-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TUVwQusu0AR21mVax8B+htJC6kI8Fy3PCMT8oJHR2mdeU9ZhKqH+dYivE1t5pyO2 G+AYdiCy6m2mofQmzLPqmQ== 0000928816-99-000198.txt : 19990621 0000928816-99-000198.hdr.sgml : 19990621 ACCESSION NUMBER: 0000928816-99-000198 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990618 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM FUNDS TRUST CENTRAL INDEX KEY: 0001005942 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07513 FILM NUMBER: 99648391 BUSINESS ADDRESS: STREET 1: ONE POST STREET 2: ONE POST OFFICE SQUARE CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921010 MAIL ADDRESS: STREET 1: ONE POST OFFICE SQUARE CITY: BOSTON STATE: MA ZIP: 02109 N-30D 1 PUTNAM U.S. CORE FUND Putnam U.S. Core Fund ANNUAL REPORT ON PERFORMANCE AND OUTLOOK 4-30-99 [LOGO: BOSTON * LONDON * TOKYO] From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: The Trustees of Putnam U.S. Core Fund are pleased to present you with this annual report covering the period from the fund's inception on May 4, 1998, through April 30, 1999. In a volatile year for U.S. equities, in which a mere handful of stocks accounted for much of the market's gain, your fund achieved outstanding results, comfortably outpacing the 20.31% return of the Russell 1000 Growth Index, the fund's unmanaged benchmark. Total return for the 12 months ended 4/30/99* Net asset value Public offering price - ---------------------------------------------------------------- 26.96% 19.64% - ---------------------------------------------------------------- * Reflects performance since inception on 5/4/98. Past performance is no indication of future results. Additional performance information begins on page 6. * BUILT FROM THE GROUND UP Successful stock selection by your fund's management team was the key to the fund's impressive performance. In their pursuit of long-term capital appreciation, the fund's managers employ a bottom-up stock-picking strategy that emphasizes what they call "growth at a reasonable price." As a first step, they look for large (more than $4 billion in market capitalization) but growing companies whose stocks are temporarily undervalued for one reason or another. They use cash flow as a measure of valuation rather than earnings because, in their view, earnings are often distorted by companies wishing to impress investors. Second, for each company that passes this initial screening, the fund's managers try to identify a catalyst for change that may, over a reasonable time frame, improve that company's prospects and prompt a return to a more normal valuation. For example, they may consider buying a stock when they see an incremental change in cash flow or an increase in the return on invested capital. And since psychology often is just as important to the market as company fundamentals, they talk to each company's management and competitors to get a feel for its prospects. Finally, your fund's managers limit the portfolio to their best stock picks so each stock can have a more pronounced impact on the fund's performance. While most equity funds have more than 100 holdings at any one time, the fund had only 40 at the end of April. MediaOne is typical of the fund's holdings. One of the largest broadband communications companies in the United States, MediaOne has more than 7 million customers in the United States, Europe, and Asia. Yet as recently as last year, the company was plagued by turmoil in its upper management, and the stock was undervalued relative to its peers. Your fund's managers saw this as a buying opportunity. Essentially, they reasoned, there are only two pipelines of information into a household: telephone lines and cable. Despite its difficulties, MediaOne is a dominant player in the cable market and stands to benefit if households increasingly choose to receive the Internet and other information services over cable lines. The fund's investment soon paid off. This year, new management began to work on the organization, and MediaOne's stock price gained 74% in the first four months of 1999. Before long there were acquisition offers from other companies, including Comcast and AT&T. Other fund holdings that performed well during the year include Tyco, Motorola, CVS, and Cendant. While these and other stocks mentioned in this report were viewed favorably at the end of the reporting period, all are subject to review and adjustment in accordance with the fund's investment strategy and may vary in the future. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS Tyco International Ltd. Medical supplies and devices Sprint Corp. Utilities MediaOne Group Inc. Broadcasting AFLAC Inc. Insurance and finance AT&T Corp. -- Liberty Media Group Broadcasting Microsoft Corp. Computer services and software American Home Products Corp. Pharmaceuticals Ascend Communications, Inc. Telecommunications IBM Corp. Computer services and software Citigroup, Inc. Insurance and finance Footnote reads: These holdings represented 44.6% of the fund's net assets as of 4/30/99. Portfolio holdings will vary over time. Naturally, there were also disappointments. Among them was Compaq. The world's second largest computer company ran into management problems in 1998 related to its acquisition of Digital Equipment Corp. Your fund's managers sold the stock because they thought Compaq's troubles would take a relatively long time to straighten out, a bad sign in an industry where mistakes are severely punished by investors. The move proved fortuitous, as the stock continued to decline. * GREATER OPPORTUNITY MAY LIE AHEAD After more than a year of narrow market performance, your fund's managers believe we are finally entering an environment where investors will focus more on valuation than size and earnings momentum. In addition, as the performance of recent market leaders begins to wane and commodity prices show signs of life, investors may now be looking more broadly at a number of industries. The fund's managers believe that in this environment, stock selection will become increasingly important, and that a broader market will provide greater opportunity for your fund. Going forward, they expect to maintain their rigorous selection standards and limit the portfolio to what they consider the best 30 to 40 companies in their target universe as they continue their search for long-term capital appreciation. