Putnam
Equity
Fund 98
ANNUAL REPORT
June 30, 1998
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Bigger isn't always better, as the performance generated by Putnam Equity Fund
98 since its inception on December 31, 1997, can attest. Your fund invests
primarily in rapidly growing small- and micro-capitalization companies. Thanks
to excellent timing and astute stock selection during the fund's initial
months of operation, we are pleased to report a 23.77% total return at net
asset value for the abbreviated initial fiscal year ended June 30, 1998. At
public offering price, the return would have been 16.63%.
In an equity market that had been dominated by large-capitalization stocks --
particularly in the first quarter of 1998 -- small-cap and micro-cap stocks
were quite undervalued. Fund managers Richard Frucci and Roland Gillis took
advantage of these attractive prices that were elemental in achieving the
fund's strong returns.
Additionally, many micro-cap and small-cap companies derive their profits from
operations in the United States, leaving them relatively unaffected by the
current problems associated with Asia and Latin America. Earnings from
companies in the technology, retail, and telecommunications sectors were
especially strong because of the healthy U.S. economy and falling interest
rates. Since homeowners have been taking advantage of low interest rates to
refinance their mortgages, they have had more money to spend on consumer goods
and services. Year 2000 computer system issues and abundant interest in the
Internet contributed to the substantial earnings in the technology sector.
Among the stocks that contributed strongly to the fund's performance are
Exodus Communications (networking), Geo Tel Communications (communications),
and MemberWorks, Inc. (leisure). Exodus Communications, based in California,
is a provider of Internet system and network management solutions and is
benefiting from an increase in customers and sales. MemberWorks, Inc., of
Stamford, Connecticut, is a designer and provider of innovative membership
service programs designed to enhance existing relationships between businesses
and consumers. Geo Tel in Lowell, Massachusetts, provides software solutions
that improve voice and data routing technology for customer-oriented companies
that want to deliver responsive and cost-effective service. While these
holdings, along with others discussed in this report were viewed favorably at
the end of the fiscal 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
Geo Tel Communications Corp.
Communications
ResMed, Inc.
Medical supplies
BrightStar Information Technology Group, Inc.
Computer services
Hibbett Sporting Goods, Inc.
Retail
Cunningham Graphics International, Inc.
Business services
Software AG Systems, Inc.
Computer software
ProBusiness Services, Inc.
Business services
SteriGenics International, Inc.
Health care
99 Cents Only Stores
Retail
Ambassadors International, Inc.
Leisure
Footnote reads:
These holdings represent 16.8% of the fund's net assets as of June 30, 1998.
Portfolio holdings will vary over time.
As we move into the second half of calendar 1998, we expect a significant
slowdown in the economy as the effects of the Asian situation finally manifest
themselves in the United States. Of particular importance are the effects of
slowing exports to Asia and the possibility of further erosion of Asian
currencies, particularly in China. Japan is in the midst of its deepest
recession since World War II, and with the stunning defeat of the ruling
Liberal Democratic Party, there could be more delays in the plans for reviving
Japan's economy. Analysts will likely trim their earnings estimates for many
U.S. corporations to reflect these concerns. Keep in mind that we believe any
slowdown would occur in the context of current U.S. economic growth and that
we are not forecasting a recession.
We will be watching for signs of inflation at home but believe that the
companies with less exposure to overseas markets, as is the case with many of
the micro-cap and small-cap companies in your fund, will have better
performance over the near term. Our confidence in the fund managers' ability
to find such high-quality, rapidly growing stocks remains strong.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
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 June 30, 1998, there is no guarantee the fund will continue to
hold these securities in the future. This fund invests a portion of its assets
in small-size companies. Such investments increase the risk of greater price
fluctuations.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Equity Fund 98 seeks capital appreciation by investing primarily in the
equity securities of small, rapidly growing companies.
TOTAL RETURN FOR PERIOD ENDED 6/30/98
(inception 12/31/97)
Russell 2000 Consumer
NAV POP Index Price Index
- ------------------------------------------------------------------------------
Since inception 23.77% 16.63% 4.93% 1.05%
- ------------------------------------------------------------------------------
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of
a $10,000 investment since
12/31/97
Fund's class A
shares at Russell 2000 Consumer Price
Date POP Index Index
12/31/97 9,425 10,000 10,000
3/31/98 11,731 11,006 10,056
6/30/98 11,663 10,493 10,105
Past performance is no assurance of future results.
