||
| Lam Research Corp. † | 1,800 | 66,888 |
|
| ||
| Marvell Technology Group, Ltd. † | 2,523 | 33,177 |
|
| ||
| Samsung Electronics Co., Ltd. (South Korea) | 107 | 75,035 |
|
| ||
| Sumco Corp. (Japan) † | 700 | 8,415 |
|
| ||
| Tokyo Electron, Ltd. (Japan) | 500 | 24,162 |
|
| ||
| Yingli Green Energy Holding Co., Ltd. ADR (China) † | 4,000 | 25,520 |
|
| ||
| 525,682 | ||
| Software (20.4%) | ||
| Adobe Systems, Inc. † | 3,800 | 95,912 |
|
| ||
| Autonomy Corp. PLC (United Kingdom) † | 2,723 | 111,260 |
|
| ||
| BMC Software, Inc. † | 1,013 | 41,138 |
|
| ||
| Konami Corp. (Japan) | 5,300 | 195,886 |
|
| ||
| Microsoft Corp. | 31,719 | 843,725 |
|
| ||
| Nintendo Co., Ltd. (Japan) | 500 | 88,151 |
|
| ||
| Nintendo Co., Ltd. ADR (Japan) S | 1,125 | 24,728 |
|
| ||
| Oracle Corp. | 21,395 | 600,558 |
|
| ||
| Red Hat, Inc. † | 615 | 24,317 |
|
| ||
| Salesforce.com, Inc. † | 347 | 44,676 |
|
| ||
| Symantec Corp. † | 1,902 | 32,619 |
|
| ||
| Synchronoss Technologies, Inc. † S | 1,297 | 35,227 |
|
| ||
| VMware, Inc. Class A † | 321 | 30,290 |
|
| ||
| 2,168,487 | ||
| Specialty retail (0.5%) | ||
| Best Buy Co., Inc. | 2,200 | 56,298 |
|
| ||
| 56,298 | ||
| Total common stocks (cost $9,433,936) | $10,525,314 | |
24
| WARRANTS (0.6%)* † | Expiration | Strike | ||
| date | price | Warrants | Value | |
|
| ||||
| Bharti Airtel, Ltd. 144A (India) | 2/18/14 | $0.00 | 7,211 | $63,364 |
|
| ||||
| Total warrants (cost $53,823) | $63,364 | |||
| SHORT-TERM INVESTMENTS (3.2%)* | Shares | Value | ||
|
| ||||
| Putnam Cash Collateral Pool, LLC 0.17% d | 231,000 | $231,000 | ||
|
| ||||
| Putnam Money Market Liquidity Fund 0.05% e | 105,822 | 105,822 | ||
|
| ||||
| Total short-term investments (cost $336,822) | $336,822 | |||
| TOTAL INVESTMENTS | ||||
|
| ||||
| Total investments (cost $9,824,581) | $10,925,500 | |||
| Key to holding’s abbreviations | |
| ADR | American Depository Receipts |
| GDR | Global Depository Receipts |
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from September 1, 2010 through August 31, 2011 (the reporting period).
* Percentages indicated are based on net assets of $10,638,859.
† Non-income-producing security.
d See Note 1 to the financial statements regarding securities lending. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
e See Note 6 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
S Security on loan, in part or in entirety, at the close of the reporting period.
At the close of the reporting period, the fund maintained liquid assets totaling $6,132 to cover certain derivatives contracts.
144A after the name of an issuer represents securities exempt from registration under Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
ADR or GDR after the name of a foreign holding represents ownership of foreign securities on deposit with a custodian bank.
| DIVERSIFICATION BY COUNTRY* | ||||
|
| ||||
| Distribution of investments by country of risk at the close of the reporting period (as a percentage of Portfolio Value): | ||||
| United States | 76.9% | South Korea | 0.9% | |
|
|
| |||
| Japan | 11.5 | India | 0.6 | |
|
|
| |||
| China | 3.9 | Switzerland | 0.5 | |
|
|
| |||
| Sweden | 3.0 | Other | 0.6 | |
|
|
| |||
| United Kingdom | 1.2 | Total | 100.0% | |
|
|
||||
| France | 0.9 | |||
|
|
||||
* Methodology differs from that used for purposes of complying with the fund’s policy regarding investments in securities of foreign issuers, as discussed further in the fund’s prospectus.
25
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $2,425,331)
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Bank of America, N.A. | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | $39,297 | $39,382 | $85 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 21,945 | 22,451 | (506) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 131,406 | 129,854 | 1,552 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 1,703 | 1,684 | 19 | |
|
| ||||||
| Barclays Bank PLC | ||||||
|
| ||||||
| Euro | Sell | 9/21/11 | 13,083 | 12,761 | (322) | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 95,604 | 95,494 | (110) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 119,162 | 118,440 | 722 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 36,931 | 36,497 | 434 | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 40,644 | 41,831 | 1,187 | |
|
| ||||||
| Citibank, N.A. | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 22,734 | 22,324 | 410 | |
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 20,618 | 21,098 | 480 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 72,604 | 71,700 | (904) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 31,585 | 31,224 | 361 | |
|
| ||||||
| Credit Suisse AG | ||||||
|
| ||||||
| Euro | Sell | 9/21/11 | 28,323 | 27,978 | (345) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 135,744 | 134,718 | 1,026 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 55,063 | 56,634 | (1,571) | |
|
| ||||||
| Deutsche Bank AG | ||||||
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 23,885 | 24,428 | (543) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 3,451 | 3,408 | (43) | |
|
| ||||||
| Goldman Sachs International | ||||||
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 43,074 | 44,055 | 981 | |
|
| ||||||
| Euro | Buy | 9/21/11 | 51,182 | 50,543 | 639 | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 19,883 | 19,742 | (141) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 39,990 | 38,305 | 1,685 | |
|
| ||||||
| HSBC Bank USA, National Association | ||||||
|
| ||||||
| Euro | Buy | 9/21/11 | 119,905 | 118,449 | 1,456 | |
|
| ||||||
| Hong Kong Dollar | Buy | 9/21/11 | 8,145 | 8,135 | 10 | |
|
| ||||||
| JPMorgan Chase Bank, N.A. | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 60,083 | 60,216 | (133) | |
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 715 | 731 | 16 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 23,291 | 23,072 | (219) | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 68,562 | 68,487 | (75) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 7,920 | 7,865 | 55 | |
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 79,555 | 78,621 | (934) | |
|
| ||||||
| Royal Bank of Scotland PLC (The) | ||||||
|
| ||||||
| Canadian Dollar | Sell | 9/21/11 | 1,327 | 1,356 | 29 | |
|
| ||||||
| Euro | Buy | 9/21/11 | 97,189 | 95,657 | 1,532 | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 300,978 | 298,954 | (2,024) | |
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 40,589 | 40,103 | (486) | |
|
| ||||||
26
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $2,425,331) cont.
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| State Street Bank and Trust Co. | ||||||
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | $41,849 | $42,818 | $(969) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 125,368 | 125,688 | 320 | |
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 102,561 | 101,370 | (1,191) | |
|
| ||||||
| UBS AG | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 15,589 | 15,626 | 37 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 64,305 | 65,762 | (1,457) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 95,464 | 94,299 | 1,165 | |
|
| ||||||
| Westpac Banking Corp. | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 51,314 | 51,426 | 112 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 3,573 | 3,655 | (82) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 24,153 | 23,859 | (294) | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 12,277 | 12,354 | 77 | |
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 42,765 | 42,277 | (488) | |
|
| ||||||
| Total | $1,553 | |||||
Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| Valuation inputs | ||||
|
| ||||
| Investments in securities: | Level 1 | Level 2 | Level 3 | |
|
| ||||
| Common stocks: | ||||
|
| ||||
| Consumer discretionary | $87,946 | $99,900 | $— | |
|
| ||||
| Information technology | 8,597,978 | 1,445,790 | — | |
|
| ||||
| Telecommunication services | 293,700 | — | — | |
|
| ||||
| Total common stocks | 8,979,624 | 1,545,690 | — | |
| Warrants | — | 63,364 | — | |
|
| ||||
| Short-term investments | 105,822 | 231,000 | — | |
|
| ||||
| Totals by level | $9,085,446 | $1,840,054 | $— | |
| Valuation inputs | ||||
|
| ||||
| Other financial instruments: | Level 1 | Level 2 | Level 3 | |
|
| ||||
| Forward currency contracts | $— | $1,553 | $— | |
|
| ||||
| Totals by level | $— | $1,553 | $— | |
The accompanying notes are an integral part of these financial statements.
27
Statement of assets and liabilities 8/31/11
| ASSETS | |
|
| |
| Investment in securities, at value, including $222,351 of securities on loan (Note 1): | |
| Unaffiliated issuers (identified cost $9,487,759) | $10,588,678 |
| Affiliated issuers (identified cost $336,822) (Notes 1 and 6) | 336,822 |
|
| |
| Foreign currency (cost $47,978) (Note 1) | 47,511 |
|
| |
| Dividends, interest and other receivables | 12,089 |
|
| |
| Receivable for shares of the fund sold | 16,100 |
|
| |
| Unrealized appreciation on forward currency contracts (Note 1) | 14,390 |
|
| |
| Receivable from Manager (Note 2) | 9,499 |
|
| |
| Total assets | 11,025,089 |
| LIABILITIES | |
|
| |
| Payable to custodian | 27,149 |
|
| |
| Payable for investments purchased | 163 |
|
| |
| Payable for shares of the fund repurchased | 32,290 |
|
| |
| Payable for investor servicing fees (Note 2) | 2,901 |
|
| |
| Payable for custodian fees (Note 2) | 12,047 |
|
| |
| Payable for Trustee compensation and expenses (Note 2) | 1,307 |
|
| |
| Payable for administrative services (Note 2) | 43 |
|
| |
| Payable for auditing | 51,400 |
|
| |
| Payable for distribution fees (Note 2) | 4,810 |
|
| |
| Unrealized depreciation on forward currency contracts (Note 1) | 12,837 |
|
| |
| Collateral on securities loaned, at value (Note 1) | 231,000 |
|
| |
| Other accrued expenses | 10,283 |
|
| |
| Total liabilities | 386,230 |
| Net assets | $10,638,859 |
|
| |
| REPRESENTED BY | |
|
| |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $9,182,073 |
|
| |
| Accumulated net investment loss (Note 1) | (1,727) |
|
| |
| Accumulated net realized gain on investments and foreign currency transactions (Note 1) | 356,676 |
|
| |
| Net unrealized appreciation of investments and assets and liabilities in foreign currencies | 1,101,837 |
|
| |
| Total — Representing net assets applicable to capital shares outstanding | $10,638,859 |
(Continued on next page)
28
Statement of assets and liabilities (Continued)
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
| |
| Net asset value and redemption price per class A share ($7,885,917 divided by 530,540 shares) | $14.86 |
|
| |
| Offering price per class A share (100/94.25 of $14.86)* | $15.77 |
|
| |
| Net asset value and offering price per class B share ($691,032 divided by 47,352 shares)** | $14.59 |
|
| |
| Net asset value and offering price per class C share ($749,388 divided by 51,366 shares)** | $14.59 |
|
| |
| Net asset value and redemption price per class M share ($97,993 divided by 6,670 shares) | $14.69 |
|
| |
| Offering price per class M share (100/96.50 of $14.69)* | $15.22 |
|
| |
| Net asset value, offering price and redemption price per class R share | |
| ($32,388 divided by 2,188 shares) | $14.80 |
|
| |
| Net asset value, offering price and redemption price per class Y share | |
| ($1,182,141 divided by 79,110 shares) | $14.94 |
|
| |
* On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
29
Statement of operations Year ended 8/31/11
| INVESTMENT INCOME | |
|
| |
| Dividends (net of foreign tax of $3,723) | $130,325 |
|
| |
| Interest (including interest income of $343 from investments in affiliated issuers) (Note 6) | 343 |
|
| |
| Securities lending (Note 1) | 1,730 |
|
| |
| Total investment income | 132,398 |
| EXPENSES | |
|
| |
| Compensation of Manager (Note 2) | 72,389 |
|
| |
| Investor servicing fees (Note 2) | 36,582 |
|
| |
| Custodian fees (Note 2) | 21,557 |
|
| |
| Trustee compensation and expenses (Note 2) | 768 |
|
| |
| Administrative services (Note 2) | 293 |
|
| |
| Distribution fees — Class A (Note 2) | 22,520 |
|
| |
| Distribution fees — Class B (Note 2) | 6,223 |
|
| |
| Distribution fees — Class C (Note 2) | 6,547 |
|
| |
| Distribution fees — Class M (Note 2) | 875 |
|
| |
| Distribution fees — Class R (Note 2) | 130 |
|
| |
| Reports to shareholders | 12,487 |
|
| |
| Auditing | 53,712 |
|
| |
| Other | 3,027 |
|
| |
| Fees waived and reimbursed by Manager (Note 2) | (68,809) |
|
| |
| Total expenses | 168,301 |
| Expense reduction (Note 2) | (245) |
|
| |
| Net expenses | 168,056 |
| Net investment loss | (35,658) |
|
| |
| Net realized gain on investments (Notes 1 and 3) | 555,815 |
|
| |
| Net realized gain on foreign currency transactions (Note 1) | 28,154 |
|
| |
| Net unrealized depreciation of assets and liabilities in foreign currencies during the year | (66) |
|
| |
| Net unrealized appreciation of investments during the year | 440,026 |
|
| |
| Net gain on investments | 1,023,929 |
| Net increase in net assets resulting from operations | $988,271 |
|
| |
The accompanying notes are an integral part of these financial statements.
30
Statement of changes in net assets
| INCREASE IN NET ASSETS | Year ended 8/31/11 | Year ended 8/31/10 |
|
| ||
| Operations: | ||
| Net investment loss | $(35,658) | $(42,389) |
|
| ||
| Net realized gain on investments | ||
| and foreign currency transactions | 583,969 | 228,649 |
|
| ||
| Net unrealized appreciation (depreciation) of investments | ||
| and assets and liabilities in foreign currencies | 439,960 | (311,530) |
|
| ||
| Net increase (decrease) in net assets resulting from operations | 988,271 | (125,270) |
|
| ||
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Net investment income | ||
|
| ||
| Class A | — | (27,298) |
|
| ||
| Class B | — | (329) |
|
| ||
| Class C | — | (202) |
|
| ||
| Class M | — | (71) |
|
| ||
| Class R | — | (17) |
|
| ||
| Class Y | — | (2,505) |
|
| ||
| Net realized short-term gain on investments | ||
|
| ||
| Class A | (162,378) | (427,725) |
|
| ||
| Class B | (9,831) | (18,983) |
|
| ||
| Class C | (9,959) | (7,455) |
|
| ||
| Class M | (2,571) | (3,608) |
|
| ||
| Class R | (448) | (838) |
|
| ||
| Class Y | (16,313) | (27,458) |
|
| ||
| From net realized long-term gain on investments | ||
| Class A | (54,889) | — |
|
| ||
| Class B | (3,323) | — |
|
| ||
| Class C | (3,366) | — |
|
| ||
| Class M | (869) | — |
|
| ||
| Class R | (151) | — |
|
| ||
| Class Y | (5,514) | — |
|
| ||
| Redemption fees (Note 1) | 2,272 | 5,847 |
|
| ||
| Increase from capital share transactions (Note 4) | 1,986,461 | 2,262,787 |
|
| ||
| Total increase in net assets | 2,707,392 | 1,626,875 |
| NET ASSETS | ||
|
| ||
| Beginning of year | 7,931,467 | 6,304,592 |
|
| ||
| End of year (including accumulated net investment loss of | ||
| $1,727 and distributions in excess of net investment income of | ||
| $1,248, respectively) | $10,638,859 | $7,931,467 |
|
| ||
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: | ||||||||||||
|
| ||||||||||||||
| Ratio | Ratio | |||||||||||||
| Net realized | From | of expenses | of net investment | |||||||||||
| Net asset value, | and unrealized | Total from | From | net realized | Total return | Net assets, | to average | income (loss) | Portfolio | |||||
| beginning | Net investment | gain (loss) | investment | net investment | gain | Total | Redemption | Net asset value, | at net asset | end of period | net assets | to average | turnover | |
| Period ended | of period | income (loss) a | on investments | operations | income | on investments | distributions | fees | end of period | value (%) b | (in thousands) | (%) c,d | net assets (%) d | (%) |
|
| ||||||||||||||
| Class A | ||||||||||||||
| August 31, 2011 | $13.26 | (.04) | 2.02 | 1.98 | — | (.38) | (.38) | — e | $14.86 | 14.78 | $7,886 | 1.40 | (.24) | 101 |
| August 31, 2010 | 13.67 | (.07) | .54 | .47 | (.05) | (.84) | (.89) | .01 | 13.26 | 2.98 | 6,261 | 1.48 | (.46) | 161 |
| August 31, 2009† | 10.00 | (.02) | 3.69 | 3.67 | — | — | — | — e | 13.67 | 36.70 * | 5,650 | 1.12* | (.14)* | 132* |
|
| ||||||||||||||
| Class B | ||||||||||||||
| August 31, 2011 | $13.12 | (.15) | 2.00 | 1.85 | — | (.38) | (.38) | — e | $14.59 | 13.93 | $691 | 2.15 | (1.00) | 101 |
| August 31, 2010 | 13.60 | (.17) | .53 | .36 | (.01) | (.84) | (.85) | .01 | 13.12 | 2.19 | 443 | 2.23 | (1.19) | 161 |
| August 31, 2009† | 10.00 | (.08) | 3.68 | 3.60 | — | — | — | — e | 13.60 | 36.00 * | 210 | 1.65* | (.70)* | 132* |
|
| ||||||||||||||
| Class C | ||||||||||||||
| August 31, 2011 | $13.12 | (.15) | 2.00 | 1.85 | — | (.38) | (.38) | — e | $14.59 | 13.93 | $749 | 2.15 | (1.00) | 101 |
| August 31, 2010 | 13.60 | (.16) | .52 | .36 | (.02) | (.84) | (.86) | .02 | 13.12 | 2.24 | 429 | 2.23 | (1.14) | 161 |
| August 31, 2009† | 10.00 | (.08) | 3.68 | 3.60 | — | — | — | — e | 13.60 | 36.00 * | 66 | 1.65* | (.71)* | 132* |
|
| ||||||||||||||
| Class M | ||||||||||||||
| August 31, 2011 | $13.18 | (.12) | 2.01 | 1.89 | — | (.38) | (.38) | — e | $14.69 | 14.18 | $98 | 1.90 | (.77) | 101 |
| August 31, 2010 | 13.62 | (.13) | .54 | .41 | (.02) | (.84) | (.86) | .01 | 13.18 | 2.50 | 79 | 1.98 | (.94) | 161 |
| August 31, 2009† | 10.00 | (.08) | 3.70 | 3.62 | — | — | — | — e | 13.62 | 36.20 * | 47 | 1.47* | (.65)* | 132* |
|
| ||||||||||||||
| Class R | ||||||||||||||
| August 31, 2011 | $13.24 | (.08) | 2.02 | 1.94 | — | (.38) | (.38) | — e | $14.80 | 14.50 | $32 | 1.65 | (.51) | 101 |
| August 31, 2010 | 13.64 | (.10) | .55 | .45 | (.02) | (.84) | (.86) | .01 | 13.24 | 2.80 | 14 | 1.73 | (.71) | 161 |
| August 31, 2009† | 10.00 | (.03) | 3.67 | 3.64 | — | — | — | — e | 13.64 | 36.40 * | 14 | 1.29* | (.28)* | 132* |
|
| ||||||||||||||
| Class Y | ||||||||||||||
| August 31, 2011 | $13.30 | — e | 2.02 | 2.02 | — | (.38) | (.38) | — e | $14.94 | 15.04 | $1,182 | 1.15 | — f | 101 |
| August 31, 2010 | 13.69 | (.03) | .55 | .52 | (.08) | (.84) | (.92) | .01 | 13.30 | 3.29 | 705 | 1.23 | (.18) | 161 |
| August 31, 2009† | 10.00 | — e | 3.69 | 3.69 | — | — | — | — e | 13.69 | 36.90 * | 318 | .94* | .01* | 132* |
|
| ||||||||||||||
* Not annualized.
† For the period December 18, 2008 (commencement of operations) to August 31, 2009.
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
c Includes amounts paid through expense offset and/or brokerage/service arrangements (Note 2).
d Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amounts (Note 2):
| Percentage of | |
| average net assets | |
|
| |
| August 31, 2011 | 0.60% |
|
| |
| August 31, 2010 | 1.15 |
|
| |
| August 31, 2009 | 4.13 |
|
| |
e Amount represents less than $0.01 per share.
f Amount represents less than 0.01%.
The accompanying notes are an integral part of these financial statements.
| 32 | 33 |
Notes to financial statements 8/31/11
Note 1: Significant accounting policies
Putnam Global Technology Fund (the fund) is a non-diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The investment objective of the fund is to seek capital appreciation by investing mainly in common stocks (growth or value stocks or both) of large and midsize companies in the technology industries worldwide that Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC, believes have favorable investment potential. The fund concentrates its investments in one sector, which involves more risk than a fund that invests more broadly.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. 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’s management team 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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from September 1, 2010 through August 31, 2011.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant
34
extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
C) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
D) Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. The fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed when the contract matures or by delivery of the currency. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward
35
currency contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average contract amount of approximately $2,100,000 on forward currency contracts for the reporting period.
E) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty. Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity. At the close of the reporting period, the fund had a net liability position of $6,482 on derivative contracts subject to the Master Agreements. There was no collateral posted by the fund.
F) Securities lending The fund may lend securities, through its agent, to qualified borrowers in order to earn additional income. The loans are collateralized by cash in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agent; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. Cash collateral is invested in Putnam Cash Collateral Pool, LLC, a limited liability company managed by an affiliate of Putnam Management. Investments in Putnam Cash Collateral Pool, LLC are valued at its closing net asset value each business day. There are no management fees charged by Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the value of securities loaned amounted to $222,351 and the fund received cash collateral of $231,000.
G) Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
H) Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
I) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (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. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision
36
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. Each of the fund’s federal tax returns for the prior periods remains subject to examination by the Internal Revenue Service.
J) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of losses on wash sale transactions, foreign currency gains and losses and net operating loss. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the reporting period ended, the fund reclassified $35,179 to decrease accumulated net investment loss with a decrease to accumulated net realized gain of $35,179.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
| Unrealized appreciation | $1,901,871 |
| Unrealized depreciation | (958,620) |
|
| |
| Net unrealized appreciation | 943,251 |
| Undistributed short-term gain | 150,178 |
| Undistributed long-term gain | 364,166 |
| Cost for federal income tax purposes | $9,982,249 |
K) 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
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
| 0.780% | of the first $5 billion, |
| 0.730% | of the next $5 billion, |
| 0.680% | of the next $10 billion, |
| 0.630% | of the next $10 billion, |
| 0.580% | of the next $50 billion, |
| 0.560% | of the next $50 billion, |
| 0.550% | of the next $100 billion, |
| 0.545% | of any excess thereafter. |
Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were reduced by $68,809 as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.
