N-CSR 1 a_putnamfundstrust.htm PUTNAM FUNDS TRUST a_putnamfundstrust.htm


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: Robert T. Burns, 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: May 31, 2012
Date of reporting period: June 1, 2011 — May 31, 2012



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 Dynamic
Asset Allocation
Equity Fund

Annual report
5 | 31 | 12

Message from the Trustees  1 
Performance snapshot  2 
Interview with your fund’s portfolio manager  3 
Your fund’s performance  7 
Your fund’s expenses  9 
Terms and definitions  11 
Other information for shareholders  12 
Financial statements  13 
Federal tax information  56 
About the Trustees  57 
Officers  59 

 

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. Our allocation of assets among permitted asset categories may hurt performance. 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 fund involves the risk that the stock prices of the companies in the portfolio will fall or will fail to rise. Many factors can adversely affect a stock’s performance, including both general financial market conditions and factors related to a specific company or industry.

 


Message from the Trustees

Dear Fellow Shareholder:

Markets worldwide continue to be buffeted by headwinds out of Europe and evidence of a slowing global economy. The coming election in the United States has added to uncertainty around important economic issues at the federal and state levels. It is prudent to expect this volatility to stay with us as policymakers around the world work out solutions to debt issues and pave the way to sustained economic growth.

Long-term investors should also understand that Putnam’s experienced investment team is trained to uncover opportunities in precisely this type of environment, while actively seeking to guard against downside risk. As always, it is wise to rely on the expertise and insights of your financial advisor, someone who can help you maintain a long-term focus and a balanced investment approach.

In other news, please join us in welcoming the return of Elizabeth T. Kennan to the Board of Trustees. Dr. Kennan, who served as a Trustee from 1992 until 2010, has rejoined the Board, effective January 1, 2012. Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse breeding and general farming), and is also President Emeritus of Mount Holyoke College.

We would also 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.




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 3 and 7–8 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.

2


Interview with your fund’s portfolio manager


Jeff, in the fund’s semiannual update you said you were adding emphasis on U.S. equities. How did this strategy fare?

We saw an opportunity in U.S. stocks during the months of December and January, and moved to overweight positions in both large caps and small caps, and in both growth-and value-style stocks. Our decision was based on the relative resilience of the U.S. economic recovery. Although the debt ceiling negotiations during the summer of 2011 had a depressing effect on stock prices, the economic fundamentals remained relatively healthy, in our view. Our research suggested U.S. companies would deliver an attractive level of earnings and profits, and this proved to be true for the period.

Also, the U.S. market appeared much more attractive to us than other regions of the world. Europe’s debt problems and the austerity measures that had been introduced in many economies were slowing growth, and even pushing some of the smaller economies into recession. At the same time, a slowdown in China’s economic growth was just one sign of risk in emerging markets. Other large markets such as India and Brazil also slowed.

Our decision to emphasize U.S. stocks has helped portfolio performance. During the second half of the fiscal period, the S&P 500 Index rose 6.23%, while the MSCI EAFE Index of international stocks declined 4.70%. Emerging markets also lagged the United States, with the MSCI Emerging Markets Index (ND) down 1.14%.


This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 5/31/12. See pages 2 and 7–8 for additional fund performance information. Index descriptions can be found on page 11.

3


What is your view of the crisis in Europe, as problems mount in Greece, Spain, and Italy?

It’s a serious situation. Even though the issues began to surface over two years ago, policy interventions so far have addressed symptoms rather than the disease. For example, after much reluctance, the European Central Bank instituted Long-Term Refinancing Operations during the past winter. This relieved short-term funding pressure on European banks by providing over $1 trillion in liquidity, giving banks access to three-year loans to replace overnight lending. This helped lift markets from January until March, but its effects faded because it did not resolve structural imbalances that created the short-term funding pressure.

Thus far, policy interventions have stimulated short-term relief rallies, but have not cleared the road for sustained growth. Behind the scenes, of course, European political leaders are negotiating structural reforms. We believe that it may take even worse market conditions to push leaders toward a real solution.

What impact did currencies have on performance?

As a global fund, we have a variety of currency exposures in the portfolio. The currency exposures are achieved both by owning international securities and by active strategies using forward currency contracts, a type of derivative. We establish currency exposures and hedge foreign exchange risk that we consider unattractive.

For the period as a whole, the U.S. dollar was relatively strong, and exposures to international currencies generally did not add to performance. In addition, some of our active currency strategies detracted from portfolio results. We had a short position on the euro amid Europe’s difficulties. However, despite Europe’s travails, the single currency remained relatively strong against the dollar at the time we had this position, and weakened much later in the period, when we did not have the same exposure. Also, our positioning in the Australian dollar hindered performance. It has been one of the world’s


This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 5/31/12. Short-term holdings are excluded. Holdings will vary over time.

4


strongest currencies in recent years, and we expected some weakness. However, the Australian dollar remained relatively strong.


What other factors influenced your results in the period?

Aside from the regional weightings I described, our stock selection choices played a role. The results were mixed across regions. In the United States and developed international markets, stock selection added to performance. Our U.S. holdings, on average, outperformed the broader U.S. market. Our advantage was particularly helpful in developed international markets, which generally posted negative results in the period.

How did derivatives play a role in your strategies?

We used futures contracts to manage exposure to market risk and to gain equity exposure with our cash holdings. With total return swaps, we managed specific sector, industry, and market exposures, and hedged the risks involved with these exposures.

What is your outlook for markets and the fund in the coming months?

We have a somewhat pessimistic outlook for markets in the second half of calendar year 2012, and we have reduced some of the portfolio’s risk exposures accordingly. We changed our stance because of the situation in Europe and because of signs that we believe indicate a lower trajectory of economic growth in the United States and the global economy. In Europe, the urgency of structural reforms has increased. Spain and Italy face unsustainable borrowing costs, and Greece’s new government wants to pursue relaxing the constraints on its budget.


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, the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings will vary over time.

5


Recent U.S. economic data, especially a lower level of job creation and lower consumer confidence, suggest that the expansion may have shifted to a lower trajectory. While we do not anticipate a recession, it is also difficult to anticipate much of a rebound in the economy. The fiscal policy outlook is negative unless Congress acts before 2013. Taxes are currently slated to increase and government spending to decrease. Although a last-minute solution remains possible, the uncertainty that is likely over the next several months could cause businesses to delay hiring and investment decisions.

In response to these conditions, we believe a lower risk profile is warranted. We have maintained the underweights to stocks in Europe and in emerging markets that we established during the past fiscal year. We continue to believe U.S. stocks offer more attractive potential on a relative basis, and within this position our emphasis remains on less volatile, low-beta large caps.

Jeff, thanks for commenting on the fund 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 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 James A. Fetch; Robert J. Kea, CFA; Joshua B. Kutin, CFA; Robert J. Schoen; and Jason R. Vaillancourt, CFA.

IN THE NEWS

Risk-averse investors around the world are stampeding into government bonds, driving yields to record lows. In the United States, the rate on a 10-year U.S. Treasury note recently dipped to levels not seen since 1945. Several factors have driven the prices of U.S. Treasuries higher and their yields lower, including concerns about a U.S. economic slowdown, Europe’s dire economic situation, and the decelerating economies of China and India. In early June, the 10-year Treasury note yield fell to 1.54%, below the prior low of 1.55%, which was reached just after World War II. At the time, the U.S. government had instituted price controls, and interest rates were kept artificially low to foster financial stability. In several developed economies around the globe, 10-year government bond yields are well below those in the United States.

6


Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended May 31, 2012, 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 call Putnam at 1-800-225-1581. 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 5/31/12

  Class A  Class Y 
(inception dates)  (1/23/09)  (1/23/09) 
  Before  After  Net 
  sales  sales  asset 
  charge  charge  value 
Life of fund  64.36%  54.91%  64.34% 
Annual average  15.95  13.92  15.95 
3 years  38.70  30.76  38.68 
Annual average  11.52  9.35  11.52 
1 year  –7.40  –12.73  –7.41 

 

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A shares reflect the deduction of the maximum 5.75% sales charge levied at the time of purchase. Class 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 1% short-term trading fee may apply to shares exchanged or sold within 7 days of purchase.

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 5/31/12

    Putnam Equity  Lipper Multi-Cap Growth 
  Russell 3000 Index  Blended Index  Funds category average* 
Life of fund  73.93%  67.55%  79.19% 
Annual average  17.92  16.62  18.81 
3 years  53.58  43.04  52.65 
Annual average  15.38  12.67  14.99 
1 year  –1.87  –6.75  –5.24 

 

Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.

* Over the 1-year, 3-year, and life-of-fund periods ended 5/31/12, there were 500, 415, and 409 funds, respectively, in this Lipper category.

7



Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class Y shares would have been valued at $16,434.

Fund price and distribution information For the 12-month period ended 5/31/12

Distributions  Class A  Class Y 
Number  1  1 
Income  —  — 
Capital gains — Long-term  $0.636  $0.636 
Capital gains — Short-term  0.543  0.543 
Total  $1.179  $1.179 
  Before  After  Net 
  sales  sales  asset 
Share value  charge  charge  value 
5/31/11  $12.28  13.03  $12.28 
5/31/12  10.11  10.73  10.11 

 

The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A 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) 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 6/30/12

  Class A  Class Y 
(inception dates)  (1/23/09)  (1/23/09) 
  Before  After  Net 
  sales  sales  asset 
  charge  charge  value 
Life of fund  70.86%  61.04%  70.84% 
Annual average  16.86  14.86  16.86 
3 years  44.67  36.36  44.54 
Annual average  13.10  10.89  13.07 
1 year  –2.06  –7.72  –2.07 

 

8


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 Y 
Net expenses for the fiscal year ended 5/31/11*  1.33%  1.08% 
Total annual operating expenses for the fiscal year ended 5/31/11  1.82%  1.57% 
Annualized expense ratio for the six-month period ended 5/31/12†  1.07%  1.07% 

 

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 9/30/12.

† 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 December 1, 2011, to May 31, 2012. 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 Y 
Expenses paid per $1,000*†  $5.46  $5.46 
Ending value (after expenses)  $1,041.30  $1,041.20 

 

* 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 5/31/12. 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.

9


Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended May 31, 2012, use the following calculation method. To find the value of your investment on December 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 Y 
Expenses paid per $1,000*†  $5.40  $5.40 
Ending value (after expenses)  $1,019.65  $1,019.65 

 

* 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 5/31/12. 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.

10


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.

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 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 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 EAFE Index (ND) is an unmanaged index of equity securities from Europe, Australasia, and the Far East.

Putnam Equity Blended Index is an unmanaged index representing global stock market performance, and comprises 75% the Russell 3000 Index, 19% the MSCI EAFE Index  (ND), and 6% the MSCI Emerging Markets Index (GD).

Russell 3000 Index is an unmanaged index of the 3,000 largest U.S. companies.

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.

11


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 Securities and Exchange Commission (SEC) 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 May 31, 2012, Putnam employees had approximately $326,000,000 and the Trustees had approximately $77,000,000 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.

12


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.

13


Report of Independent Registered Public Accounting Firm

To the Trustees of Putnam Funds Trust and Shareholders of
Putnam Dynamic Asset Allocation Equity Fund:

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 Dynamic Asset Allocation Equity Fund (the “fund”) (formerly Putnam Asset Allocation: Equity Portfolio) at May 31, 2012, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, 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 audits. We conducted our audits 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 audits, which included confirmation of investments owned at May 31, 2012 by correspondence with the custodian, brokers, and transfer agent, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
July 17, 2012

14


The fund’s portfolio 5/31/12

COMMON STOCKS (93.1%)*  Shares  Value 
 
Advertising and marketing services (—%)     
Constant Contact, Inc. †  133  $2,693 
Nu Skin Enterprises, Inc. Class A  75  3,216 
ValueClick, Inc. †  87  1,526 
    7,435 
Aerospace and defense (1.2%)     
European Aeronautic Defense and Space Co. NV (France)  703  23,667 
Exelis, Inc.  1,426  14,260 
Lockheed Martin Corp.  1,239  102,588 
Raytheon Co.  1,748  87,959 
Smith & Wesson Holding Corp. †  548  3,694 
    232,168 
Agriculture (0.2%)     
Andersons, Inc. (The)  16  697 
Archer Daniels-Midland Co.  88  2,805 
Black Earth Farming, Ltd. SDR (Sweden) †  158  200 
Cresud S.A.C.I.F. y A. ADR (Argentina)  64  454 
First Resources, Ltd. (Singapore)  5,000  6,461 
Golden Agri-Resources, Ltd. (Singapore)  16,000  8,071 
GrainCorp, Ltd. (Australia)  187  1,710 
KWS Saat AG (Germany)  3  725 
PT Astra Agro Lestari Tbk (Indonesia)  500  1,088 
SLC Agricola SA (Brazil)  71  684 
Vilmorin & Cie (France)  7  687 
Viterra, Inc. (Canada)  156  2,417 
Wilmar International, Ltd. (Singapore)  1,000  2,840 
    28,839 
Airlines (0.4%)     
Alaska Air Group, Inc. †  110  3,773 
Delta Air Lines, Inc. †  4,951  59,906 
International Consolidated Airlines Group SA (United Kingdom) †  2,582  5,690 
Korean Air Lines Co., Ltd. (South Korea) †  212  8,119 
US Airways Group, Inc. †  391  5,169 
    82,657 
Automotive (1.3%)     
Brilliance China Automotive Holdings, Inc. (China) †  8,000  7,844 
Daimler AG (Registered Shares) (Germany)  303  14,061 
Dana Holding Corp.  286  3,810 
General Motors Co. †  2,995  66,488 
Hino Motors, Ltd. (Japan)  3,000  19,946 
Isuzu Motors, Ltd. (Japan)  5,000  26,736 
Kia Motors Corp. (South Korea)  277  18,823 
Lear Corp.  564  22,475 
Localiza Rent a Car SA (Brazil)  835  13,248 
Navistar International Corp. †  503  14,054 
Suzuki Motor Corp. (Japan)  900  18,744 
Volkswagen AG (Preference) (Germany)  114  18,237 
    244,466 

 

15


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Banking (5.9%)     
Agricultural Bank of China, Ltd. (China)  36,000  $14,564 
Australia & New Zealand Banking Group, Ltd. (Australia)  1,430  29,113 
Banco Santander Central Hispano SA (Spain)  1,723  9,164 
Bank Mandiri (Persero) Tbk PT (Indonesia)  18,500  13,580 
Bank of America Corp.  1,361  10,003 
Bank of the Ozarks, Inc.  115  3,340 
Barclays PLC (United Kingdom)  8,525  23,438 
BNP Paribas SA (France) †  545  17,384 
Cardinal Financial Corp.  288  3,283 
China Construction Bank Corp. (China)  48,000  33,271 
Citigroup, Inc.  748  19,829 
Citizens & Northern Corp.  182  3,176 
City National Corp.  143  7,104 
Commonwealth Bank of Australia (Australia)  646  31,086 
DBS Group Holdings, Ltd. (Singapore)  1,000  10,259 
East West Bancorp, Inc.  502  11,240 
Financial Institutions, Inc.  184  3,007 
First Financial Bancorp  155  2,381 
FirstRand, Ltd. (South Africa)  2,614  7,959 
Flushing Financial Corp.  314  4,051 
Hachijuni Bank, Ltd. (The) (Japan)  2,000  9,571 
Hanmi Financial Corp. †  387  3,634 
Heartland Financial USA, Inc.  125  2,375 
Home Bancshares, Inc.  140  3,938 
HSBC Holdings PLC (London Exchange) (United Kingdom)  5,231  41,315 
ICICI Bank, Ltd. (India)  330  4,603 
Industrial and Commercial Bank of China, Ltd. (China)  46,000  27,974 
Itau Unibanco Holding SA ADR (Preference) (Brazil)  753  10,896 
JPMorgan Chase & Co.  7,277  241,232 
Kasikornbank PCL NVDR (Thailand)  3,100  15,103 
Lloyds Banking Group PLC (United Kingdom) †  24,149  9,529 
MainSource Financial Group, Inc.  281  3,108 
Mitsubishi UFJ Financial Group, Inc. (Japan)  3,500  15,186 
National Australia Bank, Ltd. (Australia)  536  11,737 
Northern Trust Corp.  1,568  67,706 
Peoples Bancorp, Inc.  180  3,379 
PNC Financial Services Group, Inc.  1,150  70,633 
Popular, Inc. (Puerto Rico) †  153  2,336 
Republic Bancorp, Inc. Class A  68  1,435 
Resona Holdings, Inc. (Japan)  2,200  8,282 
Sberbank of Russia ADR (Russia) †  1,922  19,118 
Southside Bancshares, Inc.  231  4,846 
Standard Chartered PLC (United Kingdom)  421  8,538 
Svenska Handelsbanken AB Class A (Sweden)  532  14,946 
Swedbank AB Class A (Sweden)  1,067  15,278 
Virginia Commerce Bancorp, Inc. †  460  3,795 

 

16


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Banking cont.     
Walker & Dunlop, Inc. †  151  $1,771 
Washington Banking Co.  227  3,080 
Wells Fargo & Co.  6,562  210,311 
Westpac Banking Corp. (Australia)  658  13,005 
    1,105,892 
Beverage (1.4%)     
Anheuser-Busch InBev NV (Belgium)  211  14,282 
Coca-Cola Co. (The)  914  68,303 
Diageo PLC (United Kingdom)  642  15,305 
Dr. Pepper Snapple Group, Inc.  1,460  60,240 
Grupo Modelo SA de CV Ser. C (Mexico)  1,621  11,268 
Heineken Holding NV (Netherlands)  314  12,725 
Molson Coors Brewing Co. Class B  1,060  40,757 
PepsiCo, Inc.  454  30,804 
SABMiller PLC (United Kingdom)  249  9,221 
    262,905 
Biotechnology (1.1%)     
Affymax, Inc. †  264  3,733 
Amarin Corp. PLC ADR (Ireland) †  95  1,126 
Amgen, Inc.  417  28,990 
AVEO Pharmaceuticals, Inc. †  126  1,604 
Celgene Corp. †  444  30,303 
Cubist Pharmaceuticals, Inc. †  131  5,256 
Gilead Sciences, Inc. †  1,550  77,423 
Medicines Co. (The) †  565  12,419 
Onyx Pharmaceuticals, Inc. †  58  2,655 
PDL BioPharma, Inc.  706  4,582 
RTI Biologics, Inc. †  665  2,387 
Spectrum Pharmaceuticals, Inc. †  514  5,957 
United Therapeutics Corp. †  643  28,446 
    204,881 
Broadcasting (0.5%)     
Belo Corp. Class A  1,329  7,682 
CBS Corp. Class B  2,657  84,811 
Sinclair Broadcast Group, Inc. Class A  682  5,551 
    98,044 
Cable television (1.4%)     
Comcast Corp. Class A  7,350  212,488 
HSN, Inc.  142  5,524 
IAC/InterActiveCorp.  782  35,127 
Kabel Deutschland Holding AG (Germany) †  194  11,014 
    264,153 
Capital goods (—%)     
Great Lakes Dredge & Dock Corp. †  1,196  7,774 
    7,774 
Chemicals (3.4%)     
Agrium, Inc. (Canada)  32  2,500 
Albemarle Corp.  491  29,804 
American Vanguard Corp.  212  5,713 
Arkema (France)  22  1,445 

 

17


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Chemicals cont.     
BASF SE (Germany)  439  $30,664 
Cambrex Corp. †  455  3,271 
CF Industries Holdings, Inc.  321  54,878 
Cytec Industries, Inc.  302  18,259 
Formosa Chemicals & Fibre Corp. (Taiwan)  2,000  5,293 
Givaudan SA (Switzerland)  8  7,444 
Incitec Pivot, Ltd. (Australia)  537  1,486 
Innophos Holdings, Inc.  179  9,036 
Innospec, Inc. †  159  4,202 
Intrepid Potash, Inc. †  46  903 
K&S AG (Germany)  94  3,757 
Koninklijke DSM NV (Netherlands)  312  14,907 
Koppers Holdings, Inc.  147  5,161 
Landec Corp. †  498  3,640 
Linde AG (Germany)  120  18,441 
LyondellBasell Industries NV Class A (Netherlands)  1,421  56,073 
Minerals Technologies, Inc.  28  1,772 
Monsanto Co.  2,023  156,175 
Mosaic Co. (The)  34  1,621 
NewMarket Corp.  15  3,132 
Nitto Denko Corp. (Japan)  800  32,466 
Nufarm, Ltd. (Australia)  268  1,292 
PolyOne Corp.  436  5,768 
Potash Corp. of Saskatchewan, Inc. (Canada)  95  3,755 
PPG Industries, Inc.  707  73,132 
Sociedad Quimica y Minera de Chile SA ADR (Chile)  55  2,858 
Syngenta AG (Switzerland)  85  27,392 
TPC Group, Inc. †  96  3,033 
Tronox, Inc. †  24  3,888 
Valspar Corp.  534  25,744 
W.R. Grace & Co. †  230  12,075 
Westlake Chemical Corp.  157  8,555 
Yara International ASA (Norway)  51  1,933 
    641,468 
Coal (0.2%)     
Alpha Natural Resources, Inc. †  279  2,924 
Cloud Peak Energy, Inc. †  169  2,616 
Peabody Energy Corp.  1,154  26,957 
PT Adaro Energy Tbk (Indonesia)  64,500  10,087 
    42,584 
Commercial and consumer services (1.6%)     
Alliance Data Systems Corp. †  400  50,400 
Alliance Global Group, Inc. (Philippines)  23,900  6,845 
Bunzl PLC (United Kingdom)  869  13,708 
Compass Group PLC (United Kingdom)  859  8,425 
Daum Communications Corp. (South Korea)  80  6,853 
Deluxe Corp.  240  5,549 

 

18


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Commercial and consumer services cont.     
Dun & Bradstreet Corp. (The)  332  $22,433 
Expedia, Inc.  578  26,524 
Global Cash Access Holdings, Inc. †  1,012  7,135 
Global Payments, Inc.  736  31,265 
Randstad Holding NV (Netherlands)  125  3,412 
Standard Parking Corp. †  167  3,175 
Swire Pacific, Ltd. Class A (Hong Kong)  3,000  32,352 
TNS, Inc. †  454  8,118 
Towers Watson & Co. Class A  386  23,260 
URS Corp.  534  19,315 
VistaPrint NV †  708  23,987 
    292,756 
Communications equipment (0.7%)     
Cisco Systems, Inc.  8,063  131,669 
Plantronics, Inc.  102  3,069 
Wistron NeWeb Corp. (Taiwan)  2,149  3,881 
    138,619 
Components (—%)     
Coherent, Inc. †  57  2,516 
    2,516 
Computers (4.6%)     
Acme Packet, Inc. †  117  2,677 
Actuate Corp. †  1,498  10,007 
Anixter International, Inc.  55  3,163 
Apple, Inc. †  1,171  676,521 
Aspen Technology, Inc. †  163  3,602 
Brocade Communications Systems, Inc. †  3,499  16,270 
Dell, Inc. †  4,291  52,908 
Fujitsu, Ltd. (Japan)  7,000  30,641 
InnerWorkings, Inc. †  235  2,771 
Ixia †  185  1,957 
Monotype Imaging Holdings, Inc. †  172  2,356 
MTS Systems Corp.  85  3,286 
Netscout Systems, Inc. †  277  5,554 
Polycom, Inc. †  1,043  11,932 
Procera Networks, Inc. †  110  2,299 
RealPage, Inc. †  134  2,392 
Silicon Graphics International Corp. †  344  2,026 
SolarWinds, Inc. †  62  2,843 
Synchronoss Technologies, Inc. †  69  1,236 
Western Digital Corp. †  917  28,785 
Xyratex, Ltd. (United Kingdom)  213  2,437 
    865,663 
Conglomerates (2.3%)     
AMETEK, Inc.  946  47,972 
Danaher Corp.  2,467  128,210 
General Electric Co.  6,665  127,234 
Marubeni Corp. (Japan)  1,000  6,406 

 

19


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Conglomerates cont.     
Siemens AG (Germany)  151  $12,442 
Tyco International, Ltd.  2,178  115,782 
    438,046 
Construction (0.6%)     
Asia Cement Corp. (Taiwan)  8,000  9,555 
Chicago Bridge & Iron Co., NV (Netherlands)  663  23,828 
China National Building Material Co., Ltd. (China)  8,000  9,709 
China National Materials Co., Ltd. (China)  25,000  7,988 
China Shanshui Cement Group, Ltd. (China)  12,000  9,570 
Empresas ICA SAB de CV (Mexico) †  7,133  10,677 
Fortune Brands Home & Security, Inc. †  1,125  25,448 
Multiplan Empreendimentos Imobilliarios SA (Brazil)  339  8,051 
Siam Cement PCL NVDR (Thailand)  1,200  12,900 
    117,726 
Consumer (0.1%)     
Christian Dior SA (France)  53  6,956 
Helen of Troy, Ltd. (Bermuda) †  87  2,739 
    9,695 
Consumer finance (0.3%)     
African Bank Investments, Ltd. (South Africa)  3,813  16,356 
Cardtronics, Inc. †  170  4,763 
Housing Development Finance Corp. (India)  566  6,598 
LIC Housing Finance, Ltd. (India)  1,553  6,555 
Nelnet, Inc. Class A  175  4,085 
Ocwen Financial Corp. †  513  8,223 
Portfolio Recovery Associates, Inc. †  36  2,488 
    49,068 
Consumer goods (0.8%)     
Church & Dwight Co., Inc.  291  15,493 
Kao Corp. (Japan)  700  18,107 
Prestige Brands Holdings, Inc. †  203  2,787 
Procter & Gamble Co. (The)  1,661  103,464 
    139,851 
Consumer services (0.2%)     
Avis Budget Group, Inc. †  733  10,885 
Corrections Corporation of America †  772  20,126 
Dollar Thrifty Automotive Group †  38  3,100 
    34,111 
Distribution (0.2%)     
Beacon Roofing Supply, Inc. †  252  6,262 
Spar Group, Ltd. (The) (South Africa)  523  6,771 
Spartan Stores, Inc.  148  2,479 
Toyota Tsusho Corp. (Japan)  1,000  18,466 
    33,978 
Electric utilities (2.7%)     
AES Corp. (The) †  3,891  47,042 
Ameren Corp.  1,496  48,336 
CenterPoint Energy, Inc.  2,569  51,971 
Chubu Electric Power, Inc. (Japan)  300  4,587 
CMS Energy Corp.  1,643  38,282 