PRICING INFORMATION
for the period 12/31/97 to 6/30/98
- ------------------------------------------------------------------------------
Share value: NAV POP
- ------------------------------------------------------------------------------
12/31/97 $8.50 $9.02
- ------------------------------------------------------------------------------
6/30/98 10.52 11.16
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. Returns at public offering price reflect the current maximum
initial sales charge of 5.75%. All returns assume reinvestment of
distributions at net asset value. Investment returns and principal value
will fluctuate so that an investor's shares, when sold, may be worth more
or less than their original cost. Performance data do not take into
account any adjustments for taxes payable on reinvested distributions and
reflect an expense limitation which is currently in effect. Without the
expense limitation, total returns would have been lower.
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 2000 Index is an unmanaged list of common stocks that is
frequently used as a measure of the performance of small company stocks.
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
To the Trustees and Shareholders of
Putnam Equity Fund 98
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 Equity Fund
98 (the "fund") at June 30, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the period from
December 31, 1997 (commencement of operations) through June 30, 1998, 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 June 30, 1998 by correspondence with the custodian,
provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 13, 1998
Portfolio of investments owned
June 30, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (95.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Advertising (1.2%)
- -------------------------------------------------------------------------------------------------------------
4,000 Obie Media Corp. (NON) $ 62,000
Aerospace and Defense (1.2%)
- -------------------------------------------------------------------------------------------------------------
5,500 Hawker Pacific Aerospace (NON) 61,188
Apparel (1.0%)
- -------------------------------------------------------------------------------------------------------------
4,000 Ashworth, Inc. (NON) 55,500
200 Bebe Stores, Inc. (NON) 2,625
--------------
58,125
Beverages (2.8%)
- -------------------------------------------------------------------------------------------------------------
8,000 AquaPenn Spring Water Company, Inc. (NON) 69,000
1,600 Celestial Seasonings, Inc. (NON) 79,200
--------------
148,200
Broadcasting (1.9%)
- -------------------------------------------------------------------------------------------------------------
2,500 Pegasus Communications Corp. (NON) 52,500
1,600 Scandinavian Broadcasting System S.A. (Luxembourg) (NON) 48,300
--------------
100,800
Business Equipment and Services (0.9%)
- -------------------------------------------------------------------------------------------------------------
1,500 Staff Leasing, Inc. (NON) 44,250
Business Services (13.8%)
- -------------------------------------------------------------------------------------------------------------
3,800 ACSYS, Inc. (NON) 52,250
1,700 Analytical Surveys, Inc. (NON) 62,263
2,500 Carey International, Inc. (NON) 70,000
2,100 Condor Technology Solutions, Inc. (NON) 30,975
5,100 Cunningham Graphics International, Inc. (NON) 87,975
3,000 Integrated Systems Consulting Group, Inc. (NON) 41,250
1,500 Lason Holdings, Inc. (NON) 81,750
3,500 Outsource International, Inc. (NON) 31,500
1,800 ProBusiness Services, Inc. (NON) 84,150
2,462 Provant, Inc. (NON) 45,239
3,500 RCM Technologies, Inc. (NON) 71,094
3,500 SOS Staffing Services, Inc. (NON) 61,469
--------------
719,915
Communications (2.8%)
- -------------------------------------------------------------------------------------------------------------
3,800 Advanced Communication Systems, Inc. (NON) 47,263
2,391 GeoTel Communications Corporation (NON) 97,433
--------------
144,696
Computer Equipment (1.3%)
- -------------------------------------------------------------------------------------------------------------
6,500 FARO Technologies, Inc. (NON) 68,656
Computer Services (6.2%)
- -------------------------------------------------------------------------------------------------------------
600 AnswerThink Consulting Group, Inc. (NON) 12,900
6,500 BrightStar Information Technology Group, Inc. (NON) 90,188
1,100 Data Dimensions, Inc. (NON) 18,769
600 Deltek Systems, Inc. (NON) 14,700
700 Evolving Systems, Inc. (NON) 7,744
1,100 IDT Corp. (NON) 33,069
2,200 Maxwell Technologies, Inc. (NON) 51,150
4,400 SCB Computer Technology, Inc. (NON) 48,400
1,500 SPR, Inc. (NON) 46,688
--------------
323,608
Computer Services and Software (2.6%)
- -------------------------------------------------------------------------------------------------------------