The Putnam Advisory Company, LLC (PAC), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. Putnam Management or PIL, as applicable, pays a quarterly sub-advisory fee to PAC for its services at
37
the annual rate of 0.35% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. The fund also reduced expenses through brokerage/service arrangements. For the reporting period, the fund’s expenses were reduced by $42 under the expense offset arrangements and by $203 under the brokerage/service arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $8, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years 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. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. 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 A, class B, class C, class M 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 Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $6,636 and $27 from the sale of class A and class M shares, respectively, and received $619 and $737 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A and class M redemptions.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $13,185,202 and $11,183,042, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
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Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class A | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 312,057 | $4,967,817 | 344,053 | $5,091,358 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 13,510 | 211,977 | 29,344 | 424,896 |
|
| ||||
| 325,567 | 5,179,794 | 373,397 | 5,516,254 | |
|
| ||||
| Shares repurchased | (267,231) | (4,157,597) | (314,578) | (4,376,460) |
|
| ||||
| Net increase | 58,336 | $1,022,197 | 58,819 | $1,139,794 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class B | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 27,693 | $431,880 | 28,615 | $412,172 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 821 | 12,724 | 1,275 | 18,359 |
|
| ||||
| 28,514 | 444,604 | 29,890 | 430,531 | |
|
| ||||
| Shares repurchased | (14,958) | (231,187) | (11,537) | (164,591) |
|
| ||||
| Net increase | 13,556 | $213,417 | 18,353 | $265,940 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class C | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 32,963 | $518,298 | 32,628 | $463,590 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 860 | 13,312 | 532 | 7,657 |
|
| ||||
| 33,823 | 531,610 | 33,160 | 471,247 | |
|
| ||||
| Shares repurchased | (15,149) | (228,931) | (5,349) | (77,018) |
|
| ||||
| Net increase | 18,674 | $302,679 | 27,811 | $394,229 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class M | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 4,808 | $73,499 | 3,650 | $51,735 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 221 | 3,440 | 255 | 3,679 |
|
| ||||
| 5,029 | 76,939 | 3,905 | 55,414 | |
|
| ||||
| Shares repurchased | (4,368) | (69,401) | (1,320) | (18,969) |
|
| ||||
| Net increase | 661 | $7,538 | 2,585 | $36,445 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class R | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 1,662 | $25,205 | 3 | $42 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 38 | 599 | 59 | 855 |
|
| ||||
| 1,700 | 25,804 | 62 | 897 | |
|
| ||||
| Shares repurchased | (574) | (8,657) | — | — |
|
| ||||
| Net increase | 1,126 | $17,147 | 62 | $897 |
|
| ||||
39
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class Y | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 36,491 | $585,719 | 44,517 | $639,283 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 1,383 | 21,780 | 2,068 | 29,963 |
|
| ||||
| 37,874 | 607,499 | 46,585 | 669,246 | |
|
| ||||
| Shares repurchased | (11,770) | (184,016) | (16,828) | (243,764) |
|
| ||||
| Net increase | 26,104 | $423,483 | 29,757 | $425,482 |
|
| ||||
At the close of the reporting period, Putnam Investments, LLC owned the following class shares of the fund:
| Total value of | |||
| Shares owned | Percentage of ownership | owned shares | |
|
| |||
| Class A | 141,167 | 26.6% | $2,097,742 |
|
| |||
| Class R | 1,085 | 49.6 | 16,058 |
|
| |||
Note 5: Summary of derivative activity
The following is a summary of the market values of derivative instruments as of the close of the reporting period:
Market values of derivative instruments as of the close of the reporting period
| Asset derivatives | Liability derivatives | |||
|
| ||||
| Derivatives not | ||||
| accounted for as | Statement of | Statement of | ||
| hedging instruments | assets and | assets and | ||
| under ASC 815 | liabilities location | Market value | liabilities location | Market value |
|
| ||||
| Foreign exchange | ||||
| contracts | Receivables | $14,390 | Payables | $12,837 |
|
| ||||
| Equity contracts | Investments | 63,364 | Payables | — |
|
| ||||
| Total | $77,754 | $12,837 | ||
|
| ||||
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | ||
| instruments under ASC 815 | Warrants * | contracts | Total |
|
| |||
| Foreign exchange contracts | $— | $23,669 | $23,669 |
|
| |||
| Equity contracts | 116 | — | 116 |
|
| |||
| Total | $116 | $23,669 | $23,785 |
|
| |||
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | ||
| instruments under ASC 815 | Warrants * | contracts | Total |
|
| |||
| Foreign exchange contracts | $— | $321 | $321 |
|
| |||
| Equity contracts | 9,541 | — | 9,541 |
|
| |||
| Total | $9,541 | $321 | $9,862 |
|
| |||
* For the reporting period, the transaction volume for warrants was minimal.
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Note 6: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $343 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $6,540,664 and $6,434,842, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 7: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
Federal tax information (Unaudited)
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $408,573 as a capital gain dividend with respect to the taxable year ended August 31, 2011, or, if subsequently determined to be different, the net capital gain of such year.
The fund designated 39.67% of ordinary income distributions as qualifying for the dividends received deduction for corporations.
For its tax year ended August 31, 2011, the fund hereby designates 54.80%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
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About the Trustees
Independent Trustees
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
| Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
| Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
| Shields, a multi-product investment management firm | focused on private | |
| with over $40 billion in assets under management. | equity advisory services; | |
| RAGE Frameworks, | ||
| Inc., a private software | ||
| company | ||
|
| ||
| Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
| Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
| Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
| College and member of the Investment Committee for the | company; UniSource | |
| college’s endowment. Former Chair and current board | Energy Corporation, | |
| member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
| the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
| refiner and fertilizer | ||
| manufacturer; Cody | ||
| Resources Management, | ||
| LLP, a privately held | ||
| energy, ranching, and | ||
| commercial real estate | ||
| company | ||
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| Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
| Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
| Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
| Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
| to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
| since 2011 | ||
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| Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
| Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
| Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
| for Strategic and International Studies. Member of the | ||
| Council on Foreign Relations. | ||
|
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| Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
| Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
| Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
| Johnson & Johnson’s Chief Financial Officer for a decade. | ||
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| John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
| Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
| Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
| Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
| to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
| of the Millstein Center for Corporate Governance and | ||
| Performance at the Yale School of Management. | ||
|
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42
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
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| Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
| Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
| Trustee since 1997 | on research and education on issues related to science, | company focused on |
| technology, and economic performance. Elizabeth and | natural gas transmission | |
| James Killian Professor of Economics, Emeritus at the | and power services; | |
| Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
| 2007, served as the Director of the Center for Energy and | energy company focused | |
| Environmental Policy Research at MIT. | on power services | |
|
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| Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
| Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
| Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
| Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
| Massachusetts. Until November 2010, director of Ruder | ||
| Finn Group, a global communications and advertising firm. | ||
|
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| Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
| Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
| Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
| Joslin Diabetes Center. | ||
|
| ||
| George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
| Born 1951 | of financial advisory and other research services, and | |
| Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
| a registered investment advisor to private funds. | ||
| Director of The Boston Family Office, LLC, a registered | ||
| investment advisor. | ||
|
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| W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
| Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
| Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
| and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
| packaging products. | ||
|
| ||
| Interested Trustee | ||
|
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| Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
| Born 1952 | Investments since 2008. Prior to joining Putnam | |
| Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
| President of the Putnam | Operating Officer of Fidelity Investments from | |
| Funds since July 2009 | 2000 to 2007. | |
|
| ||
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2011, there were 106 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
43
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
| Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
| Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
| Officer, Treasurer and Compliance Liaison | Since 2011 |
| Since 2004 | General Counsel, Putnam Investments and |
| Putnam Management | |
| Steven D. Krichmar (Born 1958) | |
| Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
| Since 2002 | Vice President |
| Chief of Operations, Putnam Investments and | Since 2004 |
| Putnam Management | Director of Trustee Relations, |
| Putnam Investments and Putnam Management | |
| Janet C. Smith (Born 1965) | |
| Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
| Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
| Since 2007 | Since 1993 |
| Director of Fund Administration Services, | |
| Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
| Vice President, Senior Associate Treasurer and | |
| Beth S. Mazor (Born 1958) | Assistant Clerk |
| Vice President | Since 2010 |
| Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
| Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
| Investments and Putnam Management | Management (2007–2008); Senior Financial |
| Analyst, Putnam Investments (1999–2007) | |
| Robert R. Leveille (Born 1969) | |
| Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
| Since 2007 | Vice President, Assistant Clerk, Assistant |
| Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
| Putnam Management, and Putnam Retail | Since 2000 |
| Management | |
| Susan G. Malloy (Born 1957) | |
| Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
| Vice President and BSA Compliance Officer | Since 2007 |
| Since 2002 | Director of Accounting & Control Services, |
| Director of Operational Compliance, | Putnam Management |
| Putnam Investments and Putnam | |
| Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
44
Fund information
Founded over 70 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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Trustees | Beth S. Mazor |
| Putnam Investment | Jameson A. Baxter, Chair | Vice President |
| Management, LLC | Ravi Akhoury | |
| One Post Office Square | Barbara M. Baumann | Robert R. Leveille |
| Boston, MA 02109 | Charles B. Curtis | Vice President and |
| Robert J. Darretta | Chief Compliance Officer | |
| Investment Sub-Manager | John A. Hill | |
| Putnam Investments Limited | Paul L. Joskow | Mark C. Trenchard |
| 57–59 St James’s Street | Kenneth R. Leibler | Vice President and |
| London, England SW1A 1LD | Robert E. Patterson | BSA Compliance Officer |
| George Putnam, III | ||
| Investment Sub-Advisor | Robert L. Reynolds | Robert T. Burns |
| The Putnam Advisory | W. Thomas Stephens | Vice President and |
| Company, LLC | Chief Legal Officer | |
| One Post Office Square | Officers | |
| Boston, MA 02109 | Robert L. Reynolds | James P. Pappas |
| President | Vice President | |
| Marketing Services | ||
| Putnam Retail Management | Jonathan S. Horwitz | Judith Cohen |
| One Post Office Square | Executive Vice President, | Vice President, Clerk and |
| Boston, MA 02109 | Principal Executive | Assistant Treasurer |
| Officer, Treasurer and | ||
| Custodian | Compliance Liaison | Michael Higgins |
| State Street Bank | Vice President, Senior Associate | |
| and Trust Company | Steven D. Krichmar | Treasurer and Assistant Clerk |
| Vice President and | ||
| Legal Counsel | Principal Financial Officer | Nancy E. Florek |
| Ropes & Gray LLP | Vice President, Assistant Clerk, | |
| Janet C. Smith | Assistant Treasurer and | |
| Independent Registered | Vice President, Assistant | Proxy Manager |
| Public Accounting Firm | Treasurer and Principal | |
| KPMG LLP | Accounting Officer | Susan G. Malloy |
| Vice President and | ||
| Assistant Treasurer |
This report is for the information of shareholders of Putnam Global Technology 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 putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary 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.
| Item 2. Code of Ethics: |
| (a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund’s investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
| (c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
| Item 3. Audit Committee Financial Expert: |
| The Funds’ Audit and Compliance Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification. |
| Item 4. Principal Accountant Fees and Services: |
| The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor: |
| Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
| August 31, 2011 | $51,306 | $-- | $4,100 | $ — | |
| August 31, 2010 | $43,906 | $-- | $3,900 | $ — | |
| For the fiscal years ended August 31, 2011 and August 31, 2010, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $4,100 and $3,900 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
| Audit Fees represent fees billed for the fund’s last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
| Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
| Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
| Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
| The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
| The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. |
| Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
| August 31, 2011 | $ — | $ — | $ — | $ — | |
| August 31, 2010 | $ — | $ — | $ — | $ — | |
| 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) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
| (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/Janet C. Smith Janet C. Smith Principal Accounting Officer |
| Date: October 27, 2011 |
| 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/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
| Date: October 27, 2011 |
| By (Signature and Title): |
| /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: October 27, 2011 |
| 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 800 Boylston Street Boston, Massachusetts 02199-3600 |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
| Date of fiscal year end: | August 31, 2011 |
| Date of reporting period: | September 1, 2010 — August 31, 2011 |
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: | |||
Putnam Global
Telecommunications
Fund
Annual report
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| Message from the Trustees | 1 | ||
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| About the fund | 2 | ||
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| Performance snapshot | 4 | ||
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| Interview with your fund’s portfolio manager | 5 | ||
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| Your fund’s performance | 11 | ||
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| Your fund’s expenses | 13 | ||
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| Terms and definitions | 15 | ||
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| Trustee approval of management contract | 16 | ||
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| Other information for shareholders | 20 | ||
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| Financial statements | 21 | ||
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| Federal tax information | 41 | ||
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| About the Trustees | 42 | ||
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| Officers | 44 | ||
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Message from the Trustees
Dear Fellow Shareholder:
Markets around the world are grappling with heightened volatility. In the United States, persistently high unemployment and other weak economic data have fueled investors’ risk aversion, while in Europe the sovereign debt crisis shows little sign of abating. Certain bright spots do exist, but it is clear that volatility and uncertainty will remain with us for the near term.
We believe it is important to consult your financial advisor in times like these to consider whether your portfolio reflects an appropriate degree of diversification. In responding to this need, Putnam offers funds with strategies that seek to limit volatility and also employs an active, research-based investment approach that is designed to offer shareholders a potential advantage in this climate by looking for new growth opportunities and seeking to guard against downside risk.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancy’s Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
About the fund
Pursuing growth opportunities in telecommunications companies worldwide
In 1979, in Tokyo, Japan, the first commercial cellular telephone system began operations. Today — over 30 years later — billions of consumers worldwide carry their telephones, music, movies, games, Internet access, and computer systems in devices considerably smaller than those first cell phones.
Telecommunications — defined as the transmission of information, such as words, sounds, or images, usually over great distances —has experienced an astounding array of advances over the years. Putnam Global Telecommunications Fund seeks to capitalize on the potential of this dynamic sector — and the many innovations that are still to come. Under normal circumstances, the fund invests at least 80% of its assets in stocks of companies engaged in telecommunications industries.
The fund’s portfolio can include businesses of all sizes and at different stages of growth, from newer, rapidly growing companies to established global corporations. The fund’s manager focuses primarily on large and midsize companies, and has the flexibility to invest in U.S. and international markets.
The telecommunications sector includes telephone and wireless companies; providers of mobile devices and services such as text messaging and mobile Internet connectivity; and cable companies offering high-speed Internet access and video programming.
The fund’s manager conducts intensive research with support from analysts in Putnam’s Global Equity Research group. Their disciplined process includes analyzing each company’s valuation, financial strength, competitive positioning, earnings, and cash flow.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The use of short selling may result in losses if the securities appreciate in value. The fund’s policy of concentrating on a limited group of industries and the fund’s non-diversified status, which means the fund may invest in fewer issuers, can increase the fund’s vulnerability to common economic forces and may result in greater losses and volatility.
Sector investing at Putnam
In recent decades, innovation and business growth have propelled stocks in different industries to market-leading performance. Finding these stocks, many of which are in international markets, requires rigorous research and in-depth knowledge of global markets.
Putnam’s sector funds invest in nine sectors worldwide and offer active management, risk controls, and the expertise of dedicated sector analysts. The funds’ managers invest with flexibility and precision, using fundamental research to hand select stocks for the portfolios.
All sectors in one fund:
Putnam Global Sector Fund
A portfolio of individual Putnam Global Sector Funds that provides exposure to all sectors of the MSCI World Index.
Individual sector funds:
Global Consumer Fund
Retail, hotels, restaurants, media, food and beverages
Global Energy Fund
Oil and gas, energy equipment and services
Global Financials Fund
Commercial banks, insurance, diversified financial services, mortgage finance
Global Health Care Fund
Pharmaceuticals, biotechnology, health-care services
Global Industrials Fund
Airlines, railroads, trucking, aerospace and defense, construction, commercial services
Global Natural Resources Fund
Metals, chemicals, oil and gas, forest products
Global Technology Fund
Software, computers, Internet services
Global Telecommunications Fund
Diversified and wireless telecommunications services
Global Utilities Fund
Electric, gas, and water utilities
| 2 | 3 |
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See pages 5 and 11–12 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus. To obtain the most recent month-end performance, visit putnam.com.
4
Interview with your fund’s portfolio manager
Vivek Gandhi, CFA
Vivek, in the semiannual report, you described how the convergence trend was creating growth opportunities in the telecommunications sector. Has this trend continued?
Yes, the convergence theme is a multi-year phenomenon and continues to influence the current earnings growth and future outlook of a number of companies in the sector. Convergence refers to the combination of media content and personal communications on mobile devices such as smartphones as well as personal computers and Internet-connected televisions. It’s a powerful force because it brings together entertainment, such as video programming and gaming, and personal communications, such as texting, e-mail, and social networking. This trend is leading to significant growth in data traffic over both fixed and mobile networks.
How does the convergence trend help to lift corporate earnings?
Telecommunication companies own and manage the data networks that carry media and personal communications. Companies that aggressively expand and improve their network capabilities and media content to meet demand should be able to achieve pricing power, which can be translated into rapid earnings growth.
Today, consumers find that most of their computing devices — smartphones, tablet computers, laptops, and even televisions —can tap into the same capabilities. You can watch videos on a phone or access YouTube on a TV. The choices and flexibility stimulate even further demand. This is providing new revenue opportunities for the industry while traditional voice calling is becoming less important.
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 8/31/11. See pages 4 and 11–12 for additional fund performance information. Index descriptions can be found on page 15.
5
Companies with robust high-speed data networks and that rely less on plain voice revenues should benefit from this trend. On the other hand, companies that rely heavily on voice business will likely continue to adapt their business models to generate more revenues from data networks that, in some cases, will involve high capital investment to upgrade and modernize.
Which fund holdings benefited from this trend during the period?
Two European cable companies contributed significantly to the fund’s outperformance. Kabel Deutschland, Germany’s leading cable company, was the top overall contributor. We selected this stock because it offers attractive secular, or long-term, growth potential as it cross-sells its nine million basic cable customers with Internet, pay TV, and telephony services. It has had great success in its cross-selling initiatives lately, but fewer than two million of its subscribers buy additional services currently, so it continues to have big growth opportunities.
The second major European contributor was Telenet Group Holding, Belgium’s largest cable TV operator. The company has continued to increase both revenues and earnings by cross-selling more products to its current customers. It has recently entered the mobile telephony market, and we believe that will provide incremental growth going forward.
In the United States, Verizon Communications benefited from positive trends in its mobile business and posted solid earnings growth. We held an overweight position in this stock relative to the benchmark. At the same time, we held an underweight position in AT&T compared with the benchmark index. This positioning decision helped the fund’s relative performance.
I also want to note that aside from these stocks, the impact of foreign currency exposure was mildly positive during the period. We selectively hedged currency exposures.
Country allocations are shown as a percentage of the fund’s net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any. Weightings will vary over time.
6
The hedging strategies employed forward currency contracts, a type of derivative.
What is your view of AT&T’s effort to acquire T-Mobile?
In March 2011, AT&T announced an agreement to purchase T-Mobile U.S. from Deutsche Telekom of Germany for $39 billion in cash and stock. T-Mobile has 34 million subscribers in the United States. AT&T and Verizon each have approximately 95 million. Acquiring T-Mobile would give AT&T further scale advantage.
AT&T’s key strategic rationale behind the acquisition is to address its capacity weaknesses. The company must create more capacity with additional spectrum and a denser base station network, because its mobile data volumes have grown tremendously in the past four years, and volume could grow an additional eight to 10 times in the next five years. Acquiring T-Mobile would serve both objectives. For Deutsche Telekom, the deal would realize value for T-Mobile, which lacks the network quality and coverage to compete effectively for video and data traffic. Our fund held a large underweight position in Deutsche Telekom in part because of T-Mobile’s weaknesses.
However, there was always a big question whether authorities would permit the deal. In August, the U.S. Department of Justice brought an antitrust suit to block the merger, claiming that the combination would dominate several major U.S. urban markets, producing higher costs and fewer choices for consumers. While the suit remains unsettled, AT&T’s and Deutsche Telekom’s stock prices have fallen. Our current view is that the deal will be prohibited, and though we expect this will be only slightly negative for AT&T, it
This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 8/31/11. Short-term holdings are excluded. Holdings will vary over time.
7
should be significantly negative for Deutsche Telekom as T-Mobile continues to lose contract customers with no visible catalyst to change that trend. The fund has underweight positions in both stocks relative to the benchmark index.
Which stock selections did you find disappointing?
The fund was hurt by the performance of Mobile Telesystems (MTS) in Russia because we underestimated the increase in competitive intensity in this market. Although MTS is growing quickly, two other strong rivals have raised the costs of winning new customers. This dynamic reduced profit margins and caused the stock to underperform the benchmark index. We re-evaluated the stock in light of these competitive dynamics, and after the end of the period we sold off the fund’s position.
The fund’s position in Netherlands-based KPN hurt the fund’s performance after the company warned of weak earnings in April. The company’s revenues from Short Message Service (SMS) has been cannibalized as customers are increasingly texting using applications like WhatsApp, which are much cheaper than traditional SMS. There is also a risk of a new entrant in KPN’s domestic mobile market, which has the potential to raise competition and pressure profit margins. After the announcement, we sold the stock.
Zon Multimedia in Portugal also dampened the fund’s performance. In this case, the company has delivered decent performance, but investors have shunned Portugal’s stock market because of the nation’s struggling economy and rising sovereign debt risk.
What qualities does the telecommunications sector offer to investors considering global opportunities?
It’s our view that the sector offers a combination of defensive characteristics and growth potential. As I have described, the convergence theme offers investors the opportunity to
This chart shows how the fund’s top weightings have changed over the past six months. Weightings are shown as a percentage of net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings will vary over time.
Chart data reflect a new calculation method put into effect within the past six months.
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participate in growth. At the same time, the performance of telecommunication stocks can counterbalance more cyclical sectors. For example, since May 2011, global markets have retreated on concerns of a recession, and during this period the telecommunications sector has outperformed broader markets significantly.
How is the fund positioned for the fiscal year that is now beginning?
We have an overweight position in the United States because we are impressed by the growth exhibited by the mobile services offerings of Verizon and AT&T. Both companies benefit from the increased penetration of smartphones in the U.S. market, and we believe this growth trend should continue. New products like tablet computers can stimulate even more demand for data plans, and the competitive environment appears to be stable. Together these two companies made up 26.1% of the fund’s investment portfolio at the end of the reporting period.
We are not great fans of large-cap telecommunications companies within Europe. Deutsche Telekom and Spain’s Telefonica are underweight positions, for example, and the fund does not own France Telecom. These companies are facing increasing competition due to new entrants and falling mobile termination rates — what companies charge for accepting calls placed from other companies’ networks. There are a couple of exceptions to this stance. That said, we like Vodafone of the United Kingdom, which has diverse exposures to European mobile services; to Verizon Wireless in the United States; and to growing markets in India, Turkey, and South Africa.
Direct emerging-market exposure is not very large, and has not changed much during the period. Nearly 5% of the portfolio is invested in Hong Kong and Singapore, but these affluent markets do not exhibit true emerging-market characteristics, in our view.
Currently, we are monitoring the possibility of consolidation in several markets, which could influence future portfolio positioning. If it occurs, consolidation is likely to increase pricing power. Much hinges on the AT&T and T-Mobile merger decision in the United States, as regulatory decisions can have international significance. If this deal is permitted, European regulators may adopt its reasoning to allow mergers in Europe.
Vivek, thank you for this update on the fund and the sector.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
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. Current and future portfolio holdings are subject to risk.
Portfolio Manager Vivek Gandhi has an M.B.A. from Xavier Labour Relations Institute in Jamshedpur, India, and a B.Eng. from Regional Engineering College in Bhopal, India. A CFA charterholder, he joined Putnam in 1999 and has been in the investment industry since 1994.
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IN THE NEWS
With economic storm clouds darkening, the Organisation for Economic Co-operation and Development (OECD) recently slashed its growth forecasts for the United States and many other countries for the remainder of 2011. In its interim forecast, released in early September, the OECD estimates that the United States economy will grow 1.1% in the third quarter and 0.4% in the fourth, down from the 2.9% and 3% growth it had predicted in May. Meanwhile, the OECD predicts that Japan will expand 4.1% in the third quarter before stagnating in the fourth, and that the German economy will grow 2.6% in the third quarter and shrink 1.4% in the fourth. For the third and fourth quarters, the United Kingdom is predicted to grow 0.4% and 0.3%, respectively. The OECD also said that central banks around the world should be ready to ease monetary policy if economies weaken further.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended August 31, 2011, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 8/31/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
|
| ||||||||||
| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
|
| ||||||||||
| Life of fund | 45.05% | 36.71% | 42.16% | 39.16% | 42.21% | 42.21% | 43.20% | 38.22% | 44.13% | 46.03% |
| Annual average | 14.76 | 12.27 | 13.91 | 13.01 | 13.92 | 13.92 | 14.21 | 12.73 | 14.49 | 15.05 |
|
| ||||||||||
| 1 year | 20.01 | 13.13 | 19.14 | 14.14 | 19.17 | 18.17 | 19.45 | 15.28 | 19.73 | 20.27 |
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| ||||||||||
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 5.75% and 3.50% sales charge, respectively, levied at the time of purchase. Class B share returns after CDSC reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus.
Comparative index returns For periods ended 8/31/11
| MSCI World Telecommunications | Lipper Telecommunication Funds | |
| Services Index (ND) | category average* | |
|
| ||
| Life of fund | 25.48% | 56.00% |
| Annual average | 8.76 | 17.55 |
|
| ||
| 1 year | 12.31 | 13.85 |
|
| ||
Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* Over the 1-year and life-of-fund periods ended 8/31/11, there were 38 and 37 funds, respectively, in this Lipper category.