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees June 16, 1999 The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 4/30/99, there is no guarantee the fund will continue to hold these securities in the future. A concentrated portfolio may add a measure of volatility, as fluctuations in any one holding will likely affect the fund more than a fund with greater diversification. Performance summary This section provides information about your fund's performance, which should always be considered in light of its investment strategy. Putnam U.S. Core Fund is designed for investors seeking long-term capital appreciation primarily through common stocks of U.S. companies that are believed to be undervalued in relation to underlying asset values or earnings potential and have the potential for long-term appreciation. TOTAL RETURN FOR THE PERIOD ENDED 4/30/99 Russell 1000 Consumer NAV POP Index price index - ------------------------------------------------------------------------------ Life of fund (since 5/4/98) Annual average 26.96% 19.64% 20.31% 2.28% - ------------------------------------------------------------------------------ Past performance is no assurance of future results. More recent returns may be more or less than those shown. All returns assume reinvestment of distributions at NAV. Investment return and principal value will fluctuate so that an investor's shares when redeemed may be worth more or less than their original cost. PRICE AND DISTRIBUTION INFORMATION PERIOD ENDED 4/30/99 - ------------------------------------------------------------------------------ Distributions (number) 1 - ------------------------------------------------------------------------------ Income -- - ------------------------------------------------------------------------------ Capital gains - ------------------------------------------------------------------------------ Long-term -- - ------------------------------------------------------------------------------ Short-term $0.052 - ------------------------------------------------------------------------------ Total $0.052 - ------------------------------------------------------------------------------ Share value: NAV POP - ------------------------------------------------------------------------------ 5/4/98 $8.50 $9.02 - ------------------------------------------------------------------------------ 4/30/99 10.73 11.38 - ------------------------------------------------------------------------------ TOTAL RETURN FOR THE PERIOD ENDED 3/31/99 (most recent calendar quarter) NAV POP - ------------------------------------------------------------------------------ Life of fund (since 5/4/98) Annual average 21.28% 14.29% - ------------------------------------------------------------------------------ Past performance is no assurance of future results. More recent returns may be more or less than those shown. All returns assume reinvestment of distributions at NAV. Investment return and principal value will fluctuate so that an investor's shares when redeemed may be worth more or less than their original cost. [GRAPHIC OMMITTED: worm chart GROWTH OF A $10,000 INVESTMENT] GROWTH OF A $10,000 INVESTMENT Cumulative total return of a $10,000 investment since 5/4/98 Fund's shares Russell 1000 Consumer price Date at POP Index index 5/4/98 9,424 10,000 10,000 5/31/98 9,024 9,784 10,018 6/30/98 9,568 10,146 10,031 7/31/98 9,468 10,024 10,043 8/31/98 7,827 8,526 10,055 9/30/98 8,559 9,100 10,055 10/31/98 9,157 9,818 10,080 11/30/98 9,778 10,426 10,092 12/31/98 10,827 11,090 10,105 1/31/99 11,384 11,486 10,129 2/28/99 10,960 11,122 10,135 3/31/99 11,429 11,548 10,154 4/30/99 $11,964 $12,031 $10,228 Footnote reads: Past performance is no assurance of future results. See first page of performance section for performance calculation method. TERMS AND DEFINITIONS Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 5.75% maximum sales charge. COMPARATIVE BENCHMARKS Russell 1000(R) Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 89% of the total market capitalization of the Russell 3000 Index. As of the latest reconstitution, the average market capitalization was approximately $9.9 billion; the median market capitalization was approximately $3.7 billion. The smallest company in the index had an approximate market capitalization of $1.4 billion. The index assumes reinvestment of all distributions and interest payments and does not take into account brokerage fees or taxes. Securities in the fund do not match those in the index and performance of the fund will differ. It is not possible to invest directly in an index. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Report of independent accountants For the period May 4, 1998 (commencement of operations) to April 30, 1999 To the Trustees of Putnam Fund Trust and Shareholders of Putnam U.S. Core Fund (a series of Putnam Fund Trust) In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments owned, 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 U.S. Core Fund (the "fund") at April 30, 1999, and the results of its operations, the changes in its net assets and the financial highlights for the period from May 4, 1998 (commencement of operations) to April 30, 1999, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of investments owned at April 30, 1999 by correspondence with the custodian, provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts June 15, 1999