 

20


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Electric utilities cont.     
DTE Energy Co.  1,006  $57,171 
Enel SpA (Italy)  3,598  10,272 
Entergy Corp.  999  64,465 
GDF Suez (France)  768  15,262 
PG&E Corp.  2,103  91,901 
Red Electrica Corporacion SA (Spain)  414  15,330 
TECO Energy, Inc.  1,512  26,309 
Westar Energy, Inc.  830  23,755 
    494,683 
Electrical equipment (1.3%)     
ABB, Ltd. (Switzerland)  1,001  15,775 
Emerson Electric Co.  3,185  148,962 
Harbin Electric Co., Ltd. (China)  8,000  7,761 
Hitachi, Ltd. (Japan)  7,000  40,110 
Mitsubishi Electric Corp. (Japan)  4,000  31,496 
Newport Corp. †  107  1,272 
    245,376 
Electronics (2.6%)     
Acacia Research — Acacia Technologies †  51  1,773 
Agilent Technologies, Inc.  1,640  66,682 
Asustek Computer, Inc. (Taiwan)  1,000  10,017 
Broadcom Corp. Class A †  1,574  50,919 
China Automation Group, Ltd. (China)  23,000  5,986 
Cirrus Logic, Inc. †  155  4,452 
EnerSys †  197  6,497 
FEI Co. †  222  10,161 
GSI Group, Inc. †  509  5,909 
Hollysys Automation Technologies, Ltd. (China) †  1,128  10,129 
Hon Hai Precision Industry Co., Ltd. (Taiwan)  4,200  12,312 
Infineon Technologies AG (Germany)  1,756  13,893 
Integrated Silicon Solutions, Inc. †  268  2,508 
Intel Corp.  2,592  66,977 
L-3 Communications Holdings, Inc.  604  41,187 
LITE-ON IT Corp. (Taiwan)  8,000  7,639 
NVIDIA Corp. †  2,297  28,552 
Omnivision Technologies, Inc. †  140  2,265 
QLogic Corp. †  3,135  42,667 
Samsung Electronics Co., Ltd. (South Korea)  60  61,563 
SK Hynix, Inc. (South Korea) †  510  9,982 
Skyworks Solutions, Inc. †  148  3,975 
Tripod Technology Corp. (Taiwan)  2,440  6,801 
TTM Technologies, Inc. †  259  2,393 
Vishay Intertechnology, Inc. †  1,427  15,155 
    490,394 
Energy (oil field) (1.4%)     
Basic Energy Services, Inc. †  358  4,060 
Compagnie Generale de Geophysique-Veritas (CGG-Veritas) (France) †  890  19,435 
Eurasia Drilling Co., Ltd. GDR (Russia)  596  15,024 

 

21


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Energy (oil field) cont.     
Helix Energy Solutions Group, Inc. †  485  $8,308 
Key Energy Services, Inc. †  498  4,935 
Mitcham Industries, Inc. †  206  3,893 
National Oilwell Varco, Inc.  1,267  84,572 
Oceaneering International, Inc.  1,040  48,069 
Petrofac, Ltd. (United Kingdom)  1,180  28,168 
Schlumberger, Ltd.  449  28,399 
Superior Energy Services †  873  18,892 
    263,755 
Energy (other) (—%)     
REX American Resources Corp. †  111  2,045 
    2,045 
Engineering and construction (0.6%)     
Daelim Industrial Co., Ltd. (South Korea)  159  13,431 
Fluor Corp.  962  45,099 
KEPCO Engineering & Construction Co., Inc. (South Korea)  134  8,277 
KEPCO Plant Service & Engineering Co., Ltd. (South Korea)  230  8,721 
McDermott International, Inc. †  1,592  16,159 
Samsung Engineering Co., Ltd. (South Korea)  73  11,628 
Singapore Technologies Engineering, Ltd. (Singapore)  2,000  4,594 
Vinci SA (France)  152  6,117 
    114,026 
Entertainment (0.4%)     
Bluegreen Corp. †  385  1,944 
Dolby Laboratories, Inc. Class A †  454  19,472 
Major Cineplex Group PCL (Thailand)  13,400  8,129 
Sony Corp. (Japan)  2,300  30,819 
Town Sports International Holdings, Inc. †  322  3,771 
VOXX International Corp. †  525  5,177 
    69,312 
Environmental (0.1%)     
Tetra Tech, Inc. †  95  2,374 
Woongjin Coway Company, Ltd. (South Korea)  240  7,178 
    9,552 
Financial (0.9%)     
3i Group PLC (United Kingdom)  2,024  5,477 
Assurant, Inc.  735  24,534 
BM&F Bovespa SA (Brazil)  1,500  7,103 
CBOE Holdings, Inc.  1,180  29,795 
CIT Group, Inc. †  542  18,531 
KB Financial Group, Inc. (South Korea)  460  14,382 
MarketAxess Holdings, Inc.  36  1,162 
Nasdaq OMX Group, Inc. (The) †  1,582  34,614 
ORIX Corp. (Japan)  150  12,979 
Sovran Self Storage, Inc. R  88  4,343 
Yuanta Financial Holding Co., Ltd. (Taiwan) †  11,467  5,052 
    157,972 
Food (1.2%)     
BRF — Brasil Foods SA ADR (Brazil)  89  1,386 
Bunge, Ltd.  36  2,142 

 

22


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Food cont.     
Campbell Soup Co.  1,300  $41,210 
Chaoda Modern Agriculture Holdings, Ltd. (China) F  2,000  129 
Chiquita Brands International, Inc. †  31  168 
ConAgra Foods, Inc.  2,465  61,995 
Distribuidora Internacional de Alimentacion SA (Spain) †  1,689  7,400 
Glanbia PLC (Ireland)  112  806 
Ingredion, Inc.  37  1,890 
IOI Corp. Bhd (Malaysia)  1,000  1,655 
Kerry Group PLC Class A (Ireland)  341  14,716 
Kuala Lumpur Kepong Bhd (Malaysia)  200  1,410 
M Dias Branco SA (Brazil)  270  7,463 
Maple Leaf Foods, Inc. (Canada)  72  809 
Nestle SA (Switzerland)  850  48,280 
PT Perusahaan Perkebunan London Sumatra Indonesia Tbk (Indonesia)  3,500  894 
Smithfield Foods, Inc. †  40  787 
Tate & Lyle PLC (United Kingdom)  127  1,317 
Tesco PLC (United Kingdom)  923  4,306 
Tyson Foods, Inc. Class A  71  1,375 
Unilever PLC (United Kingdom)  340  10,747 
Universal Robina Crop. (Philippines)  4,950  7,396 
    218,281 
Forest products and packaging (0.4%)     
Bemis Co., Inc.  651  19,764 
Buckeye Technologies, Inc.  123  3,408 
Domtar Corp. (Canada)  241  19,066 
KapStone Paper and Packaging Corp. †  407  6,284 
Sealed Air Corp.  1,165  18,232 
    66,754 
Gaming and lottery (0.1%)     
Ameristar Casinos, Inc.  269  5,030 
OPAP SA (Greece) †  880  4,693 
Shuffle Master, Inc. †  172  2,728 
    12,451 
Health-care services (3.3%)     
Aetna, Inc.  1,520  62,153 
Alfresa Holdings Corp. (Japan)  200  9,699 
Amedisys, Inc. †  45  494 
AmerisourceBergen Corp.  1,161  42,945 
AmSurg Corp. †  125  3,415 
Assisted Living Concepts, Inc. Class A  224  3,100 
athenahealth, Inc. †  34  2,471 
Centene Corp. †  121  4,373 
Charles River Laboratories International, Inc. †  89  2,971 
Computer Programs & Systems, Inc.  47  2,557 
Gentiva Health Services, Inc. †  91  511 
HCA Holdings, Inc.  659  17,127 
Health Management Associates, Inc. Class A †  1,685  10,801 
HealthSouth Corp. †  374  7,158 

 

23


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Health-care services cont.     
Humana, Inc.  694  $53,015 
Kindred Healthcare, Inc. †  382  3,159 
Lincare Holdings, Inc.  106  2,431 
McKesson Corp.  982  85,709 
MedAssets, Inc. †  599  6,781 
Metropolitan Health Networks, Inc. †  473  4,115 
Molina Healthcare, Inc. †  334  8,520 
Omega Healthcare Investors, Inc. R  149  3,145 
Omnicare, Inc.  797  25,121 
Quality Systems, Inc.  157  4,492 
Suzuken Co., Ltd. (Japan)  400  12,445 
Triple-S Management Corp. Class B (Puerto Rico) †  99  1,719 
UnitedHealth Group, Inc.  3,457  192,797 
Warner Chilcott PLC Class A (Ireland) †  2,159  40,719 
WellCare Health Plans, Inc. †  153  8,640 
    622,583 
Homebuilding (—%)     
Thor Industries, Inc.  102  3,137 
    3,137 
Household furniture and appliances (0.1%)     
Conn’s, Inc. †  331  5,789 
La-Z-Boy, Inc. †  422  5,954 
Select Comfort Corp. †  159  4,350 
Tempur-Pedic International, Inc. †  122  5,638 
Whirlpool Corp.  64  3,960 
    25,691 
Insurance (3.2%)     
AIA Group, Ltd. (Hong Kong)  4,400  14,343 
Allianz SE (Germany)  110  9,968 
Allied World Assurance Co. Holdings AG  415  31,914 
American Equity Investment Life Holding Co.  475  5,026 
American Financial Group, Inc.  650  25,279 
American Safety Insurance Holdings, Ltd. †  230  4,131 
Amtrust Financial Services, Inc.  85  2,444 
Aon PLC (United Kingdom)  1,866  86,769 
Arch Capital Group, Ltd. †  967  36,968 
Assured Guaranty, Ltd. (Bermuda)  1,802  21,516 
AXA SA (France)  1,329  15,080 
Berkshire Hathaway, Inc. Class B †  835  66,266 
CNO Financial Group, Inc. †  648  4,445 
Everest Re Group, Ltd.  341  34,823 
Fidelity National Financial, Inc. Class A  1,705  32,122 
Genworth Financial, Inc. Class A †  625  3,275 
Hartford Financial Services Group, Inc. (The)  2,802  47,130 
Insurance Australia Group, Ltd. (Australia)  5,418  17,575 
Maiden Holdings, Ltd. (Bermuda)  308  2,507 
Protective Life Corp.  143  3,769 
Prudential PLC (United Kingdom)  1,344  14,133 

 

24


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Insurance cont.     
Reinsurance Group of America, Inc. Class A  551  $27,644 
RenaissanceRe Holdings, Ltd.  392  30,211 
Suncorp Group, Ltd. (Australia)  1,676  12,669 
Swiss Life Holding AG (Switzerland)  181  14,585 
Symetra Financial Corp.  317  3,582 
W.R. Berkley Corp.  874  33,492 
    601,666 
Investment banking/Brokerage (1.6%)     
Deutsche Bank AG (Germany) †  448  16,170 
Eaton Vance Corp.  1,520  36,997 
FXCM, Inc. Class A  239  2,457 
Goldman Sachs Group, Inc. (The)  547  52,348 
Interactive Brokers Group, Inc. Class A  422  6,018 
Investment AB Kinnevik Class B (Sweden)  890  15,661 
Israel Corp., Ltd. (The) (Israel)  31  17,339 
Jefferies Group, Inc.  2,331  31,142 
Morgan Stanley  5,137  68,630 
National Financial Partners Corp. †  152  2,022 
SWS Group, Inc.  511  2,938 
TD Ameritrade Holding Corp.  2,515  43,157 
    294,879 
Leisure (—%)     
Brunswick Corp.  194  4,249 
    4,249 
Lodging/Tourism (0.7%)     
Marriott International, Inc. Class A  1,214  46,994 
Wyndham Worldwide Corp.  782  38,944 
Wynn Resorts, Ltd.  375  38,640 
    124,578 
Machinery (1.1%)     
AGCO Corp. †  684  27,504 
Applied Industrial Technologies, Inc.  249  9,390 
Cascade Corp.  128  6,395 
Chart Industries, Inc. †  128  7,995 
CNH Global NV (Netherlands) †  59  2,256 
Cummins, Inc.  912  88,418 
Deere & Co.  46  3,398 
DXP Enterprises, Inc. †  141  6,627 
Franklin Electric Co., Inc.  98  4,794 
Fuji Electric Co., Ltd. (Japan)  6,000  13,936 
Global Power Equipment Group, Inc. †  163  3,004 
IHI Corp. (Japan)  3,000  6,164 
Kadant, Inc. †  175  3,973 
Lindsay Corp.  29  1,614 
NACCO Industries, Inc. Class A  48  5,037 
Schindler Holding AG (Switzerland)  108  11,981 
    202,486 

 

25


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Manufacturing (0.8%)     
AZZ, Inc.  47  $2,521 
Chase Corp.  151  1,735 
Dover Corp.  989  55,938 
Generac Holdings, Inc. †  127  3,143 
Greenbrier Companies, Inc. †  177  2,450 
ITT Corp.  708  14,535 
LSB Industries, Inc. †  301  8,374 
Standex International Corp.  77  3,133 
Textron, Inc.  1,639  38,730 
TriMas Corp. †  443  8,864 
Valmont Industries, Inc.  81  9,275 
    148,698 
Media (1.0%)     
News Corp. Class A  4,838  92,890 
Viacom, Inc. Class B  2,069  98,753 
    191,643 
Medical technology (0.7%)     
ABIOMED, Inc. †  214  4,351 
C.R. Bard, Inc.  392  38,098 
Coloplast A/S Class B (Denmark)  77  13,261 
Conmed Corp.  258  6,912 
Fresenius SE & Co. KGgA (Germany)  163  15,411 
Greatbatch, Inc. †  323  6,705 
OraSure Technologies, Inc. †  770  7,970 
ResMed, Inc. †  789  24,443 
STAAR Surgical Co. †  942  7,998 
Synergetics USA, Inc. †  422  1,511 
    126,660 
Metals (1.2%)     
Assa Abloy AB Class B (Sweden)  880  22,887 
BHP Billiton PLC (United Kingdom)  605  15,861 
BHP Billiton, Ltd. (Australia)  1,035  32,232 
Cliffs Natural Resources, Inc.  718  34,306 
Gold Fields, Ltd. (South Africa)  666  8,872 
Horsehead Holding Corp. †  278  2,463 
L.B. Foster Co. Class A  54  1,493 
MMX Mineracao e Metalicos SA (Brazil) †  1,633  5,133 
NN, Inc. †  383  2,957 
Rio Tinto PLC (United Kingdom)  586  25,271 
Rio Tinto, Ltd. (Australia)  311  17,225 
Steel Dynamics, Inc.  1,288  13,576 
Sterlite Industries (India), Ltd. (India)  1,950  3,266 
Sterlite Industries (India), Ltd. ADR (India)  632  4,215 
Vale SA ADR (Preference) (Brazil)  713  12,920 
Vale SA ADR (Brazil)  360  6,592 
voestalpine AG (Austria)  505  12,683 
    221,952 

 

26


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Natural gas utilities (0.2%)     
China Resources Gas Group, Ltd. (China)  4,000  $7,617 
National Grid PLC (United Kingdom)  2,587  25,928 
Toho Gas Co., Ltd. (Japan)  2,000  11,332 
    44,877 
Office equipment and supplies (0.3%)     
Societe BIC SA (France)  168  16,463 
Staples, Inc.  3,229  42,429 
    58,892 
Oil and gas (7.4%)     
BP PLC (United Kingdom)  2,691  16,357 
Chevron Corp.  3,241  318,623 
Clayton Williams Energy, Inc. †  53  3,028 
CNOOC, Ltd. (China)  6,000  10,854 
ConocoPhillips  716  37,347 
Contango Oil & Gas Co. †  64  3,363 
CVR Energy, Inc. (Escrow)  236  — 
Delek US Holdings, Inc.  184  2,964 
Diamond Offshore Drilling, Inc.  385  22,399 
Energy Partners, Ltd. †  254  4,011 
ENI SpA (Italy)  1,256  24,357 
Exxon Mobil Corp.  3,964  311,689 
Gazprom OAO ADR (Russia)  1,723  15,246 
Helmerich & Payne, Inc.  484  21,925 
HollyFrontier Corp.  950  28,006 
Lukoil OAO ADR (Russia)  405  21,172 
Marathon Oil Corp.  2,301  57,318 
Marathon Petroleum Corp.  1,315  47,432 
Murphy Oil Corp.  765  35,664 
Occidental Petroleum Corp.  1,295  102,655 
OGX Petroleo e Gas Participacoes SA (Brazil) †  2,173  11,097 
Pacific Rubiales Energy Corp. (Colombia)  329  8,629 
Petroleo Brasileiro SA ADR (Preference) (Brazil)  629  11,888 
Phillips 66 †  358  10,751 
Repsol YPF SA (Spain)  481  7,224 
Rosetta Resources, Inc. †  59  2,283 
Royal Dutch Shell PLC Class A (United Kingdom)  995  30,954 
Royal Dutch Shell PLC Class B (United Kingdom)  890  28,709 
Statoil ASA (Norway)  1,113  25,230 
Stone Energy Corp. †  380  8,953 
Swift Energy Co. †  209  4,161 
Tesoro Corp. †  849  18,780 
Total SA (France)  533  23,062 
Unit Corp. †  82  3,263 
Vaalco Energy, Inc. †  870  7,421 
Valero Energy Corp.  3,232  68,195 
W&T Offshore, Inc.  209  3,212 

 

27


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Oil and gas cont.     
Western Refining, Inc.  198  $3,829 
WPX Energy, Inc. †  1,244  18,249 
    1,380,300 
Pharmaceuticals (5.4%)     
Abbott Laboratories  291  17,981 
AstraZeneca PLC (United Kingdom)  437  17,643 
Bayer AG (Germany)  77  4,876 
Elan Corp. PLC ADR (Ireland) †  418  5,835 
Eli Lilly & Co.  3,593  147,133 
Endo Pharmaceuticals Holdings, Inc. †  1,011  32,878 
Forest Laboratories, Inc. †  2,958  103,530 
GlaxoSmithKline PLC (United Kingdom)  1,877  41,662 
Hi-Tech Pharmacal Co., Inc. †  134  3,871 
Jazz Pharmaceuticals PLC (Ireland) †  367  15,854 
Johnson & Johnson  1,591  99,326 
Medicis Pharmaceutical Corp. Class A  190  6,859 
Merck & Co., Inc.  1,183  44,457 
Novartis AG (Switzerland)  553  28,806 
Novo Nordisk A/S Class B (Denmark)  157  20,944 
Obagi Medical Products, Inc. †  659  8,165 
Orion OYJ Class B (Finland)  425  7,432 
Otsuka Holdings Company, Ltd. (Japan)  900  28,323 
Par Pharmaceutical Cos., Inc. †  370  13,261 
Pernix Therapeutics Holdings †  224  1,449 
Pfizer, Inc.  12,534  274,119 
Questcor Pharmaceuticals, Inc. †  87  3,602 
Roche Holding AG-Genusschein (Switzerland)  253  39,672 
Salix Pharmaceuticals, Ltd. †  81  4,197 
Sanofi (France)  575  39,239 
ViroPharma, Inc. †  318  6,405 
    1,017,519 
Power producers (0.2%)     
China WindPower Group, Ltd. (China) †  170,000  6,461 
NRG Energy, Inc. †  1,709  26,182 
    32,643 
Publishing (0.4%)     
Gannett Co., Inc.  1,437  18,767 
McGraw-Hill Cos., Inc. (The)  1,288  55,873 
    74,640 
Railroads (0.2%)     
Central Japan Railway Co. (Japan)  5  40,710 
    40,710 
Real estate (3.2%)     
Agree Realty Corp. R  140  2,929 
American Capital Agency Corp. R  65  2,124 
Apollo Commercial Real Estate Finance, Inc. R  272  4,319 
Apollo Residential Mortgage, Inc.  283  5,306 
Arlington Asset Investment Corp. Class A  97  2,190 
ARMOUR Residential REIT, Inc. R  474  3,309 

 

28


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Real estate cont.     
Ashford Hospitality Trust, Inc. R  561  $4,797 
AvalonBay Communities, Inc. R  402  56,180 
BR Properties SA (Brazil)  700  7,948 
Brasil Brokers Particioacoes SA (Brazil)  1,774  5,251 
C C Land Holdings, Ltd. (China) †  29,000  6,725 
CBL & Associates Properties, Inc. R  369  6,443 
Chimera Investment Corp. R  5,863  16,416 
China Overseas Land & Investment, Ltd. (China)  4,000  8,359 
Dexus Property Group (Australia)  15,435  14,133 
Dynex Capital, Inc. R  352  3,270 
Equity Residential Trust R  1,184  72,342 
First Industrial Realty Trust † R  253  3,018 
Glimcher Realty Trust R  355  3,266 
Hang Lung Group, Ltd. (Hong Kong)  2,000  11,570 
HFF, Inc. Class A †  617  8,070 
Invesco Mortgage Capital, Inc. R  140  2,540 
Jones Lang LaSalle, Inc.  155  11,238 
Lexington Realty Trust R  1,342  11,152 
LSR Group OJSC GDR (Russia)  1,012  4,173 
LTC Properties, Inc. R  202  6,519 
MFA Financial, Inc. R  479  3,650 
Mission West Properties R  269  2,262 
National Health Investors, Inc. R  217  10,475 
Newcastle Investment Corp. R  722  4,794 
One Liberty Properties, Inc. R  194  3,440 
PS Business Parks, Inc. R  77  5,074 
Public Storage R  544  72,608 
Rayonier, Inc. R  616  26,470 
Simon Property Group, Inc. R  999  147,372 
St. Joe Co. (The) †  685  10,939 
Starwood Property Trust, Inc. R  109  2,184 
Stockland (Units) (Australia) R  4,154  12,908 
Universal Health Realty Income Trust R  48  1,855 
Urstadt Biddle Properties, Inc. Class A R  151  2,688 
Wheelock and Co., Ltd. (Hong Kong)  2,000  5,965 
    596,271 
Regional Bells (0.7%)     
AT&T, Inc.  3,467  118,467 
Cincinnati Bell, Inc. †  1,451  5,137 
    123,604 
Restaurants (0.4%)     
AFC Enterprises †  654  13,969 
Brinker International, Inc.  666  21,518 
DineEquity, Inc. †  45  2,160 
McDonald’s Corp.  328  29,304 
Papa John’s International, Inc. †  82  3,815 
    70,766 

 

29


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Retail (7.4%)     
Advance Auto Parts, Inc.  374  $27,280 
Aeon Co., Ltd. (Japan)  900  10,911 
Ascena Retail Group, Inc. †  312  5,906 
Bed Bath & Beyond, Inc. †  1,047  75,646 
Big Lots, Inc. †  203  7,460 
BR Malls Participacoes SA (Brazil)  1,236  13,605 
Buckle, Inc. (The)  173  6,771 
Cabela’s, Inc. †  276  9,754 
Cato Corp. (The) Class A  76  2,181 
Coach, Inc.  1,133  76,421 
Costco Wholesale Corp.  1,766  152,565 
CVS Caremark Corp.  4,696  211,038 
Deckers Outdoor Corp. †  82  4,565 
Destination Maternity Corp.  190  3,705 
Dillards, Inc. Class A  537  36,108 
DSW, Inc. Class A  82  4,894 
Elders, Ltd. (Australia) †  1,605  289 
Express, Inc. †  369  6,827 
Finish Line, Inc. (The) Class A  410  8,454 
Foot Locker, Inc.  1,846  58,592 
Genesco, Inc. †  83  5,520 
GNC Holdings, Inc. Class A  180  6,935 
Herbalife, Ltd.  542  24,276 
Home Depot, Inc. (The)  3,132  154,532 
Industria de Diseno Textil (Inditex) SA (Spain)  216  17,906 
Kingfisher PLC (United Kingdom)  3,135  13,677 
Koninklijke Ahold NV (Netherlands)  1,709  20,121 
Kroger Co. (The)  3,148  69,287 
Lewis Group, Ltd. (South Africa)  853  7,372 
Lowe’s Cos., Inc.  2,276  60,815 
Macy’s, Inc.  1,756  66,816 
Men’s Wearhouse, Inc. (The)  157  5,650 
Next PLC (United Kingdom)  504  23,593 
O’Reilly Automotive, Inc. †  574  54,983 
PetSmart, Inc.  595  38,342 
Pier 1 Imports, Inc.  239  3,896 
PVH Corp.  44  3,564 
Rent-A-Center, Inc.  98  3,300 
Sally Beauty Holdings, Inc. †  149  3,938 
Sonic Automotive, Inc. Class A  903  13,446 
USANA Health Sciences, Inc. †  69  2,788 
Wal-Mart Stores, Inc.  539  35,477 
Walmart De Mexico SAB de CV Ser. V (Mexico)  4,956  11,974 
Williams-Sonoma, Inc.  102  3,561 
Woolworths, Ltd. (Australia)  723  18,621 
    1,393,362 

 