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Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B shares would have been valued at $14,216 ($13,916 after contingent deferred sales charge). A $10,000 investment in the fund’s class C shares would have been valued at $14,221, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $13,822. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $14,413 and $14,603, respectively.
Fund price and distribution information For the 12-month period ended 8/31/11
| Distributions | Class A | Class B | Class C | Class M | Class R | Class Y | ||
|
| ||||||||
| Number | 1 | 1 | 1 | 1 | 1 | 1 | ||
|
| ||||||||
| Income | $0.326 | $0.289 | $0.270 | $0.263 | $0.292 | $0.350 | ||
|
| ||||||||
| Capital gains — Long-term | 0.197 | 0.197 | 0.197 | 0.197 | 0.197 | 0.197 | ||
|
| ||||||||
| Capital gains — Short-term | 0.310 | 0.310 | 0.310 | 0.310 | 0.310 | 0.310 | ||
|
| ||||||||
| Total | $0.833 | $0.796 | $0.777 | $0.770 | $0.799 | $0.857 | ||
|
| ||||||||
| Before | After | Net | Net | Before | After | Net | Net | |
| sales | sales | asset | asset | sales | sales | asset | asset | |
| Share value | charge | charge | value | value | charge | charge | value | value |
|
| ||||||||
| 8/31/10 | $11.67 | $12.38 | $11.56 | $11.54 | $11.60 | $12.02 | $11.65 | $11.70 |
|
| ||||||||
| 8/31/11 | 13.13 | 13.93 | 12.94 | 12.94 | 13.05 | 13.52 | 13.11 | 13.17 |
|
| ||||||||
The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares and 3.50% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
Fund performance as of most recent calendar quarter
Total return for periods ended 9/30/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | (12/18/08) | ||||
|
| ||||||||||
| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
|
| ||||||||||
| Life of fund | 37.32% | 29.42% | 34.47% | 31.47% | 34.51% | 34.51% | 35.40% | 30.70% | 36.43% | 38.26% |
| Annual average | 12.07 | 9.71 | 11.23 | 10.33 | 11.24 | 11.24 | 11.51 | 10.10 | 11.81 | 12.35 |
|
| ||||||||||
| 1 year | 4.48 | –1.50 | 3.64 | –1.23 | 3.65 | 2.68 | 3.91 | 0.25 | 4.21 | 4.66 |
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| ||||||||||
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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’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, 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 representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Net expenses for the fiscal year ended 8/31/10*† | 1.45% | 2.20% | 2.20% | 1.95% | 1.70% | 1.20% |
|
| ||||||
| Total annual operating expenses for the fiscal year | ||||||
| ended 8/31/10† | 3.50% | 4.25% | 4.25% | 4.00% | 3.75% | 3.25% |
|
| ||||||
| Annualized expense ratio for the six-month period | ||||||
| ended 8/31/11‡ | 1.39% | 2.14% | 2.14% | 1.89% | 1.64% | 1.14% |
|
| ||||||
Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Reflects Putnam Management’s contractual obligation to limit expenses through 12/30/11.
† Restated to reflect projected expenses under a management contract effective 1/1/10.
‡ For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from March 1, 2011, to August 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $6.88 | $10.58 | $10.58 | $9.35 | $8.12 | $5.65 |
|
| ||||||
| Ending value (after expenses) | $964.00 | $960.60 | $960.60 | $962.40 | $963.30 | $965.50 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
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Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended August 31, 2011, use the following calculation method. To find the value of your investment on March 1, 2011, call Putnam at 1-800-225-1581.
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 following table 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 A | Class B | Class C | Class M | Class R | Class Y | |
|
| ||||||
| Expenses paid per $1,000*† | $7.07 | $10.87 | $10.87 | $9.60 | $8.34 | $5.80 |
|
| ||||||
| Ending value (after expenses) | $1,018.20 | $1,014.42 | $1,014.42 | $1,015.68 | $1,016.94 | $1,019.46 |
|
| ||||||
* 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 average net assets for the six months ended 8/31/11. The expense ratio may differ for each share class.
† 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.
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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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
MSCI World Telecommunications Services Index (ND) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets in the telecommunications sector.
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 with Putnam Investment Management (“Putnam Management”), the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), and the sub-advisory contract among Putnam Management, PIL, and another affiliate, Putnam Advisory Company (“PAC”).
The Board of Trustees, with the assistance of its Contract Committee, which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. Over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided 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 on a number of occasions. At the Trustees’ June 17, 2011 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management, sub-management and sub-advisory contracts, effective July 1, 2011. (Because PIL and PAC are affiliates of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL and PAC, the Trustees have not evaluated PIL or PAC as separate entities, and all subsequent references to Putnam Management below should be deemed to include reference to PIL and PAC as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented 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 services, and
• That the fee schedule represented 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 management 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 some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
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Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. In reviewing management fees, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund.
Most of the open-end Putnam funds have new management contracts, with new fee schedules reflecting the implementation of more competitive fee levels for many funds, complex-wide breakpoints for the open-end funds, and performance fees for some funds. These new management contracts have been in effect for a little over a year — since January or, for a few funds, February, 2010. The Trustees approved the new management contracts on July 10, 2009, and fund shareholders subsequently approved the contracts by overwhelming majorities of the shares voted.
Because these management contracts had been implemented only recently, the Contract Committee had limited practical experience with the operation of the new fee structures. Under its new management contract, your fund has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Contract Committee observed that the complex-wide breakpoints of the open-end funds had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds had sufficiently low expenses that these expense limitations did not apply. However, in the case of your fund, both of the expense limitations applied during its fiscal year ending in 2010. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and extraordinary expenses). Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management, sub-management and sub-advisory contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the 1st quintile in effective management fees (determined for your fund and the other funds
17
in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the 2nd quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2010 (the first quintile representing the least expensive funds and the fifth quintile the most expensive funds). The fee and expense data reported by Lipper as of December 31, 2010 reflected the most recent fiscal year-end data available in Lipper’s database at that time.
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 provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds 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, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and 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 may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes 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 its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
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 Putnam funds’ investment process and performance by the work of several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality
18
personnel — but also recognized 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 each fund’s performance with various benchmarks and with the performance of competitive funds.
The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered information about the absolute return of your fund, and your fund’s performance relative to its internal benchmark. Putnam Global Telecommunications Fund’s class A shares’ return net of fees and expenses was positive over the one-year period ended December 31, 2010, and exceeded the return of its internal benchmark over the one-year period.
Brokerage and soft-dollar allocations; investor servicing
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 benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management contract, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
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Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, 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 website 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 website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of August 31, 2011, Putnam employees had approximately $323,000,000 and the Trustees had approximately $70,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
20
Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 year.
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.
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 highlights table also includes the current reporting period.
21
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of
Putnam Funds Trust:
We have audited the accompanying statement of assets and liabilities of Putnam Global Telecommunications Fund (the fund), a series of Putnam Funds Trust, including the fund’s portfolio, as of August 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and the period from December 18, 2008 (commencement of operations) to August 31, 2009. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2011 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Global Telecommunications Fund as of August 31, 2011, the results of its operations, the changes in its net assets and the financial highlights for each of the two years in the period then ended and the period from December 18, 2008 (commencement of operations) to August 31, 2009 in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 12, 2011
22
The fund’s portfolio 8/31/11
| COMMON STOCKS (97.4%)* | Shares | Value |
|
| ||
| Communications equipment (3.8%) | ||
| Cisco Systems, Inc. | 9,900 | $155,232 |
|
| ||
| Qualcomm, Inc. | 3,500 | 180,110 |
|
| ||
| 335,342 | ||
| Diversified telecommunication services (47.0%) | ||
| AT&T, Inc. | 40,166 | 1,143,928 |
|
| ||
| BT Group PLC (United Kingdom) | 46,328 | 129,238 |
|
| ||
| CenturyLink, Inc. | 6,400 | 231,360 |
|
| ||
| Deutsche Telekom AG (Germany) | 15,734 | 199,833 |
|
| ||
| Hutchison Telecommunications Hong Kong Holdings, Ltd. (Hong Kong) | 522,000 | 214,689 |
|
| ||
| Swisscom AG (Switzerland) | 489 | 219,356 |
|
| ||
| TDC A/S (Denmark) | 16,973 | 147,932 |
|
| ||
| Telecom Italia SpA (Italy) | 90,517 | 110,012 |
|
| ||
| Telefonica SA (Spain) | 10,692 | 223,626 |
|
| ||
| Telenet Group Holding NV (Belgium) † | 8,755 | 354,721 |
|
| ||
| Verizon Communications, Inc. | 31,218 | 1,129,155 |
|
| ||
| 4,103,850 | ||
| Internet software and services (2.3%) | ||
| Telecity Group PLC (United Kingdom) † | 22,972 | 203,112 |
|
| ||
| 203,112 | ||
| Media (14.5%) | ||
| Comcast Corp. Class A | 14,683 | 315,831 |
|
| ||
| DIRECTV Class A † | 4,700 | 206,659 |
|
| ||
| Kabel Deutschland Holding AG (Germany) † | 4,317 | 241,851 |
|
| ||
| Time Warner Cable, Inc. | 1,500 | 98,250 |
|
| ||
| Virgin Media, Inc. (United Kingdom) | 11,200 | 284,032 |
|
| ||
| Zon Multimedia Servicos de Telecomunicacoes e Multimedia | ||
| SGPS SA (Portugal) | 30,975 | 115,146 |
|
| ||
| 1,261,769 | ||
| Wireless telecommunication services (29.8%) | ||
| M1, Ltd. (Singapore) | 89,000 | 185,341 |
|
| ||
| Mobile Telesystems ADR (Russia) | 11,700 | 198,081 |
|
| ||
| NII Holdings, Inc. † | 4,635 | 178,587 |
|
| ||
| NTT DoCoMo, Inc. (Japan) | 243 | 442,226 |
|
| ||
| Softbank Corp. (Japan) | 7,600 | 253,596 |
|
| ||
| Sprint Nextel Corp. † | 32,078 | 120,613 |
|
| ||
| Vodafone Group PLC (United Kingdom) | 465,731 | 1,220,287 |
|
| ||
| 2,598,731 | ||
| Total common stocks (cost $7,846,786) | $8,502,804 | |
| SHORT-TERM INVESTMENTS (2.4%)* | Shares | Value |
|
| ||
| Putnam Money Market Liquidity Fund 0.05% e | 213,315 | $213,315 |
|
| ||
| Total short-term investments (cost $213,315) | $213,315 | |
| TOTAL INVESTMENTS | ||
|
| ||
| Total investments (cost $8,060,101) | $8,716,119 | |
23
Key to holding’s abbreviations
| ADR | American Depository Receipts |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from September 1, 2010 through August 31, 2011 (the reporting period).
* Percentages indicated are based on net assets of $8,726,892.
† Non-income-producing security.
e See Note 6 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio (Note 1).
At the close of the reporting period, the fund maintained liquid assets totaling $9,725 to cover certain derivatives contracts.
ADR after the name of a foreign holding represents ownership of foreign securities on deposit with a custodian bank.
| DIVERSIFICATION BY COUNTRY* | ||||
|
| ||||
| Distribution of investments by country of risk at the close of the reporting period (as a percentage of Portfolio Value): | ||||
| United States | 45.6% | Hong Kong | 2.4% | |
|
|
| |||
| United Kingdom | 21.1 | Russia | 2.3 | |
|
|
| |||
| Japan | 8.0 | Singapore | 2.1 | |
|
|
| |||
| Germany | 5.1 | Denmark | 1.7 | |
|
|
| |||
| Belgium | 4.1 | Portugal | 1.3 | |
|
|
| |||
| Spain | 2.5 | Italy | 1.3 | |
|
|
| |||
| Switzerland | 2.5 | Total | 100.0% | |
|
|
||||
* Methodology differs from that used for purposes of complying with the fund’s policy regarding investments in securities of foreign issuers, as discussed further in the fund’s prospectus.
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $4,412,539)
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Bank of America, N.A. | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | $44,147 | $45,078 | $(931) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 40,434 | 40,521 | (87) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 338,149 | 334,153 | 3,996 | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 9,059 | 8,972 | 87 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 11,401 | 11,272 | 129 | |
|
| ||||||
| Barclays Bank PLC | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 47,666 | 48,673 | (1,007) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 11,854 | 11,883 | 29 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 36,133 | 36,371 | (238) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 70,160 | 69,458 | 702 | |
|
| ||||||
| Hong Kong Dollar | Buy | 9/21/11 | 15,107 | 15,125 | (18) | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 38,825 | 38,594 | (231) | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 21,343 | 21,127 | 216 | |
|
| ||||||
| Singapore Dollar | Buy | 9/21/11 | 43,767 | 43,709 | 58 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 20,247 | 20,009 | 238 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 24,859 | 25,585 | (726) | |
|
| ||||||
24
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $4,412,539) cont.
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Citibank, N.A. | ||||||
|
| ||||||
| Australian Dollar | Sell | 9/21/11 | $66,648 | $68,058 | $1,410 | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 101,816 | 102,047 | 231 | |
|
| ||||||
| Danish Krone | Sell | 9/21/11 | 126,517 | 124,995 | (1,522) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 22,860 | 22,575 | 285 | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 130,341 | 130,200 | (141) | |
|
| ||||||
| Singapore Dollar | Sell | 9/21/11 | 32,223 | 32,202 | (21) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 12,505 | 12,362 | 143 | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 59,413 | 61,147 | 1,734 | |
|
| ||||||
| Credit Suisse AG | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 105,063 | 105,291 | 228 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 36,235 | 37,051 | (816) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 45,144 | 44,595 | 549 | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 41,213 | 40,901 | 312 | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 33,105 | 32,720 | 385 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 76,558 | 75,614 | 944 | |
|
| ||||||
| Deutsche Bank AG | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 16,635 | 16,985 | (350) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 39,681 | 39,192 | (489) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 59,985 | 59,252 | 733 | |
|
| ||||||
| Goldman Sachs International | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 63,168 | 63,317 | (149) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 38,073 | 38,940 | (867) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 109,122 | 107,754 | 1,368 | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 314,957 | 312,724 | 2,233 | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 10,177 | 10,070 | 107 | |
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 17,267 | 16,451 | (816) | |
|
| ||||||
| HSBC Bank USA, National Association | ||||||
|
| ||||||
| British Pound | Sell | 9/21/11 | 18,837 | 18,886 | 49 | |
|
| ||||||
| Euro | Buy | 9/21/11 | 252,605 | 249,538 | 3,067 | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 26,310 | 26,278 | (32) | |
|
| ||||||
| New Zealand Dollar | Buy | 9/21/11 | 38,660 | 39,313 | (653) | |
|
| ||||||
| Singapore Dollar | Buy | 9/21/11 | 18,437 | 18,441 | (4) | |
|
| ||||||
| JPMorgan Chase Bank, N.A. | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 14,929 | 15,240 | (311) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 60,570 | 60,704 | 134 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 27,253 | 27,881 | (628) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 169,074 | 167,253 | (1,821) | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 31,076 | 31,042 | (34) | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 96,565 | 95,894 | (671) | |
|
| ||||||
| Singapore Dollar | Sell | 9/21/11 | 27,074 | 27,050 | (24) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 33,951 | 33,552 | 399 | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 116,215 | 119,565 | 3,350 | |
|
| ||||||
25
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $4,412,539) cont.
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Royal Bank of Scotland PLC (The) | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | $47,666 | $48,620 | $(954) | |
|
| ||||||
| British Pound | Sell | 9/21/11 | 25,819 | 25,869 | 50 | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 17,556 | 17,937 | (381) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 74,042 | 72,669 | 1,373 | |
|
| ||||||
| Israeli Shekel | Buy | 9/21/11 | 26,539 | 27,074 | (535) | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 21,185 | 21,043 | 142 | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 23,370 | 23,090 | 280 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 13,424 | 13,799 | (375) | |
|
| ||||||
| State Street Bank and Trust Co. | ||||||
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 82,372 | 85,941 | (3,569) | |
|
| ||||||
| Euro | Sell | 9/21/11 | 265,257 | 263,686 | (1,571) | |
|
| ||||||
| Israeli Shekel | Buy | 9/21/11 | 10,352 | 10,542 | (190) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 17,251 | 17,051 | 200 | |
|
| ||||||
| UBS AG | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 30,691 | 30,763 | (72) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 35,010 | 35,804 | (794) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 118,323 | 116,879 | 1,444 | |
|
| ||||||
| Israeli Shekel | Buy | 9/21/11 | 10,352 | 10,548 | (196) | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 28,929 | 28,650 | 279 | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 17,774 | 18,292 | (518) | |
|
| ||||||
| Westpac Banking Corp. | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 21,327 | 21,769 | (442) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 40,759 | 40,847 | (88) | |
|
| ||||||
| Canadian Dollar | Buy | 9/21/11 | 55,629 | 56,918 | (1,289) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 103,946 | 102,679 | 1,267 | |
|
| ||||||
| Japanese Yen | Sell | 9/21/11 | 67,037 | 66,459 | (578) | |
|
| ||||||
| Total | $4,012 | |||||
26
Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| Valuation inputs | ||||
|
| ||||
| Investments in securities: | Level 1 | Level 2 | Level 3 | |
|
| ||||
| Common stocks: | ||||
|
| ||||
| Consumer discretionary | $904,772 | $356,997 | $— | |
|
| ||||
| Information technology | 335,342 | 203,112 | — | |
|
| ||||
| Telecommunication services | 3,001,724 | 3,700,857 | — | |
|
| ||||
| Total common stocks | 4,241,838 | 4,260,966 | — | |
| Short-term investments | 213,315 | — | — | |
|
| ||||
| Totals by level | $4,455,153 | $4,260,966 | $— | |
| Valuation inputs | ||||
|
| ||||
| Other financial instruments: | Level 1 | Level 2 | Level 3 | |
|
| ||||
| Forward currency contracts | $— | $4,012 | $— | |
|
| ||||
| Totals by level | $— | $4,012 | $— | |
The accompanying notes are an integral part of these financial statements.
27
Statement of assets and liabilities 8/31/11
| ASSETS | |
|
| |
| Investment in securities, at value, including of securities on loan (Note 1): | |
| Unaffiliated issuers (identified cost $7,846,786) | $8,502,804 |
| Affiliated issuers (identified cost $213,315) (Note 6) | 213,315 |
|
| |
| Cash | 22,961 |
|
| |
| Dividends, interest and other receivables | 13,127 |
|
| |
| Receivable for shares of the fund sold | 40,207 |
|
| |
| Unrealized appreciation on forward currency contracts (Note 1) | 28,151 |
|
| |
| Receivable from Manager (Note 2) | 8,890 |
|
| |
| Total assets | 8,829,455 |
| LIABILITIES | |
|
| |
| Payable for shares of the fund repurchased | 258 |
|
| |
| Payable for investor servicing fees (Note 2) | 2,427 |
|
| |
| Payable for custodian fees (Note 2) | 10,225 |
|
| |
| Payable for Trustee compensation and expenses (Note 2) | 1,181 |
|
| |
| Payable for administrative services (Note 2) | 17 |
|
| |
| Payable for distribution fees (Note 2) | 3,652 |
|
| |
| Unrealized depreciation on forward currency contracts (Note 1) | 24,139 |
|
| |
| Other accrued expenses | 60,664 |
|
| |
| Total liabilities | 102,563 |
| Net assets | $8,726,892 |
|
| |
| REPRESENTED BY | |
|
| |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $7,719,719 |
|
| |
| Undistributed net investment income (Note 1) | 256,714 |
|
| |
| Accumulated net realized gain on investments and foreign currency transactions (Note 1) | 90,212 |
|
| |
| Net unrealized appreciation of investments and assets and liabilities in foreign currencies | 660,247 |
|
| |
| Total — Representing net assets applicable to capital shares outstanding | $8,726,892 |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
| |
| Net asset value and redemption price per class A share ($7,394,626 divided by 563,118 shares) | $13.13 |
|
| |
| Offering price per class A share (100/94.25 of $13.13)* | $13.93 |
|
| |
| Net asset value and offering price per class B share ($201,356 divided by 15,560 shares)** | $12.94 |
|
| |
| Net asset value and offering price per class C share ($345,296 divided by 26,685 shares)** | $12.94 |
|
| |
| Net asset value and redemption price per class M share ($39,464 divided by 3,025 shares) | $13.05 |
|
| |
| Offering price per class M share (100/96.50 of $13.05)* | $13.52 |
|
| |
| Net asset value, offering price and redemption price per class R share | |
| ($16,757 divided by 1,278 shares) | $13.11 |
|
| |
| Net asset value, offering price and redemption price per class Y share | |
| ($729,393 divided by 55,366 shares) | $13.17 |
|
| |
* On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
28
Statement of operations Year ended 8/31/11
| INVESTMENT INCOME | |
|
| |
| Dividends (net of foreign tax of $10,774) | $355,008 |
|
| |
| Interest (including interest income of $214 from investments in affiliated issuers) (Note 6) | 216 |
|
| |
| Total investment income | 355,224 |
| EXPENSES | |
|
| |
| Compensation of Manager (Note 2) | 46,188 |
|
| |
| Investor servicing fees (Note 2) | 23,261 |
|
| |
| Custodian fees (Note 2) | 17,260 |
|
| |
| Trustee compensation and expenses (Note 2) | 477 |
|
| |
| Administrative services (Note 2) | 179 |
|
| |
| Distribution fees — Class A (Note 2) | 15,988 |
|
| |
| Distribution fees — Class B (Note 2) | 1,482 |
|
| |
| Distribution fees — Class C (Note 2) | 2,390 |
|
| |
| Distribution fees — Class M (Note 2) | 194 |
|
| |
| Distribution fees — Class R (Note 2) | 76 |
|
| |
| Auditing | 53,632 |
|
| |
| Other | 12,519 |
|
| |
| Fees waived and reimbursed by Manager (Note 2) | (69,345) |
|
| |
| Total expenses | 104,301 |
| Expense reduction (Note 2) | (27) |
|
| |
| Net expenses | 104,274 |
| Net investment income | 250,950 |
|
| |
| Net realized gain on investments (Notes 1 and 3) | 172,472 |
|
| |
| Net realized gain on foreign currency transactions (Note 1) | 84,502 |
|
| |
| Net unrealized appreciation of assets and liabilities in foreign currencies during the year | 26,016 |
|
| |
| Net unrealized appreciation of investments during the year | 324,235 |
|
| |
| Net gain on investments | 607,225 |
| Net increase in net assets resulting from operations | $858,175 |
|
| |
The accompanying notes are an integral part of these financial statements.
29
Statement of changes in net assets
| INCREASE IN NET ASSETS | Year ended 8/31/11 | Year ended 8/31/10 |
|
| ||
| Operations: | ||
| Net investment income | $250,950 | $96,281 |
|
| ||
| Net realized gain on investments | ||
| and foreign currency transactions | 256,974 | 233,514 |
|
| ||
| Net unrealized appreciation of investments and assets | ||
| and liabilities in foreign currencies | 350,251 | 157,755 |
|
| ||
| Net increase in net assets resulting from operations | 858,175 | 487,550 |
|
| ||
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Net investment income | ||
|
| ||
| Class A | (132,743) | (129,581) |
|
| ||
| Class B | (1,804) | (1,049) |
|
| ||
| Class C | (3,544) | (969) |
|
| ||
| Class M | (317) | (569) |
|
| ||
| Class R | (302) | (368) |
|
| ||
| Class Y | (11,554) | (5,351) |
|
| ||
| Net realized short-term gain on investments | ||
|
| ||
| Class A | (125,175) | — |
|
| ||
| Class B | (1,935) | — |
|
| ||
| Class C | (4,069) | — |
|
| ||
| Class M | (374) | — |
|
| ||
| Class R | (320) | — |
|
| ||
| Class Y | (10,233) | — |
|
| ||
| From net realized long-term gain on investments | ||
| Class A | (79,546) | — |
|
| ||
| Class B | (1,230) | — |
|
| ||
| Class C | (2,586) | — |
|
| ||
| Class M | (237) | — |
|
| ||
| Class R | (204) | — |
|
| ||
| Class Y | (6,503) | — |
|
| ||
| Redemption fees (Note 1) | 1,796 | 55 |
|
| ||
| Increase from capital share transactions (Note 4) | 4,051,174 | 504,703 |
|
| ||
| Total increase in net assets | 4,528,469 | 854,421 |
| NET ASSETS | ||
|
| ||
| Beginning of year | 4,198,423 | 3,344,002 |
|
| ||
| End of year (including undistributed net investment | ||
| income of $256,714 and $71,527, respectively) | $8,726,892 | $4,198,423 |
|
| ||
The accompanying notes are an integral part of these financial statements.