Portfolio of investments owned April 30, 1999 COMMON STOCKS (99.1%) (a) NUMBER OF SHARES VALUE Broadcasting (11.6%) - -------------------------------------------------------------------------------------------------------------------------- 1,970 AT&T Corp. -- Liberty Media Group (NON) $ 125,864 1,470 CBS Corp. 66,977 2,260 MediaOne Group Inc. (NON) 184,331 -------------- 377,172 Business Equipment and Services (4.1%) - -------------------------------------------------------------------------------------------------------------------------- 3,626 Cendant Corp. (NON) 65,268 585 Cisco Systems, Inc. (NON) 66,727 -------------- 131,995 Computer Services and Software (12.4%) - -------------------------------------------------------------------------------------------------------------------------- 265 America Online, Inc. 37,829 1,300 Computer Associates International, Inc. 55,494 1,454 Electronic Data Systems Corp. 78,153 508 IBM Corp. 106,267 1,540 Microsoft Corp. (NON) 125,221 -------------- 402,964 Electronics and Electrical Equipment (6.1%) - -------------------------------------------------------------------------------------------------------------------------- 350 Honeywell, Inc. 33,163 800 Intel Corp. 48,950 951 Motorola, Inc. 76,199 404 Texas Instruments, Inc. 41,259 -------------- 199,571 Food and Beverages (1.7%) - -------------------------------------------------------------------------------------------------------------------------- 1,600 Coca-Cola Enterprises, Inc. 55,200 Insurance and Finance (17.5%) - -------------------------------------------------------------------------------------------------------------------------- 2,618 AFLAC Inc. 142,027 524 American Express Co. 68,480 680 American International Group, Inc. 79,858 1,360 Citigroup, Inc. 102,340 100 Franklin Resources, Inc. 4,000 1,275 Mercantile Bancorp., Inc. 72,675 500 Morgan Stanley, Dean Witter, Discover and Co. 49,594 1,135 Wells Fargo Co. 49,018 -------------- 567,992 Medical Supplies and Devices (7.6%) - -------------------------------------------------------------------------------------------------------------------------- 3,030 Tyco International Ltd. 246,188 Oil and Gas (4.4%) - -------------------------------------------------------------------------------------------------------------------------- 3,260 Conoco, Inc. 88,428 1,300 Halliburton Co. 55,413 -------------- 143,841 Packaging and Containers (2.6%) - -------------------------------------------------------------------------------------------------------------------------- 1,410 Sealed Air Corp. (NON) 85,746 Pharmaceuticals (6.0%) - -------------------------------------------------------------------------------------------------------------------------- 1,934 American Home Products Corp. 117,974 1,386 Pharmacia & Upjohn, Inc. 77,616 -------------- 195,590 Retail (9.9%) - -------------------------------------------------------------------------------------------------------------------------- 845 Costco Companies, Inc. (NON) 68,392 1,910 CVS Corp. 90,964 2,070 Rite Aid Corp. 48,257 700 Tricon Global Restaurants, Inc. (NON) 45,063 1,475 Wal-Mart Stores, Inc. 67,850 -------------- 320,526 Telecommunications (5.0%) - -------------------------------------------------------------------------------------------------------------------------- 100 Adelphia Communications Corp. (NON) 6,825 1,142 Ascend Communications, Inc. (NON) 110,346 550 MCI WorldCom, Inc. (NON) 45,203 -------------- 162,374 Utilities (10.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,485 SBC Communications, Inc. 83,160 1,850 Sprint Corp. 189,741 1,420 Sprint PCS 60,173 -------------- 333,074 -------------- Total Common Stocks (cost $2,777,886) $ 3,222,233 SHORT-TERM INVESTMENTS (3.4%) (a) (cost $112,000) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $112,000 Interest in $292,698,000 joint repurchase agreement dated April 30, 1999 with Warburg Securities due May 3, 1999 with respect to various U.S. Treasury obligations -- maturity value of $112,045 for an effective yield of 4.87% $ 112,000 - -------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $2,889,886) (b) $ 3,334,233 - -------------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $3,250,786. (b) The aggregate identified cost on a tax basis is $2,922,768, resulting in gross unrealized appreciation and depreciation of $453,540 and $42,075 respectively, or net unrealized appreciation of $411,465. (NON) Non-income-producing security. The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities April 30, 1999 Assets - ----------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $2,889,886) (Note 1) $3,334,233 - ----------------------------------------------------------------------------------------------- Cash 16,900 - ----------------------------------------------------------------------------------------------- Dividends receivable 998 - ----------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 162 - ----------------------------------------------------------------------------------------------- Receivable for securities sold 193,447 - ----------------------------------------------------------------------------------------------- Receivable from Manager (Note 2) 1,468 - ----------------------------------------------------------------------------------------------- Total assets 3,547,208 Liabilities - ----------------------------------------------------------------------------------------------- Payable for securities purchased 278,381 - ----------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 175 - ----------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 215 - ----------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 13 - ----------------------------------------------------------------------------------------------- Payable for auditing 12,020 - ----------------------------------------------------------------------------------------------- Payable for legal 1,440 - ----------------------------------------------------------------------------------------------- Other accrued expenses 4,178 - ----------------------------------------------------------------------------------------------- Total liabilities 296,422 - ----------------------------------------------------------------------------------------------- Net assets $3,250,786 Represented by - ----------------------------------------------------------------------------------------------- Paid-in capital (Notes 1, 4 and 5) $2,680,526 - ----------------------------------------------------------------------------------------------- Accumulated net realized gain on investments (Note 1) 125,913 - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of investments 444,347 - ----------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $3,250,786 Computation of net asset value and offering price - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per share ($3,250,786 divided by 303,058 shares) $10.73 - ----------------------------------------------------------------------------------------------- Offering price per share (100/94.25 of $10.73)* $11.38 - ----------------------------------------------------------------------------------------------- * On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales, the offering price is reduced. The accompanying notes are an integral part of these financial statements.