30


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Schools (—%)     
Career Education Corp. †  184  $1,203 
Corinthian Colleges, Inc. †  742  2,033 
Lincoln Educational Services Corp.  109  632 
    3,868 
Semiconductor (1.0%)     
Applied Materials, Inc.  4,037  41,702 
ASML Holding NV (Netherlands)  284  13,063 
KLA-Tencor Corp.  680  31,164 
Kulicke & Soffa Industries, Inc. †  592  6,228 
Lam Research Corp. †  638  23,797 
Nova Measuring Instruments, Ltd. (Israel) †  400  2,868 
Photronics, Inc. †  467  2,802 
Qualcomm, Inc.  540  30,947 
Rudolph Technologies, Inc. †  378  3,258 
Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan)  2,000  5,702 
Teradyne, Inc. †  1,464  21,155 
    182,686 
Shipping (0.4%)     
Neptune Orient Lines, Ltd. (Singapore) †  12,000  9,918 
Swift Transportation Co. †  679  7,204 
United Parcel Service, Inc. Class B  527  39,493 
Wabtec Corp.  325  23,598 
    80,213 
Software (3.4%)     
BMC Software, Inc. †  1,199  50,742 
CA, Inc.  2,123  52,799 
Cadence Design Systems, Inc. †  2,890  29,478 
Concur Technologies, Inc. †  59  3,649 
JDA Software Group, Inc. †  229  6,339 
Manhattan Associates, Inc. †  75  3,563 
Microsoft Corp.  12,118  353,723 
NTT Data Corp. (Japan)  2  5,750 
Oracle Corp.  1,402  37,111 
Parametric Technology Corp. †  147  2,969 
SAP AG (Germany)  95  5,451 
Symantec Corp. †  3,741  55,516 
Tencent Holdings, Ltd. (China)  300  8,248 
TIBCO Software, Inc. †  240  6,420 
Ultimate Software Group, Inc. †  47  3,776 
Websense, Inc. †  160  2,973 
    628,507 
Staffing (0.2%)     
Barrett Business Services, Inc.  122  2,410 
Robert Half International, Inc.  991  28,164 
    30,574 
Supranational (—%)     
Banco Latinoamericano de Exportaciones SA Class E (Panama)  307  5,987 
    5,987 

 

31


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Technology (0.2%)     
Softbank Corp. (Japan)  900  $28,139 
Tech Data Corp. †  334  15,902 
    44,041 
Technology services (2.9%)     
Acxiom Corp. †  485  6,824 
AOL, Inc. †  1,578  43,285 
Baidu, Inc. ADR (China) †  74  8,715 
Computershare, Ltd. (Australia)  544  4,128 
Fair Isaac Corp.  276  11,222 
Google, Inc. Class A †  498  289,267 
IBM Corp.  824  158,950 
LivePerson, Inc. †  160  2,762 
Mail.ru Group., Ltd. GDR (Russia) †  196  6,181 
Perfect World Co., Ltd. ADR (China)  386  3,933 
Tyler Technologies, Inc. †  66  2,462 
Unisys Corp. †  61  958 
VASCO Data Security International, Inc. †  862  6,025 
    544,712 
Telecommunications (1.0%)     
Allot Communications, Ltd. (Israel) †  199  5,178 
America Movil SAB de CV ADR Ser. L (Mexico)  282  6,644 
Aruba Networks, Inc. †  192  2,523 
Bharti Airtel, Ltd. (India)  1,706  9,191 
BroadSoft, Inc. †  66  1,802 
BT Group PLC (United Kingdom)  11,553  36,760 
China Mobile, Ltd. (China)  2,000  20,228 
EchoStar Corp. Class A †  698  19,523 
Empresa Nacional de Telecomunicaciones SA (ENTEL) (Chile)  707  12,570 
France Telecom SA (France)  1,123  14,161 
InterDigital, Inc.  37  914 
Loral Space & Communications, Inc.  73  4,402 
NeuStar, Inc. Class A †  155  4,988 
Premiere Global Services, Inc. †  193  1,613 
Tele2 AB Class B (Sweden)  582  8,675 
Telefonica SA (Rights) (Spain) †  1,035  301 
Telefonica SA (Spain)  1,035  11,501 
TIM Participacoes SA ADR (Brazil)  440  10,758 
USA Mobility, Inc.  211  2,621 
Vodafone Group PLC (United Kingdom)  7,169  19,203 
    193,556 
Telephone (1.6%)     
Deutsche Telekom AG (Germany)  1,004  9,908 
Nippon Telegraph & Telephone (NTT) Corp. (Japan)  500  21,567 
Verizon Communications, Inc.  6,200  258,167 
    289,642 

 

32


COMMON STOCKS (93.1%)* cont.  Shares  Value 
 
Textiles (0.2%)     
Cia Hering (Brazil)  776  $16,121 
G-III Apparel Group, Ltd. †  236  5,832 
LG Fashion Corp. (South Korea)  250  6,715 
Perry Ellis International, Inc. †  157  2,953 
Warnaco Group, Inc. (The) †  77  3,427 
    35,048 
Tobacco (2.4%)     
British American Tobacco (BAT) PLC (United Kingdom)  445  20,950 
Japan Tobacco, Inc. (Japan)  5  27,884 
KT&G Corp. (South Korea)  228  15,184 
Lorillard, Inc.  681  84,172 
Philip Morris International, Inc.  3,520  297,474 
    445,664 
Toys (—%)     
Leapfrog Enterprises, Inc. †  783  8,159 
    8,159 
Transportation (—%)     
CCR SA (Brazil)  838  6,464 
    6,464 
Transportation services (—%)     
ComfortDelgro Corp., Ltd. (Singapore)  7,000  7,985 
    7,985 
Trucks and parts (0.2%)     
Aisin Seiki Co., Ltd. (Japan)  500  15,665 
American Axle & Manufacturing Holdings, Inc. †  190  1,759 
Hyundai Mobis (South Korea)  65  15,255 
    32,679 
 
Total common stocks (cost $15,868,274)    $17,431,487 
 
 
INVESTMENT COMPANIES (2.9%)*  Shares  Value 
 
iShares FTSE A50 China Index ETF (China)  4,000  $5,473 
SPDR S&P 500 ETF Trust  3,872  509,129 
SPDR S&P Midcap 400 ETF Trust  194  32,703 
Total investment companies (cost $443,140)    $547,305 
 
 
SHORT-TERM INVESTMENTS (4.5%)*  Principal amount/shares  Value 
 
Putnam Money Market Liquidity Fund 0.12% e  658,914  658,914 
U.S. Treasury Bills with an effective yield of 0.139%,     
February 7, 2013 #  $129,000  128,868 
U.S. Treasury Bills with effective yields ranging     
from 0.074% to 0.120%, August 23, 2012 #  53,000  52,992 
Total short-term investments (cost $840,777)    $840,774 
 
 
TOTAL INVESTMENTS     
Total investments (cost $17,152,191)    $18,819,566 

 

33


Key to holding’s abbreviations

ADR  American Depository Receipts: represents ownership of foreign securities on deposit with a 
  custodian bank 
ETF  Exchange Traded Fund 
GDR  Global Depository Receipts: represents ownership of foreign securities on deposit with a custodian bank 
NVDR  Non-voting Depository Receipt 
OAO  Open Joint Stock Company 
OJSC  Open Joint Stock Company 
SDR  Swedish Depository Receipts: represents ownership of foreign securities on deposit with a 
  custodian bank 
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 1, 2011 through May 31, 2012 (the reporting period). Within the following notes to the portfolio, references to “ASC 820” represent Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures.

* Percentages indicated are based on net assets of $18,726,587.

† Non-income-producing security.

# 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 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 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).

R Real Estate Investment Trust.

At the close of the reporting period, the fund maintained liquid assets totaling $119,005 to cover certain derivatives contracts.

DIVERSIFICATION BY COUNTRY 
 
Distribution of investments by country of risk at the close of the reporting period, excluding collateral received, if any (as a percentage of Portfolio Value): 
 
United States  80.7%  Switzerland  1.0% 
  
United Kingdom  3.2  Germany  1.0 
  
Japan  3.0  Brazil  0.8 
  
China  1.2  Netherlands  0.8 
  
Australia  1.2  Other  4.9 
  
South Korea  1.1  Total  100.0% 
  
France  1.1     
      

 

FORWARD CURRENCY CONTRACTS at 5/31/12 (aggregate face value $13,960,330)

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Bank of America, N.A.           
  Australian Dollar  Sell  6/20/12  $97,947  $103,606  $5,659 
  British Pound  Sell  6/20/12  390,052  410,309  20,257 
  Canadian Dollar  Sell  6/20/12  305,920  319,338  13,418 
  Euro  Buy  6/20/12  158,902  170,168  (11,266) 
  Japanese Yen  Buy  6/20/12  69,464  67,843  1,621 

 

34


FORWARD CURRENCY CONTRACTS at 5/31/12 (aggregate face value $13,960,330) cont.

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Bank of America, N.A. cont.           
  Norwegian Krone  Buy  6/20/12  $102,229  $109,090  $(6,861) 
  Swedish Krona  Buy  6/20/12  67,850  73,247  (5,397) 
Barclays Bank PLC           
  Australian Dollar  Buy  6/20/12  22,080  25,520  (3,440) 
  Brazilian Real  Sell  6/20/12  6,967  7,041  74 
  British Pound  Buy  6/20/12  152,877  160,890  (8,013) 
  Canadian Dollar  Buy  6/20/12  74,133  77,275  (3,142) 
  Chilean Peso  Buy  6/20/12  7,648  8,127  (479) 
  Czech Koruna  Sell  6/20/12  2,952  3,396  444 
  Euro  Buy  6/20/12  327,572  350,493  (22,921) 
  Japanese Yen  Sell  6/20/12  245,154  240,123  (5,031) 
  Malaysian Ringgit  Sell  6/20/12  7,527  7,869  342 
  Mexican Peso  Sell  6/20/12  4,438  4,842  404 
  New Zealand Dollar  Sell  6/20/12  8,206  8,803  597 
  Norwegian Krone  Sell  6/20/12  118,556  126,600  8,044 
  Polish Zloty  Buy  6/20/12  6,699  7,447  (748) 
  Polish Zloty  Sell  6/20/12  6,699  7,040  341 
  Singapore Dollar  Sell  6/20/12  2,561  3,079  518 
  South African Rand  Buy  6/20/12  12,596  12,817  (221) 
  South African Rand  Sell  6/20/12  12,596  13,756  1,160 
  South Korean Won  Buy  6/20/12  316  660  (344) 
  Swedish Krona  Sell  6/20/12  77,369  83,603  6,234 
  Taiwan Dollar  Buy  6/20/12  7,164  7,255  (91) 
  Taiwan Dollar  Sell  6/20/12  7,164  7,336  172 
  Turkish Lira  Buy  6/20/12  4,644  5,104  (460) 
Citibank, N.A.             
  Australian Dollar  Sell  6/20/12  148,233  154,737  6,504 
  British Pound  Buy  6/20/12  163,357  172,442  (9,085) 
  Canadian Dollar  Buy  6/20/12  11,323  13,044  (1,721) 
  Czech Koruna  Sell  6/20/12  9,289  10,220  931 
  Danish Krone  Sell  6/20/12  4,544  4,831  287 
  Euro  Buy  6/20/12  79,760  83,813  (4,053) 
  Hong Kong Dollar  Buy  6/20/12  108,527  108,506  21 
  Hong Kong Dollar  Sell  6/20/12  108,527  108,588  61 
  Japanese Yen  Sell  6/20/12  214,012  209,248  (4,764) 
  Mexican Peso  Buy  6/20/12  1,892  1,554  338 
  Norwegian Krone  Sell  6/20/12  33,994  36,321  2,327 
  Polish Zloty  Buy  6/20/12  2,955  3,294  (339) 
  Polish Zloty  Sell  6/20/12  2,955  2,998  43 
  Singapore Dollar  Buy  6/20/12  27,782  28,865  (1,083) 
  South African Rand  Buy  6/20/12  6,886  7,539  (653) 
  South African Rand  Sell  6/20/12  6,886  7,218  332 
  South Korean Won  Buy  6/20/12  1,706  2,026  (320) 
  Swedish Krona  Buy  6/20/12  65,387  70,637  (5,250) 

 

35


FORWARD CURRENCY CONTRACTS at 5/31/12 (aggregate face value $13,960,330) cont.

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Citibank, N.A. cont.           
  Swedish Krona  Sell  6/20/12  $65,387  $66,282  $895 
  Swiss Franc  Buy  6/20/12  131,810  140,958  (9,148) 
  Taiwan Dollar  Buy  6/20/12  7,104  7,174  (70) 
  Taiwan Dollar  Sell  6/20/12  7,104  7,271  167 
  Turkish Lira  Buy  6/20/12  11,529  12,160  (631) 
Credit Suisse AG           
  Australian Dollar  Buy  6/20/12  95,904  101,525  (5,621) 
  Australian Dollar  Sell  6/20/12  97,266  101,178  3,912 
  Brazilian Real  Buy  6/20/12  9,437  9,818  (381) 
  British Pound  Buy  6/20/12  573,596  604,195  (30,599) 
  Canadian Dollar  Buy  6/20/12  25,840  27,019  (1,179) 
  Canadian Dollar  Sell  6/20/12  25,840  25,948  108 
  Chilean Peso  Buy  6/20/12  14,462  15,182  (720) 
  Czech Koruna  Sell  6/20/12  17,818  19,510  1,692 
  Euro  Buy  6/20/12  47,362  48,731  (1,369) 
  Hungarian Forint  Sell  6/20/12  477  875  398 
  Japanese Yen  Buy  6/20/12  819,710  801,603  18,107 
  Mexican Peso  Buy  6/20/12  7,380  7,288  92 
  New Zealand Dollar  Sell  6/20/12  20,177  20,927  750 
  Norwegian Krone  Buy  6/20/12  84,986  90,269  (5,283) 
  Philippines Peso  Buy  6/20/12  7,124  7,281  (157) 
  Polish Zloty  Buy  6/20/12  7,374  8,106  (732) 
  Polish Zloty  Sell  6/20/12  7,374  7,761  387 
  Singapore Dollar  Sell  6/20/12  2,018  2,245  227 
  South African Rand  Sell  6/20/12  6,251  6,298  47 
  South Korean Won  Buy  6/20/12  6,881  6,938  (57) 
  South Korean Won  Sell  6/20/12  6,881  6,943  62 
  Swedish Krona  Sell  6/20/12  4,609  4,222  (387) 
  Swiss Franc  Buy  6/20/12  23,273  24,036  (763) 
  Swiss Franc  Sell  6/20/12  22,964  24,542  1,578 
  Taiwan Dollar  Buy  6/20/12  6,966  6,910  56 
  Turkish Lira  Buy  6/20/12  15,425  16,265  (840) 
Deutsche Bank AG           
  Australian Dollar  Sell  6/20/12  48,536  50,426  1,890 
  Brazilian Real  Buy  6/20/12  7,066  7,266  (200) 
  British Pound  Buy  6/20/12  124,366  130,739  (6,373) 
  Canadian Dollar  Buy  6/20/12  206,431  215,603  (9,172) 
  Czech Koruna  Sell  6/20/12  13,568  14,894  1,326 
  Euro  Sell  6/20/12  75,060  81,430  6,370 
  Polish Zloty  Buy  6/20/12  6,671  7,375  (704) 
  Polish Zloty  Sell  6/20/12  6,671  6,981  310 
  Singapore Dollar  Sell  6/20/12  1,940  2,016  76 
  South Korean Won  Buy  6/20/12  7,338  7,656  (318) 

 

36


FORWARD CURRENCY CONTRACTS at 5/31/12 (aggregate face value $13,960,330) cont.

          Unrealized 
  Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Deutsche Bank AG cont.           
Swedish Krona  Sell  6/20/12  $47,558  $51,317  $3,759 
Turkish Lira  Buy  6/20/12  11,422  12,008  (586) 
Goldman Sachs International           
Australian Dollar  Sell  6/20/12  71,490  73,288  1,798 
British Pound  Buy  6/20/12  54,247  56,953  (2,706) 
Canadian Dollar  Sell  6/20/12  94,554  98,787  4,233 
Chilean Peso  Buy  6/20/12  7,123  7,592  (469) 
Czech Koruna  Sell  6/20/12  6,971  8,296  1,325 
Euro  Buy  6/20/12  34,995  36,510  (1,515) 
Japanese Yen  Buy  6/20/12  29,572  28,904  668 
Norwegian Krone  Buy  6/20/12  10,362  11,064  (702) 
Singapore Dollar  Sell  6/20/12  11,874  12,524  650 
South Korean Won  Buy  6/20/12  2,793  3,113  (320) 
Swedish Krona  Sell  6/20/12  131,228  138,942  7,714 
Turkish Lira  Buy  6/20/12  11,422  12,041  (619) 
HSBC Bank USA, National Association         
Australian Dollar  Sell  6/20/12  81,411  85,735  4,324 
British Pound  Sell  6/20/12  45,617  48,005  2,388 
Canadian Dollar  Sell  6/20/12  23,324  22,935  (389) 
Czech Koruna  Sell  6/20/12  13,918  15,353  1,435 
Euro  Buy  6/20/12  225,677  239,517  (13,840) 
Hong Kong Dollar  Sell  6/20/12  36,721  36,660  (61) 
Indian Rupee  Sell  6/20/12  6,933  7,183  250 
Japanese Yen  Sell  6/20/12  165,782  162,011  (3,771) 
Norwegian Krone  Buy  6/20/12  167,554  178,292  (10,738) 
Singapore Dollar  Sell  6/20/12  13,814  14,498  684 
South Korean Won  Buy  6/20/12  4,605  5,138  (533) 
Swiss Franc  Buy  6/20/12  60,962  65,203  (4,241) 
Turkish Lira  Buy  6/20/12  374  394  (20) 
JPMorgan Chase Bank, N.A.           
Australian Dollar  Buy  6/20/12  192,100  204,538  (12,438) 
Brazilian Real  Buy  6/20/12  5,485  6,013  (528) 
British Pound  Buy  6/20/12  190,018  200,518  (10,500) 
Canadian Dollar  Buy  6/20/12  137,620  142,958  (5,338) 
Chilean Peso  Buy  6/20/12  10,721  11,447  (726) 
Czech Koruna  Sell  6/20/12  6,341  7,565  1,224 
Euro  Sell  6/20/12  622,252  668,921  46,669 
Hong Kong Dollar  Buy  6/20/12  62,078  62,112  (34) 
Japanese Yen  Sell  6/20/12  275,680  269,444  (6,236) 
Mexican Peso  Buy  6/20/12  114,873  126,738  (11,865) 
New Zealand Dollar  Sell  6/20/12  14,003  14,557  554 
Norwegian Krone  Sell  6/20/12  178,912  191,117  12,205 
Polish Zloty  Buy  6/20/12  2,589  3,465  (876) 
Singapore Dollar  Sell  6/20/12  40,432  42,068  1,636 

 

37


FORWARD CURRENCY CONTRACTS at 5/31/12 (aggregate face value $13,960,330) cont.

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
JPMorgan Chase Bank, N.A. cont.           
  South African Rand  Sell  6/20/12  $6,733  $3,592  $(3,141) 
  South Korean Won  Buy  6/20/12  7,239  7,559  (320) 
  Swedish Krona  Sell  6/20/12  93,712  99,446  5,734 
  Swiss Franc  Buy  6/20/12  23,376  24,143  (767) 
  Swiss Franc  Sell  6/20/12  22,964  24,563  1,599 
  Taiwan Dollar  Sell  6/20/12  1,390  1,565  175 
  Turkish Lira  Buy  6/20/12  11,849  12,778  (929) 
Royal Bank of Scotland PLC (The)           
  Australian Dollar  Buy  6/20/12  16,048  18,615  (2,567) 
  Brazilian Real  Buy  6/20/12  11,908  12,319  (411) 
  British Pound  Sell  6/20/12  247,038  257,990  10,952 
  Canadian Dollar  Buy  6/20/12  98,521  103,834  (5,313) 
  Chilean Peso  Buy  6/20/12  7,637  8,133  (496) 
  Czech Koruna  Sell  6/20/12  10,774  11,801  1,027 
  Euro  Buy  6/20/12  389,773  415,367  (25,594) 
  Japanese Yen  Buy  6/20/12  58,974  57,378  1,596 
  Mexican Peso  Sell  6/20/12  4,494  4,812  318 
  New Zealand Dollar  Sell  6/20/12  7,227  7,766  539 
  Norwegian Krone  Sell  6/20/12  1,634  1,843  209 
  Polish Zloty  Buy  6/20/12  6,896  7,679  (783) 
  Polish Zloty  Sell  6/20/12  6,896  7,150  254 
  Singapore Dollar  Sell  6/20/12  6,674  6,931  257 
  South African Rand  Buy  6/20/12  6,933  7,054  (121) 
  South African Rand  Sell  6/20/12  6,933  7,072  139 
  South Korean Won  Buy  6/20/12  4,991  5,690  (699) 
  Swedish Krona  Sell  6/20/12  21,654  21,888  234 
  Swiss Franc  Sell  6/20/12  89,280  95,140  5,860 
  Taiwan Dollar  Buy  6/20/12  14,251  14,458  (207) 
  Taiwan Dollar  Sell  6/20/12  14,251  14,579  328 
  Turkish Lira  Buy  6/20/12  8,060  8,757  (697) 
State Street Bank and Trust Co.           
  Australian Dollar  Sell  6/20/12  96,196  99,421  3,225 
  Brazilian Real  Sell  6/20/12  1,334  949  (385) 
  British Pound  Sell  6/20/12  13,408  13,313  (95) 
  Canadian Dollar  Buy  6/20/12  88,166  92,588  (4,422) 
  Chilean Peso  Buy  6/20/12  478  845  (367) 
  Czech Koruna  Sell  6/20/12  13,736  15,154  1,418 
  Euro  Buy  6/20/12  136,272  144,028  (7,756) 
  Hungarian Forint  Buy  6/20/12  13,703  15,250  (1,547) 
  Japanese Yen  Buy  6/20/12  50,020  48,751  1,269 
  Mexican Peso  Buy  6/20/12  2,491  2,789  (298) 
  New Zealand Dollar  Sell  6/20/12  7,002  7,460  458 
  Norwegian Krone  Sell  6/20/12  95,218  102,658  7,440 
  Polish Zloty  Buy  6/20/12  13,369  14,587  (1,218) 

 

38


FORWARD CURRENCY CONTRACTS at 5/31/12 (aggregate face value $13,960,330) cont.

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
State Street Bank and Trust Co. cont.           
  Polish Zloty  Sell  6/20/12  $13,369  $14,411  $1,042 
  Singapore Dollar  Sell  6/20/12  1,940  2,218  278 
  South African Rand  Buy  6/20/12  13,795  14,036  (241) 
  South African Rand  Sell  6/20/12  13,795  14,534  739 
  South Korean Won  Buy  6/20/12  7,688  8,140  (452) 
  Swedish Krona  Buy  6/20/12  43,101  46,559  (3,458) 
  Swedish Krona  Sell  6/20/12  43,101  43,620  519 
  Swiss Franc  Buy  6/20/12  23,273  24,036  (763) 
  Swiss Franc  Sell  6/20/12  22,964  24,546  1,582 
  Taiwan Dollar  Sell  6/20/12  349  447  98 
  Thai Baht  Buy  6/20/12  7,144  7,311  (167) 
  Turkish Lira  Buy  6/20/12  4,323  5,223  (900) 
UBS AG             
  Australian Dollar  Sell  6/20/12  47,660  48,636  976 
  Brazilian Real  Buy  6/20/12  4,151  4,762  (611) 
  British Pound  Buy  6/20/12  1,541  3,294  (1,753) 
  Canadian Dollar  Sell  6/20/12  348,987  364,458  15,471 
  Czech Koruna  Sell  6/20/12  14,250  15,621  1,371 
  Euro  Sell  6/20/12  453,827  489,806  35,979 
  Hungarian Forint  Buy  6/20/12  6,901  7,394  (493) 
  Indian Rupee  Sell  6/20/12  6,933  7,178  245 
  Japanese Yen  Sell  6/20/12  63,678  62,181  (1,497) 
  Mexican Peso  Buy  6/20/12  1,043  705  338 
  New Zealand Dollar  Sell  6/20/12  7,453  7,995  542 
  Norwegian Krone  Buy  6/20/12  120,141  128,308  (8,167) 
  Philippines Peso  Buy  6/20/12  7,126  7,280  (154) 
  Polish Zloty  Sell  6/20/12  6,783  6,195  (588) 
  Singapore Dollar  Sell  6/20/12  1,940  2,242  302 
  South African Rand  Sell  6/20/12  7,015  6,454  (561) 
  South Korean Won  Sell  6/20/12  6,846  6,477  (369) 
  Swedish Krona  Buy  6/20/12  225,560  246,021  (20,461) 
  Swiss Franc  Buy  6/20/12  22,243  22,613  (370) 
  Swiss Franc  Sell  6/20/12  22,243  23,776  1,533 
  Taiwan Dollar  Buy  6/20/12  25,322  25,639  (317) 
  Taiwan Dollar  Sell  6/20/12  25,322  25,789  467 
  Thai Baht  Buy  6/20/12  7,141  7,310  (169) 
  Turkish Lira  Buy  6/20/12  4,910  5,822  (912) 
Westpac Banking Corp.           
  Australian Dollar  Buy  6/20/12  86,761  93,255  (6,494) 
  British Pound  Sell  6/20/12  303,443  318,052  14,609 
  Canadian Dollar  Buy  6/20/12  173,235  180,946  (7,711) 
  Euro  Buy  6/20/12  56,265  58,095  (1,830) 
  Japanese Yen  Sell  6/20/12  16,965  16,584  (381) 
  Mexican Peso  Buy  6/20/12  6,838  7,136  (298) 

 

39


FORWARD CURRENCY CONTRACTS at 5/31/12 (aggregate face value $13,960,330) cont.

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Westpac Banking Corp. cont.           
  Mexican Peso  Sell  6/20/12  $6,629  $7,340  $711 
  Norwegian Krone  Buy  6/20/12  81,701  86,696  (4,995) 
  Swedish Krona  Buy  6/20/12  23,304  23,667  (363) 
  Swedish Krona  Sell  6/20/12  23,304  23,699  395 
Total            $(61,722) 

 

FUTURES CONTRACTS OUTSTANDING at 5/31/12

 

        Unrealized 
  Number of    Expiration  appreciation/ 
  contracts  Value  date  (depreciation) 
DAX Index (Short)  1  $192,863  Jun-12  $17,040 
Euro STOXX 50 Index (Long)  5  130,142  Jun-12  (438) 
Euro STOXX 50 Index (Short)  19  494,538  Jun-12  78,176 
FTSE 100 Index (Long)  1  81,506  Jun-12  (256) 
IBEX 35 Index (Long)  2  149,859  Jun-12  (10,157) 
Russell 2000 Index Mini (Short)  5  380,550  Jun-12  (4,487) 
S&P 500 Index E-Mini (Long)  16  1,047,363  Jun-12  (27,993) 
S&P Mid Cap 400 Index E-Mini (Long)  2  184,960  Jun-12  1,302 
SPI 200 Index (Short)  1  99,188  Jun-12  7,216 
Total        $60,403 

 

40


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  $883,570  $193,169  $— 
Capital goods  977,648  74,003  — 
Communication services  759,432  111,523  — 
Conglomerates  425,604  12,442  — 
Consumer cyclicals  1,959,992  132,040  — 
Consumer staples  1,555,556  186,947  129 
Energy  1,433,746  254,938  — 
Financials  2,510,137  295,611  — 
Government  5,987  —  — 
Health care  1,742,697  228,946  — 
Technology  2,858,550  38,588  — 
Transportation  212,339  5,690  — 
Utilities and power  505,411  66,792  — 
Total common stocks  15,830,669  1,600,689  129 
 
Investment companies  $547,305  $—  $— 
Short-term investments  658,914  181,860  — 
Totals by level  $17,036,888  $1,782,549  $129 
 
    Valuation inputs   
Other financial instruments:  Level 1  Level 2  Level 3 
Forward currency contracts  $—  $(61,722)  $— 
Futures contracts  60,403  —  — 
Totals by level  $60,403  $(61,722)  $— 

 

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.