30
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31
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | ||||||||||||
|
| ||||||||||||||
| Ratio | Ratio | |||||||||||||
| Net realized | From | of expenses | of net investment | |||||||||||
| Net asset value, | and unrealized | Total from | From | net realized | Total return | Net assets, | to average | income (loss) | Portfolio | |||||
| beginning | Net investment | gain (loss) | investment | net investment | gain | Total | Redemption | Net asset value, | at net asset | end of period | net assets | to average | turnover | |
| Period ended | of period | income (loss) a | on investments | operations | income | on investments | distributions | fees b | end of period | value (%) c | (in thousands) | (%) d,e | net assets (%) d | (%) |
|
| ||||||||||||||
| Class A | ||||||||||||||
| August 31, 2011 | $11.67 | .46 | 1.84 | 2.30 | (.33) | (.51) | (.84) | — | $13.13 | 20.01 | $7,395 | 1.40 | 3.42 | 43 |
| August 31, 2010 | 10.56 | .28 | 1.22 | 1.50 | (.39) | — | (.39) | — | 11.67 | 14.46 | 3,636 | 1.48 | 2.53 | 80 |
| August 31, 2009† | 10.00 | .26 f | .30 | .56 | — | — | — | — | 10.56 | 5.60 * | 3,193 | 1.02 * | 2.79 *f | 45 * |
|
| ||||||||||||||
| Class B | ||||||||||||||
| August 31, 2011 | $11.56 | .41 | 1.77 | 2.18 | (.29) | (.51) | (.80) | — | $12.94 | 19.14 | $201 | 2.15 | 3.08 | 43 |
| August 31, 2010 | 10.50 | .15 | 1.27 | 1.42 | (.36) | — | (.36) | — | 11.56 | 13.65 | 40 | 2.23 | 1.38 | 80 |
| August 31, 2009† | 10.00 | .24 f | .26 | .50 | — | — | — | — | 10.50 | 5.00 * | 21 | 1.55 * | 2.57 *f | 45 * |
|
| ||||||||||||||
| Class C | ||||||||||||||
| August 31, 2011 | $11.54 | .40 | 1.78 | 2.18 | (.27) | (.51) | (.78) | — | $12.94 | 19.17 | $345 | 2.15 | 3.01 | 43 |
| August 31, 2010 | 10.50 | .27 | 1.14 | 1.41 | (.37) | — | (.37) | — | 11.54 | 13.65 | 135 | 2.23 | 2.43 | 80 |
| August 31, 2009† | 10.00 | .21 f | .29 | .50 | — | — | — | — | 10.50 | 5.00 * | 11 | 1.55 * | 2.25 *f | 45 * |
|
| ||||||||||||||
| Class M | ||||||||||||||
| August 31, 2011 | $11.60 | .50 | 1.72 | 2.22 | (.26) | (.51) | (.77) | — | $13.05 | 19.45 | $39 | 1.90 | 3.71 | 43 |
| August 31, 2010 | 10.52 | .20 | 1.25 | 1.45 | (.37) | — | (.37) | — | 11.60 | 13.95 | 12 | 1.98 | 1.80 | 80 |
| August 31, 2009† | 10.00 | .23 f | .29 | .52 | — | — | — | — | 10.52 | 5.20 * | 11 | 1.37 * | 2.43 *f | 45 * |
|
| ||||||||||||||
| Class R | ||||||||||||||
| August 31, 2011 | $11.65 | .41 | 1.85 | 2.26 | (.29) | (.51) | (.80) | — | $13.11 | 19.73 | $17 | 1.65 | 3.04 | 43 |
| August 31, 2010 | 10.54 | .26 | 1.22 | 1.48 | (.37) | — | (.37) | — | 11.65 | 14.22 | 12 | 1.73 | 2.32 | 80 |
| August 31, 2009† | 10.00 | .24 f | .30 | .54 | — | — | — | — | 10.54 | 5.40 * | 11 | 1.19 * | 2.60 *f | 45 * |
|
| ||||||||||||||
| Class Y | ||||||||||||||
| August 31, 2011 | $11.70 | .50 | 1.83 | 2.33 | (.35) | (.51) | (.86) | — | $13.17 | 20.27 | $729 | 1.15 | 3.75 | 43 |
| August 31, 2010 | 10.57 | .35 | 1.20 | 1.55 | (.42) | — | (.42) | — | 11.70 | 14.87 | 363 | 1.23 | 3.17 | 80 |
| August 31, 2009† | 10.00 | .33 f | .24 | .57 | — | — | — | — | 10.57 | 5.70 * | 98 | .84 * | 3.42 *f | 45 * |
|
| ||||||||||||||
* Not annualized.
† For the period December 18, 2008 (commencement of operations) to August 31, 2009.
a Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
b Amount represents less than $0.01 per share.
c Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
d Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amounts (Note 2):
| Percentage of | |
| average net assets | |
|
| |
| August 31, 2011 | 0.95% |
|
| |
| August 31, 2010 | 2.64 |
|
| |
| August 31, 2009 | 5.90 |
|
| |
e Includes amounts paid through expense offset and/or brokerage/service arrangements.
f Reflects dividends received by the fund from two issuers which amounted to the following amounts:
| Percentage of | ||
| Per share | average net assets | |
|
| ||
| Class A | $0.04 | 0.39% |
|
| ||
| Class B | 0.03 | 0.37 |
|
| ||
| Class C | 0.04 | 0.39 |
|
| ||
| Class M | 0.04 | 0.39 |
|
| ||
| Class R | 0.04 | 0.39 |
|
| ||
| Class Y | 0.02 | 0.26 |
|
| ||
The accompanying notes are an integral part of these financial statements.
| 32 | 33 |
Notes to financial statements 8/31/11
Note 1: Significant accounting policies
Putnam Global Telecommunications Fund (the fund) is a non-diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The investment objective of the fund is to seek capital appreciation by investing mainly in common stocks of companies worldwide in the telecommunication industries that Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC, believes have favorable investment potential. The fund concentrates its investments in one sector, which involves more risk than a fund that invests more broadly.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. 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’s management team 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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from September 1, 2010 through August 31, 2011.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant
34
extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management, does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
C) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
D) Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. The fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed when the contract matures or by delivery of the currency. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward
35
currency contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average contract amount of approximately $3,200,000 on forward currency contracts for the reporting period.
E) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty. Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund had a net liability position of $7,744 on derivative contracts subject to the Master Agreements. There was no collateral posted by the fund.
F) Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
G) Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
H) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (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. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. 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. Each of the fund’s federal tax returns for the prior periods remains subject to examination by the Internal Revenue Service.
I) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include a temporary difference of losses on wash sale transactions and foreign currency gains and losses. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital
36
loss carryovers) under income tax regulations. For the reporting period ended, the fund reclassified $84,501 to increase undistributed net investment income and $84,501 to decrease accumulated net realized gains.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
| Unrealized appreciation | $923,814 |
| Unrealized depreciation | (295,648) |
|
| |
| Net unrealized appreciation | 628,166 |
| Undistributed ordinary income | 262,464 |
| Undistributed short-term gain | 70,787 |
| Undistributed long-term gain | 47,276 |
| Cost for federal income tax purposes | $8,087,953 |
J) 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
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
| 0.780% | of the first $5 billion, |
| 0.730% | of the next $5 billion, |
| 0.680% | of the next $10 billion, |
| 0.630% | of the next $10 billion, |
| 0.580% | of the next $50 billion, |
| 0.560% | of the next $50 billion, |
| 0.550% | of the next $100 billion, |
| 0.545% | of any excess thereafter. |
Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were reduced by $69,345 as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.
The Putnam Advisory Company, LLC (PAC), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. Putnam Management or PIL, as applicable, pays a quarterly sub-advisory fee to PAC for its services at the annual rate of 0.35% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund.
37
Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $27 under the expense offset arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $6, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years 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. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. 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 A, class B, class C, class M 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 Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $10,882 and no monies from the sale of class A and class M shares, respectively, and received $70 and $217 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A and class M redemptions.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $6,927,704 and $3,043,470, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class A | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 364,891 | $4,891,849 | 50,562 | $557,690 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 26,136 | 326,487 | 11,737 | 129,581 |
|
| ||||
| 391,027 | 5,218,336 | 62,299 | 687,271 | |
|
| ||||
| Shares repurchased | (139,414) | (1,898,776) | (53,334) | (561,354) |
|
| ||||
| Net increase | 251,613 | $3,319,560 | 8,965 | $125,917 |
|
| ||||
38
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class B | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 16,003 | $209,938 | 3,195 | $36,457 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 383 | 4,742 | 95 | 1,049 |
|
| ||||
| 16,386 | 214,680 | 3,290 | 37,506 | |
|
| ||||
| Shares repurchased | (4,267) | (56,871) | (1,883) | (20,397) |
|
| ||||
| Net increase | 12,119 | $157,809 | 1,407 | $17,109 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class C | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 17,341 | $234,095 | 12,909 | $138,769 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 774 | 9,580 | 88 | 969 |
|
| ||||
| 18,115 | 243,675 | 12,997 | 139,738 | |
|
| ||||
| Shares repurchased | (3,127) | (41,075) | (2,303) | (24,916) |
|
| ||||
| Net increase | 14,988 | $202,600 | 10,694 | $114,822 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class M | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 2,834 | $37,912 | 547 | $6,356 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 75 | 928 | 52 | 569 |
|
| ||||
| 2,909 | 38,840 | 599 | 6,925 | |
|
| ||||
| Shares repurchased | (917) | (11,209) | (566) | (6,129) |
|
| ||||
| Net increase | 1,992 | $27,631 | 33 | $796 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class R | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 179 | $2,435 | — | $— |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 66 | 826 | 33 | 368 |
|
| ||||
| 245 | 3,261 | 33 | 368 | |
|
| ||||
| Shares repurchased | — | — | — | — |
|
| ||||
| Net increase | 245 | $3,261 | 33 | $368 |
|
| ||||
| Year ended 8/31/11 | Year ended 8/31/10 | |||
|
| ||||
| Class Y | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 43,194 | $584,258 | 23,490 | $264,108 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 2,260 | 28,290 | 484 | 5,351 |
|
| ||||
| 45,454 | 612,548 | 23,974 | 269,459 | |
|
| ||||
| Shares repurchased | (21,157) | (272,235) | (2,149) | (23,768) |
|
| ||||
| Net increase | 24,297 | $340,313 | 21,825 | $245,691 |
|
| ||||
39
At the close of the reporting period, Putnam Investments, LLC owned the following shares:
| Percentage of | Value at | ||
| Shares owned | ownership | 8/31/11 | |
|
| |||
| Class A | 216,403 | 38.4% | $2,841,377 |
|
| |||
| Class M | 1,097 | 36.3 | 14,320 |
|
| |||
| Class R | 1,099 | 86.0 | 14,413 |
|
| |||
| Class Y | 1,109 | 2.0 | 14,603 |
|
| |||
Note 5: Summary of derivative activity
The following is a summary of the market values of derivative instruments as of the close of the reporting period:
Market values of derivative instruments as of the close of the reporting period
| Asset derivatives | Liability derivatives | |||
|
| ||||
| Derivatives not | ||||
| accounted for as | Statement of | Statement of | ||
| hedging instruments | assets and | assets and | ||
| under ASC 815 | liabilities location | Market value | liabilities location | Market value |
|
| ||||
| Foreign exchange | ||||
| contracts | Receivables | $28,151 | Payables | $24,139 |
|
| ||||
| Total | $28,151 | $24,139 | ||
|
| ||||
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | |
| instruments under ASC 815 | contracts | Total |
|
| ||
| Foreign exchange contracts | $85,806 | $85,806 |
|
| ||
| Total | $85,806 | $85,806 |
|
| ||
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | |
| instruments under ASC 815 | contracts | Total |
|
| ||
| Foreign exchange contracts | $25,765 | $25,765 |
|
| ||
| Total | $25,765 | $25,765 |
|
| ||
Note 6: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $214 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $3,495,369 and $3,385,447, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 7: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
40
Federal tax information (Unaudited)
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $102,753 as a capital gain dividend with respect to the taxable year ended August 31, 2011, or, if subsequently determined to be different, the net capital gain of such year.
For the period, interest and dividends from foreign countries were $239,805 or $0.36 per share (for all classes of shares). Taxes paid to foreign countries were $10,774 or $0.02 per share (for all classes of shares).
The fund designated 26.91% of ordinary income distributions as qualifying for the dividends received deduction for corporations.
For its tax year ended August 31, 2011, the fund hereby designates 72.15%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
For the tax year ended August 31, 2011, pursuant to §871(k) of the Internal Revenue Code, the fund hereby designates $30 of distributions paid as qualifying to be taxed as interest-related dividends.
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
41
About the Trustees
| Independent Trustees | ||
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
| Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
| Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
| Shields, a multi-product investment management firm | focused on private | |
| with over $40 billion in assets under management. | equity advisory services; | |
| RAGE Frameworks, | ||
| Inc., a private software | ||
| company | ||
|
| ||
| Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
| Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
| Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
| College and member of the Investment Committee for the | company; UniSource | |
| college’s endowment. Former Chair and current board | Energy Corporation, | |
| member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
| the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
| refiner and fertilizer | ||
| manufacturer; Cody | ||
| Resources Management, | ||
| LLP, a privately held | ||
| energy, ranching, and | ||
| commercial real estate | ||
| company | ||
|
| ||
| Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
| Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
| Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
| Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
| to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
| since 2011 | ||
|
| ||
| Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
| Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
| Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
| for Strategic and International Studies. Member of the | ||
| Council on Foreign Relations. | ||
|
| ||
| Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
| Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
| Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
| Johnson & Johnson’s Chief Financial Officer for a decade. | ||
|
| ||
| John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
| Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
| Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
| Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
| to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
| of the Millstein Center for Corporate Governance and | ||
| Performance at the Yale School of Management. | ||
|
| ||
42
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
| Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
| Trustee since 1997 | on research and education on issues related to science, | company focused on |
| technology, and economic performance. Elizabeth and | natural gas transmission | |
| James Killian Professor of Economics, Emeritus at the | and power services; | |
| Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
| 2007, served as the Director of the Center for Energy and | energy company focused | |
| Environmental Policy Research at MIT. | on power services | |
|
| ||
| Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
| Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
| Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
| Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
| Massachusetts. Until November 2010, director of Ruder | ||
| Finn Group, a global communications and advertising firm. | ||
|
| ||
| Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
| Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
| Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
| Joslin Diabetes Center. | ||
|
| ||
| George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
| Born 1951 | of financial advisory and other research services, and | |
| Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
| a registered investment advisor to private funds. | ||
| Director of The Boston Family Office, LLC, a registered | ||
| investment advisor. | ||
|
| ||
| W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
| Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
| Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
| and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
| packaging products. | ||
|
| ||
| Interested Trustee | ||
|
| ||
| Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
| Born 1952 | Investments since 2008. Prior to joining Putnam | |
| Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
| President of the Putnam | Operating Officer of Fidelity Investments from | |
| Funds since July 2009 | 2000 to 2007. | |
|
| ||
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2011, there were 106 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
43
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
| Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
| Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
| Officer, Treasurer and Compliance Liaison | Since 2011 |
| Since 2004 | General Counsel, Putnam Investments and |
| Putnam Management | |
| Steven D. Krichmar (Born 1958) | |
| Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
| Since 2002 | Vice President |
| Chief of Operations, Putnam Investments and | Since 2004 |
| Putnam Management | Director of Trustee Relations, |
| Putnam Investments and Putnam Management | |
| Janet C. Smith (Born 1965) | |
| Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
| Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
| Since 2007 | Since 1993 |
| Director of Fund Administration Services, | |
| Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
| Vice President, Senior Associate Treasurer and | |
| Beth S. Mazor (Born 1958) | Assistant Clerk |
| Vice President | Since 2010 |
| Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
| Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
| Investments and Putnam Management | Management (2007–2008); Senior Financial |
| Analyst, Putnam Investments (1999–2007) | |
| Robert R. Leveille (Born 1969) | |
| Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
| Since 2007 | Vice President, Assistant Clerk, Assistant |
| Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
| Putnam Management, and Putnam Retail | Since 2000 |
| Management | |
| Susan G. Malloy (Born 1957) | |
| Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
| Vice President and BSA Compliance Officer | Since 2007 |
| Since 2002 | Director of Accounting & Control Services, |
| Director of Operational Compliance, | Putnam Management |
| Putnam Investments and Putnam | |
| Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
44
Fund information
Founded over 70 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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Trustees | Beth S. Mazor |
| Putnam Investment | Jameson A. Baxter, Chair | Vice President |
| Management, LLC | Ravi Akhoury | |
| One Post Office Square | Barbara M. Baumann | Robert R. Leveille |
| Boston, MA 02109 | Charles B. Curtis | Vice President and |
| Robert J. Darretta | Chief Compliance Officer | |
| Investment Sub-Manager | John A. Hill | |
| Putnam Investments Limited | Paul L. Joskow | Mark C. Trenchard |
| 57–59 St James’s Street | Kenneth R. Leibler | Vice President and |
| London, England SW1A 1LD | Robert E. Patterson | BSA Compliance Officer |
| George Putnam, III | ||
| Investment Sub-Advisor | Robert L. Reynolds | Robert T. Burns |
| The Putnam Advisory | W. Thomas Stephens | Vice President and |
| Company, LLC | Chief Legal Officer | |
| One Post Office Square | Officers | |
| Boston, MA 02109 | Robert L. Reynolds | James P. Pappas |
| President | Vice President | |
| Marketing Services | ||
| Putnam Retail Management | Jonathan S. Horwitz | Judith Cohen |
| One Post Office Square | Executive Vice President, | Vice President, Clerk |
| Boston, MA 02109 | Principal Executive | and Assistant Treasurer |
| Officer, Treasurer and | ||
| Custodian | Compliance Liaison | Michael Higgins |
| State Street Bank | Vice President, Senior Associate | |
| and Trust Company | Steven D. Krichmar | Treasurer and Assistant Clerk |
| Vice President and | ||
| Legal Counsel | Principal Financial Officer | Nancy E. Florek |
| Ropes & Gray LLP | Vice President, Assistant Clerk, | |
| Janet C. Smith | Assistant Treasurer and | |
| Independent Registered | Vice President, Assistant | Proxy Manager |
| Public Accounting Firm | Treasurer and Principal | |
| KPMG LLP | Accounting Officer | Susan G. Malloy |
| Vice President and | ||
| Assistant Treasurer |
This report is for the information of shareholders of Putnam Global Telecommunications 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 putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary 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.
| Item 2. Code of Ethics: |
| (a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund’s investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
| (c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
| Item 3. Audit Committee Financial Expert: |
| The Funds’ Audit and Compliance Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification. |
| Item 4. Principal Accountant Fees and Services: |
| The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor: |
| Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
| August 31, 2011 | $51,304 | $-- | $4,100 | $ — | |
| August 31, 2010 | $43,906 | $-- | $3,900 | $ — | |
| For the fiscal years ended August 31, 2011 and August 31, 2010, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $4,100 and $3,900 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
| Audit Fees represent fees billed for the fund’s last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
| Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
| Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
| Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
| The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
| The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. |
| Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
| August 31, 2011 | $ — | $ — | $ — | $ — | |
| August 31, 2010 | $ — | $ — | $ — | $ — | |
| 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) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
| (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/Janet C. Smith Janet C. Smith Principal Accounting Officer |
| Date: October 27, 2011 |
| 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/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
| Date: October 27, 2011 |
| By (Signature and Title): |
| /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: October 27, 2011 |
| 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 800 Boylston Street Boston, Massachusetts 02199-3600 |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
| Date of fiscal year end: | August 31, 2011 |
| Date of reporting period: | September 1, 2010 — August 31, 2011 |
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: | |||
Putnam
Retirement Income
Fund Lifestyle 2
Annual report
8 | 31 | 11
| Message from the Trustees | 1 | ||
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| About the fund | 2 | ||
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| Interview with your fund’s portfolio manager | 4 | ||
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| Your fund’s price information | 8 | ||
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| Your fund’s expenses | 8 | ||
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| Terms and definitions | 10 | ||
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| Trustee approval of management contract | 11 | ||
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| Other information for shareholders | 15 | ||
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| Financial statements | 16 | ||
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| Federal tax information | 49 | ||
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| About the Trustees | 50 | ||
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Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The fund may invest a portion of its assets in small and/or midsize companies. Such investments increase the risk of greater price fluctuations. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. Funds that invest in bonds are subject to certain risks including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Our allocation of assets among permitted asset categories may hurt performance.
Message from the Trustees
Dear Fellow Shareholder:
Markets around the world are grappling with heightened volatility. In the United States, persistently high unemployment and other weak economic data have fueled investors’ risk aversion, while in Europe the sovereign debt crisis shows little sign of abating. Certain bright spots do exist, but it is clear that volatility and uncertainty will remain with us for the near term.
We believe it is important to consult your financial advisor in times like these to consider whether your portfolio reflects an appropriate degree of diversification. In responding to this need, Putnam offers funds with strategies that seek to limit volatility and also employs an active, research-based investment approach that is designed to offer shareholders a potential advantage in this climate by looking for new growth opportunities and seeking to guard against downside risk.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancy’s Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
Interview with your fund’s portfolio manager
Jeffrey L. Knight, CFA
Both stocks and bonds delivered positive results for the 12 months ended August 31, 2011, but U.S. stocks fell sharply late in the period. What triggered this reversal?
We have seen the U.S. economy struggle to maintain its growth momentum in 2011, and the stock market reacted to a weaker economy in a somewhat belated fashion. Recently released data showed that conditions have been sluggish since January, yet stocks did not begin to turn negative until May and June.
In our view, the stock market’s sharp decline in early August was driven more by investor fear and risk reduction than by a fundamental change in the market cycle. On a fundamental level, we believe that U.S. corporations are very healthy. Recent quarterly earnings reports have included a large number of positive surprises from companies operating in a variety of market sectors.
There is no question that the economy has faced significant challenges, including a mediocre pace of job creation, rising sovereign debt risk, and the impact of Japan’s devastating earthquake and tsunami in March. As the slowdown took hold, we regarded it as a fairly typical deceleration amid a long-term economic recovery, rather than a descent into a new recession.
This remains our belief. A number of indicators suggest that the U.S. economy should expand by the end of the year. For example, automobile sales are showing signs of rebounding after declining due to disruptions
Allocations are represented as a percentage of portfolio value and include the holdings of the Putnam mutual funds. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of holdings of the Putnam mutual funds, derivative securities, and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings and allocations may vary over time.
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in global manufacturing supply chains caused by the Japanese catastrophe. Stronger signs in the automotive industry may help boost the economy.
International stocks struggled even more than U.S. stocks during the period’s second half. What factors hampered foreign equities?
Despite the tailwind of general U.S. dollar weakness, international stocks were influenced by many of the same factors as U.S. stocks — most notably, investor fear regarding the full magnitude of Europe’s sovereign debt crisis, Standard & Poor’s [S&P] early-August downgrade of the long-term sovereign credit rating of the United States, and the disaster in Japan. Emerging-market stocks held up better than stocks in developed markets, but were nonetheless hurt by geopolitical unrest in the Middle East and North Africa, and inflation in China.
Bonds provided moderate gains and were less volatile than stocks. Do you think that bonds continue to offer a refuge?
Yes. It’s worth highlighting that U.S. Treasury yields actually fell in the wake of S&P’s downgrade. In other words, bond investors did not agree with S&P’s assessment of U.S. sovereign debt risk. Nevertheless, I would emphasize that sovereign debt risk is a dominant force in the markets, and it extends beyond the United States. Increased risk pushed up government-bond yields in Italy and Spain, complicating Europe’s efforts to address persistent debt problems in Greece, Ireland, and Portugal.
Outside of government bond sectors, mortgage-backed and corporate bonds also performed well. The high-yield corporate sector, aside from recent turbulence, generally performed well for the period as a whole.