Statement of operations For the period May 4, 1998 (commencement of operations) to April 30, 1999 Investment income: - ----------------------------------------------------------------------------------------------- Dividends $18,450 - ----------------------------------------------------------------------------------------------- Interest 474 - ----------------------------------------------------------------------------------------------- Total investment income 18,924 Expenses: - ----------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 15,686 - ----------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 4,431 - ----------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 1,945 - ----------------------------------------------------------------------------------------------- Administrative services (Note 2) 43 - ----------------------------------------------------------------------------------------------- Reports to shareholders 3,386 - ----------------------------------------------------------------------------------------------- Registration fees 801 - ----------------------------------------------------------------------------------------------- Auditing 12,152 - ----------------------------------------------------------------------------------------------- Legal 4,211 - ----------------------------------------------------------------------------------------------- Postage 18 - ----------------------------------------------------------------------------------------------- Fees waived and reimbursed by manager (Note 2) (20,271) - ----------------------------------------------------------------------------------------------- Total expenses 22,402 - ----------------------------------------------------------------------------------------------- Expense reduction (Note 2) (2,120) - ----------------------------------------------------------------------------------------------- Net expenses 20,282 - ----------------------------------------------------------------------------------------------- Net investment loss (1,358) - ----------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 139,736 - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of investments during the period 444,347 - ----------------------------------------------------------------------------------------------- Net gain on investments 584,083 - ----------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $582,725 - ----------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets For the period May 4, 1998 (commencement of operations) to April 30 1999 - -------------------------------------------------------------------------------------------------- Increase in net assets - -------------------------------------------------------------------------------------------------- Operations: - -------------------------------------------------------------------------------------------------- Net investment loss $ (1,358) - -------------------------------------------------------------------------------------------------- Net realized gain on investments 139,736 - -------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments 444,347 - -------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 582,725 - -------------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gain (12,478) - -------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 680,539 - -------------------------------------------------------------------------------------------------- Total increase in net assets 1,250,786 Net assets - -------------------------------------------------------------------------------------------------- Beginning of period (Note 5) $2,000,000 - -------------------------------------------------------------------------------------------------- End of period (including net investment income of $--) $3,250,786 - -------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) - ------------------------------------------------------------------------------------------------------------------------------------ For the period Per-share May 4, 1998+ operating performance to April 30 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $8.50 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment loss (a)(d) (.01) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments 2.29 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 2.28 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain (.05) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.05) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $10.73 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(b) 26.96* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $3,251 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(c)(d) .99* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%)(d) (.06)* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 267.29* - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Per share net investment loss has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset arrangements (Note 2). (d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect a reduction of $0.07 per share. (Note 2).