41


Statement of assets and liabilities 5/31/12

ASSETS   
Investment in securities, at value (Note 1):   
Unaffiliated issuers (identified cost $16,493,277)  $18,160,652 
Affiliated issuers (identified cost $658,914) (Notes 1 and 6)  658,914 
Foreign currency (cost $5,690) (Note 1)  5,479 
Dividends, interest and other receivables  61,724 
Receivable for shares of the fund sold  44,170 
Receivable for investments sold  13,993 
Unrealized appreciation on forward currency contracts (Note 1)  320,323 
Receivable from Manager (Note 2)  21,748 
Total assets  19,287,003 
 
LIABILITIES   
Payable to custodian  286 
Payable for variation margin (Note 1)  2,219 
Payable for investments purchased  13,758 
Payable for shares of the fund repurchased  16,674 
Payable for investor servicing fees (Note 2)  8,695 
Payable for custodian fees (Note 2)  43,384 
Payable for Trustee compensation and expenses (Note 2)  1,960 
Payable for administrative services (Note 2)  92 
Unrealized depreciation on forward currency contracts (Note 1)  382,045 
Other accrued expenses  91,303 
Total liabilities  560,416 
 
Net assets  $18,726,587 
 
REPRESENTED BY   
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $15,721,857 
Undistributed net investment income (Note 1)  63,248 
Accumulated net realized gain on investments and foreign currency transactions (Note 1)  1,276,604 
Net unrealized appreciation of investments and assets and liabilities in foreign currencies  1,664,878 
Total — Representing net assets applicable to capital shares outstanding  $18,726,587 
 
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE   
Net asset value and redemption price per class A share ($28,327 divided by 2,802 shares)  $10.11 
Offering price per class A share (100/94.25 of $10.11)*  $10.73 
Net asset value, offering price and redemption price per class Y share   
($18,698,260 divided by 1,849,348 shares)  $10.11 

 

* 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.

42


Statement of operations Year ended 5/31/12

INVESTMENT INCOME   
Dividends (net of foreign tax of $16,273)  $522,571 
Interest (including interest income of $170 from investments in affiliated issuers) (Note 6)  866 
Securities lending (Note 1)  4,207 
Total investment income  527,644 
 
EXPENSES   
Compensation of Manager (Note 2)  140,578 
Investor servicing fees (Note 2)  62,185 
Custodian fees (Note 2)  104,372 
Trustee compensation and expenses (Note 2)  1,755 
Administrative services (Note 2)  728 
Auditing  92,386 
Other  23,153 
Fees waived and reimbursed by Manager (Note 2)  (175,556) 
Total expenses  249,601 
 
Expense reduction (Note 2)  (564) 
Net expenses  249,037 
 
Net investment income  278,607 
 
Net realized gain on investments (Notes 1 and 3)  1,940,710 
Net realized loss on swap contracts (Note 1)  (216,047) 
Net realized gain on futures contracts (Note 1)  57,608 
Net realized loss on foreign currency transactions (Note 1)  (244,786) 
Net unrealized appreciation of assets and liabilities in foreign currencies during the year  11,373 
Net unrealized depreciation of investments, futures contracts and swap contracts   
during the year  (5,395,861) 
Net loss on investments  (3,847,003) 
 
Net decrease in net assets resulting from operations  $(3,568,396) 

 

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

43


Statement of changes in net assets

DECREASE IN NET ASSETS  Year ended 5/31/12  Year ended 5/31/11 
Operations:     
Net investment income  $278,607  $285,802 
Net realized gain on investments     
and foreign currency transactions  1,537,485  3,815,351 
Net unrealized appreciation (depreciation) of investments     
and assets and liabilities in foreign currencies  (5,384,488)  3,531,897 
Net increase (decrease) in net assets resulting     
from operations  (3,568,396)  7,633,050 
Distributions to shareholders (Note 1):     
From ordinary income     
Net investment income     
Class A  —  (614) 
Class Y  —  (736,427) 
Net realized short-term gain on investments     
Class A  (1,354)  (1,830) 
Class Y  (950,609)  (2,101,500) 
From net realized long-term gain on investments     
Class A  (1,611)  (1,993) 
Class Y  (1,113,394)  (2,287,740) 
Decrease from capital share transactions (Note 4)  (9,265,753)  (2,701,595) 
Total decrease in net assets  (14,901,117)  (198,649) 
 
NET ASSETS     
Beginning of year  33,627,704  33,826,353 
End of year (including undistributed net investment income     
of $63,248 and $68,077, respectively)  $18,726,587  $33,627,704 

 

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

44

 

 

 

 

 


 

This page left blank intentionally. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45


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

INVESTMENT OPERATIONS:      LESS DISTRIBUTIONS:      RATIOS AND SUPPLEMENTAL DATA:   
                        Ratio of net   
                      Ratio  investment   
  Net asset    Net realized                of expenses  income (loss)   
  value,    and unrealized  Total from  From  From  Total  Net asset  Total return  Net assets,  to average  to average  Portfolio 
  beginning  Net investment  gain (loss)  investment  net investment  net realized gain  distribu-  value, end  at net asset  end of period  net assets  net assets  turnover 
Period ended  of period  income (loss) a   on investments  operations  income  on investments  tions  of period  value (%) b  (in thousands)  (%) c,d  (%) d  (%) 
Class A                           
May 31, 2012  $12.28  .13  (1.12)  (.99)  —  (1.18)  (1.18)  $10.11  (7.40)  $28  1.07  1.20  82 
May 31, 2011  11.53  .10  2.79  2.89  (.30)  (1.84)  (2.14)  12.28  26.57  31  1.06  .86  110 
May 31, 2010  11.85  .10  2.09  2.19  (.96)  (1.55)  (2.51)  11.53  18.34  23  1.05  .82  103 
May 31, 2009†  10.00  .06  1.79  1.85  —  —  —  11.85  18.50 *  15  .40 *  .61 *  46 * 
Class Y                           
May 31, 2012  $12.28  .13  (1.12)  (.99)  —  (1.18)  (1.18)  $10.11  (7.41)  $18,698  1.07  1.20  82 
May 31, 2011  11.53  .11  2.78  2.89  (.30)  (1.84)  (2.14)  12.28  26.57  33,597  1.06  .87  110 
May 31, 2010  11.85  .10  2.09  2.19  (.96)  (1.55)  (2.51)  11.53  18.34  33,803  1.05  .78  103 
May 31, 2009†  10.00  .06  1.79  1.85  —  —  —  11.85  18.50 *  38,262  .40 *  .61 *  46 * 

 

* Not annualized.

† For the period January 23, 2009 (commencement of operations) to May 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 
May 31, 2012  0.75% 
May 31, 2011  0.49 
May 31, 2010  0.41 
May 31, 2009  0.30 

 

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

46  47 

 


Notes to financial statements 5/31/12

Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission and references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC. Unless otherwise noted, the “reporting period” represents the period from June 1, 2011 through May 31, 2012.

Putnam Dynamic Asset Allocation Equity Fund (the fund) (formerly known as Putnam Asset Allocation: Equity Portfolio) 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 investment objective of the fund is to seek long term growth by investing mainly in common stocks of midsized and large companies worldwide that Putnam Management believes have favorable potential.

The fund offers class A and class Y shares. Class A shares are sold with a maximum front-end sales charge of 5.75%, and generally do not pay a contingent deferred sales charge. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, but do not bear a distribution fee. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs.

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.

Note 1: Significant accounting policies

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.

A 1.00% redemption fee may apply on shares that are redeemed (either by selling or exchanging into another fund) within 7 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.

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 open-end investment companies (excluding exchange traded funds), which are classified as Level 1 securities, are based on their net asset value. The net asset value of an investment company equals the total value of its assets less its liabilities and 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 that the exchange is open.

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

48


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.

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. All premiums/discounts are amortized/accreted on a yield-to-maturity basis.

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.

Futures contracts The fund uses futures contracts to manage exposure to market risk, and to equitize cash.

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. The outstanding number of futures contracts at the close of the reporting period is indicative of the volume of activity during the reporting period.

49


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. The fund had an average contract amount of approximately $14,700,000 on forward currency contracts for the reporting period.

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 sector exposure, to manage exposure to specific sectors or industries, to gain exposure to specific markets or countries, and to gain exposure to specific sectors or industries.

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 $300,000 on total return swap contracts for the reporting period.

Master agreements The fund is a party to ISDA (International Swaps 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 $126,110 on derivative contracts subject to the Master Agreements. There was no collateral posted by the fund.

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.

50


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 to Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the fund had no securities out on loan.

Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by 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.

Line of credit The fund participates, along with other Putnam funds, in a $315 million ($325 million prior to June 29, 2012) unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by 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 0.11% (0.13% prior to June 29, 2012) 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.

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.

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, realized and unrealized gains and losses on certain futures contracts, realized and unrealized gains and losses on passive foreign investment companies, straddle loss deferrals, net operating loss, and income on swap contracts. 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 $283,436 to decrease undistributed net investment income, $18,586 to decrease paid-in-capital and $302,022 to increase to 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  $2,730,956 
Unrealized depreciation  (1,195,991) 
Net unrealized appreciation  1,534,965 
Undistributed long-term gain  1,488,791 
Cost for federal income tax purposes  $17,284,601 

 

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

51


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:

0.750%  of the first $5 billion, 
0.700%  of the next $5 billion, 
0.650%  of the next $10 billion, 
0.600%  of the next $10 billion, 
0.550%  of the next $50 billion, 
0.530%  of the next $50 billion, 
0.520%  of the next $100 billion and 
0.515%  of any excess thereafter. 

 

Putnam Management has contractually agreed, through June 30, 2013, 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 $175,556 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 0.32% of the fund’s average net assets. Prior to March 1, 2012, investor servicing fees could 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 $39 under the expense offset arrangements and by $525 under the brokerage/service arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $17, 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.

52


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 a distribution plan with respect to its class A shares (the Plan) pursuant to Rule 12b–1 under the Investment Company Act of 1940. The purpose of the Plan is to compensate Putnam Retail Management Limited Partnership, an indirect wholly-owned subsidiary of Putnam Investments, for services provided and expenses incurred in distributing shares of the fund. The Plan provides for payment by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35% of the average net assets attributable to class A shares. The Trustees currently have not approved payments under the Plan.

A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A 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 $19,192,768 and $29,536,954, 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 5/31/12  Year ended 5/31/11 
Class A  Shares  Amount  Shares  Amount 
Shares sold  —  $—  76  $918 
Shares issued in connection with         
reinvestment of distributions  311  2,965  391  4,423 
  311  2,965  467  5,341 
Shares repurchased  (2)  (15)  (1)  (15) 
Net increase  309  $2,950  466  $5,326 
 
  Year ended 5/31/12  Year ended 5/31/11 
Class Y  Shares  Amount  Shares  Amount 
Shares sold  857,458  $9,180,776  1,228,641  $14,658,559 
Shares issued in connection with         
reinvestment of distributions  218,185  2,064,003  452,797  5,125,667 
  1,075,643  11,244,779  1,681,438  19,784,226 
Shares repurchased  (1,962,161)  (20,513,482)  (1,876,963)  (22,491,147) 
Net decrease  (886,518)  $(9,268,703)  (195,525)  $(2,706,921) 

 

At the close of the reporting period, Putnam Investments, LLC owned 1,626 class A shares of the fund (58.0 % of class A shares outstanding), valued at $16,436.

At the close of the reporting period, funds within the Putnam RetirementReady® Funds owned 77.5% of the outstanding shares of the fund.

53


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  $320,323  Payables  $382,045 
  Investments,    Payables,   
  Receivables, Net    Net assets —   
  assets — Unrealized    Unrealized   
Equity contracts  appreciation  103,734*  depreciation  43,331* 
Total    $424,057    $425,376 

 

* 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      Forward     
for as hedging instruments      currency     
under ASC 815  Warrants*  Futures  contracts  Swaps  Total 
Foreign exchange           
contracts  $—  $—  $(345,425)  $—  $(345,425) 
Equity contracts  (881)  57,608  —  (216,047)  $(159,320) 
Total  $(881)  $57,608  $(345,425)  $(216,047)  $(504,745) 

 

† For the reporting period, the transaction volume for warrants was minimal.

Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments

Derivatives not accounted      Forward     
for as hedging instruments      currency     
under ASC 815  Warrants*  Futures  contracts  Swaps  Total 
Foreign exchange           
contracts  $—  $—  $13,409  $—  $13,409 
Equity contracts  881  111,464  —  8,228  $120,573 
Total  $881  $111,464  $13,409  $8,228  $133,982 

 

* 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 $170 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $7,988,038 and $8,785,737, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.

54


Note 7: Market, credit and other risks

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.

Note 8: New accounting pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011–04 “Fair Value Measurements and Disclosures (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. ASU 2011–04 amends FASB Topic 820 “Fair Value Measurement” and seeks to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. ASU 2011–04 is effective for fiscal years and interim periods beginning after December 15, 2011. The application of ASU 2011–04 will not have a material impact on the fund’s financial statements.

In December 2011, the FASB issued ASU No. 2011–11 “Disclosures about Offsetting Assets and Liabilities”. The update creates new disclosure requirements requiring entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. Putnam Management is currently evaluating the application of ASU 2011–11 and its impact, if any, on the fund’s financial statements.

55


Federal tax information (Unaudited)

Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $1,813,889 as a capital gain dividend with respect to the taxable year ended May 31, 2012, or, if subsequently determined to be different, the net capital gain of such year.

The Form 1099 that will be mailed to you in January 2013 will show the tax status of all distributions paid to your account in calendar 2012.

56


About the Trustees

Independent Trustees


Ravi Akhoury Born 1947, Trustee since 2009

Principal occupations during past five years: Advisor to New York Life Insurance Company. Trustee of American India Foundation and of the Rubin Museum. From 1992 to 2007, was Chairman and CEO of MacKay Shields, a multi-product investment management firm with over $40 billion in assets under management.

Other directorships: RAGE Frameworks, Inc., a private software company; English Helper, Inc., a private software company


Barbara M. Baumann Born 1955, Trustee since 2010

Principal occupations during past five years: President and Owner of Cross Creek Energy Corporation, a strategic consultant to domestic energy firms and direct investor in energy projects. Trustee of Mount Holyoke College and member of the Investment Committee for the college’s endowment. Former Chair and current board member of Girls Incorporated of Metro Denver. Member of the Finance Committee, The Children’s Hospital of Colorado.

Other directorships: SM Energy Company, a domestic exploration and production company; UniSource Energy Corporation, an Arizona utility


Jameson A. Baxter
Born 1943, Trustee since 1994, Vice Chair from 2005 to 2011, and Chair since 2011

Principal occupations during past five years: President of Baxter Associates, Inc., a private investment firm. Chair of Mutual Fund Directors Forum. 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.


Charles B. Curtis Born 1940, Trustee since 2001

Principal occupations during past five years: Senior Advisor to the Center for Strategic and International Studies. Former President and Chief Operating Officer of the Nuclear Threat Initiative, a private foundation dealing with national security issues. Member of the Council on Foreign Relations and U.S. State Department International Security Advisory Board. Chairman of World Institute of Nuclear Security, a non-profit international non-governmental organization.

Other directorships: Southern California Edison, a regulated electric utility, and its parent company, Edison International


Robert J. Darretta Born 1946, Trustee since 2007

Principal occupations during past five years: Health Care Industry Advisor to Permira, a global private equity firm. Until April 2007, was Vice Chairman of the Board of Directors of Johnson & Johnson. Served as Johnson & Johnson’s Chief Financial Officer for a decade.

Other directorships: UnitedHealth Group, a diversified health-care company


John A. Hill Born 1942, Trustee since 1985 and Chairman from 2000 to 2011

Principal occupations during past five years: Founder and Vice-Chairman of First Reserve Corporation, the leading private equity buyout firm focused on the worldwide energy industry. Trustee and Chairman of the Board of Trustees of Sarah Lawrence College. Member of the Advisory Board of the Millstein Center for Corporate Governance and Performance at the Yale School of Management.

Other directorships: Devon Energy Corporation, a leading independent natural gas and oil exploration and production company

Paul L. Joskow Born 1947, Trustee since 1997

Principal occupations during past five years: Economist and President of the Alfred P. Sloan Foundation, a philanthropic institution focused primarily on research and education on issues related to science, technology, and economic performance. Elizabeth and James Killian Professor of Economics, Emeritus at the Massachusetts Institute of Technology (MIT). Prior to 2007, served as the Director of the Center for Energy and Environmental Policy Research at MIT.

Other directorships: Yale University; TransCanada Corporation, an energy company focused on natural gas transmission, oil pipeline, and power services; Exelon Corporation, an energy company focused on power services; Boston Symphony Orchestra

57



Elizabeth T. Kennan Born 1938, Trustee from 1992 to 2010 and since 2012

Principal occupations during the past five years: Partner of Cambus-Kenneth Farm (thoroughbred horse breeding and general farming). President Emeritus of Mount Holyoke College. Trustee of the National Trust for Historic Preservation and of Centre College. Chairman of the Board of Shaker Village of Pleasant Hill.

Other directorships: Former Chairman and now Lead Director of Northeast Utilities, which operates New England’s largest energy delivery system


Kenneth R. Leibler Born 1949, Trustee since 2006

Principal occupations during past five years: Founder and former Chairman of Boston Options Exchange, an electronic marketplace for the trading of derivative securities. Vice Chairman of the Board of Trustees of Beth Israel Deaconess Hospital in Boston, Massachusetts. Until November 2010, director of Ruder Finn Group, a global communications and advertising firm.

Other directorships: Northeast Utilities, which operates New England’s largest energy delivery system


Robert E. Patterson Born 1945, Trustee since 1984

Principal occupations during past five years: Senior Partner of Cabot Properties, LP and Co-Chairman of Cabot Properties, Inc., a private equity firm investing in commercial real estate. Past Chairman and Trustee of the Joslin Diabetes Center.


George Putnam, III Born 1951, Trustee since 1984

Principal occupations during past five years: Chairman of New Generation Research, Inc., a publisher of financial advisory and other research services. 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 Born 1942, Trustee from 1997 to 2008 and since 2009

Principal occupations during past five years: Retired as Chairman and Chief Executive Officer of Boise Cascade, LLC, a paper, forest products, and timberland assets company, in December 2008. Prior to 2010, Director of Boise Inc., a manufacturer of paper and packaging products.

Other directorships: TransCanada Pipelines Ltd., an energy infrastructure company

Interested Trustee


Robert L. Reynolds*
Born 1952, Trustee since 2008 and President of the Putnam Funds since 2009

Principal occupations during past five years: President and Chief Executive Officer of Putnam Investments since 2008. Prior to joining Putnam Investments, served as Vice Chairman and Chief Operating Officer of Fidelity Investments from 2000 to 2007.

The address of each Trustee is One Post Office Square, Boston, MA 02109.

As of May 31, 2012, there were 109 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 75, 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.

58


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, 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 and Treasurer 
Robert R. Leveille (Born 1969)  Since 2010 
Vice President and Chief Compliance Officer  Manager of Finance, Dunkin’ Brands (2008– 
Since 2007  2010); Senior Financial Analyst, Old Mutual Asset 
Chief Compliance Officer, Putnam Investments,  Management (2007–2008); Senior Financial 
Putnam Management, and Putnam Retail  Analyst, Putnam Investments (1999–2007) 
Management   
  Nancy E. Florek (Born 1957) 
Mark C. Trenchard (Born 1962)  Vice President, Assistant Clerk, Assistant 
Vice President and BSA Compliance Officer  Treasurer, and Proxy Manager 
Since 2002  Since 2000 
Director of Operational Compliance,   
Putnam Investments and Putnam  Susan G. Malloy (Born 1957) 
Retail Management  Vice President and Assistant Treasurer 
  Since 2007 
  Director of Accounting & Control Services, 
  Putnam 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.

59


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.

60


Fund information

Founded 75 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  Robert R. Leveille 
Putnam Investment  Jameson A. Baxter, Chair  Vice President and 
Management, LLC  Ravi Akhoury  Chief Compliance Officer 
One Post Office Square  Barbara M. Baumann   
Boston, MA 02109  Charles B. Curtis  Mark C. Trenchard 
  Robert J. Darretta  Vice President and 
Investment Sub-Manager  John A. Hill  BSA Compliance Officer 
Putnam Investments Limited  Paul L. Joskow   
57–59 St James’s Street  Elizabeth T. Kennan  Robert T. Burns 
London, England SW1A 1LD  Kenneth R. Leibler  Vice President and 
  Robert E. Patterson  Chief Legal Officer 
Investment Sub-Advisor  George Putnam, III   
The Putnam Advisory  Robert L. Reynolds  James P. Pappas 
Company, LLC  W. Thomas Stephens  Vice President 
One Post Office Square     
Boston, MA 02109  Officers  Judith Cohen 
  Robert L. Reynolds  Vice President, Clerk, and 
Marketing Services  President  Assistant Treasurer 
Putnam Retail Management     
One Post Office Square  Jonathan S. Horwitz  Michael Higgins 
Boston, MA 02109  Executive Vice President,  Vice President and Treasurer 
  Principal Executive Officer,   
Custodian  and Compliance Liaison  Nancy E. Florek 
State Street Bank    Vice President, Assistant Clerk, 
and Trust Company  Steven D. Krichmar  Assistant Treasurer, and 
  Vice President and  Proxy Manager 
Legal Counsel  Principal Financial Officer   
Ropes & Gray LLP    Susan G. Malloy 
  Janet C. Smith  Vice President and 
Independent Registered  Vice President,  Assistant Treasurer 
Public Accounting Firm  Assistant Treasurer, and   
PricewaterhouseCoopers LLP  Principal Accounting Officer   

 

This report is for the information of shareholders of Putnam Dynamic Asset Allocation 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
May 31, 2012 $75,260 $-- $14,922 $39
May 31, 2011 $65,303 $-- $6,571 $ —

For the fiscal years ended May 31, 2012 and May 31, 2011, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $107,713 and $234,792 ,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.

All Other Fees represent fees billed for services relating to an analysis of fund profitability

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
May 31, 2012 $ — $76,005 $ — $ —
May 31, 2011 $ — $191,000 $ — $ —

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: July 27, 2012
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: July 27, 2012
By (Signature and Title):
/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer

Date: July 27, 2012

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: Robert T. Burns, 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: May 31, 2012
   
Date of reporting period: September 19, 2011 (commencement of operations) — May 31, 2012

 

 

 

 

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 Dynamic
Risk Allocation
Fund

Annual report
5 | 31 | 12

Message from the Trustees  1 
About the fund  2 
Performance snapshot  4 
Interview with your fund’s portfolio manager  5 
Your fund’s performance  11 
Your fund’s expenses  13 
Terms and definitions  15 
Other information for shareholders  16 
Financial statements  17 
Federal tax information  61 
About the Trustees  62 
Officers  64 

 

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. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. Our allocation of assets among asset classes may hurt performance, and our efforts to diversify risk through the use of leverage and allocation decisions may not be successful. 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. Bond investments are subject to interest-rate risk, which means the prices of the fund’s bond investments are likely to fall if interest rates rise. Bond investments also are subject to credit risk, which is the risk that the issuer of the bond may default on payment of interest or principal. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds, which may be considered speculative. Unlike bonds, funds that invest in bonds have ongoing fees and expenses. Our active trading strategies may lose money or not earn a return sufficient to cover trading and other costs. Our use of leverage increases these risks by increasing investment exposure. REITs involve the risks of real estate investing, including declining property values. The use of short selling may result in losses if the securities appreciate in value. Commodities involve the risks of changes in market, political, regulatory, and natural conditions.

 


Message from the Trustees

Dear Fellow Shareholder:

Markets worldwide continue to be buffeted by headwinds out of Europe and evidence of a slowing global economy. The coming election in the United States has added to uncertainty around important economic issues at the federal and state levels. It is prudent to expect this volatility to stay with us as policymakers around the world work out solutions to debt issues and pave the way to sustained economic growth.

Long-term investors should also understand that Putnam’s experienced investment team is trained to uncover opportunities in precisely this type of environment, while actively seeking to guard against downside risk. As always, it is wise to rely on the expertise and insights of your financial advisor, someone who can help you maintain a long-term focus and a balanced investment approach.

In other news, please join us in welcoming the return of Elizabeth T. Kennan to the Board of Trustees. Dr. Kennan, who served as a Trustee from 1992 until 2010, has rejoined the Board, effective January 1, 2012. Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse breeding and general farming), and is also President Emeritus of Mount Holyoke College.

We would also 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.






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 the period, the fund had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com. The short-term results of a relatively new fund are not necessarily indicative of its long-term prospects.

4


Interview with your fund’s portfolio manager


Jeff, in 2012 we have seen markets decline again heading into the summer months. How did this affect the fund?

The period since the fund’s inception in September was interesting in that there was a big rally followed by a pullback, and neither the most risky assets nor the most conservative performed particularly well. International markets, and Europe in particular, fared poorly, and emerging markets also posted a modest loss. At the same time, avoiding risk entirely was not a winning strategy, either. Returns from short-term securities and government bonds were mildly positive, but not highly rewarding.