This table shows the fund’s top 10 individual holdings and the percentage of the fund’s net assets that each represented as of 8/31/11. Short-term holdings are excluded. Holdings will vary over time.
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The fund was launched on June 13, 2011. Could you tell us about its investment approach, and how it differs from Putnam’s other Retirement Income Lifestyle funds?
Sure. Putnam Retirement Income Fund Lifestyle 2 seeks to take a moderate approach to producing income for retirees, and fits between the more conservative Putnam Retirement Income Fund Lifestyle 1 and the more aggressive Putnam Retirement Income Fund Lifestyle 3. The fund invests in Putnam Absolute Return 100, 300, 500, and 700 funds, in Putnam Money Market Fund, and in a broad array of domestic and international stocks, bonds, and convertible securities. Putnam’s Absolute Return Funds pursue positive returns with less volatility over time than the securities markets have historically offered. As with all of Putnam’s retirement-focused funds, a hallmark of Putnam Retirement Income Fund Lifestyle 2’s strategy is broad diversification across a range of asset classes.
Did the fund employ derivatives to any significant degree during the period?
No, but we did have a small position in credit default swaps, which we used to hedge credit and market risks, and to gain exposure to certain securities.
What is your outlook for the economy and the markets in the months ahead?
Based on our research, we believe the underpinnings of continued economic recovery remain in place. While the housing sector remains depressed, growth in jobs and consumer spending have been stronger than recessionary levels. In our view, the U.S. financial system is in better shape than in 2008, with less leverage, greater liquidity, and higher loan quality.
That said, the market volatility that we saw during the summer months reflects legitimate concern about recession, to a degree. With economic growth at such low levels, recession is a risk, and the resolution of public sector debt remains a political challenge in both the United States and Europe. On the bright side, we believe that the agreement by U.S. lawmakers to raise the country’s debt ceiling has reduced the possibility of default in the coming year.
While government stimulus is winding down, market forces can stimulate the economy. With the rally in Treasury yields, interest rates have moved to very low levels. Oil prices have also declined significantly since April. Lastly, the volatility that has characterized equity markets in recent months likely sends a strong message to government policymakers to address economic issues more effectively, particularly in Europe, where the solvency crisis in peripheral countries needs to be resolved soon.
The fund has little direct exposure to risky sovereign bonds, and we believe most equity and fixed-income holdings have attractive characteristics. On the whole, corporations have relatively low levels of debt and substantial levels of cash, and earnings could reach record highs this year. Given the valuation levels that many stocks have reached of late, we should not rule out the possibility of a rebound in the months ahead.
All told, however, the outlook for stocks and other riskier assets has become more uncertain. As a result, we have attempted to position the fund to be resilient in whatever direction the markets take. We have done this by keeping the fund’s risks balanced across different opportunities and by investing with an active hedging strategy designed to protect the portfolio from significant downside volatility.
Jeff, thanks for your time and insights.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
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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. Current and future portfolio holdings are subject to risk.
Portfolio Manager Jeffrey L. Knight is Head of Global Asset Allocation at Putnam. He holds an M.B.A. from the Tuck School of Business at Dartmouth College and a B.A. from Colgate University. A CFA charterholder, he joined Putnam in 1993 and has been in the investment industry since 1987.
In addition to Jeff, your fund’s portfolio managers are Robert Kea, Joshua Kutin, and Robert Schoen.
IN THE NEWS
Citing “significant downside risks to the economic outlook,” the Federal Reserve [the Fed] in mid-September kicked off a program to “twist” the yield curve by swapping short-maturity government securities for longer-dated securities. The move, following the completion of the Fed’s $600 billion stimulus program at the end of June, is intended to push long-term borrowing costs down further and to jump-start the moribund U.S. economy. Over the next several months, the Fed said it would purchase $400 billion of U.S. Treasury securities that mature in 6 to 30 years and then sell an equal amount of short-term Treasury securities that mature in 3 years or less. The Fed also reiterated its pledge to hold the benchmark interest rate near zero through mid 2013. Dubbed “Operation Twist,” the program is similar to an effort during the Kennedy administration in 1961 in which the Fed bought longer-dated bonds and sold shorter-dated ones.
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Your fund’s price information
Fund price information For the period ended 8/31/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||
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| Before | After | Net | Net | Before | After | Net | Net | |
| sales | sales | asset | asset | sales | sales | asset | asset | |
| Share value | charge | charge | value | value | charge | charge | value | value |
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| 6/13/11* | $10.00 | $10.42 | $10.00 | $10.00 | $10.00 | $10.34 | $10.00 | $10.00 |
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| 8/31/11 | 9.75 | 10.16 | 9.74 | 9.74 | 9.75 | 10.08 | 9.75 | 9.76 |
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After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (4.00% for class A shares and 3.25% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
The fund made no distributions during the period.
* Inception date of the fund.
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 period, your fund’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, 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 representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class R | Class Y | |
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| Estimated net expenses for the fiscal year ended | ||||||
| 8/31/11* | 1.03% | 1.78% | 1.78% | 1.28% | 1.28% | 0.78% |
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| Estimated total annual operating expenses for the | ||||||
| fiscal year ended 8/31/11 | 1.63% | 2.38% | 2.38% | 1.88% | 1.88% | 1.38% |
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| Annualized expense ratio from 6/13/11 (fund’s | ||||||
| commencement of operations) to 8/31/11† | 0.70% | 1.45% | 1.45% | 0.95% | 0.95% | 0.45% |
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Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Reflects Putnam Management’s contractual obligation to limit expenses through 6/6/12.
† For the fund’s most recent fiscal period: 6/13/11 (commencement of operations) to 8/31/11; may differ from expense ratios in the financial highlights. Excludes expense ratios of underlying investment companies.
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Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from June 13, 2011 (commencement of operations) to August 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
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| Expenses paid per $1,000*† | $1.52 | $3.14 | $3.14 | $2.06 | $2.06 | $0.97 |
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| Ending value (after expenses) | $975.00 | $974.00 | $974.00 | $975.00 | $975.00 | $976.00 |
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* 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 average net assets for the period from 6/13/11 (commencement of operations) to 8/31/11. The expense ratio may differ for each share class.
† 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 period ended August 31, 2011, use the following calculation method. To find the value of your investment on June 13, 2011 (commencement of operations), call Putnam at 1-800-225-1581.
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 following table 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 A | Class B | Class C | Class M | Class R | Class Y | |
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| Expenses paid per $1,000*† | $1.54 | $3.19 | $3.19 | $2.09 | $2.09 | $0.99 |
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| Ending value (after expenses) | $1,009.42 | $1,007.78 | $1,007.78 | $1,008.88 | $1,008.88 | $1,009.97 |
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* 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 average net assets for the period from 6/13/11 (commencement of operations) to 8/31/11. The expense ratio may differ for each share class.
† 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.
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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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 4.00% maximum sales charge for class A shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
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Trustee approval of management contract
General conclusions
In March 2011, the Putnam funds’ Board of Trustees, which oversees the management of each Putnam fund, initially approved your fund’s management contract with Putnam Investment Management (“Putnam Management”), the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), and the sub-advisory contract among Putnam Management, PIL, and another affiliate, Putnam Advisory Company (“PAC”). In June 2011, the Board of Trustees also approved the continuance of your fund’s management, sub-management and sub-advisory contracts as part of the Board’s annual review of the management, sub-management and sub-advisory contracts, as applicable, of all Putnam funds.
The Board of Trustees, with the assistance of its Contract Committee, which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requested and evaluated all information it deemed reasonably necessary under the circumstances in connection with its March 2011 initial approval of your fund’s management contract and in connection with its June 2011 annual contract review. In March 2011 and over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided 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. On March 4, 2011, the Contract Committee recommended, and the Independent Trustees approved, the initial execution of your fund’s management, sub-management and sub-advisory contracts, and at the Trustees’ June 17, 2011, meeting, the Contract Committee recommended, and the independent Trustees approved, the continuance of these contracts effective July 1, 2011. (Because PIL and PAC are affiliates of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL and PAC, the Trustees have not evaluated PIL or PAC as separate entities, and all subsequent references to Putnam Management below should be deemed to include reference to PIL and PAC as necessary or appropriate in the context.)
The Independent Trustees’ March 2011 initial approval of your fund’s management, sub-management and sub-advisory contracts and their June 2011 approval of the continuance of these contracts was based on the following conclusions:
• That the proposed fee schedule for your fund represented reasonable compensation in light of the nature and quality of the services to be provided to the fund, the fees paid by competitive funds, and the costs expected to be incurred by Putnam Management in providing services, and
• That the proposed fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at anticipated 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
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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 management 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 some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
Management fee schedules and total expenses
The Trustees considered the management fee schedule for your fund, including fee levels and breakpoints. The Trustees noted that, although your fund would not pay a management fee to Putnam Management for the portion of its portfolio invested in underlying Putnam funds that charge management fees, Putnam Management would receive management fees from these underlying Putnam funds. The Trustees further considered that the fee schedule for your fund had been developed under the framework of the fee schedules of other Putnam funds, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. The Trustees also focused on the competitiveness of the projected total expense ratio of your fund.
Your fund, and the underlying Putnam funds in which your fund invests, have the benefit of breakpoints in their management fees that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Contract Committee observed that the complex-wide breakpoints of the open-end funds had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio (except for your fund, which had only recently commenced operations) during their annual contract review. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds had sufficiently low expenses that these expense limitations did not apply. Because your fund was not yet operational during the time period considered by the Trustees, the Trustees did not consider the effect these limitations may have had on your fund’s expenses. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and extraordinary expenses). In addition, your fund’s expenses are limited by a fund-specific contractual expense limitation, which limits your fund’s expenses (excluding brokerage, interest, taxes, investment-related expenses, such as borrowing costs, payments under distribution plans, and extraordinary expenses and acquired fund fees and expenses) to no more than 0.45% of your fund’s average net assets through at least June 6, 2012. Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the initial execution of your fund’s management, sub-management and
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sub-advisory contracts, and to approve the continuance of these contracts.
In connection with their annual review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund (except for your fund, which had only recently commenced operations), the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds 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, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and 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 may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes 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 its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
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. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized 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 (except for your fund, which had only recently commenced operations) and considered information comparing each fund’s
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performance with various benchmarks and with the performance of competitive funds.
The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
Because your fund was not yet operational during the time periods considered by the Trustees, the Trustees did not consider your fund’s recent performance in connection with their consideration of your fund’s management, sub-management and sub-advisory contracts.
Brokerage and soft-dollar allocations; investor servicing
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 benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the March 2011 initial review of your fund’s management contract and with its June 2011 annual contract review, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
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Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, 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 website 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 website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of August 31, 2011, Putnam employees had approximately $323,000,000 and the Trustees had approximately $70,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
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Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 year.
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.
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 highlights table also includes the current reporting period.
16
Report of Independent Registered Public Accounting Firm
To the Trustees of Putnam Funds Trust and Shareholders of
Putnam Retirement Income Fund Lifestyle 2:
In our opinion, the accompanying statement of assets and liabilities, including the portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Putnam Retirement Income Fund Lifestyle 2 (the “fund”) at August 31, 2011, and the results of its operations, the changes in its net assets and the financial highlights for the period June 13, 2011 (commencement of operations) to August 31, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of investments owned at August 31, 2011 by correspondence with the custodian, brokers and transfer agent, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 12, 2011
17
The fund’s portfolio 8/31/11
| INVESTMENT COMPANIES (44.4%)* | Shares | Value |
|
| ||
| Financial Select Sector SPDR Fund | 433 | $5,794 |
|
| ||
| iShares Dow Jones U.S. Real Estate Index Fund | 100 | 5,718 |
|
| ||
| iShares MSCI EAFE Index Fund | 346 | 18,589 |
|
| ||
| Putnam Absolute Return 100 Class Y | 49,113 | 503,894 |
|
| ||
| Putnam Absolute Return 300 Class Y | 113,236 | 1,184,448 |
|
| ||
| Putnam Absolute Return 500 Class Y | 183,150 | 1,985,344 |
|
| ||
| Putnam Absolute Return 700 Class Y | 26,256 | 295,114 |
|
| ||
| Putnam Money Market Fund Class A | 409,688 | 409,688 |
|
| ||
| SPDR S&P 500 ETF Trust | 218 | 26,609 |
|
| ||
| SPDR S&P Midcap 400 ETF Trust | 23 | 3,661 |
|
| ||
| Total investment companies (cost $4,566,707) | $4,438,859 | |
| COMMON STOCKS (15.8%)* | Shares | Value |
|
| ||
| Basic materials (0.8%) | ||
| Albemarle Corp. | 67 | $3,398 |
|
| ||
| BASF SE (Germany) | 62 | 4,417 |
|
| ||
| Cytec Industries, Inc. | 46 | 2,088 |
|
| ||
| Domtar Corp. (Canada) | 20 | 1,606 |
|
| ||
| Fletcher Building, Ltd. (New Zealand) | 736 | 4,903 |
|
| ||
| Freeport-McMoRan Copper & Gold, Inc. Class B (Indonesia) | 189 | 8,909 |
|
| ||
| International Flavors & Fragrances, Inc. | 59 | 3,423 |
|
| ||
| MeadWestvaco Corp. | 125 | 3,440 |
|
| ||
| Monsanto Co. | 67 | 4,618 |
|
| ||
| Nippon Paper Group, Inc. (Japan) | 500 | 12,676 |
|
| ||
| Nitto Denko Corp. (Japan) | 200 | 7,827 |
|
| ||
| PPG Industries, Inc. | 73 | 5,591 |
|
| ||
| Rio Tinto PLC (United Kingdom) | 30 | 1,837 |
|
| ||
| Sealed Air Corp. | 75 | 1,382 |
|
| ||
| Syngenta AG (Switzerland) | 10 | 3,170 |
|
| ||
| voestalpine AG (Austria) | 217 | 8,340 |
|
| ||
| Yara International ASA (Norway) | 26 | 1,431 |
|
| ||
| 79,056 | ||
| Capital goods (1.0%) | ||
| Autoliv, Inc. (Sweden) | 35 | 1,954 |
|
| ||
| Bekaert SA (Belgium) | 93 | 5,277 |
|
| ||
| Dover Corp. | 123 | 7,075 |
|
| ||
| Emerson Electric Co. | 159 | 7,401 |
|
| ||
| Hitachi, Ltd. (Japan) | 2,000 | 10,835 |
|
| ||
| Honeywell International, Inc. | 180 | 8,606 |
|
| ||
| Lockheed Martin Corp. | 90 | 6,677 |
|
| ||
| Metso Corp. OYJ (Finland) | 82 | 3,112 |
|
| ||
| Mitsubishi Electric Corp. (Japan) | 1,000 | 10,025 |
|
| ||
| Parker Hannifin Corp. | 94 | 6,902 |
|
| ||
| Raytheon Co. | 140 | 6,052 |
|
| ||
| Regal-Beloit Corp. | 59 | 3,469 |
|
| ||
| SembCorp Industries, Ltd. (Singapore) | 1,000 | 3,579 |
|
| ||
| Singapore Technologies Engineering, Ltd. (Singapore) | 1,000 | 2,442 |
|
| ||
18
| COMMON STOCKS (15.8%)* cont. | Shares | Value |
|
| ||
| Capital goods cont. | ||
| Societe BIC SA (France) | 89 | $8,642 |
|
| ||
| Thomas & Betts Corp. † | 19 | 830 |
|
| ||
| United Technologies Corp. | 18 | 1,337 |
|
| ||
| 94,215 | ||
| Communication services (0.8%) | ||
| American Tower Corp. Class A † | 74 | 3,986 |
|
| ||
| AT&T, Inc. | 237 | 6,750 |
|
| ||
| DIRECTV Class A † | 175 | 7,695 |
|
| ||
| France Telecom SA (France) | 456 | 8,748 |