Notes to financial statements April 30, 1999 Note 1 Significant accounting policies Putnam U.S. Core Fund ("the fund") is one of a series of Putnam Funds Trust ("the trust") which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund invests primarily in common stocks of U.S. companies that Putnam Investment Management, Inc. ("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam Investments, Inc., believes offer long-term growth potential in excess of market averages or are undervalued in relation to underlying asset values or earnings potential and have the potential for long-term growth. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments are stated at fair market value, following procedures approved by the Trustees. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Discounts on original issue discount bonds is accreted according to the yield-to-maturity basis. E) Line of credit The fund has entered into a committed line of credit with certain banks. This line of credit agreement includes restrictions that the fund maintain an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the period ended April 30, 1999, the fund had no borrowings against the line of credit. F) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. G) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Capital gain distributions, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include temporary differences of losses on wash sale transactions. 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 period ended April 30, 1999, the fund reclassified $1,358 to decrease accumulated net investment loss and $13 to decrease paid-in-capital, with a decrease to accumulated net realized gains of $1,345. The calculation of net investment income per share in the financial highlights table excludes these adjustments. H) Expenses of the trust Expenses directly charged or attributable to any fund will be paid from the assets of that fund. Generally, expenses of the trust will be allocated among and charged to the assets of each fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each fund or the nature of the services performed and relative applicability to each fund. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.70% of the first $500 million of average net assets, 0.60% of the next $500 million, 0.55% of the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion, and 0.43% thereafter. Putnam Management has agreed to limit its compensation (and, to the extent necessary, bear other expenses) through December 31, 1999, to the extent that expenses of the fund (exclusive of brokerage commissions, interest, taxes, deferred organizational and extraordinary expenses, credits from Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. and payments under the Trust's distribution plan) would exceed an annual rate of 1.00% of the fund's average net assets. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by PFTC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the period ended April 30, 1999, fund expenses were reduced by $2,120 under expense offset arrangements with PFTC. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Each Trustee of the fund receives an annual Trustee fee, of which $100 has been allocated to the fund, and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are 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 Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plan is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments, Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plan provides for payment by the fund to Putnam Mutual Funds Corp. at an annual rate of up to 0.35% of the fund's average net assets. The fund is not currently making any payments pursuant to the plan. For the period ended April 30, 1999, Putnam Mutual Funds Corp., acting as underwriter received no net commissions from the sale of shares of the fund. Note 3 Purchase and sales of securities During the period ended April 30, 1999, purchases and sales of investment securities other than short-term investments aggregated $8,233,763 and $5,595,027, respectively. There were no purchases and sales of U.S. government obligations. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 4 Capital shares At April 30, 1999, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: For the period May 4, 1998 (commencement of operations) to April 30, 1999 - ----------------------------------------------------------------------------- Shares Amount - ----------------------------------------------------------------------------- Shares sold 80,253 $800,612 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,380 12,478 - ----------------------------------------------------------------------------- 81,633 813,090 Shares repurchased (13,869) (132,551) - ----------------------------------------------------------------------------- Net increase 67,764 $680,539 - ----------------------------------------------------------------------------- Note 5 Initial capitalization and offering of shares The Trust was established as a Massachusetts business trust on January 22, 1996. During the period January 22, 1996 to May 4, 1998, the fund had no operations other than those related to organizational matters, including the initial capital contribution of $2,000,000 and the issuance of 235,294 shares to Putnam Mutual Funds Corp. on May 1, 1998. At April 30, 1999, Putnam Investments, Inc. owned 265,297 shares of the fund (87.5% of shares outstanding), valued at $2,846,637. Federal tax information (Unaudited) The fund has designated 10.21% of the distributions from net investment income as qualifying for the dividends received deduction for corporations. The Form 1099 you receive in January 2000 will show the tax status of all distributions paid to your account in calendar 1999. Fund information WEB SITE www.putnaminv.com INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman John A. Hill, Vice Chairman Jameson Adkins Baxter Hans H. Estin Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President John J. Morgan, Jr. Vice President Robert R. Beck Vice President and Fund Manager Michael P. Stack Vice President and Fund Manager Richard A. Monaghan Vice President John R. Verani Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam U.S. Core Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam Investments' Web site: http://www.putnaminv.com. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution; are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency; and involve risk, including the possible loss of the principal amount invested. 52511 21F 6/99 -----END PRIVACY-ENHANCED MESSAGE-----