In my view, the fund’s balanced-risk strategy was well suited for the market trends of this period. Our basic premise is to invest in a balanced manner across a wide variety of risks through positions we establish with securities and with derivatives. The fund had exposure to several of the better-performing investments, such as U.S. small- and large-cap stocks, as well as high-yield and investment-grade corporate bonds. Of course, at the same time, this meant that we had positions in asset classes that underperformed, such as commodities and international markets, but these weaker investments were not large weightings. We also kept the portfolio’s volatility relatively low, which is something we consider important for investors. During the period the fund’s volatility, as measured by standard deviation, was only about half as much as the S&P 500 Index.


This comparison shows your fund’s performance in the context of broad market indexes for the period from 9/19/11 (commencement of operations) to 5/31/12. See pages 4 and 11–12 for additional fund performance information. Index descriptions can be found on pages 15–16.

5


What is your view of the crisis in Europe, as problems mount in Greece, Spain, and Italy?

It’s a serious situation. Even though the issues began to surface over two years ago, policy interventions so far have addressed symptoms rather than the disease, in my view. For example, after much reluctance, the European Central Bank instituted Long-Term Refinancing Operations during the past winter. This relieved short-term funding pressure on European banks by providing over $1 trillion in liquidity, giving banks access to three-year loans to replace overnight lending. This helped lift markets from January until March, but its effects faded because, our analysis suggests, it does not resolve structural imbalances that created the short-term funding pressure.

Thus far, policy interventions have stimulated short-term relief rallies, but, we believe, did not clear the road for sustained growth. Behind the scenes, of course, European political leaders are negotiating structural reforms. It may take even worse market conditions to push leaders toward a real solution.

One of the fund’s interesting strategies is the pursuit of risk exposures rather than asset class exposures. Can you give an overview of your methods?

The fund establishes a range of risk exposures using a variety of derivatives purchased with cash instruments. For example, owning bond futures contracts and interest-rate swaps allows us to manage interest-rate exposure and hedge rate risk. This is important in both our inflation and interest-rate risk

Allocations are represented as a percentage of portfolio value. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities, 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.

The fund’s exposures exceed 100% as a result of the fund’s use of investment leverage.

6


strategies. We also use similar instruments to hedge prepayment risk. Credit default swaps, another type of derivative, are important tools in building the fund’s credit risk exposures. They’re used to hedge credit and market risk, as well as the risks of individual securities. As a result, the fund can participate in the performance of the high-yield corporate bond sector, without owning high-yield bonds directly.


Do you also employ derivatives with your equity strategies?

Yes, although with equity strategies we also own positions in common stocks, which make up a significant portion of the portfolio. In implementing equity strategies, we use futures contracts to manage exposure to market risk, or to gain equity exposure. Using total return swaps, we manage specific sector, industry, and market exposures, and hedge the risks involved with these exposures.

In the fund’s semiannual update you said you were adding emphasis on U.S. equities. How did this strategy fare?

We saw an opportunity in U.S. stocks during the months of December and January. Our decision was based on the relative resilience of the U.S. economic recovery. Our research suggested that the fundamental performance of U.S. corporations in terms of earnings and profits would remain strong, and this proved to be true. Also, the U.S. market appeared much more attractive than other regions of the world. Over the course of the period, we reduced exposure to Europe because of its debt problems.

This positioning helped portfolio performance. During the second half of the fiscal period, the S&P 500 Index rose 6.2%, while the MSCI EAFE Index (ND) of international stocks declined 4.70%. Emerging markets also lagged the United States, with the MSCI Emerging Markets Index (ND) down


This table shows the fund’s top 10 individual holdings and the percentage of the fund’s net assets that each represented as of 5/31/12. Short-term holdings and derivatives are excluded. Holdings will vary over time.

7


1.14%. For the period from the fund’s inception on September 19, 2011, through May 31, 2012, class A shares delivered a 3.77% return before sales charges. The benchmark Putnam Dynamic Risk Allocation Blended Index, which reflects the performance of global stocks, global bonds, and commodities, returned 1.40%.

What other strategies had an impact on performance?

Within the U.S. equity position, we favored large-cap stocks with below-average volatility compared with the market in general. Our research has suggested that in the long term, these low-beta stocks, as they are called, have outperformed the market with less volatility, which flies in the face of conventional thinking on equity investments. As such, this strategy within the asset class fits perfectly within the fund’s overall philosophy, and it performed well in this period.

We also placed an emphasis on credit-risk strategies during the period. We wanted exposure to performance of the high-yield sector because it offered attractive return potential, in our view, even as the corporate default rate has remained below its long-term average. The economic environment during the period also provided support for the high-yield sector, because the moderate pace of growth supported corporate earnings. By contrast, we underweighted commodity investments. Softer global growth has reduced demand for commodities, and prices have fallen. Commodities also have negative carrying costs rather than generating current income.

How did currencies affect performance?

As a global fund, we have a variety of currency exposures in the portfolio. The currency exposures are achieved both by owning international securities, and by active strategies using forward currency contracts, a type of derivative. Forwards allow us to establish specific currency exposures and to hedge foreign exchange risk that we consider unattractive.


Allocations are represented as a percentage of the fund’s portfolio value. Risk contribution is from Putnam research, which uses the historical standard deviation for the respective asset classes multiplied by the appropriate asset weight. Holdings and allocations may vary over time.

8


For the period as a whole, the U.S. dollar was relatively strong, and exposures to international currencies generally did not add to performance. In addition, some of our active currency strategies detracted from portfolio results. We had a short position on the euro amid Europe’s difficulties early in the fiscal period. However, despite Europe’s travails, the single currency remained relatively strong against the dollar at the time we had this position, and weakened much later in the period, when we did not have the same exposure. Also, our positioning in the Australian dollar hindered performance. It has been one of the world’s strongest currencies in recent years, and we expected some weakness. However, the Australian dollar remained relatively strong.

What is your outlook for markets and the fund in coming months?

We have a somewhat pessimistic outlook for markets in the second half of calendar year 2012, and we have reduced some of the portfolio’s risk exposures. We changed our stance because of the situation in Europe and because of signs of a lower trajectory of economic growth in the United States and the global economy. In Europe, the urgency of structural reforms has increased. Spain and Italy face unsustainable borrowing costs, and Greece’s new government wants to pursue relaxing the constraints on its budget.

Recent U.S. economic data, especially a lower level of job creation and lower consumer confidence, suggest that the expansion has shifted to a lower trajectory. While we do not anticipate a recession, it is also difficult to anticipate much of a rebound in the economy. The fiscal policy outlook is negative unless Congress acts before 2013. Currently, taxes are slated to increase and government spending to decrease. Although a last-minute solution remains possible, the uncertainty likely over the next several months could cause businesses to delay hiring and investment decisions.

A word about derivatives

Derivatives are an increasingly common type of investment instrument, the performance of which is derived from an underlying security, index, currency, or other area of the capital markets. Derivatives employed by the fund’s managers generally serve one of two main purposes: to implement a strategy that may be difficult or more expensive to invest in through traditional securities, or to hedge unwanted risk associated with a particular position. For example, the fund’s managers might use forward currency contracts to capitalize on an anticipated change in exchange rates between two currencies. This approach would require a significantly smaller outlay of capital than purchasing traditional bonds denominated in the underlying currencies. In another example, the managers may identify a bond that they believe is undervalued relative to its risk of default, but may seek to reduce the interest-rate risk of that bond by using interest-rate swaps, a derivative through which two parties “swap” payments based on the movement of certain rates. In other examples, the managers may use options and futures contracts to hedge against a variety of risks, including the possibility of higher interest rates or bond prepayments, as well as to manage exposures to specific equity markets or sectors. Like any other investment, derivatives may not appreciate in value and may lose money. Derivatives may amplify traditional investment risks and may be less liquid than traditional securities. And because derivatives typically represent contractual agreements between two financial institutions, derivatives entail “counterparty risk,” which is the risk that the other party is unable to pay. Putnam monitors the counterparty risks we assume. Putnam also seeks to mitigate the level of ongoing counterparty credit risk by entering into collateral agreements with counterparties in which collateral is posted on a regular basis to cover the developing gain or loss of open swaps and forward contracts.

9


In response, we have reduced the fund’s risk exposures, primarily by lowering positions in Europe and emerging markets. We have maintained positions in fixed income, including our high-yield bonds. These securities are supported, we believe, by attractive yield spreads and a low corporate default rate. We have also added a bit to precious metals exposure, anticipating that efforts by central bankers around the world to resuscitate the pace of growth could cause gold prices to rise again.

Jeff, thanks for commenting on the fund 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 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 James A. Fetch; Robert J. Kea, CFA; Joshua B. Kutin, CFA; Robert J. Schoen; and Jason R. Vaillancourt, CFA.

IN THE NEWS

Risk-averse investors around the world are stampeding into government bonds, driving yields to record lows. In the United States, the rate on a 10-year U.S. Treasury note recently dipped to levels not seen since 1945. Several factors have driven the prices of U.S. Treasuries higher and their yields lower, including concerns about a U.S. economic slowdown, Europe’s dire economic situation, and the decelerating economies of China and India. In early June, the 10-year Treasury note yield fell to 1.54%, below the prior low of 1.55%, which was reached just after World War II. At the time, the U.S. government had instituted price controls, and interest rates were kept artificially low to foster financial stability. In several developed economies around the globe, 10-year government bond yields are well below those in the United States.

10


Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended May 31, 2012, 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 period ended 5/31/12

  Class A  Class B  Class C  Class M  Class R  Class Y 
(inception dates)  (9/19/11)  (9/19/11)  (9/19/11)  (9/19/11)  (9/19/11)  (9/19/11) 
  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  3.77%  –2.20%  3.19%  –1.81%  3.21%  2.21%  3.39%  –0.20%  3.59%  4.02% 

 

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. The short-term results of a relatively new fund are not necessarily indicative of its long-term prospects.

For the period, the fund had expense limitations, without which returns would have been lower.

Comparative index returns For period ended 5/31/12

  Putnam Dynamic Risk  Lipper Global Flexible Portfolio Funds 
  Allocation Blended Index  category average* 
Life of fund  1.40%  –0.22% 

 

Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.

* Over the life-of-fund periods ended 5/31/12, there were 347 funds 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 $10,319 ($9,819 with contingent deferred sales charge). A $10,000 investment in the fund’s class C shares would have been valued at $10,321 ($10,221 with contingent deferred sales charge). A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $9,980. A $10,000 investment in the fund’s class R and Y shares would have been valued at $10,359 and $10,402, respectively.

Fund price and distribution information For period ended 5/31/12

Distributions  Class A  Class B  Class C  Class M  Class R  Class Y 
Number  1  1  1  1  1  1 
Income  $0.0877  $0.0717  $0.0827  $0.0807  $0.0807  $0.0927 
Capital gains — Short-term  $0.0423  $0.0423  $0.0423  $0.0423  $0.0423  $0.0423 
Capital gains — Long-term  —  —  —  —  —  — 
Total  $0.1300  $0.1140  $0.1250  $0.1230  $0.1230  $0.1350 
  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 
9/19/11*  $10.00  $10.61  $10.00  $10.00  $10.00  $10.36  $10.00  $10.00 
5/31/12  10.24  10.86  10.20  10.19  10.21  10.58  10.23  10.26 

 

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.

* Inception date of the fund.

Fund performance as of most recent calendar quarter
Total return for periods ended 6/30/12

  Class A  Class B  Class C  Class M  Class R  Class Y 
(inception dates)  (9/19/11)  (9/19/11)  (9/19/11)  (9/19/11)  (9/19/11)  (9/19/11) 
  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  6.30%  0.19%  5.62%  0.62%  5.64%  4.64%  5.92%  2.24%  6.02%  6.56% 

 

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 
Estimated net expenses for the fiscal year             
ended 5/31/12*  1.40%  2.15%  2.15%  1.90%  1.65%  1.15% 
Estimated total annual operating expenses for the             
fiscal year ended 5/31/12  2.12%  2.87%  2.87%  2.62%  2.37%  1.87% 
Annualized expense ratio for the six-month period             
ended 5/31/12†  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 9/30/12.

† 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 December 1, 2011, to May 31, 2012. 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*†  $7.12  $10.92  $10.92  $9.66  $8.39  $5.86 
Ending value (after expenses)  $1,035.60  $1,031.90  $1,032.10  $1,032.90  $1,034.90  $1,037.10 

 

* 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 5/31/12. 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 May 31, 2012, use the following calculation method. To find the value of your investment on December 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*†  $7.06  $10.83  $10.83  $9.57  $8.32  $5.81 
Ending value (after expenses)  $1,018.00  $1,014.25  $1,014.25  $1,015.50  $1,016.75  $1,019.25 

 

* 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 5/31/12. 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 Global Aggregate Bond Index is an unmanaged index of global investment-grade fixed-income securities.

Barclays 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 EAFE Index (ND) is an unmanaged index of equity securities from Europe, Australasia, and the Far East.

MSCI Emerging Markets Index (ND) is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

MSCI World Index (ND) is an unmanaged index of equity securities from developed countries.

Putnam Dynamic Risk Allocation Blended Index is a benchmark administered by Putnam Management, comprising 50% MSCI World Index (ND), 40% Barclays Global Aggregate Bond Index, and 10% S&P Goldman Sachs Commodity Index.

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

S&P Goldman Sachs Commodity Index is a composite index of commodity sector returns that represents a broadly diversified, unleveraged, long-only position in commodity futures.

15


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.

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 Securities and Exchange Commission (SEC) 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 May 31, 2012, Putnam employees had approximately $326,000,000 and the Trustees had approximately $77,000,000 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.

16


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.

17


Report of Independent Registered Public Accounting Firm

To the Trustees of Putnam Funds Trust and
Shareholders of Putnam Dynamic Risk Allocation Fund:

We have audited the accompanying statement of assets and liabilities of Putnam Dynamic Risk Allocation (the fund), a series of Putnam Funds Trust, including the fund’s portfolio, as of May 31, 2012, and the related statement of operations, the statement of changes in net assets and the financial highlights for the period from September 19, 2011 (commencement of operations) to May 31, 2012. 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 audit.

We conducted our audit 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 May 31, 2012 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 Dynamic Risk Allocation Fund as of May 31, 2012, the results of its operations, the changes in its net assets and the financial highlights for the period specified in the first paragraph above, in conformity with U.S. generally accepted accounting principles.


Boston, Massachusetts
July 23, 2012

18


The fund’s portfolio 5/31/12

COMMON STOCKS (35.8%)*  Shares  Value 
 
Basic materials (1.7%)     
Allied Nevada Gold Corp. †  1,345  $34,889 
American Vanguard Corp.  347  9,352 
Assa Abloy AB Class B (Sweden)  4,308  112,040 
BASF SE (Germany)  2,136  149,197 
Bemis Co., Inc.  1,499  45,510 
BHP Billiton PLC (United Kingdom)  2,958  77,551 
BHP Billiton, Ltd. (Australia)  5,023  156,426 
Buckeye Technologies, Inc.  220  6,096 
Cambrex Corp. †  981  7,053 
Domtar Corp. (Canada)  34  2,690 
FMC Corp.  1,480  75,436 
Givaudan SA (Switzerland)  43  40,013 
Horsehead Holding Corp. †  536  4,749 
Innophos Holdings, Inc.  293  14,791 
Innospec, Inc. †  280  7,400 
International Flavors & Fragrances, Inc.  992  55,929 
K&S AG (Germany)  533  21,302 
KapStone Paper and Packaging Corp. †  782  12,074 
Koninklijke DSM NV (Netherlands)  1,642  78,451 
Koppers Holdings, Inc.  260  9,129 
L.B. Foster Co. Class A  72  1,990 
Landec Corp. †  966  7,061 
Linde AG (Germany)  589  90,516 
Minerals Technologies, Inc.  51  3,227 
NewMarket Corp.  23  4,803 
Newmont Mining Corp.  2,885  136,057 
Nitto Denko Corp. (Japan)  4,000  162,328 
NN, Inc. †  746  5,759 
PolyOne Corp.  774  10,240 
PPG Industries, Inc.  1,240  128,266 
Rio Tinto PLC (United Kingdom)  2,853  123,033 
Rio Tinto, Ltd. (Australia)  1,521  84,244 
Royal Gold, Inc.  756  51,136 
Sherwin-Williams Co. (The)  854  110,713 
Sigma-Aldrich Corp.  1,164  80,747 
Syngenta AG (Switzerland)  347  111,823 
TPC Group, Inc. †  186  5,876 
Tronox, Inc. †  45  7,290 
Valspar Corp.  1,230  59,298 
voestalpine AG (Austria)  2,647  66,481 
W.R. Grace & Co. †  399  20,948 
    2,191,914 
Capital goods (1.8%)     
ABB, Ltd. (Switzerland)  4,892  77,095 
Aisin Seiki Co., Ltd. (Japan)  2,800  87,723 
American Axle & Manufacturing Holdings, Inc. †  372  3,445 

 

19


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Capital goods cont.     
Applied Industrial Technologies, Inc.  445  $16,781 
AZZ, Inc.  78  4,183 
Ball Corp.  1,793  71,666 
Cascade Corp.  186  9,293 
Chart Industries, Inc. †  231  14,428 
Chase Corp.  325  3,734 
Covanta Holding Corp.  2,721  42,556 
DXP Enterprises, Inc. †  258  12,126 
European Aeronautic Defense and Space Co. NV (France)  3,489  117,461 
Franklin Electric Co., Inc.  161  7,876 
Fuji Electric Co., Ltd. (Japan)  30,000  69,678 
Generac Holdings, Inc. †  213  5,272 
General Dynamics Corp.  2,714  173,723 
Global Power Equipment Group, Inc. †  280  5,131 
Great Lakes Dredge & Dock Corp.  2,310  15,015 
Greenbrier Companies, Inc. †  337  4,664 
Hitachi, Ltd. (Japan)  31,000  177,629 
IHI Corp. (Japan)  17,000  34,929 
Kadant, Inc. †  322  7,309 
Lockheed Martin Corp.  2,171  179,759 
LSB Industries, Inc. †  552  15,357 
Mitsubishi Electric Corp. (Japan)  19,000  149,604 
NACCO Industries, Inc. Class A  72  7,555 
Newport Corp. †  173  2,057 
Northrop Grumman Corp.  2,520  148,050 
Raytheon Co.  3,244  163,238 
Republic Services, Inc.  3,774  99,483 
Roper Industries, Inc.  1,158  117,213 
Schindler Holding AG (Switzerland)  582  64,566 
Singapore Technologies Engineering, Ltd. (Singapore)  12,000  27,565 
Smith & Wesson Holding Corp. †  935  6,302 
Societe BIC SA (France)  881  86,334 
Standex International Corp.  139  5,656 
Stericycle, Inc. †  1,115  97,295 
Tetra Tech, Inc. †  163  4,073 
TriMas Corp. †  804  16,088 
Valmont Industries, Inc.  147  16,832 
Vinci SA (France)  729  29,336 
Waste Connections, Inc.  2,052  63,509 
    2,261,589 
Communication services (1.2%)     
Allot Communications, Ltd. (Israel) †  340  8,847 
American Tower Corp. Class A R  1,974  128,073 
Aruba Networks, Inc. †  340  4,468 
AT&T, Inc.  4,442  151,783 
BroadSoft, Inc. †  78  2,130 
BT Group PLC (United Kingdom)  57,467  182,851 

 

20


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Communication services cont.     
Cincinnati Bell, Inc. †  2,983  $10,560 
Deutsche Telekom AG (Germany)  5,872  57,946 
EchoStar Corp. Class A †  1,332  37,256 
France Telecom SA (France)  5,878  74,121 
HSN, Inc.  238  9,258 
IAC/InterActiveCorp.  1,652  74,208 
InterDigital, Inc.  35  864 
Kabel Deutschland Holding AG (Germany) †  1,095  62,166 
Loral Space & Communications, Inc.  107  6,452 
NeuStar, Inc. Class A †  280  9,010 
Nippon Telegraph & Telephone (NTT) Corp. (Japan)  2,400  103,522 
Premiere Global Services, Inc. †  316  2,642 
Tele2 AB Class B (Sweden)  3,402  50,707 
Telefonica SA (Rights) (Spain) †  5,516  1,603 
Telefonica SA (Spain)  5,516  61,294 
USA Mobility, Inc.  414  5,142 
Verizon Communications, Inc.  9,270  386,003 
Vodafone Group PLC (United Kingdom)  35,652  95,499 
Windstream Corp.  4,356  40,772 
    1,567,177 
Conglomerates (0.5%)     
AMETEK, Inc.  2,059  104,412 
Danaher Corp.  4,110  213,597 
General Electric Co.  9,342  178,339 
Marubeni Corp. (Japan)  5,000  32,032 
Siemens AG (Germany)  824  67,898 
    596,278 
Consumer cyclicals (4.1%)     
Advance Auto Parts, Inc.  683  49,818 
Aeon Co., Ltd. (Japan)  5,000  60,618 
Alliance Data Systems Corp. †  54  6,804 
Amazon.com, Inc. †  1,486  316,384 
Ameristar Casinos, Inc.  486  9,088 
Ascena Retail Group, Inc. †  593  11,225 
AutoZone, Inc. †  203  77,193 
Bed Bath & Beyond, Inc. †  1,644  118,779 
Belo Corp. Class A  2,546  14,716 
Big Lots, Inc. †  1,198  44,027 
Bluegreen Corp. †  809  4,085 
Brunswick Corp.  340  7,446 
Buckle, Inc. (The)  308  12,055 
Bunzl PLC (United Kingdom)  4,699  74,123 
Cabela’s, Inc. †  531  18,766 
Cato Corp. (The) Class A  109  3,128 
Christian Dior SA (France)  281  36,878 
Cintas Corp.  1,851  68,302 
Compass Group PLC (United Kingdom)  4,789  46,968 

 

21


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Consumer cyclicals cont.     
Conn’s, Inc. †  607  $10,616 
Constant Contact, Inc. †  243  4,921 
Daimler AG (Registered Shares) (Germany)  1,594  73,974 
Dana Holding Corp.  490  6,527 
Deckers Outdoor Corp. †  161  8,963 
Deluxe Corp.  520  12,022 
Destination Maternity Corp.  328  6,396 
Dillards, Inc. Class A  127  8,539 
Discovery Communications, Inc. Class A †  1,914  95,891 
Dollar General Corp. †  1,065  52,089 
Dollar Tree, Inc. †  917  94,616 
DSW, Inc. Class A  132  7,878 
Dun & Bradstreet Corp. (The)  831  56,151 
Ecolab, Inc.  2,144  135,522 
Equifax, Inc.  1,862  84,107 
Expedia, Inc.  1,187  54,471 
Express, Inc. †  670  12,395 
Finish Line, Inc. (The) Class A  734  15,135 
G-III Apparel Group, Ltd. †  424  10,477 
Genesco, Inc. †  88  5,852 
Global Cash Access Holdings, Inc. †  1,811  12,768 
Global Payments, Inc.  1,516  64,400 
GNC Holdings, Inc. Class A  339  13,062 
Helen of Troy, Ltd. (Bermuda) †  163  5,131 
Hino Motors, Ltd. (Japan)  14,000  93,083 
Home Depot, Inc. (The)  6,325  312,076 
Host Hotels & Resorts, Inc. R  4,849  73,996 
Industria de Diseno Textil (Inditex) SA (Spain)  1,080  89,530 
Isuzu Motors, Ltd. (Japan)  25,000  133,678 
Kimberly-Clark Corp.  3,606  286,136 
Kingfisher PLC (United Kingdom)  17,239  75,206 
Kohl’s Corp.  1,796  82,293 
La-Z-Boy, Inc. †  859  12,120 
Leapfrog Enterprises, Inc. †  1,466  15,276 
LIN TV Corp. Class A †  960  2,765 
McGraw-Hill Cos., Inc. (The)  2,086  90,491 
Men’s Wearhouse, Inc. (The)  297  10,689 
Moody’s Corp.  2,734  100,037 
MSC Industrial Direct Co., Inc. Class A  799  57,296 
Next PLC (United Kingdom)  2,470  115,625 
Nu Skin Enterprises, Inc. Class A  129  5,532 
O’Reilly Automotive, Inc. †  954  91,384 
Omnicom Group, Inc.  1,924  91,736 
OPAP SA (Greece) †  4,982  26,571 
Perry Ellis International, Inc. †  308  5,793 
PetSmart, Inc.  1,045  67,340 

 

22


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Consumer cyclicals cont.     
Pier 1 Imports, Inc.  456  $7,433 
Priceline.com, Inc. †  265  165,755 
PVH Corp.  79  6,399 
Randstad Holding NV (Netherlands)  565  15,421 
Rent-A-Center, Inc.  194  6,532 
Ross Stores, Inc.  1,671  105,657 
Scotts Miracle-Gro Co. (The) Class A  746  32,205 
Scripps Networks Interactive Class A  970  53,127 
Select Comfort Corp. †  265  7,250 
Shuffle Master, Inc. †  328  5,202 
Sinclair Broadcast Group, Inc. Class A  1,281  10,427 
Sonic Automotive, Inc. Class A  1,767  26,311 
Sony Corp. (Japan)  11,600  155,436 
Standard Parking Corp. †  295  5,608 
Suzuki Motor Corp. (Japan)  4,800  99,969 
Swire Pacific, Ltd. Class A (Hong Kong)  13,000  140,191 
Target Corp.  3,342  193,535 
Tempur-Pedic International, Inc. †  239  11,044 
Thor Industries, Inc.  168  5,166 
TNS, Inc. †  848  15,162 
Towers Watson & Co. Class A  1,016  61,224 
Town Sports International Holdings, Inc. †  557  6,522 
Tupperware Brands Corp.  680  36,754 
ValueClick, Inc. †  134  2,350 
Verisk Analytics, Inc. Class A †  1,848  88,519 
Viacom, Inc. Class B  3,006  143,476 
Volkswagen AG (Preference) (Germany)  568  90,865 
VOXX International Corp. †  1,009  9,949 
Warnaco Group, Inc. (The) †  122  5,430 
Whirlpool Corp.  119  7,364 
Williams-Sonoma, Inc.  174  6,074 
    5,197,316 
Consumer staples (4.1%)     
AFC Enterprises †  1,194  25,504 
Altria Group, Inc.  12,976  417,697 
Anheuser-Busch InBev NV (Belgium)  1,071  72,492 
Avis Budget Group, Inc. †  1,393  20,686 
Barrett Business Services, Inc.  204  4,029 
Beacon Roofing Supply, Inc. †  415  10,313 
Brinker International, Inc.  1,407  45,460 
British American Tobacco (BAT) PLC (United Kingdom)  2,235  105,222 
Career Education Corp. †  358  2,341 
Church & Dwight Co., Inc.  2,593  138,051 
Coca-Cola Co. (The)  809  60,457 
ConAgra Foods, Inc.  5,815  146,247 
Corinthian Colleges, Inc. †  1,455  3,987 
Diageo PLC (United Kingdom)  3,224  76,857 