|
| ||
| IAC/InterActiveCorp. † | 189 | 7,471 |
|
| ||
| MetroPCS Communications, Inc. † | 70 | 781 |
|
| ||
| NII Holdings, Inc. † | 165 | 6,357 |
|
| ||
| Partner Communications Co., Ltd. (Israel) | 257 | 2,820 |
|
| ||
| Qualcomm, Inc. | 40 | 2,058 |
|
| ||
| Telecom Corp. of New Zealand, Ltd. (New Zealand) | 5,570 | 12,101 |
|
| ||
| Telstra Corp., Ltd. (Australia) | 3,455 | 11,213 |
|
| ||
| Verizon Communications, Inc. | 305 | 11,032 |
|
| ||
| 81,012 | ||
| Conglomerates (0.2%) | ||
| 3M Co. | 12 | 996 |
|
| ||
| General Electric Co. | 538 | 8,775 |
|
| ||
| SPX Corp. | 66 | 3,755 |
|
| ||
| Vivendi (France) | 427 | 10,414 |
|
| ||
| 23,940 | ||
| Consumer cyclicals (1.5%) | ||
| Advance Auto Parts, Inc. | 60 | 3,643 |
|
| ||
| Bridgestone Corp. (Japan) | 100 | 2,228 |
|
| ||
| Coach, Inc. | 81 | 4,554 |
|
| ||
| Dun & Bradstreet Corp. (The) | 60 | 4,013 |
|
| ||
| Expedia, Inc. | 140 | 4,243 |
|
| ||
| Foot Locker, Inc. | 179 | 3,736 |
|
| ||
| GameStop Corp. Class A † | 137 | 3,278 |
|
| ||
| Global Payments, Inc. | 19 | 871 |
|
| ||
| Host Marriott Corp. R | 498 | 5,891 |
|
| ||
| Interpublic Group of Companies, Inc. (The) | 359 | 3,098 |
|
| ||
| Kimberly-Clark Corp. | 116 | 8,023 |
|
| ||
| Kingfisher PLC (United Kingdom) | 1,419 | 5,437 |
|
| ||
| Limited Brands, Inc. | 156 | 5,887 |
|
| ||
| Mediaset SpA (Italy) | 670 | 2,599 |
|
| ||
| Moody’s Corp. | 48 | 1,480 |
|
| ||
| News Corp. Class A | 150 | 2,591 |
|
| ||
| Next PLC (United Kingdom) | 142 | 5,434 |
|
| ||
| Omnicom Group, Inc. | 140 | 5,677 |
|
| ||
| Peugeot SA (France) | 156 | 4,768 |
|
| ||
| R. R. Donnelley & Sons Co. | 257 | 3,919 |
|
| ||
| Sony Corp. (Japan) | 200 | 4,397 |
|
| ||
| Swire Pacific, Ltd. (Hong Kong) | 500 | 6,667 |
|
| ||
| Thomas Cook Group PLC (United Kingdom) | 2,079 | 1,443 |
|
| ||
19
| COMMON STOCKS (15.8%)* cont. | Shares | Value |
|
| ||
| Consumer cyclicals cont. | ||
| Time Warner, Inc. | 223 | $7,060 |
|
| ||
| TJX Cos., Inc. (The) | 132 | 7,210 |
|
| ||
| TRW Automotive Holdings Corp. † | 45 | 1,876 |
|
| ||
| VF Corp. | 42 | 4,917 |
|
| ||
| Viacom, Inc. Class B | 102 | 4,920 |
|
| ||
| Volkswagen AG (Preference) (Germany) | 57 | 9,482 |
|
| ||
| Volvo AB Class B (Sweden) | 83 | 1,033 |
|
| ||
| Wal-Mart Stores, Inc. | 253 | 13,462 |
|
| ||
| Walt Disney Co. (The) | 43 | 1,465 |
|
| ||
| Whirlpool Corp. | 47 | 2,946 |
|
| ||
| Williams-Sonoma, Inc. | 95 | 3,145 |
|
| ||
| 151,393 | ||
| Consumer staples (1.3%) | ||
| Coca-Cola Co. (The) | 93 | 6,552 |
|
| ||
| Costco Wholesale Corp. | 25 | 1,964 |
|
| ||
| CVS Caremark Corp. | 126 | 4,525 |
|
| ||
| Dr. Pepper Snapple Group, Inc. | 169 | 6,503 |
|
| ||
| Energizer Holdings, Inc. † | 36 | 2,717 |
|
| ||
| Genuine Parts Co. | 91 | 5,007 |
|
| ||
| Heineken NV (Netherlands) | 102 | 5,109 |
|
| ||
| Kao Corp. (Japan) | 300 | 7,963 |
|
| ||
| Kroger Co. (The) | 151 | 3,558 |
|
| ||
| Lorillard, Inc. | 33 | 3,677 |
|
| ||
| McDonald’s Corp. | 33 | 2,985 |
|
| ||
| Metro AG (Germany) | 70 | 3,077 |
|
| ||
| Nestle SA (Switzerland) | 304 | 18,843 |
|
| ||
| PepsiCo, Inc. | 65 | 4,188 |
|
| ||
| Philip Morris International, Inc. | 167 | 11,576 |
|
| ||
| Procter & Gamble Co. (The) | 150 | 9,552 |
|
| ||
| Reckitt Benckiser Group PLC (United Kingdom) | 108 | 5,736 |
|
| ||
| Safeway, Inc. | 298 | 5,462 |
|
| ||
| Suedzucker AG (Germany) | 98 | 3,429 |
|
| ||
| Tesco PLC (United Kingdom) | 1,072 | 6,580 |
|
| ||
| W.W. Grainger, Inc. | 50 | 7,705 |
|
| ||
| Walgreen Co. | 111 | 3,908 |
|
| ||
| Woolworths, Ltd. (Australia) | 108 | 2,918 |
|
| ||
| 133,534 | ||
| Energy (1.4%) | ||
| BP PLC (United Kingdom) | 1,124 | 7,363 |
|
| ||
| Caltex Australia, Ltd. (Australia) | 216 | 2,513 |
|
| ||
| Cameron International Corp. † | 158 | 8,210 |
|
| ||
| Chevron Corp. | 99 | 9,792 |
|
| ||
| Cimarex Energy Co. | 85 | 6,043 |
|
| ||
| ConocoPhillips | 47 | 3,199 |
|
| ||
| Exxon Mobil Corp. | 351 | 25,988 |
|
| ||
| Halliburton Co. | 247 | 10,959 |
|
| ||
| JX Holdings, Inc. (Japan) | 1,700 | 10,782 |
|
| ||
20
| COMMON STOCKS (15.8%)* cont. | Shares | Value |
|
| ||
| Energy cont. | ||
| Marathon Oil Corp. | 131 | $3,527 |
|
| ||
| Marathon Petroleum Corp. † | 65 | 2,409 |
|
| ||
| Murphy Oil Corp. | 107 | 5,733 |
|
| ||
| Occidental Petroleum Corp. | 14 | 1,214 |
|
| ||
| Oceaneering International, Inc. | 176 | 7,513 |
|
| ||
| Peabody Energy Corp. | 140 | 6,832 |
|
| ||
| Petrofac, Ltd. (United Kingdom) | 199 | 4,417 |
|
| ||
| Royal Dutch Shell PLC Class A (United Kingdom) | 181 | 6,069 |
|
| ||
| Schlumberger, Ltd. | 28 | 2,187 |
|
| ||
| Valero Energy Corp. | 358 | 8,134 |
|
| ||
| Walter Energy, Inc. | 23 | 1,880 |
|
| ||
| 134,764 | ||
| Financials (4.8%) | ||
| Acadia Realty Trust R | 152 | 3,204 |
|
| ||
| Affiliated Managers Group † | 36 | 3,138 |
|
| ||
| Aflac, Inc. | 72 | 2,716 |
|
| ||
| Alexander’s, Inc. R | 6 | 2,597 |
|
| ||
| Alexandria Real Estate Equities, Inc. R | 50 | 3,641 |
|
| ||
| Allied World Assurance Co. Holdings AG | 59 | 3,062 |
|
| ||
| American Express Co. | 66 | 3,281 |
|
| ||
| American Financial Group, Inc. | 11 | 366 |
|
| ||
| Annaly Capital Management, Inc. R | 208 | 3,771 |
|
| ||
| Arch Capital Group, Ltd. † | 36 | 1,212 |
|
| ||
| Ashford Hospitality Trust, Inc. R | 317 | 2,568 |
|
| ||
| Assurant, Inc. | 81 | 2,849 |
|
| ||
| Assured Guaranty, Ltd. (Bermuda) | 66 | 890 |
|
| ||
| AvalonBay Communities, Inc. R | 70 | 9,547 |
|
| ||
| Aviva PLC (United Kingdom) | 1,594 | 8,799 |
|
| ||
| Baloise Holding AG Class R (Switzerland) | 41 | 3,632 |
|
| ||
| Banco Bilbao Vizcaya Argentaria SA (BBVA) (Spain) | 279 | 2,538 |
|
| ||
| Banco Santander Central Hispano SA (Spain) | 1,275 | 11,809 |
|
| ||
| Bank of America Corp. | 570 | 4,657 |
|
| ||
| Barclays PLC (United Kingdom) | 1,155 | 3,186 |
|
| ||
| Berkshire Hathaway, Inc. Class B † | 71 | 5,183 |
|
| ||
| BioMed Realty Trust, Inc. R | 152 | 2,780 |
|
| ||
| Boston Properties, Inc. R | 104 | 10,846 |
|
| ||
| Brandywine Realty Trust R | 229 | 2,276 |
|
| ||
| BRE Properties R | 88 | 4,423 |
|
| ||
| Broadridge Financial Solutions, Inc. | 209 | 4,351 |
|
| ||
| Camden Property Trust R | 54 | 3,608 |
|
| ||
| CBL & Associates Properties, Inc. R | 286 | 4,207 |
|
| ||
| Chubb Corp. (The) | 36 | 2,228 |
|
| ||
| Citigroup, Inc. | 220 | 6,831 |
|
| ||
| Colonial Properties Trust (Canada) R | 168 | 3,531 |
|
| ||
| CommonWealth REIT R | 173 | 3,557 |
|
| ||
| Delek Group, Ltd. (Israel) | 6 | 1,076 |
|
| ||
| Developers Diversified Realty Corp. R | 229 | 2,837 |
|
| ||
21
| COMMON STOCKS (15.8%)* cont. | Shares | Value |
|
| ||
| Financials cont. | ||
| Digital Realty Trust, Inc. R | 57 | $3,406 |
|
| ||
| Douglas Emmett, Inc. R | 172 | 3,103 |
|
| ||
| Duke Realty Investments, Inc. R | 225 | 2,671 |
|
| ||
| DuPont Fabros Technology, Inc. R | 119 | 2,755 |
|
| ||
| Endurance Specialty Holdings, Ltd. (Bermuda) | 62 | 2,242 |
|
| ||
| Entertainment Properties Trust R | 65 | 2,738 |
|
| ||
| Equity Lifestyle Properties, Inc. R | 51 | 3,515 |
|
| ||
| Equity Residential Trust R | 303 | 18,538 |
|
| ||
| Essex Property Trust, Inc. R | 26 | 3,732 |
|
| ||
| Extra Space Storage, Inc. R | 191 | 4,107 |
|
| ||
| Federal Realty Investment Trust R | 65 | 5,886 |
|
| ||
| Fifth Third Bancorp | 209 | 2,220 |
|
| ||
| General Growth Properties R | 354 | 4,829 |
|
| ||
| Goldman Sachs Group, Inc. (The) | 27 | 3,138 |
|
| ||
| Hang Lung Group, Ltd. (Hong Kong) | 1,000 | 5,867 |
|
| ||
| Hartford Financial Services Group, Inc. (The) | 192 | 3,675 |
|
| ||
| HCP, Inc. R | 357 | 13,309 |
|
| ||
| Health Care REIT, Inc. R | 80 | 4,077 |
|
| ||
| Hersha Hospitality Trust R | 471 | 1,747 |
|
| ||
| Highwoods Properties, Inc. R | 96 | 3,145 |
|
| ||
| Home Properties of NY, Inc. R | 55 | 3,678 |
|
| ||
| Hospitality Properties Trust R | 186 | 4,367 |
|
| ||
| Hudson City Bancorp, Inc. | 302 | 1,875 |
|
| ||
| Huntington Bancshares, Inc. | 340 | 1,710 |
|
| ||
| Intesa Sanpaolo SpA (Italy) | 3,357 | 5,471 |
|
| ||
| JPMorgan Chase & Co. | 275 | 10,329 |
|
| ||
| Kimco Realty Corp. R | 381 | 6,744 |
|
| ||
| Kinnevik Investment AB Class B (Sweden) | 378 | 8,074 |
|
| ||
| Lexington Realty Trust R | 380 | 2,804 |
|
| ||
| Liberty Property Trust R | 164 | 5,566 |
|
| ||
| Lloyds Banking Group PLC (United Kingdom) † | 8,622 | 4,702 |
|
| ||
| Macerich Co. (The) R | 126 | 6,179 |
|
| ||
| Mack-Cali Realty Corp. R | 103 | 3,208 |
|
| ||
| Man Group PLC (United Kingdom) | 2,675 | 9,698 |
|
| ||
| Medical Properties Trust, Inc. R | 312 | 3,335 |
|
| ||
| Mid-America Apartment Communities, Inc. R | 66 | 4,718 |
|
| ||
| Morgan Stanley | 202 | 3,535 |
|
| ||
| Nasdaq OMX Group, Inc. (The) † | 122 | 2,890 |
|
| ||
| National Australia Bank, Ltd. (Australia) | 458 | 11,685 |
|
| ||
| National Health Investors, Inc. R | 65 | 2,971 |
|
| ||
| National Retail Properties, Inc. R | 115 | 3,135 |
|
| ||
| Piedmont Office Realty Trust, Inc. Class A R | 149 | 2,816 |
|
| ||
| PNC Financial Services Group, Inc. | 126 | 6,318 |
|
| ||
| Post Properties, Inc. R | 84 | 3,511 |
|
| ||
| Prologis, Inc. R | 338 | 9,204 |
|
| ||
| Public Storage R | 111 | 13,734 |
|
| ||
22
| COMMON STOCKS (15.8%)* cont. | Shares | Value |
|
| ||
| Financials cont. | ||
| Rayonier, Inc. R | 157 | $6,585 |
|
| ||
| Realty Income Corp. R | 86 | 2,982 |
|
| ||
| Regency Centers Corp. R | 67 | 2,764 |
|
| ||
| RenaissanceRe Holdings, Ltd. | 25 | 1,639 |
|
| ||
| Senior Housing Properties Trust R | 140 | 3,331 |
|
| ||
| Simon Property Group, Inc. R | 283 | 33,253 |
|
| ||
| SL Green Realty Corp. R | 96 | 6,935 |
|
| ||
| Sovran Self Storage, Inc. R | 81 | 3,292 |
|
| ||
| State Street Corp. | 41 | 1,456 |
|
| ||
| Sumitomo Mitsui Financial Group, Inc. (Japan) | 400 | 11,890 |
|
| ||
| Travelers Cos., Inc. (The) | 31 | 1,564 |
|
| ||
| U.S. Bancorp | 176 | 4,085 |
|
| ||
| UDR, Inc. R | 134 | 3,579 |
|
| ||
| Vornado Realty Trust R | 143 | 12,285 |
|
| ||
| Weingarten Realty Investors R | 125 | 3,046 |
|
| ||
| Wells Fargo & Co. | 185 | 4,829 |
|
| ||
| Westpac Banking Corp. (Australia) | 137 | 3,032 |
|
| ||
| Weyerhaeuser Co. R | 109 | 1,965 |
|
| ||
| Wheelock and Co., Ltd. (Hong Kong) | 1,000 | 3,519 |
|
| ||
| 484,185 | ||
| Health care (1.7%) | ||
| Abbott Laboratories | 46 | 2,415 |
|
| ||
| Aetna, Inc. | 153 | 6,125 |
|
| ||
| Allergan, Inc. | 98 | 8,017 |
|
| ||
| AmerisourceBergen Corp. | 121 | 4,789 |
|
| ||
| AstraZeneca PLC (United Kingdom) | 257 | 12,180 |
|
| ||
| Cardinal Health, Inc. | 130 | 5,525 |
|
| ||
| Eli Lilly & Co. | 153 | 5,739 |
|
| ||
| Forest Laboratories, Inc. † | 196 | 6,711 |
|
| ||
| Fresenius SE (Germany) | 102 | 10,552 |
|
| ||
| Gilead Sciences, Inc. † | 210 | 8,376 |
|
| ||
| Health Net, Inc. † | 74 | 1,827 |
|
| ||
| Humana, Inc. | 71 | 5,512 |
|
| ||
| Johnson & Johnson | 140 | 9,212 |
|
| ||
| Laboratory Corp. of America Holdings † | 44 | 3,675 |
|
| ||
| Medco Health Solutions, Inc. † | 118 | 6,389 |
|
| ||
| Merck & Co., Inc. | 129 | 4,272 |
|
| ||
| Novartis AG (Switzerland) | 96 | 5,616 |
|
| ||
| Orion Oyj Class B (Finland) | 159 | 3,578 |
|
| ||
| Perrigo Co. | 80 | 7,579 |
|
| ||
| Pfizer, Inc. | 374 | 7,099 |
|
| ||
| Sanofi (France) | 67 | 4,880 |
|
| ||
| Takeda Pharmaceutical Co., Ltd. (Japan) | 200 | 9,688 |
|
| ||
| UnitedHealth Group, Inc. | 206 | 9,789 |
|
| ||
| Ventas, Inc. R | 223 | 11,926 |
|
| ||
| Waters Corp. † | 82 | 6,549 |
|
| ||
| 168,020 | ||
23
| COMMON STOCKS (15.8%)* cont. | Shares | Value |
|
| ||
| Technology (1.6%) | ||
| Accenture PLC Class A | 193 | $10,343 |
|
| ||
| Amdocs, Ltd. (United Kingdom) † | 89 | 2,445 |
|
| ||
| Analog Devices, Inc. | 86 | 2,840 |
|
| ||
| Apple, Inc. † | 73 | 28,093 |
|
| ||
| Applied Materials, Inc. | 631 | 7,143 |
|
| ||
| CA, Inc. | 134 | 2,813 |
|
| ||
| Cisco Systems, Inc. | 283 | 4,437 |
|
| ||
| Dell, Inc. † | 369 | 5,485 |
|
| ||
| Fujitsu, Ltd. (Japan) | 1,000 | 5,089 |
|
| ||
| Google, Inc. Class A † | 11 | 5,951 |
|
| ||
| Harris Corp. | 143 | 5,770 |
|
| ||
| Hewlett-Packard Co. | 211 | 5,492 |
|
| ||
| IBM Corp. | 72 | 12,378 |
|
| ||
| Intel Corp. | 249 | 5,012 |
|
| ||
| L-3 Communications Holdings, Inc. | 80 | 5,426 |
|
| ||
| Microsoft Corp. | 728 | 19,365 |
|
| ||
| Nokia OYJ (Finland) | 714 | 4,605 |
|
| ||
| Novellus Systems, Inc. † | 70 | 1,958 |
|
| ||
| ON Semiconductor Corp. † | 267 | 1,941 |
|
| ||
| Oracle Corp. | 143 | 4,014 |
|
| ||
| QLogic Corp. † | 282 | 3,940 |
|
| ||
| SanDisk Corp. † | 125 | 4,581 |
|
| ||
| Seagate Technology | 184 | 2,131 |
|
| ||
| Teradata Corp. † | 99 | 5,184 |
|
| ||
| Teradyne, Inc. † | 320 | 3,872 |
|
| ||
| Western Digital Corp. † | 81 | 2,389 |
|
| ||
| 162,697 | ||
| Transportation (0.1%) | ||
| ComfortDelgro Corp., Ltd. (Singapore) | 3,000 | 3,426 |
|
| ||
| Firstgroup PLC (United Kingdom) | 268 | 1,597 |
|
| ||
| United Continental Holdings, Inc. † | 206 | 3,830 |
|
| ||
| Yangzijiang Shipbuilding Holdings, Ltd. (China) | 3,000 | 2,878 |
|
| ||
| 11,731 | ||
| Utilities and power (0.6%) | ||
| AES Corp. (The) † | 311 | 3,377 |
|
| ||
| Alliant Energy Corp. | 46 | 1,866 |
|
| ||
| Ameren Corp. | 44 | 1,331 |
|
| ||
| American Electric Power Co., Inc. | 51 | 1,970 |
|
| ||
| CMS Energy Corp. | 87 | 1,714 |
|
| ||
| DPL, Inc. | 97 | 2,902 |
|
| ||
| Enel SpA (Italy) | 1,009 | 4,932 |
|
| ||
| Energias de Portugal (EDP) SA (Portugal) | 2,889 | 9,495 |
|
| ||
| Entergy Corp. | 39 | 2,543 |
|
| ||
| Exelon Corp. | 168 | 7,244 |
|
| ||
| NRG Energy, Inc. † | 94 | 2,203 |
|
| ||
| Public Power Corp. SA (Greece) | 244 | 2,103 |
|
| ||
| Red Electrica Corp. SA (Spain) | 172 | 8,474 |
|
| ||
24
| COMMON STOCKS (15.8%)* cont. | Shares | Value |
|
| ||
| Utilities and power cont. | ||
| TECO Energy, Inc. | 276 | $5,051 |
|
| ||
| Westar Energy, Inc. | 63 | 1,679 |
|
| ||
| 56,884 | ||
| Total common stocks (cost $1,673,426) | $1,581,431 | |
| U.S. TREASURY OBLIGATIONS (11.0%)* | Principal amount | Value |
|
| ||
| U.S. Treasury Bonds | ||
| 7 7/8s, February 15, 2021 | $82,000 | $123,026 |
| 5 1/4s, February 15, 2029 | 80,000 | 103,333 |
| 5 1/4s, November 15, 2028 | 66,000 | 85,234 |
|
| ||
| U.S. Treasury Notes | ||
| 3 5/8s, February 15, 2021 | 69,000 | 77,911 |
| 2 3/4s, December 31, 2017 | 283,000 | 307,011 |
| 2s, January 31, 2016 | 286,000 | 301,440 |
| 1 1/2s, June 30, 2016 | 100,000 | 102,852 |
|
| ||
| Total U.S. treasury obligations (cost $1,063,672) | $1,100,807 | |
| CONVERTIBLE BONDS AND NOTES (2.3%)* | Principal amount | Value |
|
| ||
| Basic materials (0.1%) | ||
| Steel Dynamics, Inc. cv. sr. notes 5 1/8s, 2014 | $3,000 | $3,308 |
|
| ||
| U.S. Steel Corp. cv. sr. unsec. notes 4s, 2014 | 2,000 | 2,400 |
|
| ||
| USEC, Inc. cv. sr. unsec. notes 3s, 2014 | 4,000 | 2,410 |
|
| ||
| 8,118 | ||
| Capital goods (0.1%) | ||
| General Cable Corp. cv. unsec. sub. notes stepped-coupon | ||
| 4 1/2s (2 1/4s, 11/15/19) 2029 †† | 7,000 | 7,403 |
|
| ||
| Meritor, Inc. cv. company guaranty sr. unsec. | ||
| notes stepped-coupon 4 5/8s (0s, 3/1/16) 2026 †† | 4,000 | 3,395 |
|
| ||
| 10,798 | ||
| Communication services (0.4%) | ||
| Clearwire Communications, LLC/Clearwire Finance, Inc. | ||
| 144A cv. company guaranty sr. unsec. notes 8 1/4s, 2040 | 9,000 | 6,204 |
|
| ||
| Cogent Communication Group, Inc. cv. sr. unsec. notes 1s, 2027 | 5,000 | 4,150 |
|
| ||
| Equinix, Inc. cv. sr. unsec. sub. notes 4 3/4s, 2016 | 6,000 | 8,025 |
|
| ||
| Leap Wireless International, Inc. cv. sr. unsec. notes 4 1/2s, 2014 | 8,000 | 7,070 |
|
| ||
| Level 3 Communications, Inc. cv. sr. unsec. unsub. notes 6 1/2s, 2016 | 5,000 | 8,281 |
|
| ||
| Virgin Media, Inc. cv. sr. unsec. notes 6 1/2s, 2016 (United Kingdom) | 7,000 | 10,981 |
|
| ||
| 44,711 | ||
| Consumer cyclicals (0.5%) | ||
| CBIZ, Inc. 144A cv. sr. sub. notes 4 7/8s, 2015 | 4,000 | 4,570 |
|
| ||
| Charming Shoppes, Inc. cv. sr. unsec. notes 1 1/8s, 2014 | 8,000 | 7,130 |
|
| ||
| Ford Motor Co. cv. sr. unsec. notes 4 1/4s, 2016 | 4,000 | 5,740 |
|
| ||
| Icahn Enterprises LP/Icahn Enterprises | ||
| Finance Corp. cv. sr. unsec. notes FRN 4s, 2013 | 6,000 | 5,700 |
|
| ||
| Lennar Corp. 144A cv. sr. notes 2 3/4s, 2020 | 2,000 | 1,925 |
|
| ||
| Liberty Media, LLC cv. sr. unsec. unsub. notes 3 1/2s, 2031 | 11,000 | 6,257 |
|
| ||
| Live Nation Entertainment, Inc. cv. sr. unsec. | ||
| notes 2 7/8s, 2027 | 10,000 | 9,125 |
|
| ||
25
| CONVERTIBLE BONDS AND NOTES (2.3%)* cont. | Principal amount | Value |
|
| ||
| Consumer cyclicals cont. | ||
| MGM Resorts International Co. cv. company | ||
| guaranty sr. unsec. notes 4 1/4s, 2015 | $2,000 | $1,923 |
|
| ||
| XM Satellite Radio, Inc. 144A cv. company | ||
| guaranty sr. unsec. sub. notes 7s, 2014 | 3,000 | 3,911 |
|
| ||
| 46,281 | ||
| Consumer staples (0.1%) | ||
| Rite Aid Corp. cv. sr. unsec. unsub. notes 8 1/2s, 2015 | 3,000 | 3,105 |
|
| ||
| Spartan Stores, Inc. cv. sr. unsec. notes 3 3/8s, 2027 | 6,000 | 5,700 |
|
| ||
| 8,805 | ||
| Energy (0.2%) | ||
| Endeavour International Corp. 144A cv. company | ||
| guaranty sr. unsec. notes 5 1/2s, 2016 | 3,000 | 2,663 |
|
| ||
| Global Industries, Ltd. cv. sr. unsec. notes 2 3/4s, 2027 | 4,000 | 2,445 |
|
| ||
| Helix Energy Solutions Group, Inc. cv. sr. unsec. | ||
| unsub. notes 3 1/4s, 2025 | 8,000 | 7,940 |
|
| ||
| James River Coal Co. 144A cv. sr. unsec. notes 3 1/8s, 2018 | 3,000 | 2,235 |
|
| ||
| Peabody Energy Corp. cv. jr. unsec. sub. debs. 4 3/4s, 2041 | 4,000 | 4,685 |
|
| ||
| 19,968 | ||
| Financials (0.3%) | ||
| Ares Capital Corp. 144A cv. sr. unsec. notes 5 3/4s, 2016 | 4,000 | 3,956 |
|
| ||
| CapitalSource, Inc. cv. company guaranty sr. unsec. | ||
| sub. notes 7 1/4s, 2037 | 2,000 | 2,053 |
|
| ||
| Digital Realty Trust LP 144A cv. sr. unsec. notes 5 1/2s, 2029 R | 3,000 | 4,433 |
|
| ||
| iStar Financial, Inc. cv. sr. unsec. unsub. notes FRN 0.746s, 2012 R | 5,000 | 4,440 |
|
| ||
| KKR Financial Holdings, LLC cv. sr. unsec. notes 7 1/2s, 2017 | 4,000 | 5,300 |
|
| ||
| MF Global Holdings Ltd. cv. sr. unsec. notes 9s, 2038 | 6,000 | 6,473 |
|
| ||
| Morgans Hotel Group Co. cv. sr. sub. notes 2 3/8s, 2014 | 6,000 | 5,063 |
|
| ||
| Tower Group, Inc. 144A cv. sr. unsec. notes 5s, 2014 | 4,000 | 4,290 |
|
| ||
| 36,008 | ||
| Health care (0.3%) | ||
| Brookdale Senior Living, Inc. cv. sr. unsec. | ||
| unsub. notes 2 3/4s, 2018 | 3,000 | 2,486 |
|
| ||
| China Medical Technologies, Inc. cv. sr. unsec. | ||
| bonds Ser. CMT, 4s, 2013 (China) | 7,000 | 4,778 |
|
| ||
| China Medical Technologies, Inc. 144A cv. sr. unsec. | ||
| notes 6 1/4s, 2016 (China) | 3,000 | 1,991 |
|
| ||
| Hologic, Inc. cv. sr. unsec. notes stepped-coupon 2s | ||
| (0s, 12/15/16) 2037 †† | 4,000 | 4,255 |
|
| ||
| Hologic, Inc. cv. sr. unsec. unsub. notes stepped-coupon 2s | ||
| (0s, 12/15/13) 2037 †† | 4,000 | 3,790 |
|
| ||
| LifePoint Hospitals, Inc. cv. sr. unsec. sub. notes 3 1/4s, 2025 | 3,000 | 3,071 |
|
| ||
| Providence Service Corp. (The) cv. sr. unsec. | ||
| sub. notes 6 1/2s, 2014 | 2,000 | 1,975 |
|
| ||
| Teleflex, Inc. cv. sr. unsec. sub. notes 3 7/8s, 2017 | 4,000 | 4,465 |
|
| ||
| 26,811 | ||
| Technology (0.2%) | ||
| Advanced Micro Devices, Inc. cv. sr. unsec. notes 6s, 2015 | 8,000 | 8,050 |
|
| ||
| EnerSys cv. sr. unsec. notes stepped-coupon 3 3/8s (0s, | ||
| 6/1/15) 2038 †† | 2,000 | 1,930 |
|
| ||
| Powerwave Technologies, Inc. cv. sr. unsec. | ||
| sub. notes 3 7/8s, 2027 | 7,000 | 5,819 |
|
| ||
26
| CONVERTIBLE BONDS AND NOTES (2.3%)* cont. | Principal amount | Value |
|
| ||
| Technology cont. | ||
| Quantum Corp. 144A cv. sr. unsec. sub. notes 3 1/2s, 2015 | $3,000 | $2,713 |
|
| ||
| TeleCommunication Systems, Inc. 144A cv. sr. unsec. | ||
| notes 4 1/2s, 2014 | 5,000 | 4,600 |
|
| ||
| 23,112 | ||
| Transportation (0.1%) | ||
| AMR Corp. cv. company guaranty sr. unsub. notes 6 1/4s, 2014 | 4,000 | 2,995 |
|
| ||
| Genco Shipping & Trading, Ltd. cv. sr. unsec. notes 5s, 2015 | 4,000 | 2,740 |
|
| ||
| 5,735 | ||
| Total convertible bonds and notes (cost $249,824) | $230,347 | |
| CONVERTIBLE PREFERRED STOCKS (2.3%)* | Shares | Value |
|
| ||
| Basic materials (0.1%) | ||
| Vale Capital II $3.375 cv. pfd. (Cayman Islands) | 125 | $9,695 |
|
| ||
| 9,695 | ||
| Communication services (0.2%) | ||
| Cincinnati Bell, Inc. Ser. B, $3.378 cum. cv. pfd. | 180 | 7,200 |
|
| ||
| Crown Castle International Corp. $3.125 cum. cv. pfd. | 172 | 10,406 |
|
| ||
| 17,606 | ||
| Consumer cyclicals (0.5%) | ||
| Callaway Golf Co. Ser. B, 7.50% cv. pfd. | 34 | 3,307 |
|
| ||
| FelCor Lodging Trust, Inc. Ser. A, $0.488 cum. cv. pfd. R | 518 | 11,671 |
|
| ||
| General Motors Co. Ser. B, $2.375 cv. pfd. | 395 | 15,751 |
|
| ||
| Interpublic Group of Cos, Inc. (The) Ser. B, 5.25% cv. pfd. | 6 | 6,083 |
|
| ||
| Nielsen Holdings NV $3.125 cv. pfd. | 125 | 7,289 |
|
| ||
| Stanley Black & Decker, Inc. $4.75 cv. pfd. | 65 | 7,187 |
|
| ||
| 51,288 | ||
| Consumer staples (0.2%) | ||
| Bunge, Ltd. $4.875 cv. pfd. | 70 | 6,650 |
|
| ||
| Dole Food Automatic Exchange 144A 7.00% cv. pfd. | 267 | 2,886 |
|
| ||
| Newell Financial Trust I $2.625 cum. cv. pfd. | 107 | 4,628 |
|
| ||
| 14,164 | ||
| Energy (0.1%) | ||
| Apache Corp. Ser. D, $3.00 cv. pfd. | 116 | 6,772 |
|
| ||
| Chesapeake Energy Corp. 144A 5.75% cv. pfd. | 5 | 6,600 |
|
| ||
| 13,372 | ||
| Financials (0.8%) | ||
| Alexandria Real Estate Equities, Inc. Ser. D, $1.75 cv. pfd. | 229 | 5,723 |
|
| ||
| AMG Capital Trust II $2.575 cv. pfd. | 183 | 7,240 |
|
| ||
| Assured Guaranty, Ltd. $4.25 cv. pfd. (Bermuda) | 34 | 1,914 |
|
| ||
| Bank of America Corp. Ser. L, 7.25% cv. pfd. | 11 | 9,790 |
|
| ||
| Citigroup, Inc. $7.50 cv. pfd. | 111 | 10,509 |
|
| ||
| Entertainment Properties Trust Ser. C, $1.438 cum. cv. pfd. | 300 | 5,834 |
|
| ||
| Hartford Financial Services Group, Inc. (The) $1.182 cv. pfd. | 180 | 3,831 |
|
| ||
| Health Care REIT, Inc. Ser. I, $3.25 cv. pfd. | 140 | 6,945 |
|
| ||
| Huntington Bancshares Ser. A, 8.50% cv. pfd. | 6 | 6,600 |
|
| ||
| MetLife, Inc. $3.75 cv. pfd. | 110 | 7,200 |
|
| ||
| Wells Fargo & Co. Ser. L, 7.50% cv. pfd. | 9 | 9,314 |
|
| ||
| 74,900 | ||
| Technology (0.1%) | ||
| Lucent Technologies Capital Trust I 7.75% cv. pfd. | 8 | 7,400 |
|
| ||
| Unisys Corp. Ser. A, 6.25% cv. pfd. | 89 | 5,284 |
|
| ||
| 12,684 | ||
27
| CONVERTIBLE PREFERRED STOCKS (2.3%)* cont. | Shares | Value |
|
| ||
| Transportation (—%) | ||
| Swift Mandatory Common Exchange Security Trust 144A | ||
| 6.00% cv. pfd. | 378 | $3,514 |
|
| ||
| 3,514 | ||
| Utilities and power (0.3%) | ||
| AES Trust III $3.375 cv. pfd. | 178 | 8,533 |
|
| ||
| El Paso Energy Capital Trust I $2.375 cv. pfd. | 177 | 7,865 |
|
| ||
| Great Plains Energy, Inc. $6.00 cv. pfd. | 132 | 8,035 |
|
| ||
| PPL Corp. $4.375 cv. pfd. | 140 | 7,741 |
|
| ||
| 32,174 | ||
| Total convertible preferred stocks (cost $250,469) | $229,397 | |
| MORTGAGE-BACKED SECURITIES (1.3%)* | Principal amount | Value |
|
| ||
| Banc of America Commercial Mortgage, Inc. | ||
| FRB Ser. 07-3, Class A3, 5.801s, 2049 | $21,000 | $21,997 |
| Ser. 07-5, Class A3, 5.62s, 2051 | 20,000 | 21,038 |
| Ser. 07-1, Class A3, 5.449s, 2049 | 21,000 | 21,607 |
|
| ||
| Greenwich Capital Commercial Funding Corp. Ser. 05-GG5, | ||
| Class A2, 5.117s, 2037 | 20,954 | 21,051 |
|
| ||
| JPMorgan Chase Commercial Mortgage Securities Corp. | ||
| Ser. 07-LDPX, Class A2, 5.434s, 2049 | 20,622 | 21,336 |
|
| ||
| Morgan Stanley Capital I Ser. 07-HQ13, Class A2, 5.649s, 2044 | 25,000 | 25,413 |
|
| ||
| Total mortgage-backed securities (cost $133,404) | $132,442 | |
| CORPORATE BONDS AND NOTES (1.2%)* | Principal amount | Value |
|
| ||
| Allegheny Technologies, Inc. sr. unsec. | ||
| unsub. notes 9 3/8s, 2019 | $5,000 | $6,493 |
|
| ||
| American Tower Corp. sr. unsec. notes 7s, 2017 | 5,000 | 5,819 |
|
| ||
| Comcast Corp. company guaranty sr. unsec. | ||
| unsub. notes 6.95s, 2037 | 5,000 | 5,839 |
|
| ||
| Deutsche Bank Capital Funding Trust VII 144A jr. unsec. | ||
| sub. bonds FRB 5.628s, Perpetual maturity | 5,000 | 3,800 |
|
| ||
| Developers Diversified Realty Corp. sr. unsec. | ||
| unsub. notes 7 7/8s, 2020 R | 5,000 | 5,563 |
|
| ||
| France Telecom notes 8 1/2s, 2031 (France) | 5,000 | 6,654 |
|
| ||
| France Telecom sr. unsec. unsub. notes 5 3/8s, 2019 (France) | 5,000 | 5,576 |
|
| ||
| General Electric Capital Corp. sr. unsec. notes 6 3/4s, 2032 | 15,000 | 16,866 |
|
| ||
| International Paper Co. sr. unsec. notes 9 3/8s, 2019 | 5,000 | 6,414 |
|
| ||
| JPMorgan Chase Capital XX company guaranty jr. unsec. | ||
| sub. notes Ser. T, 6.55s, 2036 | 10,000 | 9,959 |
|
| ||
| Kinder Morgan Energy Partners LP sr. unsec. notes 6.85s, 2020 | 5,000 | 5,906 |
|
| ||
| Koninklijke (Royal) KPN NV sr. unsec. unsub. bonds 8 3/8s, | ||
| 2030 (Netherlands) | 5,000 | 6,492 |
|
| ||
| Kraft Foods, Inc. sr. unsec. notes 6 1/2s, 2017 | 5,000 | 6,043 |
|
| ||
| Petrobras International Finance Co. company | ||
| guaranty sr. unsec. notes 3 7/8s, 2016 (Brazil) | 5,000 | 5,128 |
|
| ||
| Statoil ASA company guaranty sr. unsec. notes 5.1s, | ||
| 2040 (Norway) | 5,000 | 5,437 |
|
| ||
| Texas-New Mexico Power Co. 144A 1st mtge. sec. 9 1/2s, 2019 | 5,000 | 6,697 |
|
| ||
28
| CORPORATE BONDS AND NOTES (1.2%)* cont. | Principal amount | Value |
|
| ||
| Walt Disney Co. sr. unsec. notes 2 3/4s, 2021 | $5,000 | $4,917 |
|
| ||
| Willis Group Holdings Ltd. company guaranty sr. unsec. | ||
| unsub. notes 5 3/4s, 2021 (United Kingdom) | 5,000 | 5,178 |
|
| ||
| Total corporate bonds and notes (cost $120,044) | $118,781 | |
| SHORT-TERM INVESTMENTS (21.9%)* | Principal amount/shares | Value |
|
| ||
| Putnam Money Market Liquidity Fund 0.05% e | 2,131,981 | $2,131,981 |
|
| ||
| U.S. Treasury Bills with effective yields ranging from | ||
| 0.072% to 0.074%, June 28, 2012 # | $50,000 | 49,969 |
|
| ||
| U.S. Treasury Bills with an effective yield of 0.070%, | ||
| February 9, 2012 # | 5,000 | 4,998 |
|
| ||
| Total short-term investments (cost $2,186,952) | $2,186,948 | |
| TOTAL INVESTMENTS | ||
|
| ||
| Total investments (cost $10,244,498) | $10,019,012 | |
| Key to holding’s abbreviations | |
| ETF | Exchange Traded Fund |
| FRB | Floating Rate Bonds |
| FRN | Floating Rate Notes |
| SPDR | S&P Depository Receipts |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from June 13, 2011 (commencement of operations) through August 31, 2011 (the reporting period).
* Percentages indicated are based on net assets of $9,995,540.
† Non-income-producing security.
†† The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin accruing interest at this rate.# This security, in part or in entirety, was pledged and segregated with the broker to cover margin requirements for futures contracts at the close of the reporting period.
e See Note 7 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
R Real Estate Investment Trust.
At the close of the reporting period, the fund maintained liquid assets totaling $4,209,014 to cover certain derivatives contracts.
Debt obligations are considered secured unless otherwise indicated.
144A after the name of an issuer represents securities exempt from registration under Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
The rates shown on FRB and FRN are the current interest rates at the close of the reporting period.
The dates shown on debt obligations are the original maturity dates.
29
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $134,883)
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
|
| ||||||
| Bank of America, N.A. | ||||||
|
| ||||||
| Euro | Sell | 9/21/11 | $21,278 | $21,050 | $(228) | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 373 | 431 | 58 | |
|
| ||||||
| Barclays Bank PLC | ||||||
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 5,130 | 5,097 | 33 | |
|
| ||||||
| Citibank, N.A. | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 1,624 | 1,647 | (23) | |
|
| ||||||
| Danish Krone | Buy | 9/21/11 | 4,342 | 4,265 | 77 | |
|
| ||||||
| Euro | Sell | 9/21/11 | 5,176 | 5,111 | (65) | |
|
| ||||||
| Hong Kong Dollar | Sell | 9/21/11 | 3,558 | 3,555 | (3) | |
|
| ||||||
| Singapore Dollar | Buy | 9/21/11 | 1,578 | 1,581 | (3) | |
|
| ||||||
| Swedish Krona | Buy | 9/21/11 | 5,551 | 5,487 | 64 | |
|
| ||||||
| Credit Suisse AG | ||||||
|
| ||||||
| Australian Dollar | Sell | 9/21/11 | 1,600 | 1,512 | (88) | |
|
| ||||||
| British Pound | Buy | 9/21/11 | 9,906 | 9,927 | (21) | |
|
| ||||||
| Deutsche Bank AG | ||||||
|
| ||||||
| Swedish Krona | Sell | 9/21/11 | 1,072 | 1,068 | (4) | |
|
| ||||||
| Goldman Sachs International | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 974 | 977 | (3) | |
|
| ||||||
| HSBC Bank USA, National Association | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 974 | 977 | (3) | |
|
| ||||||
| Swiss Franc | Buy | 9/21/11 | 11,435 | 11,772 | (337) | |
|
| ||||||
| JPMorgan Chase Bank, N.A. | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 1,624 | 1,627 | (3) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 2,588 | 2,559 | 29 | |
|
| ||||||
| Hong Kong Dollar | Buy | 9/21/11 | 1,298 | 1,296 | 2 | |
|
| ||||||
| Singapore Dollar | Sell | 9/21/11 | 5,232 | 5,228 | (4) | |
|
| ||||||
| Royal Bank of Scotland PLC (The) | ||||||
|
| ||||||
| British Pound | Buy | 9/21/11 | 3,085 | 3,088 | (3) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 2,013 | 2,012 | 1 | |
|
| ||||||
| Swiss Franc | Sell | 9/21/11 | 2,486 | 2,743 | 257 | |
|
| ||||||
| UBS AG | ||||||
|
| ||||||
| Australian Dollar | Buy | 9/21/11 | 11,303 | 11,542 | (239) | |
|
| ||||||
| Euro | Buy | 9/21/11 | 4,026 | 3,976 | 50 | |
|
| ||||||
| Israeli Shekel | Sell | 9/21/11 | 729 | 756 | 27 | |
|
| ||||||
| New Zealand Dollar | Sell | 9/21/11 | 16,605 | 16,905 | 300 | |
|
| ||||||
| Norwegian Krone | Buy | 9/21/11 | 3,076 | 3,046 | 30 | |
|
| ||||||
| Westpac Banking Corp. | ||||||
|
| ||||||
| Euro | Sell | 9/21/11 | 2,444 | 2,447 | 3 | |
|
| ||||||
| Japanese Yen | Buy | 9/21/11 | 3,206 | 3,201 | 5 | |
|
| ||||||
| Total | $(91) | |||||
30
FUTURES CONTRACTS OUTSTANDING at 8/31/11
| Unrealized | |||||
| Number of | Expiration | appreciation/ | |||
| contracts | Value | date | (depreciation) | ||
|
| |||||
| U.S. Treasury Bond 20 yr (Short) | 1 | $136,031 | Dec-11 | $2,225 | |
|
| |||||
| U.S. Treasury Bond 30 yr (Long) | 1 | 143,156 | Dec-11 | 474 | |
|
| |||||
| U.S. Treasury Note 2 yr (Long) | 3 | 661,500 | Dec-11 | 322 | |
|
| |||||
| U.S. Treasury Note 5 yr (Short) | 8 | 980,375 | Dec-11 | (1,765) | |
|
| |||||
| U.S. Treasury Note 10 yr (Long) | 3 | 387,094 | Dec-11 | (357) | |
|
| |||||
| Total | $899 | ||||
CREDIT DEFAULT CONTRACTS OUTSTANDING at 8/31/11
| Upfront | Fixed payments | ||||||
| premium | Termi- | received | |||||
| Swap counterparty / | received | Notional | nation | (paid) by fund | Unrealized | ||
| Referenced debt* | Rating*** | (paid)** | amount | date | per annum | depreciation | |
|
| |||||||
| Citibank, N.A. | |||||||
| DJ CDX NA IG Series | |||||||
| 16 Index | BBB+ | $(889) | $500,000 | 6/20/16 | 100 bp | $(3,285) | |
|
| |||||||
| JPMorgan Chase Bank, N.A. | |||||||
| DJ CDX EM Series 15 | |||||||
| Version 1 Index | Ba1 | (50,000) | 400,000 | 6/20/16 | 500 bp | (4,371) | |
|
| |||||||
| DJ CDX NA HY Series | |||||||
| 16 Index | B+ | 2,500 | 1,000,000 | 6/20/16 | 500 bp | (38,450) | |
|
| |||||||
| Total | $(46,106) | ||||||
* Payments related to the referenced debt are made upon a credit default event.
** Upfront premium is based on the difference between the original spread on issue and the market spread on day of execution.
*** Ratings are presented for credit default contracts in which the fund has sold protection on the underlying referenced debt. Ratings for an underlying index represent the average of the ratings of all the securities included in that index. The Moody’s, Standard & Poor’s or Fitch ratings are believed to be the most recent ratings available at August 31, 2011. Securities rated by Putnam are indicated by “/P.” Securities rated by Fitch are indicated by “/F.”
31
Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| Valuation inputs | ||||
|
| ||||
| Investments in securities: | Level 1 | Level 2 | Level 3 | |
|
| ||||
| Common stocks: | ||||
|
| ||||
| Basic materials | $34,455 | $44,601 | $— | |
|
| ||||
| Capital goods | 50,303 | 43,912 | — | |
|
| ||||
| Communication services | 46,130 | 34,882 | — | |
|
| ||||
| Conglomerates | 13,526 | 10,414 | — | |
|
| ||||
| Consumer cyclicals | 107,905 | 43,488 | — | |
|
| ||||
| Consumer staples | 79,879 | 53,655 | — | |
|
| ||||
| Energy | 103,620 | 31,144 | — | |
|
| ||||
| Financials | 389,207 | 94,978 | — | |
|
| ||||
| Health care | 121,526 | 46,494 | — | |
|
| ||||
| Technology | 153,003 | 9,694 | — | |
|
| ||||
| Transportation | 3,830 | 7,901 | — | |
|
| ||||
| Utilities and power | 31,880 | 25,004 | — | |
|
| ||||
| Total common stocks | 1,135,264 | 446,167 | — | |
| Convertible bonds and notes | — | 230,347 | — | |
|
| ||||
| Convertible preferred stocks | — | 229,397 | — | |
|
| ||||
| Corporate bonds and notes | — | 118,781 | — | |
|
| ||||
| Investment companies | 4,438,859 | — | — | |
|
| ||||
| Mortgage-backed securities | — | 132,442 | — | |
|
| ||||
| U.S. Treasury Obligations | — | 1,100,807 | — | |
|
| ||||
| Short-term investments | 2,131,981 | 54,967 | — | |
|
| ||||
| Totals by level | $7,706,104 | $2,312,908 | $— | |
| Valuation inputs | ||||
|
| ||||
| Other financial instruments: | Level 1 | Level 2 | Level 3 | |
|
| ||||
| Forward currency contracts | $— | $(91) | $— | |
|
| ||||
| Futures contracts | 899 | — | — | |
|
| ||||
| Credit default contracts | — | 2,283 | — | |
|
| ||||
| Totals by level | $899 | $2,192 | $— | |
The accompanying notes are an integral part of these financial statements.
32
Statement of assets and liabilities 8/31/11
| ASSETS | |
|
| |
| Investment in securities, at value (Note 1): | |
| Unaffiliated issuers (identified cost $3,606,002) | $3,508,543 |
| Affiliated issuers (identified cost $6,638,496) (Notes 7 and 8) | 6,510,469 |
|
| |
| Cash | 27,934 |
|
| |
| Dividends, interest and other receivables | 3,387 |
|
| |
| Receivable for shares of the fund sold | 97,263 |
|
| |
| Receivable for investments sold | 4,668 |
|
| |
| Unrealized appreciation on forward currency contracts (Note 1) | 936 |
|
| |
| Receivable from Manager (Note 2) | 74,778 |
|
| |
| Premium paid on swap contracts (Note 1) | 50,889 |
|
| |
| Unamortized offering costs (Note 1) | 104,321 |
|
| |
| Total assets | 10,383,188 |
| LIABILITIES | |
|
| |
| Payable for variation margin (Note 1) | 828 |
|
| |
| Payable for investments purchased | 126,775 |
|
| |
| Payable for shares of the fund repurchased | 219 |
|
| |
| Payable for investor servicing fees (Note 2) | 647 |
|
| |
| Payable for custodian fees (Note 2) | 6,675 |
|
| |
| Payable for Trustee compensation and expenses (Note 2) | 28 |
|
| |
| Payable for administrative services (Note 2) | 22 |
|
| |
| Payable for distribution fees (Note 2) | 4,389 |
|
| |
| Payable for audit fees | 57,250 |
|
| |
| Payable for offering costs (Note 1) | 129,267 |
|
| |
| Unrealized depreciation on forward currency contracts (Note 1) | 1,027 |
|
| |
| Premium received on swap contracts (Note 1) | 2,500 |
|
| |
| Unrealized depreciation on swap contracts (Note 1) | 46,106 |
|
| |
| Other accrued expenses | 11,915 |
|
| |
| Total liabilities | 387,648 |
| Net assets | $9,995,540 |
|
| |
| REPRESENTED BY | |
| Paid-in capital (Unlimited shares authorized) (Notes 1, 4 and 6) | $10,220,949 |
|
| |
| Undistributed net investment income (Note 1) | 46,265 |
|
| |
| Accumulated net realized loss on investments and foreign currency transactions (Note 1) | (903) |
|
| |
| Net unrealized depreciation of investments and assets and liabilities in foreign currencies | (270,771) |
|
| |
| Total — Representing net assets applicable to capital shares outstanding | $9,995,540 |
(Continued on next page)
33
Statement of assets and liabilities (Continued)
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
| |
| Net asset value and redemption price per class A share ($9,431,306 divided by 966,876 shares) | $9.75 |
|
| |
| Offering price per class A share (100/96.00 of $9.75)* | $10.16 |
|
| |
| Net asset value and offering price per class B share ($152,516 divided by 15,662 shares)** | $9.74 |
|
| |
| Net asset value and offering price per class C share ($97,884 divided by 10,051 shares)** | $9.74 |
|
| |
| Net asset value and redemption price per class M share ($118,747 divided by 12,180 shares) | $9.75 |
|
| |
| Offering price per class M share (100/96.75 of $9.75)† | $10.08 |
|
| |
| Net asset value, offering price and redemption price per class R share | |
| ($97,489 divided by 10,000 shares) | $9.75 |
|
| |
| Net asset value, offering price and redemption price per class Y share | |
| ($97,598 divided by 10,000 shares) | $9.76 |
|
| |
* On single retail sales of less than $100,000. On sales of $100,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
† On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
34
Statement of operations For the period 6/13/11 (commencement of operations) to 8/31/11
| INVESTMENT INCOME | |
|
| |
| Dividends (net of foreign tax of $363) | $13,299 |
|
| |
| Interest (including interest income of $227 from investments in affiliated issuers) | |
| (Notes 7 and 8) | 9,818 |
|
| |
| Total investment income | 23,117 |
| EXPENSES | |
|
| |
| Compensation of Manager (Note 2) | 6,543 |
|
| |
| Investor servicing fees (Note 2) | 1,652 |
|
| |
| Custodian fees (Note 2) | 6,675 |
|
| |
| Trustee compensation and expenses (Note 2) | 90 |
|
| |
| Administrative services (Note 2) | 33 |
|
| |
| Distribution fees — Class A (Note 2) | 5,183 |
|
| |
| Distribution fees — Class B (Note 2) | 258 |
|
| |
| Distribution fees — Class C (Note 2) | 218 |
|
| |
| Distribution fees — Class M (Note 2) | 131 |
|
| |
| Distribution fees — Class R (Note 2) | 109 |
|
| |
| Amortization of offering costs (Note 1) | 29,283 |
|
| |
| Reports to shareholders | 10,306 |
|
| |
| Auditing | 57,251 |
|
| |
| Other | 1,726 |
|
| |
| Fees waived and reimbursed by Manager (Note 2) | (103,654) |
|
| |
| Total expenses | 15,804 |
| Expense reduction (Note 2) | (5) |
|
| |
| Net expenses | 15,799 |
| Net investment income | 7,318 |
|
| |
| Net realized gain on investments (Notes 1 and 3) | 18,491 |
|
| |
| Net realized gain on swap contracts (Note 1) | 903 |
|
| |
| Net realized loss on futures contracts (Note 1) | (4,027) |
|
| |
| Net realized gain on foreign currency transactions (Note 1) | 1,448 |
|
| |
| Net unrealized depreciation of assets and liabilities in foreign currencies during the year | (78) |
|
| |
| Net unrealized depreciation of investments, futures contracts and swap contracts | |
| during the year | (270,693) |
|
| |
| Net loss on investments | (253,956) |
| Net decrease in net assets resulting from operations | $(246,638) |
|
| |
The accompanying notes are an integral part of these financial statements.
35
Statement of changes in net assets
| For the period | |
| 6/13/11 (commencement | |
| DECREASE IN NET ASSETS | of operations) to 8/31/11 |
|
| |
| Operations: | |
| Net investment income | $7,318 |
|
| |
| Net realized gain on investments | |
| and foreign currency transactions | 16,815 |
|
| |
| Net unrealized depreciation of investments and assets | |
| and liabilities in foreign currencies | (270,771) |
|
| |
| Net decrease in net assets resulting from operations | (246,638) |
|
| |
| Increase from capital share transactions (Note 4) | 242,178 |
|
| |
| Total decrease in net assets | (4,460) |
|
| |
| NET ASSETS | |
|
| |
| Beginning of period (Note 6) | 10,000,000 |
|
| |
| End of period (including undistributed net investment | |
| income of $46,265) | $9,995,540 |
|
| |
The accompanying notes are an integral part of these financial statements.
36
| This page left blank intentionally. |
37
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | RATIOS AND SUPPLEMENTAL DATA: | |||||||||
|
| ||||||||||
| Ratio | ||||||||||
| Net asset | Net | Net realized | of net investment | |||||||
| value, | investment | and unrealized | Total from | Total return | Net assets, | Ratio of expenses | income (loss) | Portfolio | ||
| beginning | income | gain (loss) | investment | Net asset value, | at net asset | end of period | to average | to average | turnover | |
| Period ended | of period | (loss) a | on investments | operations | end of period | value (%) *b | (in thousands) | net assets (%) *c,d,e | net assets (%) *d | (%)* |
|
| ||||||||||
| Class A | ||||||||||
| August 31, 2011† | $10.00 | .01 | (.26) | (.25) | $9.75 | (2.50) | $9,431 | .15 | .08 | 11 |
|
| ||||||||||
| Class B | ||||||||||
| August 31, 2011† | $10.00 | (.01) | (.25) | (.26) | $9.74 | (2.60) | $153 | .32 | (.09) | 11 |
|
| ||||||||||
| Class C | ||||||||||
| August 31, 2011† | $10.00 | (.01) | (.25) | (.26) | $9.74 | (2.60) | $98 | .32 | (.09) | 11 |
|
| ||||||||||
| Class M | ||||||||||
| August 31, 2011† | $10.00 | — f | (.25) | (.25) | $9.75 | (2.50) | $119 | .21 | .02 | 11 |
|
| ||||||||||
| Class R | ||||||||||
| August 31, 2011† | $10.00 | — f | (.25) | (.25) | $9.75 | (2.50) | $97 | .21 | .02 | 11 |
|
| ||||||||||
| Class Y | ||||||||||
| August 31, 2011† | $10.00 | .01 | (.25) | (.24) | $9.76 | (2.40) | $98 | .10 | .13 | 11 |
|
| ||||||||||
* Not annualized.