 

23


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Consumer staples cont.     
DineEquity, Inc. †  69  $3,312 
Distribuidora Internacional de Alimentacion SA (Spain) †  9,152  40,099 
Dollar Thrifty Automotive Group †  63  5,140 
Dr. Pepper Snapple Group, Inc.  3,579  147,670 
Heineken Holding NV (Netherlands)  1,780  72,137 
Herbalife, Ltd.  15,965  715,072 
Japan Tobacco, Inc. (Japan)  25  139,421 
Kao Corp. (Japan)  3,300  85,364 
Kerry Group PLC Class A (Ireland)  1,780  76,819 
Koninklijke Ahold NV (Netherlands)  8,388  98,758 
Kroger Co. (The)  7,443  163,820 
Lincoln Educational Services Corp.  199  1,154 
Lorillard, Inc.  1,542  190,591 
McDonald’s Corp.  3,764  336,276 
Nestle SA (Switzerland)  4,307  244,639 
Panera Bread Co. Class A †  309  45,408 
Papa John’s International, Inc. †  137  6,373 
Philip Morris International, Inc.  6,542  552,864 
Prestige Brands Holdings, Inc. †  347  4,764 
Procter & Gamble Co. (The)  2,174  135,418 
Reynolds American, Inc.  4,298  179,828 
SABMiller PLC (United Kingdom)  1,253  46,400 
Sally Beauty Holdings, Inc. †  272  7,189 
Spartan Stores, Inc.  288  4,824 
Starbucks Corp.  3,685  202,270 
Tesco PLC (United Kingdom)  4,930  23,001 
Toyota Tsusho Corp. (Japan)  5,300  97,870 
Unilever PLC (United Kingdom)  1,712  54,114 
USANA Health Sciences, Inc. †  114  4,606 
W.W. Grainger, Inc.  614  118,901 
Woolworths, Ltd. (Australia)  3,540  91,173 
Yum! Brands, Inc.  2,398  168,723 
    5,193,341 
Energy (2.8%)     
Alpha Natural Resources, Inc. †  491  5,146 
Basic Energy Services, Inc. †  648  7,348 
BP PLC (United Kingdom)  13,381  81,335 
Chevron Corp.  6,312  620,533 
Clayton Williams Energy, Inc. †  84  4,800 
Cloud Peak Energy, Inc. †  281  4,350 
Compagnie Generale de Geophysique-Veritas     
(CGG-Veritas) (France) †  4,418  96,475 
ConocoPhillips  6,054  315,777 
Contango Oil & Gas Co. †  82  4,308 
CVR Energy, Inc. (Escrow)  401  — 
Delek US Holdings, Inc.  317  5,107 
Energy Partners, Ltd. †  497  7,848 

 

24


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Energy cont.     
ENI SpA (Italy)  6,243  $121,066 
Exxon Mobil Corp.  12,249  963,139 
FMC Technologies, Inc. †  2,776  111,706 
Helix Energy Solutions Group, Inc. †  905  15,503 
HollyFrontier Corp.  3,145  92,715 
Key Energy Services, Inc. †  942  9,335 
Marathon Oil Corp.  5,768  143,681 
Mitcham Industries, Inc. †  342  6,464 
Murphy Oil Corp.  2,227  103,823 
Petrofac, Ltd. (United Kingdom)  5,867  140,052 
Phillips 66 †  3,027  90,901 
Repsol YPF SA (Spain)  2,607  39,156 
REX American Resources Corp. †  222  4,089 
Rosetta Resources, Inc. †  109  4,217 
Royal Dutch Shell PLC Class A (United Kingdom)  4,801  149,359 
Royal Dutch Shell PLC Class B (United Kingdom)  4,418  142,511 
Statoil ASA (Norway)  5,534  125,450 
Stone Energy Corp. †  689  16,233 
Swift Energy Co. †  392  7,805 
Total SA (France)  2,601  112,541 
Unit Corp. †  146  5,809 
Vaalco Energy, Inc. †  1,769  15,090 
W&T Offshore, Inc.  392  6,025 
Western Refining, Inc.  336  6,498 
    3,586,195 
Financials (7.7%)     
3i Group PLC (United Kingdom)  11,589  31,357 
ACE, Ltd.  3,534  255,614 
Agree Realty Corp. R  288  6,025 
AIA Group, Ltd. (Hong Kong)  23,000  74,972 
Alexandria Real Estate Equities, Inc. R  192  13,144 
Allianz SE (Germany)  618  56,003 
Allied World Assurance Co. Holdings AG  1,837  141,265 
American Capital Agency Corp. R  128  4,182 
American Equity Investment Life Holding Co.  953  10,083 
American Express Co.  6,601  368,534 
American Safety Insurance Holdings, Ltd. †  473  8,495 
Amtrust Financial Services, Inc.  152  4,370 
Apartment Investment & Management Co. Class A R  3,875  104,896 
Apollo Commercial Real Estate Finance, Inc. R  493  7,829 
Apollo Residential Mortgage, Inc.  420  7,875 
Arch Capital Group, Ltd. †  4,139  158,234 
Arlington Asset Investment Corp. Class A  182  4,110 
ARMOUR Residential REIT, Inc. R  934  6,519 
Ashford Hospitality Trust, Inc. R  6,326  54,087 
Assured Guaranty, Ltd. (Bermuda)  632  7,546 
Australia & New Zealand Banking Group, Ltd. (Australia)  6,883  140,129 

 

25


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Financials cont.     
AvalonBay Communities, Inc. R  1,275  $178,181 
AXA SA (France)  6,606  74,956 
Banco Santander Central Hispano SA (Spain)  8,906  47,365 
Bank of Hawaii Corp.  1,312  60,798 
Bank of the Ozarks, Inc.  220  6,389 
Barclays PLC (United Kingdom)  42,402  116,575 
Berkshire Hathaway, Inc. Class B †  3,198  253,793 
BNP Paribas SA (France) †  2,707  86,347 
Boston Properties, Inc. R  1,110  114,252 
BRE Properties R  143  7,040 
Camden Property Trust R  1,821  118,565 
Cardinal Financial Corp.  620  7,068 
Cardtronics, Inc. †  301  8,434 
CBL & Associates Properties, Inc. R  738  12,885 
Chubb Corp. (The)  2,213  159,491 
Citizens & Northern Corp.  349  6,090 
CNO Financial Group, Inc. †  1,285  8,815 
Commerce Bancshares, Inc.  1,813  70,236 
Commonwealth Bank of Australia (Australia)  3,148  151,483 
CommonWealth REIT R  3,291  58,086 
Corporate Office Properties Trust R  2,645  58,216 
DBS Group Holdings, Ltd. (Singapore)  6,000  61,555 
DCT Industrial Trust, Inc. R  6,861  39,931 
Deutsche Bank AG (Germany) †  2,225  80,310 
Dexus Property Group (Australia)  79,783  73,054 
Digital Realty Trust, Inc. R  1,363  96,460 
Discover Financial Services  5,504  182,237 
Duke Realty Corp. R  5,561  76,964 
Dynex Capital, Inc. R  682  6,336 
East West Bancorp, Inc.  949  21,248 
Entertainment Properties Trust R  1,422  58,686 
Equity Residential Trust R  5,585  341,244 
Essex Property Trust, Inc. R  421  63,344 
Everest Re Group, Ltd.  1,576  160,941 
Federal Realty Investment Trust R  1,871  183,882 
Financial Institutions, Inc.  372  6,078 
First Financial Bancorp  296  4,547 
First Industrial Realty Trust † R  3,108  37,078 
Flushing Financial Corp.  667  8,604 
FXCM, Inc. Class A  411  4,225 
General Growth Properties R  2,269  38,006 
Genworth Financial, Inc. Class A †  1,223  6,409 
Glimcher Realty Trust R  694  6,385 
Hachijuni Bank, Ltd. (The) (Japan)  12,000  57,427 
Hang Lung Group, Ltd. (Hong Kong)  11,000  63,634 
Hanmi Financial Corp. †  746  7,005 

 

26


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Financials cont.     
HCP, Inc. R  3,101  $126,645 
Health Care REIT, Inc. R  1,448  80,321 
Heartland Financial USA, Inc.  237  4,503 
HFF, Inc. Class A †  1,132  14,807 
Highwoods Properties, Inc. R  2,066  66,649 
Home Bancshares, Inc.  258  7,258 
HSBC Holdings PLC (United Kingdom)  26,040  205,669 
Insurance Australia Group, Ltd. (Australia)  26,061  84,535 
Interactive Brokers Group, Inc. Class A  796  11,351 
Invesco Mortgage Capital, Inc. R  258  4,680 
Investment AB Kinnevik Class B (Sweden)  4,476  78,765 
Israel Corp., Ltd. (The) (Israel)  152  85,018 
Jones Lang LaSalle, Inc.  300  21,750 
JPMorgan Chase & Co.  2,247  74,488 
Kimco Realty Corp. R  7,651  137,335 
Lexington Realty Trust R  9,198  76,435 
Liberty Property Trust R  3,455  119,785 
Lloyds Banking Group PLC (United Kingdom) †  131,993  52,085 
LTC Properties, Inc. R  396  12,779 
M&T Bank Corp.  1,713  139,301 
Macerich Co. (The) R  742  42,331 
Mack-Cali Realty Corp. R  2,400  65,376 
Maiden Holdings, Ltd. (Bermuda)  623  5,071 
MainSource Financial Group, Inc.  556  6,149 
MarketAxess Holdings, Inc.  35  1,130 
MFA Financial, Inc. R  1,005  7,658 
Mission West Properties R  526  4,424 
Mitsubishi UFJ Financial Group, Inc. (Japan)  18,300  79,403 
Nasdaq OMX Group, Inc. (The) †  2,503  54,766 
National Australia Bank, Ltd. (Australia)  2,772  60,701 
National Financial Partners Corp. †  288  3,830 
National Health Investors, Inc. R  1,584  76,460 
Nelnet, Inc. Class A  325  7,586 
Newcastle Investment Corp. R  1,350  8,964 
Northern Trust Corp.  2,737  118,184 
Ocwen Financial Corp. †  1,016  16,286 
One Liberty Properties, Inc. R  423  7,500 
ORIX Corp. (Japan)  810  70,084 
Pennsylvania Real Estate Investment Trust R  4,914  62,310 
People’s United Financial, Inc.  7,351  85,492 
Peoples Bancorp, Inc.  372  6,982 
Popular, Inc. (Puerto Rico) †  293  4,474 
Portfolio Recovery Associates, Inc. †  40  2,764 
Post Properties, Inc. R  2,009  97,256 
Prologis, Inc. R  3,484  111,418 
Protective Life Corp.  281  7,407 

 

27


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Financials cont.     
Prudential PLC (United Kingdom)  6,752  $71,002 
PS Business Parks, Inc. R  146  9,620 
Public Storage R  2,447  326,601 
Rayonier, Inc. R  1,055  45,333 
Realty Income Corp. R  1,686  64,624 
Regency Centers Corp. R  211  9,244 
RenaissanceRe Holdings, Ltd.  1,835  141,423 
Republic Bancorp, Inc. Class A  114  2,405 
Resona Holdings, Inc. (Japan)  11,900  44,800 
Senior Housing Properties Trust R  257  5,307 
Simon Property Group, Inc. R  4,507  664,873 
SL Green Realty Corp. R  443  33,229 
Southside Bancshares, Inc.  456  9,567 
Sovran Self Storage, Inc. R  161  7,945 
St. Joe Co. (The) †  1,337  21,352 
Standard Chartered PLC (United Kingdom)  2,347  47,598 
Starwood Property Trust, Inc. R  199  3,988 
Stockland (Units) (Australia) R  21,470  66,715 
Suncorp Group, Ltd. (Australia)  8,867  67,026 
Sunstone Hotel Investors, Inc. † R  5,853  58,589 
Svenska Handelsbanken AB Class A (Sweden)  2,718  76,359 
Swedbank AB Class A (Sweden)  5,453  78,082 
Swiss Life Holding AG (Switzerland)  903  72,763 
SWS Group, Inc.  985  5,664 
Symetra Financial Corp.  623  7,040 
Taubman Centers, Inc. R  151  11,023 
UDR, Inc. R  979  25,356 
Universal Health Realty Income Trust R  52  2,010 
Urstadt Biddle Properties, Inc. Class A R  288  5,126 
Validus Holdings, Ltd.  3,530  110,771 
Virginia Commerce Bancorp, Inc. †  929  7,664 
Vornado Realty Trust R  1,216  99,615 
W.R. Berkley Corp.  3,879  148,643 
Walker & Dunlop, Inc. †  296  3,472 
Washington Banking Co.  441  5,984 
Weingarten Realty Investors R  3,888  99,455 
Wells Fargo & Co.  2,694  86,343 
Westpac Banking Corp. (Australia)  3,322  65,658 
Wheelock and Co., Ltd. (Hong Kong)  13,000  38,774 
    9,825,132 
Government (—%)     
Banco Latinoamericano de Exportaciones SA Class E (Panama)  673  13,124 
    13,124 
Health care (3.8%)     
Abbott Laboratories  5,548  342,811 
ABIOMED, Inc. †  371  7,542 
Aetna, Inc.  2,852  116,618 

 

28


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Health care cont.     
Affymax, Inc. †  503  $7,112 
Alfresa Holdings Corp. (Japan)  1,000  48,494 
Amarin Corp. PLC ADR (Ireland) †  167  1,979 
Amedisys, Inc. †  52  570 
AmerisourceBergen Corp.  2,461  91,032 
Amgen, Inc.  3,238  225,106 
AmSurg Corp. †  158  4,317 
Assisted Living Concepts, Inc. Class A  443  6,131 
AstraZeneca PLC (United Kingdom)  2,165  87,406 
athenahealth, Inc. †  56  4,071 
AVEO Pharmaceuticals, Inc. †  201  2,559 
Bayer AG (Germany)  425  26,913 
Biogen Idec, Inc. †  1,190  155,593 
Bristol-Myers Squibb Co.  6,854  228,512 
C.R. Bard, Inc.  884  85,916 
Cardinal Health, Inc.  2,849  117,892 
Centene Corp. †  196  7,083 
Charles River Laboratories International, Inc. †  154  5,141 
Coloplast A/S Class B (Denmark)  425  73,196 
Computer Programs & Systems, Inc.  72  3,917 
Conmed Corp.  450  12,056 
Cubist Pharmaceuticals, Inc. †  225  9,027 
Elan Corp. PLC ADR (Ireland) †  728  10,163 
Eli Lilly & Co.  4,507  184,562 
Endo Pharmaceuticals Holdings, Inc. †  131  4,260 
Forest Laboratories, Inc. †  1,983  69,405 
Fresenius SE & Co. KGgA (Germany)  825  78,002 
Gentiva Health Services, Inc. †  152  853 
Gilead Sciences, Inc. †  3,576  178,621 
GlaxoSmithKline PLC (United Kingdom)  9,556  212,104 
Greatbatch, Inc. †  618  12,830 
HealthSouth Corp. †  723  13,838 
Hi-Tech Pharmacal Co., Inc. †  218  6,298 
Humana, Inc.  1,345  102,745 
Jazz Pharmaceuticals PLC (Ireland) †  664  28,685 
Johnson & Johnson  2,020  126,109 
Kindred Healthcare, Inc. †  776  6,418 
Lincare Holdings, Inc.  190  4,357 
McKesson Corp.  1,786  155,882 
MedAssets, Inc. †  1,177  13,324 
Medicines Co. (The) †  1,026  22,551 
Medicis Pharmaceutical Corp. Class A  310  11,191 
Merck & Co., Inc.  630  23,675 
Metropolitan Health Networks, Inc. †  877  7,630 
Molina Healthcare, Inc. †  639  16,301 
Novartis AG (Switzerland)  2,745  142,990 

 

29


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Health care cont.     
Novo Nordisk A/S Class B (Denmark)  772  $102,985 
Obagi Medical Products, Inc. †  1,216  15,066 
Omega Healthcare Investors, Inc. R  3,399  71,753 
Omnicare, Inc.  299  9,424 
Onyx Pharmaceuticals, Inc. †  84  3,846 
OraSure Technologies, Inc. †  1,392  14,407 
Orion Oyj Class B (Finland)  2,366  41,372 
Otsuka Holdings Company, Ltd. (Japan)  4,100  129,028 
Par Pharmaceutical Cos., Inc. †  697  24,980 
PDL BioPharma, Inc.  1,371  8,898 
Pernix Therapeutics Holdings †  395  2,556 
Perrigo Co.  624  64,827 
Pfizer, Inc.  5,183  113,352 
Quality Systems, Inc.  270  7,725 
Questcor Pharmaceuticals, Inc. †  144  5,962 
ResMed, Inc. †  2,017  62,487 
Roche Holding AG-Genusschein (Switzerland)  1,262  197,891 
RTI Biologics, Inc. †  1,291  4,635 
Sabra Health Care REIT, Inc. R  2,298  33,045 
Salix Pharmaceuticals, Ltd. †  139  7,202 
Sanofi (France)  2,926  199,674 
Spectrum Pharmaceuticals, Inc. †  938  10,871 
STAAR Surgical Co. †  1,660  14,093 
Suzuken Co., Ltd. (Japan)  2,000  62,226 
Synergetics USA, Inc. †  743  2,660 
Triple-S Management Corp. Class B (Puerto Rico) †  204  3,541 
United Therapeutics Corp. †  45  1,991 
UnitedHealth Group, Inc.  5,337  297,644 
Ventas, Inc. R  3,716  218,575 
ViroPharma, Inc. †  602  12,124 
Warner Chilcott PLC Class A (Ireland) †  597  11,259 
WellCare Health Plans, Inc. †  286  16,150 
    4,876,037 
Technology (6.4%)     
Acacia Research — Acacia Technologies †  87  3,025 
Accenture PLC Class A  3,955  225,831 
Acme Packet, Inc. †  192  4,393 
Actuate Corp. †  2,783  18,590 
Acxiom Corp. †  879  12,368 
Altera Corp.  4,079  136,279 
Analog Devices, Inc.  3,965  144,207 
Anixter International, Inc.  104  5,981 
Apple, Inc. †  5,969  3,448,470 
ASML Holding NV (Netherlands)  1,493  68,673 
Aspen Technology, Inc. †  280  6,188 
Avago Technologies, Ltd. (Singapore)  3,389  112,176 
BMC Software, Inc. †  2,507  106,096 

 

30


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Technology cont.     
Cirrus Logic, Inc. †  268  $7,697 
Cisco Systems, Inc.  24,442  399,138 
Coherent, Inc. †  106  4,679 
Computershare, Ltd. (Australia)  3,227  24,487 
Concur Technologies, Inc. †  82  5,072 
EnerSys †  343  11,312 
Fair Isaac Corp.  502  20,411 
FEI Co. †  381  17,438 
Fujitsu, Ltd. (Japan)  32,000  140,071 
Google, Inc. Class A †  914  530,906 
GSI Group, Inc. †  889  10,321 
IBM Corp.  3,603  695,019 
Infineon Technologies AG (Germany)  9,282  73,438 
InnerWorkings, Inc. †  417  4,916 
Integrated Silicon Solutions, Inc. †  532  4,980 
Intel Corp.  2,464  63,670 
Intuit, Inc.  2,628  147,772 
Ixia †  322  3,407 
JDA Software Group, Inc. †  427  11,819 
KLA-Tencor Corp.  2,744  125,758 
Kulicke & Soffa Industries, Inc. †  1,070  11,256 
L-3 Communications Holdings, Inc.  1,332  90,829 
Lam Research Corp. †  2,737  102,090 
LivePerson, Inc. †  304  5,247 
Manhattan Associates, Inc. †  130  6,175 
Maxim Integrated Products, Inc.  4,729  118,982 
Microchip Technology, Inc.  3,412  105,840 
Microsoft Corp.  22,355  652,542 
Monotype Imaging Holdings, Inc. †  301  4,124 
MTS Systems Corp.  151  5,838 
Netscout Systems, Inc. †  486  9,744 
Nova Measuring Instruments, Ltd. (Israel) †  709  5,084 
NTT Data Corp. (Japan)  11  31,627 
Omnivision Technologies, Inc. †  231  3,738 
Parametric Technology Corp. †  258  5,212 
Photronics, Inc. †  941  5,646 
Plantronics, Inc.  170  5,115 
Procera Networks, Inc. †  203  4,243 
RealPage, Inc. †  220  3,927 
Rudolph Technologies, Inc. †  664  5,724 
SAP AG (Germany)  542  31,102 
Silicon Graphics International Corp. †  591  3,481 
Skyworks Solutions, Inc. †  245  6,581 
Softbank Corp. (Japan)  4,200  131,317 
SolarWinds, Inc. †  109  4,999 
Synchronoss Technologies, Inc. †  130  2,328 

 

31


COMMON STOCKS (35.8%)* cont.  Shares  Value 
 
Technology cont.     
Teradyne, Inc. †  395  $5,708 
TIBCO Software, Inc. †  435  11,636 
TTM Technologies, Inc. †  489  4,518 
Tyler Technologies, Inc. †  117  4,364 
Ultimate Software Group, Inc. †  63  5,061 
Unisys Corp. †  81  1,273 
VASCO Data Security International, Inc. †  1,536  10,737 
Websense, Inc. †  285  5,295 
Xilinx, Inc.  3,870  123,724 
Xyratex, Ltd. (United Kingdom)  434  4,965 
    8,134,660 
Transportation (0.7%)     
Alaska Air Group, Inc. †  188  6,448 
Central Japan Railway Co. (Japan)  23  187,264 
ComfortDelgro Corp., Ltd. (Singapore)  37,000  42,209 
Copa Holdings SA Class A (Panama)  709  58,861 
International Consolidated Airlines Group SA (United Kingdom) †  15,236  33,576 
J. B. Hunt Transport Services, Inc.  1,493  85,295 
Neptune Orient Lines, Ltd. (Singapore) †  62,000  51,242 
Southwest Airlines Co.  10,596  95,682 
Swift Transportation Co. †  1,295  13,740 
United Parcel Service, Inc. Class B  4,336  324,940 
US Airways Group, Inc. †  651  8,606 
    907,863 
Utilities and power (1.0%)     
Chubu Electric Power, Inc. (Japan)  1,600  24,461 
CMS Energy Corp.  3,497  81,480 
DTE Energy Co.  1,882  106,954 
Enel SpA (Italy)  19,839  56,641 
Entergy Corp.  1,789  115,444 
GDF Suez (France)  3,793  75,374 
ITC Holdings Corp.  818  56,401 
Kinder Morgan, Inc. S  3,198  109,340 
National Grid PLC (United Kingdom)  12,660  126,884 
PG&E Corp.  3,471  151,683 
Pinnacle West Capital Corp.  1,539  75,996 
Red Electrica Corp. SA (Spain)  2,029  75,131 
Spectra Energy Corp.  5,778  165,886 
Toho Gas Co., Ltd. (Japan)  9,000  50,995 
Westar Energy, Inc.  2,023  57,884 
    1,330,554 
 
Total common stocks (cost $47,706,150)    $45,681,180 

 

32


COMMODITY LINKED NOTES (2.3%)*  Principal amount  Value 
 
Deutsche Bank AG/London notes Ser. 00DL, 1-month LIBOR     
less 0.16%, 2013 (Indexed to the DB Commodity Booster OYE     
Benchmark Light Energy TR Index multiplied by 3) (United Kingdom)  $440,000  $293,568 
Deutsche Bank AG/London 144A Ser. 0005, 1-month LIBOR     
less 0.16%, 2013 (Indexed to the DB Commodity Booster OYE     
Benchmark Light Energy TR Index multiplied by 3) (United Kingdom)  3,400,000  2,174,980 
UBS AG/Jersey Branch 144A 1-month LIBOR, 2012 (Indexed to     
the UBS Bloomberg CMCI TR Index multiplied by 3) (Jersey)  749,000  479,239 
Total commodity linked notes (cost $4,589,000)      $2,947,787 
 
 
PURCHASED OPTIONS  Expiration date/  Contract   
OUTSTANDING (0.6%)*  strike price  amount  Value 
 
SPDR S&P 500 ETF Trust (Put)  May-13/$108.00  30,279  $167,794 
SPDR S&P 500 ETF Trust (Put)  Apr-13/117.00  14,706  106,446 
SPDR S&P 500 ETF Trust (Put)  Mar-13/116.00  9,176  58,687 
SPDR S&P 500 ETF Trust (Put)  Mar-13/116.00  5,350  34,217 
SPDR S&P 500 ETF Trust (Put)  Feb-13/115.00  12,741  70,143 
SPDR S&P 500 ETF Trust (Put)  Feb-13/115.00  1,785  9,827 
SPDR S&P 500 ETF Trust (Put)  Jan-13/110.00  9,562  38,592 
SPDR S&P 500 ETF Trust (Put)  Jan-13/110.00  4,963  20,087 
SPDR S&P 500 ETF Trust (Put)  Dec-12/102.00  14,525  35,558 
SPDR S&P 500 ETF Trust (Put)  Nov-12/99.00  10,578  17,026 
SPDR S&P 500 ETF Trust (Put)  Nov-12/99.00  3,944  6,348 
SPDR S&P 500 ETF Trust (Put)  Oct-12/100.00  10,577  14,113 
SPDR S&P 500 ETF Trust (Put)  Oct-12/100.00  3,945  5,264 
SPDR S&P 500 ETF Trust (Put)  Sep-12/125.00  9,176  42,410 
SPDR S&P 500 ETF Trust (Put)  Sep-12/125.00  5,350  24,727 
SPDR S&P 500 ETF Trust (Put)  Aug-12/121.00  12,741  32,005 
SPDR S&P 500 ETF Trust (Put)  Aug-12/121.00  1,785  4,484 
SPDR S&P 500 ETF Trust (Put)  Jul-12/117.00  14,525  15,890 
SPDR S&P 500 ETF Trust (Put)  Jun-12/121.00  14,525  357 
Total purchased options outstanding (cost $684,547)      $703,975 
 
 
INVESTMENT COMPANIES (0.2%)*    Shares  Value 
 
iShares Russell 2000 Growth Index Fund    357  $31,084 
Vanguard REIT ETF R    3,813  238,389 
Total investment companies (cost $283,727)      $269,473 
 
 
SHORT-TERM INVESTMENTS (64.4%)*  Principal amount/shares  Value 
 
Putnam Cash Collateral Pool, LLC 0.22% d    69,000  $69,000 
Putnam Money Market Liquidity Fund 0.12% e    57,732,468  57,732,468 
SSgA Prime Money Market Fund 0.10% P    470,000  470,000 
U.S. Treasury Bills with an effective yield of 0.199%,       
March 7, 2013 # ##    $4,000,000  3,995,050 
U.S. Treasury Bills with effective yields ranging from       
0.167% to 0.182%, May 2, 2013 ##    12,000,000  11,980,877 
U.S. Treasury Bills with effective yields ranging from       
0.155% to 0.156%, January 10, 2013    750,000  749,342 

 

33


SHORT-TERM INVESTMENTS (64.4%)* cont.  Principal amount/shares  Value 
 
U.S. Treasury Bills with effective yields ranging from     
0.140% to 0.145%, February 7, 2013 #  3,500,000  $3,496,431 
U.S. Treasury Bills with effective yields ranging from     
0.072% to 0.142%, October 18, 2012  1,750,000  1,749,230 
U.S. Treasury Bills with effective yields ranging from     
0.105% to 0.106%, December 13, 2012 #  1,000,000  999,471 
U.S. Treasury Bills with effective yields ranging from     
0.094% to 0.096%, August 23, 2012 #  145,000  144,976 
U.S. Treasury Bills with effective yields ranging from     
0.092% to 0.094%, November 15, 2012 #  500,000  499,737 
U.S. Treasury Bills with effective yields ranging from     
0.052% to 0.079%, July 26, 2012 #  330,000  329,961 
Total short-term investments (cost $82,214,755)    $82,216,543 
 
 
TOTAL INVESTMENTS     
Total investments (cost $135,478,179)    $131,818,958 

 

Key to holding’s abbreviations

 

ADR  American Depository Receipts: represents ownership of foreign securities on deposit with a 
  custodian bank 
ETF  Exchange Traded Fund 
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 September 19, 2011 (commencement of operations) through May 31, 2012 (the reporting period). Within the following notes to the portfolio, references to “ASC 820” represent Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures.

* Percentages indicated are based on net assets of $127,587,992.

† Non-income-producing security.

# 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.

## This security, in part or in entirety, was pledged and segregated with the custodian for collateral on certain derivative contracts at the close of the reporting period.

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 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.

P Security purchased with cash or security received, that was pledged to the fund for collateral on certain derivatives contracts. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period (Note 1).

R Real Estate Investment Trust.

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 $101,697,938 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 dates shown on debt obligations are the original maturity dates.

34


FORWARD CURRENCY CONTRACTS at 5/31/12 (aggregate face value $18,598,592)

          Unrealized 
  Contract  Delivery    Aggregate  appreciation/ 
Counterparty   Currency  type  date  Value  face value  (depreciation) 
Bank of America, N.A.           
Australian Dollar  Buy  6/20/12  $24,414  $25,824  $(1,410) 
Japanese Yen  Sell  6/20/12  5,314  4,808  (506) 
Barclay’s Bank, PLC           
Australian Dollar  Sell  6/20/12  3,307  3,621  314 
British Pounds  Buy  6/20/12  147,637  155,368  (7,731) 
Euro  Buy  6/20/12  1,453,857  1,558,329  (104,472) 
Hong Kong Dollar  Sell  6/20/12  27,753  27,749  (4) 
Japanese Yen  Buy  6/20/12  15,418  15,250  168 
Japanese Yen  Sell  6/20/12  15,418  15,066  (352) 
Malaysian Ringgit  Buy  6/20/12  10,205  10,518  (313) 
Polish Zloty  Buy  6/20/12  15,818  17,597  (1,779) 
Polish Zloty  Sell  6/20/12  15,818  17,520  1,702 
Swedish Krona  Sell  6/20/12  35,823  38,683  2,860 
Swiss Franc  Sell  6/20/12  103  110  7 
Citibank, N.A.           
Australian Dollar  Sell  6/20/12  20,231  21,415  1,184 
British Pounds  Sell  6/20/12  13,562  14,275  713 
Danish Krone  Buy  6/20/12  76,064  80,872  (4,808) 
Euro  Buy  6/20/12  156,923  168,204  (11,281) 
Hong Kong Dollar  Buy  6/20/12  27,753  27,748  5 
Hong Kong Dollar  Sell  6/20/12  27,753  27,769  16 
Japanese Yen  Buy  6/20/12  120,731  117,791  2,940 
Norwegian Krone  Sell  6/20/12  10,917  11,665  748 
Polish Zloty  Buy  6/20/12  15,818  17,518  (1,700) 
Singapore Dollar  Buy  6/20/12  8,692  9,030  (338) 
Swiss Franc  Sell  6/20/12  41,808  44,710  2,902 
Credit Suisse AG           
Australian Dollar  Buy  6/20/12  17,994  19,049  (1,055) 
British Pounds  Buy  6/20/12  231,781  243,832  (12,051) 
Euro  Buy  6/20/12  146,536  156,974  (10,438) 
Japanese Yen  Buy  6/20/12  2,000,684  1,955,227  45,457 
Norwegian Krone  Sell  6/20/12  43,866  46,871  3,005 
Swedish Krona  Sell  6/20/12  107,401  116,001  8,600 
Swiss Franc  Sell  6/20/12  244,053  260,826  16,773 
Deutsche Bank AG           
Australian Dollar  Sell  6/20/12  254,739  269,342  14,603 
British Pounds  Sell  6/20/12  233,168  246,259  13,091 
Euro  Buy  6/20/12  1,525,950  1,635,420  (109,470) 
Malaysian Ringgit  Buy  6/20/12  10,205  10,661  (456) 
Malaysian Ringgit  Sell  6/20/12  10,205  10,479  274 
Swiss Franc  Sell  6/20/12  18,536  19,816  1,280 

 

35


FORWARD CURRENCY CONTRACTS at 5/31/12 (aggregate face value $18,598,592) cont.

          Unrealized 
  Contract  Delivery    Aggregate  appreciation/ 
Counterparty   Currency  type  date  Value  face value  (depreciation) 
Goldman Sachs International           
Australian Dollar  Sell  6/20/12  $6,517  $6,899  $382 
Euro  Buy  6/20/12  353,788  378,837  (25,049) 
Japanese Yen  Buy  6/20/12  944,811  923,614  21,197 
HSBC Bank USA, National Association         
Australian Dollar  Sell  6/20/12  6,225  6,582  357 
British Pounds  Sell  6/20/12  25,736  27,084  1,348 
Euro  Sell  6/20/12  185,859  198,797  12,938 
Japanese Yen  Sell  6/20/12  158,816  155,203  (3,613) 
New Zealand Dollar  Buy  6/20/12  1,355  1,454  (99) 
Singapore Dollar  Sell  6/20/12  14,357  14,913  556 
JPMorgan Chase Bank, N.A.           
Australian Dollar  Sell  6/20/12  63,125  66,530  3,405 
British Pounds  Buy  6/20/12  294,966  310,398  (15,432) 
Euro  Buy  6/20/12  321,513  344,468  (22,955) 
Hong Kong Dollar  Sell  6/20/12  97,472  97,526  54 
Japanese Yen  Buy  6/20/12  2,135,639  2,087,336  48,303 
Mexican Peso  Buy  6/20/12  54,348  60,082  (5,734) 
Singapore Dollar  Sell  6/20/12  52,306  54,652  2,346 
Swedish Krona  Sell  6/20/12  11,514  12,439  925 
Royal Bank of Scotland PLC (The)           
Australian Dollar  Buy  6/20/12  89,874  94,848  (4,974) 
British Pounds  Sell  6/20/12  58,407  61,276  2,869 
Euro  Buy  6/20/12  195,752  207,944  (12,192) 
Japanese Yen  Sell  6/20/12  49,743  48,589  (1,154) 
Swiss Franc  Sell  6/20/12  67,347  72,011  4,664 
State Street Bank and Trust Co.           
Australian Dollar  Buy  6/20/12  30,930  32,737  (1,807) 
British Pounds  Buy  6/20/12  150,411  158,334  (7,923) 
Canadian Dollar  Buy  6/20/12  330,889  345,755  (14,866) 
Euro  Buy  6/20/12  2,032,332  2,174,810  (142,478) 
Israeli Shekel  Sell  6/20/12  39,347  40,660  1,313 
Japanese Yen  Buy  6/20/12  2,732,426  2,669,582  62,844 
Norwegian Krone  Buy  6/20/12  5,475  5,849  (374) 
Westpac Banking Corp.           
Australian Dollar  Buy  6/20/12  22,177  22,159  18 
Australian Dollar  Sell  6/20/12  22,177  23,185  1,008 
British Pounds  Sell  6/20/12  66,421  69,891  3,470 
Canadian Dollar  Buy  6/20/12  186,204  194,492  (8,288) 
Japanese Yen  Buy  6/20/12  212,220  207,459  4,761 
Total          $(245,702) 

 

36


FUTURES CONTRACTS OUTSTANDING at 5/31/12

        Unrealized 
  Number of    Expiration  appreciation/ 
  contracts  Value  date  (depreciation) 
Euro STOXX 50 Index (Short)  116  $3,019,287  Jun-12  $434,285 
Euro-Bobl 5 yr (Long)  20  3,139,475  Jun-12  29,636 
Euro-Bund 10 yr (Long)  25  4,514,154  Jun-12  218,684 
Euro-Buxl 30 yr Bond (Long)  8  1,418,118  Jun-12  114,336 
Euro-Schatz 2 yr (Long)  30  4,109,942  Jun-12  7,015 
Japanese Government Bond         
10 yr (Long)  10  18,326,953  Jun-12  213,572 
MSCI EAFE Index Mini (Short)  33  2,201,925  Jun-12  348,207 
NASDAQ 100 Index         
E-Mini (Short)  43  2,170,640  Jun-12  147,730 
S&P 500 Index E-Mini (Long)  128  8,378,880  Jun-12  (357,047) 
S&P Mid Cap 400 Index         
E-Mini (Short)  7  647,360  Jun-12  23,461 
U.K. Gilt 10 yr (Long)  14  2,602,162  Sep-12  45,044 
U.S. Treasury Bond 30 yr (Long)  25  3,742,969  Sep-12  64,210 
U.S. Treasury Note 10 yr (Long)  8  1,071,500  Sep-12  9,172 
U.S. Treasury Note 5 yr (Long)  27  3,353,063  Sep-12  11,761 
U.S. Treasury Note 2 yr (Long)  28  6,171,375  Sep-12  3,384 
Total        $1,313,450 

 

WRITTEN OPTIONS OUTSTANDING at 5/31/12 (premiums received $436,394)

 

  Contract  Expiration date/   
  amount  strike price  Value 
Herbalife, Ltd. (Call)  2,983  Aug-12/$62.50  $2,447 
SPDR S&P 500 ETF Trust (Call)  191,497  Jun-12/136.00  72,927 
SPDR S&P 500 ETF Trust (Put)  30,279  May-13/90.00  84,819 
SPDR S&P 500 ETF Trust (Put)  14,706  Apr-13/100.00  55,893 
SPDR S&P 500 ETF Trust (Put)  9,176  Mar-13/100.00  30,797 
SPDR S&P 500 ETF Trust (Put)  5,350  Mar-13/100.00  17,956 
SPDR S&P 500 ETF Trust (Put)  12,741  Feb-13/100.00  37,339 
SPDR S&P 500 ETF Trust (Put)  1,785  Feb-13/100.00  5,231 
SPDR S&P 500 ETF Trust (Put)  9,562  Jan-13/95.00  19,727 
SPDR S&P 500 ETF Trust (Put)  4,963  Jan-13/95.00  10,261 
SPDR S&P 500 ETF Trust (Put)  14,525  Dec-12/85.00  15,528 
SPDR S&P 500 ETF Trust (Put)  10,578  Nov-12/85.00  8,194 
SPDR S&P 500 ETF Trust (Put)  3,944  Nov-12/85.00  2,984 
SPDR S&P 500 ETF Trust (Put)  9,176  Sep-12/113.00  19,956 
SPDR S&P 500 ETF Trust (Put)  5,350  Sep-12/113.00  11,635 
SPDR S&P 500 ETF Trust (Put)  12,741  Aug-12/110.00  14,229 
SPDR S&P 500 ETF Trust (Put)  1,785  Aug-12/110.00  1,994 
SPDR S&P 500 ETF Trust (Put)  14,525  Jul-12/105.00  5,111 
SPDR S&P 500 ETF Trust (Put)  14,525  Jun-12/95.00  209 
Total      $417,237 

 

37


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 5/31/12

    Payments  Payments  Unrealized 
Swap counterparty /  Termination  made by  received by  appreciation/ 
Notional amount  date  fund per annum  fund per annum  (depreciation) 
Bank of America N.A.         
$16,497,000  5/2/22  3 month USD-     
    LIBOR-BBA  2.0425%  $482,160 
3,370,000  3/23/22  3 month USD-     
    LIBOR-BBA  2.388%  216,181 
Credit Suisse International         
380,000  5/8/22  3 month USD-     
    LIBOR-BBA  2.05125%  11,267 
5,300,000  5/15/14  3 month USD-     
    LIBOR-BBA  0.598%  (1,668) 
5,600,000  5/15/17  3 month USD-     
    LIBOR-BBA  1.101%  29,002 
2,000,000  5/15/42  3 month USD-     
    LIBOR-BBA  2.7545  153,588 
2,311,000  4/13/22  3 month USD-     
    LIBOR-BBA  2.133%  89,935 
Deutsche Bank AG         
1,358,000  3/05/22  2.133%  3 month USD-   
      LIBOR-BBA  (56,143) 
JPMorgan Chase Bank NA         
1,180,000  3/26/22  3 month USD-     
    LIBOR-BBA  2.3245%  68,364 
13,000,000  4/4/22  3 month USD-     
    LIBOR-BBA  2.2725%  683,200 
Total        $1,675,886 

 

TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 5/31/12

 

      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) 
Bank of America N.A.         
  $3,800,000  9/21/21  (2.305%)  USA Non Revised  $46,246 
        Consumer Price   
        Index-Urban (CPI-U)   
baskets  17,257  3/14/13  (3 month USD-  A basket  (112,106) 
      LIBOR-BBA plus  (MLTRFCF)   
      0.10%)  of common stocks   
baskets  11,812  3/14/13  (3 month USD-  A basket  (76,770) 
      LIBOR-BBA)  (MLTRFCF)   
        of common stocks   
baskets  51,592  3/14/13  (3 month USD-  A basket  (334,767) 
      LIBOR-BBA)  (MLTRFCF)   
        of common stocks   
units  450  3/14/13  3 month USD-  Russell 1000  102,660 
      LIBOR-BBA  Total Return Index   
      minus 0.09%     

 

38


TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 5/31/12 cont.

      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) 
Bank of America N.A. cont.         
units  308  3/14/13  (3 month USD-  Russell 1000  $71,005 
      LIBOR-BBA)  Total Return Index   
units  1,330  4/5/13  (3 month USD-  Russell 1000  356,196 
      LIBOR-BBA  Total Return Index   
      minus 0.39%)     
Citibank, N.A.         
  $679,000  12/20/21  2.22%  USA Non Revised  (15,184) 
        Consumer Price   
        Index-Urban (CPI-U)   
  921,000  12/23/21  2.345%  USA Non Revised  (8,967) 
        Consumer Price   
        Index-Urban (CPI-U)   
baskets  12  2/13/13  (3 month USD-  A basket  (14,117) 
      LIBOR-BBA plus  (CGPUTQL2)   
      0.10%)  of common stocks   
baskets  29  2/13/13  (3 month USD-  A basket  (34,258) 
      LIBOR-BBA plus  (CGPUTQL2)   
      0.10%)  of common stocks   
units  258  2/13/13  3 month USD-  Russell 1000  19,940 
      LIBOR-BBA  Total Return Index   
      minus 0.15%     
units  677  2/13/13  (3 month USD-  Russell 1000  52,323 
      LIBOR-BBA)  Total Return Index   
Credit Suisse International       
  $1,900,000  5/8/22  (2.60%)  USA Non Revised  (27,301) 
        Consumer Price   
        Index-Urban (CPI-U)   
  200,000  10/7/21  2.22%  USA Non Revised  (4,204) 
        Consumer Price   
        Index-Urban (CPI-U)   
  1,200,000  3/7/22  (2.58%)  USA Non Revised  (12,672) 
        Consumer Price   
        Index-Urban (CPI-U)   
  600,000  12/7/21  (2.385%)  USA Non Revised  2,197 
        Consumer Price   
        Index-Urban (CPI-U)   
shares  7,060  2/8/13  (3 month USD-  Vanguard Index  (43,999) 
      LIBOR-BBA  Funds — MSCI   
      minus 0.175%)  Emerging Markets ETF 
shares  18,583  9/19/12  (3 month USD-  Vanguard Index  (115,811) 
      LIBOR-BBA  Funds — MSCI   
      minus 0.10%)  Emerging Markets ETF 
shares  6,269  9/19/12  (3 month USD-  Vanguard Index  (16,409) 
      LIBOR-BBA  Funds — MSCI   
      minus 0.175%)  Emerging Markets ETF 
shares  11,900  9/19/12  (3 month USD-  Vanguard Index  (74,162) 
      LIBOR-BBA)  Funds — MSCI   
        Emerging Markets ETF 

 

39


TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 5/31/12 cont.

      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) 
Credit Suisse International cont.         
shares  5,340  9/19/12  (3 month USD-  Vanguard Index  $(33,280) 
      LIBOR-BBA)  Funds — MSCI   
        Emerging Markets ETF 
shares  94,529  7/2/13  (3 month USD-  Vanguard Index  (509,756) 
      LIBOR-BBA  Funds — MSCI   
      plus 0.10%)  Emerging Markets ETF 
Deutsche Bank AG         
  $500,000  11/7/21  (2.43%)  USA Non Revised  (1,208) 
        Consumer Price   
        Index Urban (CPI-U)   
JPMorgan Chase Bank NA         
  600,000  1/9/22  2.41%  USA Non Revised  2,524 
        Consumer Price   
        Index-Urban (CPI-U)   
  600,000  2/9/22  (2.65%)  USA Non Revised  (11,334) 
        Consumer Price   
        Index-Urban (CPI-U)   
  13,000,000  4/4/22  (2.6975%)  USA Non Revised  (315,666) 
        Consumer Price   
        Index-Urban (CPI-U)   
Total          $(1,108,880) 

 

CREDIT DEFAULT CONTRACTS OUTSTANDING at 5/31/12

 

    Upfront      Fixed payments   
    premium    Termi-  received  Unrealized 
Swap counterparty /    received  Notional  nation  (paid) by fund  appreciation/ 
Referenced debt*  Rating***  (paid)**  amount  date  per annum  (depreciation) 
Barclay’s Bank, PLC             
DJ CDX EM Series 16             
Index  Ba1/P  $(16,800)  $200,000  12/20/16  500 bp  $(326) 
DJ CDX EM Series 16             
Index  Ba1/P  (10,450)  100,000  12/20/16  500 bp  (2,213) 
DJ CDX EM Series 16             
Index  Ba1/P  (9,600)  100,000  12/20/16  500 bp  (1,363) 
DJ CDX EM Series 17             
Index  BB+/P  (12,420)  115,000  6/20/17  500 bp  (3,473) 
DJ CDX EM Series 17             
Index  BB+/P  (12,363)  115,000  6/20/17  500 bp  (3,416) 
DJ CDX EM Series 17             
Index  BB+/P  (6,860)  70,000  6/20/17  500 bp  (1,443) 
DJ CDX EM Series 17             
Index  BB+/P  (529,760)  4,300,000  6/20/17  500 bp  (171,938) 
DJ CDX NA HY Series             
18 Index  B+/P  140,663  3,630,000  6/20/17  500 bp  (104,290) 
DJ CDX NA HY Series             
18 Index  B+/P  149,548  5,697,000  6/20/17  500 bp  (205,611) 
DJ CDX NA IG Series             
17 Index  BBB+/P  1,980  200,000  12/20/16  100 bp  1,084 

 

40


CREDIT DEFAULT CONTRACTS OUTSTANDING at 5/31/12 cont.

    Upfront      Fixed payments   
    premium    Termi-  received  Unrealized 
Swap counterparty /    received  Notional  nation  (paid) by fund  appreciation/ 
Referenced debt*  Rating***  (paid)**  amount  date  per annum  (depreciation) 
Barclay’s Bank, PLC cont.             
DJ CDX NA IG Series             
17 Index  BBB+/P  $653  60,000  12/20/16  100 bp  $384 
DJ CDX NA IG Series             
18 Index  BBB+/P  (508)  260,000  6/20/17  100 bp  (3,127) 
Credit Suisse International           
DJ CDX NA HY Series             
18 Index  B+/P  70,000  2,000,000  6/20/17  500 bp  (54,960) 
DJ CDX NA IG Series             
17 Index  BBB+/P  4,656  285,000  12/20/16  100 bp  3,378 
Deutsche Bank AG             
DJ CDX EM Series 15             
Index  Ba1/P  (58,800)  700,000  6/20/16  500 bp  (3,406) 
DJ CDX EM Series 16             
Index  Ba1/P  (22,000)  200,000  12/20/16  500 bp  (5,526) 
DJ CDX EM Series 16             
Index  BB+/P  (45,720)  400,000  12/20/16  500 bp  (12,772) 
DJ CDX NA HY Series             
18 Index  B+/P  84,000  3,200,000  6/20/17  500 bp  (115,491) 
DJ CDX NA IG Series             
17 Index  BBB+/P  560  60,000  12/20/16  100 bp  291 
DJ CDX NA IG Series             
17 Index  BBB+/P  (570)  245,000  12/20/16  100 bp  (1,668) 
DJ CDX NA IG Series             
18 Index  BBB+/P  (12,391)  2,500,000  6/20/17  100 bp  (35,419) 
JPMorgan Chase Bank NA             
DJ CDX NA HY Series             
18 Index  B+/P  74,156  2,825,000  6/20/17  500 bp  (101,957) 
DJ CDX NA HY Series             
18 Index  B+/P  843,750  25,000,000  6/20/17  500 bp  (732,139) 
Total            $(1,555,401) 

 

* 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 May 31, 2012. Securities rated by Putnam are indicated by “/P.”

41


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  $1,321,507  $870,407  $— 
Capital goods  1,886,797  374,792  — 
Communication services  982,593  584,584  — 
Conglomerates  528,380  67,898  — 
Consumer cyclicals  4,552,155  645,161  — 
Consumer staples  4,282,803  910,538  — 
Energy  2,578,250  1,007,945  — 
Financials  8,564,878  1,260,254  — 
Government  13,124  —  — 
Health care  3,713,504  1,162,533  — 
Technology  7,961,447  173,213  — 
Transportation  874,287  33,576  — 
Utilities and power  996,524  334,030  — 
Total common stocks  38,256,249  7,424,931  — 
 
Commodity linked notes  —  2,947,787  — 
Investment companies  269,473  —  — 
Purchased options outstanding  —  703,975  — 
Short-term investments  58,202,468  24,014,075  — 
Totals by level  $96,728,190  $35,090,768  $— 
 
    Valuation inputs  
Other financial instruments:  Level 1  Level 2  Level 3 
Forward currency contracts  $—  $(245,702)  $— 
Futures contracts  1,313,450  —  — 
Written options  —  (417,237)  — 
Interest rate swap contracts  —  1,675,886  — 
Total return swap contracts  —  (1,108,880)  — 
Credit default contracts  —  (2,187,125)  — 
Totals by level  $1,313,450  $(2,283,058)  $— 

 

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

42


Statement of assets and liabilities 5/31/12

ASSETS   
Investment in securities, at value, including $68,380 of securities on loan (Note 1):   
Unaffiliated issuers (identified cost $77,676,711)  $74,017,490 
Affiliated issuers (identified cost $57,801,468) (Notes 1 and 7)  57,801,468 
Foreign currency (cost $770) (Note 1)  770 
Dividends, interest and other receivables  233,918 
Receivable for shares of the fund sold  613,833 
Receivable for investments sold  196,569 
Unrealized appreciation on swap contracts (Note 1)  2,391,925 
Receivable for variation margin (Note 1)  115,004 
Unrealized appreciation on forward currency contracts (Note 1)  289,400 
Receivable from Manager (Note 2)  18,061 
Premium paid on swap contracts (Note 1)  738,242 
Unamortized offering costs (Note 1)  45,881 
Total assets  136,462,561 
 
LIABILITIES   
Payable to custodian  813 
Payable for investments purchased  123,628 
Payable for shares of the fund repurchased  2,135,068 
Payable for investor servicing fees (Note 2)  37,261 
Payable for custodian fees (Note 2)  60,604 
Payable for Trustee compensation and expenses (Note 2)  351 
Payable for administrative services (Note 2)  196 
Payable for distribution fees (Note 2)  18,631 
Payable for offering costs (Note 1)  153,638 
Unrealized depreciation on forward currency contracts (Note 1)  535,102 
Written options outstanding, at value (premiums received $436,394) (Notes 1 and 3)  417,237 
Premium received on swap contracts (Note 1)  1,369,966 
Unrealized depreciation on swap contracts (Note 1)  3,380,320 
Collateral on securities loaned, at value (Note 1)  69,000 
Collateral on certain derivative contracts, at value (Note 1)  470,000 
Other accrued expenses  102,754 
Total liabilities  8,874,569 
 
Net assets  $127,587,992 
 
REPRESENTED BY   
Paid-in capital (Unlimited shares authorized) (Notes 1, 4 and 6)  $129,679,336 
Undistributed net investment income (Note 1)  202,058 
Accumulated net realized gain on investments and foreign currency transactions (Note 1)  1,268,028 
Net unrealized depreciation of investments and assets and liabilities in foreign currencies  (3,561,430) 
Total — Representing net assets applicable to capital shares outstanding  $127,587,992 

 

(Continued on next page)

43


Statement of assets and liabilities (Continued)

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE   
Net asset value and redemption price per class A share ($38,666,435 divided by 3,776,263 shares)  $10.24 
Offering price per class A share (100/94.25 of $10.24)*  $10.86 
Net asset value and offering price per class B share ($727,116 divided by 71,274 shares)**  $10.20 
Net asset value and offering price per class C share ($3,151,291 divided by 309,216 shares)**  $10.19 
Net asset value and redemption price per class M share ($363,275 divided by 35,570 shares)  $10.21 
Offering price per class M share (100/96.50 of $10.21)*  $10.58 
Net asset value, offering price and redemption price per class R share   
($102,289 divided by 10,000 shares)  $10.23 
Net asset value, offering price and redemption price per class Y share   
($84,577,586 divided by 8,245,508 shares)  $10.26 

 

* 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.