† For the period June 13, 2011 (commencement of operations) to August 31, 2011.
a Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
c Includes amounts paid through expense offset arrangements (Note 2).
d Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amounts (Note 2):
| Percentage of | |
| average net assets | |
|
| |
| August 31, 2011 | 1.04% |
|
| |
e Expense ratios do not include expenses of the underlying investment companies.
f Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
| 38 | 39 |
Notes to financial statements 8/31/11
Note 1: Significant accounting policies
Putnam Retirement Income Fund Lifestyle 2 (the fund) is a diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The investment objective of the fund is to seek current income consistent with what Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC, believes to be prudent risk. The fund invests mainly in a combination of bonds and common stocks of U.S. and non-U.S. companies and in the following funds managed by Putnam Management: Putnam Absolute Return 100 Fund, Putnam Absolute Return 300 Fund, Putnam Absolute Return 500 Fund and Putnam Absolute Return 700 Fund (the underlying Putnam Funds). The fund may invest in bonds that are investment-grade or below investment-grade in quality and have short- to long-term maturities. The fund may also invest in other fixed income securities, such as mortgage-backed investments, and invest in money market securities or affiliated money market funds for cash management. The financial statements of the underlying Putnam Funds contain additional information about the expenses and investments of the underlying Putnam Funds and are available upon request.
The fund offers class A, class B, class C, class M, class R and class Y shares. The fund began offering each class of shares on June 13, 2011. Class A and class M shares are sold with a maximum front-end sales charge of 4.00% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
Investment income, realized and unrealized 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. 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’s management team 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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from June 13, 2011 (commencement of operations) through August 31, 2011.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets and are classified as Level 1 securities. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Investments in other investment companies are based on their net asset value (NAV), which are classified as Level 1. The NAV of an investment company equals the total value of its assets, less its liabilities, divided by the number of its outstanding shares. Shares are only valued as of the close of regular trading on the New York Stock Exchange each day the exchange is open.
40
Market quotations are not considered to be readily available for certain debt obligations and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Management. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities (which considers such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
C) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues
41
and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
D) Futures contracts The fund uses futures contracts to hedge interest rate risk, to gain exposure to interest rates, to hedge prepayment risk, to equitize cash and to manage exposure to market risk. The potential risk to the fund is that the change in value of futures contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments if there is an illiquid secondary market for the contracts, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. With futures, there is minimal counterparty credit risk to the fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized on the Statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.” Futures contracts outstanding at period end, if any, are listed after the fund’s portfolio. Outstanding number of contracts on futures contracts at the close of the reporting period are indicative of the volume of activity during the reporting period.
E) Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk and to gain exposure on currency. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. The fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed when the contract matures or by delivery of the currency. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio. Outstanding forward currency contracts at the close of the reporting period are indicative of the volume of activity during the reporting period.
F) Credit default contracts The fund entered into credit default contracts to hedge credit risk, to hedge market risk and to gain exposure on individual names and/or baskets of securities. In a credit default contract, the protection buyer typically makes an up front payment and a periodic stream of payments to a counterparty, the protection seller, in exchange for the right to receive a contingent payment upon the occurrence of a credit event on the reference obligation or all other equally ranked obligations of the reference entity. Credit events are contract specific but may include bankruptcy, failure to pay, restructuring and obligation acceleration. An upfront payment received by the fund, as the protection seller, is recorded as a liability on the fund’s books. An upfront payment made by the fund, as the protection buyer, is recorded as an asset on the fund’s books. Periodic payments received or paid by the fund are recorded as realized gains or losses. The credit default contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Upon the occurrence of a credit event, the difference between the par value and market value of the reference obligation, net of any proportional amount of the upfront payment, is recorded as a realized gain or loss.
In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index or the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased the underlying reference obligations. In certain circumstances, the fund may enter into offsetting credit default contracts which would mitigate its risk of loss. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. Where the fund is a seller of protection, the maximum potential amount of future payments the fund may be required to make is equal to the notional amount of the relevant credit default contract.
42
Credit default contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio. Outstanding credit default contracts at the close of the reporting period are indicative of the volume of activity during the reporting period.
G) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty. Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund had a net liability position of $2,975 on derivative contracts subject to the Master Agreements. There was no collateral posted by the fund.
H) Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
I) Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
J) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (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. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. 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.
K) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of net operating loss, income on swap contracts and short term capital gain adjusted by net operating loss. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For
43
the reporting period ended, the fund reclassified $38,947 to increase undistributed net investment income and $21,229 to decrease paid-in-capital, with an increase to accumulated net realized losses of $17,718.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
| Unrealized appreciation | $78,917 |
| Unrealized depreciation | (304,407) |
|
| |
| Net unrealized appreciation | (225,490) |
| Cost for federal income tax purposes | $10,244,502 |
L) 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.
M) Offering costs The offering costs of $133,604 are being fully amortized on a straight-line basis over a twelve-month period. The fund will reimburse Putnam Management for the payment of these expenses.
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a management fee, computed and paid monthly, (based on the fund’s average net assets, excluding assets that are invested in other Putnam funds, except Putnam Money Market Liquidity Fund or any other Putnam funds that do not charge a management fee) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
| 0.680% | of the first $5 billion, |
| 0.630% | of the next $5 billion, |
| 0.580% | of the next $10 billion, |
| 0.530% | of the next $10 billion, |
| 0.480% | of the next $50 billion, |
| 0.460% | of the next $50 billion, |
| 0.450% | of the next $100 billion, |
| 0.445% | of any excess thereafter. |
Putnam Management has agreed to waive fees (and, to the extent necessary, bear other expenses) of the fund through June 6, 2012, to the extent that expenses of the fund (excluding brokerage, interest, taxes, investment-related expenses, such as borrowing costs, payments under distribution plans, and extraordinary expenses and acquired fund fees and expenses) would exceed an annual rate of 0.45% of the fund’s average net assets. During the reporting period, the fund’s expenses were reduced by $793 as a result of this limit.
Putnam Management has also contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets, that do not represent the fund’s investments in other Putnam funds, other than Putnam Money Market Liquidity Fund over such fiscal year-to-date period. During the reporting period, the fund’s expenses were reduced by $102,861 as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.
The Putnam Advisory Company, LLC (PAC), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. Putnam Management or PIL, as applicable, pays a quarterly sub-advisory fee to PAC for its services at the annual rate of 0.35% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.
44
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $5 under the expense offset arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $4, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years 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. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. 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 A, class B, class C, class M 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 Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.50% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $21 and no monies from the sale of class A and class M shares, respectively, and received no monies in contingent deferred sales charges from redemptions of class B and class C shares.
A deferred sales charge of up to 1.00% and 0.40% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A and class M redemptions.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $8,889,794 and $848,133, respectively. These figures include the cost of purchases and proceeds from sales of long-term U.S. government securities of $1,778,969 and $731,574, respectively.
45
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| For the period 6/13/11 | ||
| (commencement of operations) to 8/31/11 | ||
|
| ||
| Class A | Shares | Amount |
|
| ||
| Shares sold | 16,876 | $163,603 |
|
| ||
| Shares issued in connection with reinvestment of distributions | — | — |
|
| ||
| 16,876 | 163,603 | |
|
| ||
| Shares repurchased | — | — |
|
| ||
| Net increase | 16,876 | $163,603 |
|
| ||
| For the period 6/13/11 | ||
| (commencement of operations) to 8/31/11 | ||
|
| ||
| Class B | Shares | Amount |
|
| ||
| Shares sold | 5,713 | $56,783 |
|
| ||
| Shares issued in connection with reinvestment of distributions | — | — |
|
| ||
| 5,713 | 56,783 | |
|
| ||
| Shares repurchased | (51) | (497) |
|
| ||
| Net increase | 5,662 | $56,286 |
|
| ||
| For the period 6/13/11 | ||
| (commencement of operations) to 8/31/11 | ||
|
| ||
| Class C | Shares | Amount |
|
| ||
| Shares sold | 51 | $514 |
|
| ||
| Shares issued in connection with reinvestment of distributions | — | — |
|
| ||
| 51 | 514 | |
|
| ||
| Shares repurchased | — | — |
|
| ||
| Net increase | 51 | $514 |
|
| ||
| For the period 6/13/11 | ||
| (commencement of operations) to 8/31/11 | ||
|
| ||
| Class M | Shares | Amount |
|
| ||
| Shares sold | 2,180 | $21,775 |
|
| ||
| Shares issued in connection with reinvestment of distributions | — | — |
|
| ||
| 2,180 | 21,775 | |
|
| ||
| Shares repurchased | — | — |
|
| ||
| Net increase | 2,180 | $21,775 |
|
| ||
During the reporting period there was no share activity for class R and class Y shares.
46
At the close of the reporting period, Putnam Investments, LLC owned the following shares:
| Shares owned | Percentage of ownership | Value as of 8/31/11 | |
| Class A | 950,000 | 98.3% | $9,262,500 |
|
| |||
| Class B | 10,000 | 63.8 | 97,400 |
|
| |||
| Class C | 10,000 | 99.5 | 97,400 |
|
| |||
| Class M | 10,000 | 82.1 | 97,500 |
|
| |||
| Class R | 10,000 | 100.0 | 97,489 |
|
| |||
| Class Y | 10,000 | 100.0 | 97,598 |
|
| |||
Note 5: Summary of derivative activity
The following is a summary of the market values of derivative instruments as of the close of the reporting period:
Market values of derivative instruments as of the close of the reporting period
| Asset derivatives | Liability derivatives | |||
|
| ||||
| Derivatives not | ||||
| accounted for as | Statement of | Statement of | ||
| hedging instruments | assets and | assets and | ||
| under ASC 815 | liabilities location | Market value | liabilities location | Market value |
|
| ||||
| Credit contracts | Receivables | $45,629 | Payables | $43,346 |
|
| ||||
| Foreign exchange | ||||
| contracts | Receivables | 936 | Payables | 1,027 |
|
| ||||
| Investments, Receivables, | ||||
| Net assets — | Payables, Net assets — | |||
| Unrealized appreciation/ | Unrealized appreciation/ | |||
| Interest rate contracts | (depreciation) | 3,021* | (depreciation) | 2,122* |
|
| ||||
| Total | $49,586 | $46,495 | ||
|
| ||||
* Includes cumulative appreciation/depreciation of futures contracts as reported in The fund’s portfolio. Only current day’s variation margin is reported within the Statement of assets and liabilities.
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as | Forward | |||
| hedging instruments under | currency | |||
| ASC 815 | Futures | contracts | Swaps | Total |
|
| ||||
| Credit contracts | $— | $— | $903 | $903 |
|
| ||||
| Foreign exchange contracts | — | 203 | — | $203 |
|
| ||||
| Interest rate contracts | (4,027) | — | — | $(4,027) |
|
| ||||
| Total | $(4,027) | $203 | $903 | $(2,921) |
|
| ||||
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as | Forward | |||
| hedging instruments under | currency | |||
| ASC 815 | Futures | contracts | Swaps | Total |
|
| ||||
| Credit contracts | $— | $— | $(46,106) | $(46,106) |
|
| ||||
| Foreign exchange contracts | — | (91) | — | $(91) |
|
| ||||
| Interest rate contracts | 899 | — | — | $899 |
|
| ||||
| Total | $899 | $(91) | $(46,106) | $(45,298) |
|
| ||||
47
Note 6: Initial capitalization and offering of shares
The fund was established as a series of the Trust on June 6, 2011. From June 6, 2011 to June 13, 2011, the fund had no operations other than those related to organizational matters, including as noted below, the initial capital contributions by Putnam Investments, LLC and issuance of shares:
| Capital contribution | Shares issued | |
|
| ||
| Class A | $9,500,000 | 950,000 |
|
| ||
| Class B | 100,000 | 10,000 |
|
| ||
| Class C | 100,000 | 10,000 |
|
| ||
| Class M | 100,000 | 10,000 |
|
| ||
| Class R | 100,000 | 10,000 |
|
| ||
| Class Y | 100,000 | 10,000 |
|
| ||
Note 7: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $219 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $4,957,842 and $2,825,861, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 8: Transactions with affiliated issuers
Transactions during the reporting period with companies in which the fund owned at least 5% of the voting securities or a company which is under common ownership or control were as follows:
| Market value | Market value | ||||
| at beginning | at end of | ||||
| of reporting | Purchase | Sale | Investment | reporting | |
| Affiliates | period | cost | proceeds | income | period |
|
| |||||
| Putnam Absolute Return 100 Class Y | $— | $512,129 | $25 | $— | $503,894 |
|
| |||||
| Putnam Absolute Return 300 Class Y | — | 1,229,109 | 60 | — | 1,184,448 |
|
| |||||
| Putnam Absolute Return 500 Class Y | — | 2,048,515 | 99 | — | 1,985,344 |
|
| |||||
| Putnam Absolute Return 700 Class Y | — | 307,277 | 15 | — | 295,114 |
|
| |||||
| Putnam Money Market Fund Class A | — | 409,711 | 20 | 8 | 409,688 |
|
| |||||
Market values are shown for those securities affiliated at the close of the reporting period.
Note 9: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
48
Federal tax information (Unaudited)
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
49
About the Trustees
Independent Trustees
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
| Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
| Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
| Shields, a multi-product investment management firm | focused on private | |
| with over $40 billion in assets under management. | equity advisory services; | |
| RAGE Frameworks, | ||
| Inc., a private software | ||
| company | ||
|
| ||
| Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
| Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
| Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
| College and member of the Investment Committee for the | company; UniSource | |
| college’s endowment. Former Chair and current board | Energy Corporation, | |
| member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
| the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
| refiner and fertilizer | ||
| manufacturer; Cody | ||
| Resources Management, | ||
| LLP, a privately held | ||
| energy, ranching, and | ||
| commercial real estate | ||
| company | ||
|
| ||
| Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
| Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
| Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
| Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
| to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
| since 2011 | ||
|
| ||
| Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
| Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
| Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
| for Strategic and International Studies. Member of the | ||
| Council on Foreign Relations. | ||
|
| ||
| Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
| Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
| Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
| Johnson & Johnson’s Chief Financial Officer for a decade. | ||
|
| ||
| John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
| Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
| Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
| Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
| to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
| of the Millstein Center for Corporate Governance and | ||
| Performance at the Yale School of Management. | ||
|
| ||
50
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
|
| ||
| Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
| Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
| Trustee since 1997 | on research and education on issues related to science, | company focused on |
| technology, and economic performance. Elizabeth and | natural gas transmission | |
| James Killian Professor of Economics, Emeritus at the | and power services; | |
| Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
| 2007, served as the Director of the Center for Energy and | energy company focused | |
| Environmental Policy Research at MIT. | on power services | |
|
| ||
| Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
| Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
| Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
| Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
| Massachusetts. Until November 2010, director of Ruder | ||
| Finn Group, a global communications and advertising firm. | ||
|
| ||
| Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
| Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
| Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
| Joslin Diabetes Center. | ||
|
| ||
| George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
| Born 1951 | of financial advisory and other research services, and | |
| Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
| a registered investment advisor to private funds. | ||
| Director of The Boston Family Office, LLC, a registered | ||
| investment advisor. | ||
|
| ||
| W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
| Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
| Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
| and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
| packaging products. | ||
|
| ||
| Interested Trustee | ||
|
| ||
| Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
| Born 1952 | Investments since 2008. Prior to joining Putnam | |
| Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
| President of the Putnam | Operating Officer of Fidelity Investments from | |
| Funds since July 2009 | 2000 to 2007. | |
|
| ||
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2011, there were 106 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
51
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
| Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
| Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
| Officer, Treasurer and Compliance Liaison | Since 2011 |
| Since 2004 | General Counsel, Putnam Investments and |
| Putnam Management | |
| Steven D. Krichmar (Born 1958) | |
| Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
| Since 2002 | Vice President |
| Chief of Operations, Putnam Investments and | Since 2004 |
| Putnam Management | Director of Trustee Relations, |
| Putnam Investments and Putnam Management | |
| Janet C. Smith (Born 1965) | |
| Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
| Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
| Since 2007 | Since 1993 |
| Director of Fund Administration Services, | |
| Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
| Vice President, Senior Associate Treasurer and | |
| Beth S. Mazor (Born 1958) | Assistant Clerk |
| Vice President | Since 2010 |
| Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
| Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
| Investments and Putnam Management | Management (2007–2008); Senior Financial |
| Analyst, Putnam Investments (1999–2007) | |
| Robert R. Leveille (Born 1969) | |
| Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
| Since 2007 | Vice President, Assistant Clerk, Assistant |
| Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
| Putnam Management, and Putnam Retail | Since 2000 |
| Management | |
| Susan G. Malloy (Born 1957) | |
| Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
| Vice President and BSA Compliance Officer | Since 2007 |
| Since 2002 | Director of Accounting & Control Services, |
| Director of Operational Compliance, | Putnam Management |
| Putnam Investments and Putnam | |
| Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
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Services for shareholders
Investor services
Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.
Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.
Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.
Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.
Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.
Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.
Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.
Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.
For more information
Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.
Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.
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The Putnam family of funds
The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial advisor at 1-800-225-1581 and ask for a prospectus. Please read the prospectus carefully before investing.
| Growth | Value |
| Growth Opportunities Fund | Convertible Securities Fund |
| International Growth Fund | Prior to September 30, 2010, the fund was known as |
| Multi-Cap Growth Fund | Putnam Convertible Income-Growth Trust |
| Prior to September 1, 2010, the fund was known as | Equity Income Fund |
| Putnam New Opportunities Fund | George Putnam Balanced Fund |
| Small Cap Growth Fund | Prior to September 30, 2010, the fund was known as |
| Voyager Fund | The George Putnam Fund of Boston |
| The Putnam Fund for Growth and Income | |
| Blend | International Value Fund |
| Asia Pacific Equity Fund | Multi-Cap Value Fund |
| Capital Opportunities Fund | Prior to September 1, 2010, the fund was known as |
| Capital Spectrum Fund | Putnam Mid Cap Value Fund |
| Emerging Markets Equity Fund | Small Cap Value Fund |
| Equity Spectrum Fund | |
| Europe Equity Fund | Income |
| Global Equity Fund | American Government Income Fund |
| International Capital Opportunities Fund | Diversified Income Trust |
| International Equity Fund | Floating Rate Income Fund |
| Investors Fund | Global Income Trust |
| Multi-Cap Core Fund | High Yield Advantage Fund |
| Research Fund | High Yield Trust |
| Income Fund | |
| Money Market Fund* | |
| U.S. Government Income Trust |
* An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
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| Tax-free income | Asset Allocation |
| AMT-Free Municipal Fund | Putnam Asset Allocation Funds — portfolios |
| Tax Exempt Income Fund | with allocations to stocks, bonds, and |
| Tax Exempt Money Market Fund* | money market instruments that are adjusted |
| Tax-Free High Yield Fund | dynamically within specified ranges as |
| State tax-free income funds: | market conditions change. |
| Arizona, California, Massachusetts, Michigan, | Asset Allocation: Balanced Portfolio |
| Minnesota, New Jersey, New York, Ohio, | Asset Allocation: Conservative Portfolio |
| and Pennsylvania | Asset Allocation: Growth Portfolio |
| Absolute Return | Putnam RetirementReady Funds — portfolios |
| Absolute Return 100 Fund | with automatically adjusting allocations to |
| Absolute Return 300 Fund | stocks, bonds, and money market instruments, |
| Absolute Return 500 Fund | becoming more conservative over time. |
| Absolute Return 700 Fund | |
| RetirementReady 2055 Fund | |
| Global Sector | RetirementReady 2050 Fund |
| Global Consumer Fund | RetirementReady 2045 Fund |
| Global Energy Fund | RetirementReady 2040 Fund |
| Global Financials Fund | RetirementReady 2035 Fund |
| Global Health Care Fund | RetirementReady 2030 Fund |
| Global Industrials Fund | RetirementReady 2025 Fund |
| Global Natural Resources Fund | RetirementReady 2020 Fund |
| Global Sector Fund | RetirementReady 2015 Fund |
| Global Technology Fund | |
| Global Telecommunications Fund | Putnam Retirement Income Lifestyle |
| Global Utilities Fund | Funds — portfolios with managed |
| allocations to stocks, bonds, and money | |
| market investments to generate | |
| retirement income. | |
| Retirement Income Fund Lifestyle 1 | |
| Prior to June 16, 2011, the fund was known as Putnam | |
| RetirementReady Maturity Fund | |
| Retirement Income Fund Lifestyle 2 | |
| Retirement Income Fund Lifestyle 3 | |
| Prior to June 16, 2011, the fund was known as Putnam | |
| Income Strategies Fund |
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund's prospectus.
Check your account balances and the most recent month-end performance in the Individual Investors section at putnam.com.
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Fund information
Founded over 70 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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Trustees | Beth S. Mazor |
| Putnam Investment | Jameson A. Baxter, Chair | Vice President |
| Management, LLC | Ravi Akhoury | |
| One Post Office Square | Barbara M. Baumann | Robert R. Leveille |
| Boston, MA 02109 | Charles B. Curtis | Vice President and |
| Robert J. Darretta | Chief Compliance Officer | |
| Investment Sub-Manager | John A. Hill | |
| Putnam Investments Limited | Paul L. Joskow | Mark C. Trenchard |
| 57–59 St James’s Street | Kenneth R. Leibler | Vice President and |
| London, England SW1A 1LD | Robert E. Patterson | BSA Compliance Officer |
| George Putnam, III | ||
| Investment Sub-Advisor | Robert L. Reynolds | Robert T. Burns |
| The Putnam Advisory | W. Thomas Stephens | Vice President and |
| Company, LLC | Chief Legal Officer | |
| One Post Office Square | Officers | |
| Boston, MA 02109 | Robert L. Reynolds | James P. Pappas |
| President | Vice President | |
| Marketing Services | ||
| Putnam Retail Management | Jonathan S. Horwitz | Judith Cohen |
| One Post Office Square | Executive Vice President, | Vice President, Clerk and |
| Boston, MA 02109 | Principal Executive | Assistant Treasurer |
| Officer, Treasurer and | ||
| Custodian | Compliance Liaison | Michael Higgins |
| State Street Bank | Vice President, Senior Associate | |
| and Trust Company | Steven D. Krichmar | Treasurer and Assistant Clerk |
| Vice President and | ||
| Legal Counsel | Principal Financial Officer | Nancy E. Florek |
| Ropes & Gray LLP | Vice President, Assistant Clerk, | |
| Janet C. Smith | Assistant Treasurer and | |
| Independent Registered | Vice President, Assistant | Proxy Manager |
| Public Accounting Firm | Treasurer and Principal | |
| PricewaterhouseCoopers LLP | Accounting Officer | Susan G. Malloy |
| Vice President and | ||
| Assistant Treasurer |
This report is for the information of shareholders of Putnam Retirement Income Fund Lifestyle 2. 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 putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary 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.
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| Item 2. Code of Ethics: |
| (a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund’s investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
| (c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
| Item 3. Audit Committee Financial Expert: |
| The Funds’ Audit and Compliance Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification. |
| Item 4. Principal Accountant Fees and Services: |
| The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor: |
| Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
| August 31, 2011 * | $53,050 | $-- | $4,200 | $ — | |
| * | For the period June 13, 2011 (commencement of operations) to August 31, 2011. |
| For the fiscal year ended August 31, 2011, the fund’s independent auditor billed aggregate non-audit fees in the amount of $136,582 to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
| Audit Fees represent fees billed for the fund’s last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
| Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
| Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
| Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
| The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
| The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. |
| Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
| August 31, 2011 | $ — | $112,505 | $ — | $ — | |
| 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) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
| (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/Janet C. Smith Janet C. Smith Principal Accounting Officer |
| Date: October 27, 2011 |
| 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/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
| Date: October 27, 2011 |
| By (Signature and Title): |
| /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: October 27, 2011 |