44


Statement of operations For the period 9/19/11 (commencement of operations) to 5/31/12

INVESTMENT INCOME   
Dividends (net of foreign tax of $19,924)  $389,292 
Interest (including interest income of $16,523 from investments in affiliated issuers) (Note 7)  24,242 
Securities lending (Note 1)  165 
Total investment income  413,699 
 
EXPENSES   
Compensation of Manager (Note 2)  313,407 
Investor servicing fees (Note 2)  61,826 
Custodian fees (Note 2)  99,956 
Trustee compensation and expenses (Note 2)  1,494 
Administrative services (Note 2)  790 
Distribution fees — Class A (Note 2)  41,837 
Distribution fees — Class B (Note 2)  2,202 
Distribution fees — Class C (Note 2)  9,113 
Distribution fees — Class M (Note 2)  1,559 
Distribution fees — Class R (Note 2)  357 
Amortization of offering costs (Note 1)  107,757 
Auditing  76,713 
Other  36,513 
Fees waived and reimbursed by Manager (Note 2)  (300,892) 
Total expenses  452,632 
 
Expense reduction (Note 2)  (109) 
Net expenses  452,523 
 
Net investment loss  (38,824) 
 
Net realized gain on investments (Notes 1 and 3)  140,207 
Net realized gain on swap contracts (Note 1)  657,637 
Net realized gain on futures contracts (Note 1)  867,123 
Net realized gain on foreign currency transactions (Note 1)  28,859 
Net realized gain on written options (Notes 1 and 3)  91,209 
Net unrealized depreciation of assets and liabilities in foreign currencies during the year  (246,421) 
Net unrealized depreciation of investments, futures contracts, swap contracts, and written   
options during the year  (3,315,009) 
Net loss on investments  (1,776,395) 
 
Net decrease in net assets resulting from operations  $(1,815,219) 

 

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

45


Statement of changes in net assets

  For the period 9/19/11 
  (commencement of 
INCREASE IN NET ASSETS  operations) to 5/31/12 
Operations:   
Net investment loss  $(38,824) 
Net realized gain on investments and foreign currency transactions  1,785,035 
Net unrealized depreciation of investments and assets and liabilities   
in foreign currencies  (3,561,430) 
Net decrease in net assets resulting from operations  (1,815,219) 
Distributions to shareholders (Note 1):   
From ordinary income   
Net investment income   
Class A  (161,991) 
Class B  (1,006) 
Class C  (4,876) 
Class M  (2,469) 
Class R  (807) 
Class Y  (15,416) 
Net realized short-term gain on investments   
Class A  (77,866) 
Class B  (593) 
Class C  (2,362) 
Class M  (1,294) 
Class R  (423) 
Class Y  (7,022) 
Increase from capital share transactions (Note 4)  114,679,336 
Total increase in net assets  112,587,992 
 
NET ASSETS   
Beginning of period (Note 6)  15,000,000 
End of period (including undistributed net investment income of $202,058)  $127,587,992 

 

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

46

 

 

 

 

 


 

This page left blank intentionally. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

47


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

INVESTMENT OPERATIONS:      LESS DISTRIBUTIONS:        RATIOS AND SUPPLEMENTAL DATA: 
                        Ratio of net   
                      Ratio  investment   
  Net asset    Net realized                of expenses  income (loss)   
  value,    and unrealized  Total from  From  From  Total  Net asset  Total return  Net assets,  to average  to average  Portfolio 
  beginning  Net investment  gain (loss)  investment  net investment  net realized gain  distribu-  value, end  at net asset  end of period  net assets  net assets  turnover 
Period ended  of period  income (loss) a  on investments  operations  income  on investments  tions  of period  value (%) b  (in thousands)  (%) c,d  (%) d  (%) 
Class A                           
May 31, 2012†  $10.00  (.02)  .39  .37  (.09)  (.04)  (.13)  $10.24  3.77*  $38,666  .98*  (.22)*  41* 
Class B                           
May 31, 2012†  $10.00  (.07)  .38  .31  (.07)  (.04)  (.11)  $10.20  3.19*  $727  1.50*  (.68)*  41* 
Class C                           
May 31, 2012†  $10.00  (.07)  .38  .31  (.08)  (.04)  (.12)  $10.19  3.21*  $3,151  1.50*  (.66)*  41* 
Class M                           
May 31, 2012†  $10.00  (.06)  .39  .33  (.08)  (.04)  (.12)  $10.21  3.39*  $363  1.33*  (.60)*  41* 
Class R                           
May 31, 2012†  $10.00  (.05)  .40  .35  (.08)  (.04)  (.12)  $10.23  3.59*  $102  1.15*  (.45)*  41* 
Class Y                           
May 31, 2012†  $10.00  .01  .38  .39  (.09)  (.04)  (.13)  $10.26  4.02*  $84,578  .80*  .11*  41* 

 

* Not annualized

† For the period September 19, 2011 (commencement of operations) to May 31, 2012.

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 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 
May 31, 2012  0.61% 

 

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

 

48  49 

 


Notes to financial statements 5/31/12

Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission and references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC. Unless otherwise noted, the “reporting period” represents the period from September 19, 2011 (commencement of operations) through May 31, 2012.

Putnam Dynamic Risk Allocation 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 investment objective of the fund is to seek total return. Total return is composed of capital appreciation and income. The fund invests in a diversified set of asset classes. By investing in a broader set of asset classes than a traditional balanced fund, and by using leverage to increase the fund’s exposure to asset classes, Putnam Management believes the fund may achieve a higher total return than a traditional balanced fund with approximately the same amount of risk as a traditional balanced fund. Risk is measured by the volatility of the fund’s investment portfolio. The fund may invest without limit in U.S., international, and emerging markets equity securities (growth or value stocks or both) of companies of any size and fixed-income securities of corporate or government issuers without constraint as to maturity or credit quality (including in high yield securities, which are sometimes referred to as “junk bonds”); mortgage- and asset-backed securities; inflation-protected securities; commodities; and real estate investment trusts. These asset classes offer different return potential and exposure to different investment risks.

The fund offers class A, class B, class C, class M, class R and class Y shares. The fund began offering class A, class B, class C, class M, class R and class Y shares on September 19, 2011. 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. Effective July 2, 2012, the fund began offering class R5 and class R6 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.

Note 1: Significant accounting policies

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.

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.

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.

50


Investments in other open-end investment companies (excluding exchange traded funds), which are classified as Level 1 securities, are based on their net asset value. The net asset value of an investment company equals the total value of its assets less its liabilities and 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 that the exchange is open.

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. 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.

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.

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.

51


Options contracts The fund uses options contracts to hedge duration and convexity, to isolate prepayment risk, to gain exposure to interest rates, to hedge against changes in values of securities it owns, owned or expects to own, to hedge prepayment risk, to generate additional income for the portfolio return, to enhance returns on securities owned, and to enhance the return on a security owned.

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.

Futures contracts The fund uses futures contracts to manage exposure to market risk, to hedge prepayment risk, to hedge interest rate risk, to gain exposure to interest rates, and to equitize cash.

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. The fund had an average of approximately 240 futures contracts outstanding for the reporting period.

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. The fund had an average contract amount of approximately $11,500,000 on forward currency contracts for the reporting period.

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 sector exposure, to manage exposure to specific sectors or industries, to gain exposure to specific markets or countries, and to gain exposure to specific sectors or industries.

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

52


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 $23,500,000 on total return swap contracts for the reporting period.

Interest rate swap contracts The fund entered into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to hedge interest rate risk, to gain exposure on interest rates, and to hedge prepayment risk.

An interest rate swap can be purchased or sold with an upfront premium. An upfront payment received by the fund is recorded as a liability on the fund’s books. An upfront payment made by the fund is recorded as an asset on the fund’s books. Upfront payments are recorded as realized gains and losses at the closing of the contract. Interest rate 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 interest rate 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 if the counterparty defaults 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.

Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average notional amount of approximately $26,800,000 on interest rate swap contracts for the reporting period.

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 is recorded as a liability on the fund’s books. An upfront payment made by the fund 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.

Credit default contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio. The fund had an average notional amount of approximately $23,600,000 on credit default swap contracts for the reporting period.

53


Master agreements The fund is a party to ISDA (International Swaps 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 $2,395,983 on derivative contracts subject to the Master Agreements. Collateral posted by the fund totaled $1,878,422.

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 to Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the value of securities loaned amounted to $68,380 and the fund received cash collateral of $69,000.

Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by 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.

Line of credit Effective January 2012, the fund participates, along with other Putnam funds, in a $315 million ($325 million prior to June 29, 2012) unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by 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 0.11% (0.13% prior to June 29, 2012) 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.

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

54


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.

The fund may also 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.

Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer $2,282,066 of late year ordinary losses ((i) ordinary losses recognized during the period between January 1, 2012 and May 31, 2012, and (ii) specified ordinary losses recognized during the period between November 1, 2011 and May 31, 2012), to its fiscal year ending May 31, 2013.

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 foreign currency gains and losses, late year loss deferrals, unrealized gains and losses on certain futures contracts, realized gains and losses on certain futures contracts, 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 $427,447 to decrease distributions in excess of net investment income and $427,447 to decrease to 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  $1,393,208 
Unrealized depreciation  (5,089,422) 
Net unrealized depreciation  (3,696,214) 
Undistributed short-term gain  973,694 
Undistributed long-term gain  627,264 
Late year ordinary loss  (2,282,066) 
Cost for federal income tax purposes  $135,515,172 

 

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.

Offering costs The offering costs of $153,638 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:

1.050%  of the first $5 billion, 
1.000%  of the next $5 billion, 
0.950%  of the next $10 billion, 
0.900%  of the next $10 billion, 
0.850%  of the next $50 billion, 
0.830%  of the next $50 billion, 
0.820%  of the next $100 billion and 
0.815%  of any excess thereafter. 

 

55


Putnam Management has agreed to waive fees (and, to the extent necessary, bear other expenses) of the fund through September 30, 2013, to the extent that expenses of the fund (excluding brokerage, interest, taxes, investment-related expenses, such as borrowing costs, payments under distribution plans, extraordinary expenses and acquired fund fees and expenses) would exceed an annual rate of 1.15% of the fund’s average net assets. During the reporting period, the fund’s expenses were reduced by $47,011 as a result of this limit.

Putnam Management has also contractually agreed, through June 30, 2013, 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 $253,881 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 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 0.32% of the fund’s average net assets. Prior to March 1, 2012, investor servicing fees could 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. Effective July 2, 2012, class R5 shares will pay a monthly fee based on the average net assets of class R5 shares at an annual rate of 0.15%. Effective July 2, 2012, class R6 shares will pay a monthly fee based on the average net assets of class R6 shares at an annual rate of 0.05%.

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 $96 under the expense offset arrangements and by $13 under the brokerage/service arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $35, 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, an indirect wholly-owned subsidiary of Putnam Investments, LLC 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%,

56


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 $11,482 and $4 from the sale of class A and class M shares, respectively, and received $45 and $200 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 $59,892,440 and $7,551,299, 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  939,180  699,452 
Options exercised  —  — 
Options expired  (458,016)  (201,589) 
Options closed  (110,973)  (61,469) 
Written options outstanding at the     
end of the reporting period  370,191  $436,394 

 

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 9/19/11 
  (commencement of operations) to 5/31/12 
Class A  Shares  Amount 
Shares sold  2,881,028  $29,872,014 
Shares issued in connection with reinvestment of distributions  4,632  45,158 
  2,885,660  29,917,172 
Shares repurchased  (559,397)  (5,816,748) 
Net increase  2,326,263  $24,100,424 
 
  For the period 9/19/11 
  (commencement of operations) to 5/31/12 
Class B  Shares  Amount 
Shares sold  64,417  $666,891 
Shares issued in connection with reinvestment of distributions  47  459 
  64,464  667,350 
Shares repurchased  (3,190)  (32,489) 
Net increase  61,274  $634,861 

 

57


  For the period 9/19/11 
  (commencement of operations) to 5/31/12 
Class C  Shares  Amount 
Shares sold  304,942  $3,146,929 
Shares issued in connection with reinvestment of distributions  615  5,988 
  305,557  3,152,917 
Shares repurchased  (6,341)  (65,420) 
Net increase  299,216  $3,087,497 
 
  For the period 9/19/11 
  (commencement of operations) to 5/31/12 
Class M  Shares  Amount 
Shares sold  25,314  $257,414 
Shares issued in connection with reinvestment of distributions  260  2,533 
  25,574  259,947 
Shares repurchased  (4)  (45) 
Net increase  25,570  $259,902 
 
  For the period 9/19/11 
  (commencement of operations) to 5/31/12 
Class Y  Shares  Amount 
Shares sold  9,160,766  $96,224,452 
Shares issued in connection with reinvestment of distributions  936  9,126 
  9,161,702  96,233,578 
Shares repurchased  (926,194)  (9,636,926) 
Net increase  8,235,508  $86,596,652 

 

Class R had no capital shares transactions other than the initial capitalization (Note 6).

At the close of the reporting period, Putnam Investments, LLC owned the following class shares of the fund:

      Value at end of the 
  Shares owned  Percentage of ownership  reporting period 
Class A  1,375,440  36.42%  $14,084,506 
Class B  10,000  14.03  102,000 
Class C  10,000  3.23  101,900 
Class M  10,000  28.11  102,100 
Class R  10,000  100.00  102,300 
Class Y  10,000  0.12  102,600 

 

At the close of the reporting period, a shareholder owned 57.06% of the outstanding shares of the fund.

58


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  $518,897  Payables  $2,706,022 
Foreign exchange         
contracts  Receivables  289,400  Payables  535,102 
  Investments,       
  Receivables, Net       
  assets — Unrealized    Payables, Net assets —   
Equity contracts  appreciation  2,259,782*  Unrealized depreciation  2,139,719* 
  Receivables, Net       
  assets — Unrealized       
Interest rate contracts  appreciation  2,501,478*  Payables  454,347 
Total    $5,569,557    $5,835,190 

 

* 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      Forward     
for as hedging instruments      currency     
under ASC 815  Options  Futures  contracts  Swaps  Total 
Credit contracts  $—  $—  $—  $628,730  $628,730 
Foreign exchange           
contracts  —  —  11,685  —  $11,685 
Equity contracts  (6,321)  (196,212)  —  (114,133)  $(316,666) 
Interest rate contracts  —  1,063,335  —  143,040  $1,206,375 
Total  $(6,321)  $867,123  $11,685  $657,637  $1,530,124 

 

Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments

 

Derivatives not accounted      Forward     
for as hedging instruments      currency     
under ASC 815  Options  Futures  contracts  Swaps  Total 
Credit contracts  $—  $—  $—  $(1,555,401)  $(1,555,401) 
Foreign exchange           
contracts  —  —  (245,702)  —  $(245,702) 
Equity contracts  38,585  596,636  —  (763,311)  $(128,090) 
Interest rate contracts  —  716,814  —  1,330,317  $2,047,131 
Total  $38,585  $1,313,450  $(245,702)  $(988,395)  $117,938 

 

59


Note 6: Initial capitalization and offering of shares

The fund was established as a series of the Trust on September 19, 2011. Prior to September 19, 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  $14,500,000  1,450,000 
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 $16,523 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $126,303,369 and $68,570,901, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.

Note 8: Market, credit and other risks

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. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations.

Note 9: New accounting pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011–04 “Fair Value Measurements and Disclosures (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. ASU 2011–04 amends FASB Topic 820 “Fair Value Measurement” and seeks to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. ASU 2011–04 is effective for fiscal years and interim periods beginning after December 15, 2011. The application of ASU 2011–04 will not have a material impact on the fund’s financial statements.

In December 2011, the FASB issued ASU No. 2011–11 “Disclosures about Offsetting Assets and Liabilities”. The update creates new disclosure requirements requiring entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. Putnam Management is currently evaluating the application of ASU 2011–11 and its impact, if any, on the fund’s financial statements.

60


Federal tax information (Unaudited)

Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $627,264 as a capital gain dividend with respect to the taxable year ended May 31, 2012, or, if subsequently determined to be different, the net capital gain of such year.

The fund designated 11.23% of ordinary income distributions as qualifying for the dividends received deduction for corporations.

For the reporting period ended, the fund hereby designates 28.01%, 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 2013 will show the tax status of all distributions paid to your account in calendar 2012.

61


About the Trustees

Independent Trustees

Ravi Akhoury Born 1947, Trustee since 2009

Principal occupations during past five years: Advisor to New York Life Insurance Company. Trustee of American India Foundation and of the Rubin Museum. From 1992 to 2007, was Chairman and CEO of MacKay Shields, a multi-product investment management firm with over $40 billion in assets under management.

Other directorships: RAGE Frameworks, Inc., a private software company; English Helper, Inc., a private software company

Barbara M. Baumann Born 1955, Trustee since 2010

Principal occupations during past five years: President and Owner of Cross Creek Energy Corporation, a strategic consultant to domestic energy firms and direct investor in energy projects. Trustee of Mount Holyoke College and member of the Investment Committee for the college’s endowment. Former Chair and current board member of Girls Incorporated of Metro Denver. Member of the Finance Committee, The Children’s Hospital of Colorado.

Other directorships: SM Energy Company, a domestic exploration and production company; UniSource Energy Corporation, an Arizona utility

Jameson A. Baxter
Born 1943, Trustee since 1994, Vice Chair from 2005 to 2011, and Chair since 2011

Principal occupations during past five years: President of Baxter Associates, Inc., a private investment firm. Chair of Mutual Fund Directors Forum. 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.

Charles B. Curtis Born 1940, Trustee since 2001

Principal occupations during past five years: Senior Advisor to the Center for Strategic and International Studies. Former President and Chief Operating Officer of the Nuclear Threat Initiative, a private foundation dealing with national security issues. Member of the Council on Foreign Relations and U.S. State Department International Security Advisory Board. Chairman of World Institute of Nuclear Security, a non-profit international non-governmental organization.

Other directorships: Southern California Edison, a regulated electric utility, and its parent company, Edison International


Robert J. Darretta Born 1946, Trustee since 2007

Principal occupations during past five years: Health Care Industry Advisor to Permira, a global private equity firm. Until April 2007, was Vice Chairman of the Board of Directors of Johnson & Johnson. Served as Johnson & Johnson’s Chief Financial Officer for a decade.

Other directorships: UnitedHealth Group, a diversified health-care company

John A. Hill Born 1942, Trustee since 1985 and Chairman from 2000 to 2011

Principal occupations during past five years: Founder and Vice-Chairman of First Reserve Corporation, the leading private equity buyout firm focused on the worldwide energy industry. Trustee and Chairman of the Board of Trustees of Sarah Lawrence College. Member of the Advisory Board of the Millstein Center for Corporate Governance and Performance at the Yale School of Management.

Other directorships: Devon Energy Corporation, a leading independent natural gas and oil exploration and production company


Paul L. Joskow Born 1947, Trustee since 1997

Principal occupations during past five years: Economist and President of the Alfred P. Sloan Foundation, a philanthropic institution focused primarily on research and education on issues related to science, technology, and economic performance. Elizabeth and James Killian Professor of Economics, Emeritus at the Massachusetts Institute of Technology (MIT). Prior to 2007, served as the Director of the Center for Energy and Environmental Policy Research at MIT.

Other directorships: Yale University; TransCanada Corporation, an energy company focused on natural gas transmission, oil pipeline, and power services; Exelon Corporation, an energy company focused on power services; Boston Symphony Orchestra

62



Elizabeth T. Kennan Born 1938, Trustee from 1992 to 2010 and since 2012

Principal occupations during the past five years: Partner of Cambus-Kenneth Farm (thoroughbred horse breeding and general farming). President Emeritus of Mount Holyoke College. Trustee of the National Trust for Historic Preservation and of Centre College. Chairman of the Board of Shaker Village of Pleasant Hill.

Other directorships: Former Chairman and now Lead Director of Northeast Utilities, which operates New England’s largest energy delivery system

Kenneth R. Leibler Born 1949, Trustee since 2006

Principal occupations during past five years: Founder and former Chairman of Boston Options Exchange, an electronic marketplace for the trading of derivative securities. Vice Chairman of the Board of Trustees of Beth Israel Deaconess Hospital in Boston, Massachusetts. Until November 2010, director of Ruder Finn Group, a global communications and advertising firm.

Other directorships: Northeast Utilities, which operates New England’s largest energy delivery system

Robert E. Patterson Born 1945, Trustee since 1984

Principal occupations during past five years: Senior Partner of Cabot Properties, LP and Co-Chairman of Cabot Properties, Inc., a private equity firm investing in commercial real estate. Past Chairman and Trustee of the Joslin Diabetes Center.


George Putnam, III Born 1951, Trustee since 1984

Principal occupations during past five years: Chairman of New Generation Research, Inc., a publisher of financial advisory and other research services. 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 Born 1942, Trustee from 1997 to 2008 and since 2009

Principal occupations during past five years: Retired as Chairman and Chief Executive Officer of Boise Cascade, LLC, a paper, forest products, and timberland assets company, in December 2008. Prior to 2010, Director of Boise Inc., a manufacturer of paper and packaging products.

Other directorships: TransCanada Pipelines Ltd., an energy infrastructure company

Interested Trustee


Robert L. Reynolds*
Born 1952, Trustee since 2008 and President of the Putnam Funds since 2009

Principal occupations during past five years: President and Chief Executive Officer of Putnam Investments since 2008. Prior to joining Putnam Investments, served as Vice Chairman and Chief Operating Officer of Fidelity Investments from 2000 to 2007.

The address of each Trustee is One Post Office Square, Boston, MA 02109.

As of May 31, 2012, there were 109 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 75, 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.

63


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, 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 and Treasurer 
Robert R. Leveille (Born 1969)  Since 2010 
Vice President and Chief Compliance Officer  Manager of Finance, Dunkin’ Brands (2008– 
Since 2007  2010); Senior Financial Analyst, Old Mutual Asset 
Chief Compliance Officer, Putnam Investments,  Management (2007–2008); Senior Financial 
Putnam Management, and Putnam Retail  Analyst, Putnam Investments (1999–2007) 
Management 
Nancy E. Florek (Born 1957) 
Mark C. Trenchard (Born 1962)  Vice President, Assistant Clerk, Assistant 
Vice President and BSA Compliance Officer  Treasurer, and Proxy Manager 
Since 2002  Since 2000 
Director of Operational Compliance, 
Putnam Investments and Putnam  Susan G. Malloy (Born 1957) 
Retail Management  Vice President and Assistant Treasurer 
  Since 2007 
  Director of Accounting & Control Services, 
Putnam 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.

64


Fund information

Founded 75 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  John A. Hill  Mark C. Trenchard 
Putnam Investment  Paul L. Joskow  Vice President and 
Management, LLC  Elizabeth T. Kennan  BSA Compliance Officer 
One Post Office Square  Kenneth R. Leibler   
Boston, MA 02109  Robert E. Patterson  Robert T. Burns 
  George Putnam, III  Vice President and 
Investment Sub-Manager  Robert L. Reynolds  Chief Legal Officer 
Putnam Investments Limited  W. Thomas Stephens   
57–59 St James’s Street    James P. Pappas 
London, England SW1A 1LD  Officers  Vice President 
  Robert L. Reynolds   
Marketing Services  President  Judith Cohen 
Putnam Retail Management    Vice President, Clerk, and 
One Post Office Square  Jonathan S. Horwitz  Assistant Treasurer 
Boston, MA 02109  Executive Vice President, 
  Principal Executive Officer,  Michael Higgins 
Custodian  and Compliance Liaison  Vice President and Treasurer 
State Street Bank   
and Trust Company  Steven D. Krichmar  Nancy E. Florek 
  Vice President and  Vice President, Assistant Clerk, 
Legal Counsel  Principal Financial Officer  Assistant Treasurer, and 
Ropes & Gray LLP  Proxy Manager 
  Janet C. Smith   
Independent Registered  Vice President,  Susan G. Malloy 
Public Accounting Firm  Assistant Treasurer, and  Vice President and 
KPMG LLP  Principal Accounting Officer  Assistant Treasurer 
 
Trustees  Robert R. Leveille   
Jameson A. Baxter, Chair  Vice President and   
Ravi Akhoury  Chief Compliance Officer   
Barbara M. Baumann   
Charles B. Curtis     
Robert J. Darretta     

 

This report is for the information of shareholders of Putnam Dynamic Risk Allocation 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
         
May 31, 2012 * $70,513 $-- $4,500 $--

 

*For the period September 19, 2011 (commencement of operations) to May 31, 2012.

 

 

For the fiscal year ended May 31, 2012 , the fund’s independent auditor billed aggregate non-audit fees in the amounts of $4,500 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

       
May 31,2012 * $ -- $ -- $ -- $ --

*For the period September 19, 2011 (commencement of operations) to May 31, 2012.

 

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: July 27, 2012

 

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: July 27, 2012

 

 

 

By: (Signature and Title):

 

/s/Steven D. Krichmar

Steven D. Krichmar

Principal Financial Officer

 

Date: July 27, 2012