2,500 Pegasus Systems, Inc. (NON) 64,063
6,600 SEEC, Inc. (NON) 71,775
--------------
135,838
Computer Software (12.5%)
- -------------------------------------------------------------------------------------------------------------
3,100 Best Software, Inc. (NON) 65,488
2,650 Fundtech Ltd. (NON) 50,019
2,000 Metro Information Services, Inc. (NON) 78,250
2,500 Ovid Technologies, Inc. (NON) 59,375
2,300 Peregrine Systems, Inc. (NON) 65,550
4,000 Simione Central Holdings, Inc. (NON) 27,250
3,000 Software AG Systems, Inc. (NON) 87,750
4,500 Summit Design, Inc. (NON) 66,094
5,000 Template Software, Inc. (NON) 55,000
1,000 Visual Networks, Inc. (NON) 36,625
4,000 Walker Interactive Systems, Inc. (NON) 59,000
--------------
650,401
Consumer Durable Goods (0.8%)
- -------------------------------------------------------------------------------------------------------------
3,500 Home Choice Holdings Inc. (NON) 42,219
Consumer Non Durables (2.6%)
- -------------------------------------------------------------------------------------------------------------
3,600 Natural Alternatives International, Inc. (NON) 72,000
2,000 USANA, Inc. (NON) 62,250
--------------
134,250
Consumer Products (2.2%)
- -------------------------------------------------------------------------------------------------------------
2,000 Media Arts Group, Inc. (NON) 38,500
4,600 Weider Nutrition International, Inc. 78,200
--------------
116,700
Consumer Services (2.2%)
- -------------------------------------------------------------------------------------------------------------
3,000 Market Facts, Inc. (NON) 65,250
1,500 Travel Services International, Inc. (NON) 49,313
--------------
114,563
Education Services (2.6%)
- -------------------------------------------------------------------------------------------------------------
2,700 Career Education Corp. (NON) 66,150
1,500 Childtime Learning Centers (NON) 30,563
1,000 Strayer Education, Inc. 36,250
--------------
132,963
Electrical Equipment (0.6%)
- -------------------------------------------------------------------------------------------------------------
2,000 Harmonic Lightwaves, Inc. (NON) 30,750
Financial Services (1.4%)
- -------------------------------------------------------------------------------------------------------------
1,200 HealthCare Financial Partners, Inc. (NON) 73,575
Food (1.0%)
- -------------------------------------------------------------------------------------------------------------
2,000 The Hain Food Group, Inc. (NON) 51,750
Health Care (2.7%)
- -------------------------------------------------------------------------------------------------------------
2,000 Province Healthcare Co. (NON) 55,375
3,200 SteriGenics International, Inc. (NON) 83,200
--------------
138,575
Health Care Information Services (0.4%)
- -------------------------------------------------------------------------------------------------------------
850 First Consulting Group, Inc. (NON) 22,313
Hospital Management (0.9%)
- -------------------------------------------------------------------------------------------------------------
4,500 ProMedCo Management Co. (NON) 46,125
Hospital Management and Medical Services (0.4%)
- -------------------------------------------------------------------------------------------------------------
900 Medrisk, Inc. (NON) 18,225
Information Systems (0.9%)
- -------------------------------------------------------------------------------------------------------------
3,000 ForSoft Ltd. (NON) 46,125
Insurance (2.7%)
- -------------------------------------------------------------------------------------------------------------
2,700 Annuity and Life Re, Ltd. (NON) 59,738
2,400 Inspire Insurance Solutions, Inc. (NON) 79,800
--------------
139,538
Insurance and Finance (1.3%)
- -------------------------------------------------------------------------------------------------------------
3,600 Gilman & Ciocia, Inc. (NON) 65,250
Leisure (3.6%)
- -------------------------------------------------------------------------------------------------------------
2,700 Ambassadors International, Inc. (NON) 81,844
1,800 MemberWorks, Inc. (NON) 58,050
1,500 Steiner Leisure Ltd. (NON) 45,375
--------------
185,269
Managed Services (1.7%)
- -------------------------------------------------------------------------------------------------------------
2,500 Brookdale Living Communities, Inc. (NON) 64,063
1,300 Centennial HealthCare Corp. (NON) 23,563
--------------
87,626
Medical Management Services (1.0%)
- -------------------------------------------------------------------------------------------------------------
4,600 AmSurg Corp. (NON) 35,075
600 IMPATH, Inc. (NON) 14,588
--------------
49,663
Medical Supplies and Devices (6.4%)
- -------------------------------------------------------------------------------------------------------------
600 CN Biosciences, Inc. (NON) 15,000
1,700 Horizon Medical Products, Inc. (NON) 16,044
900 Lifecore Biomedical, Inc. (NON) 14,850
2,200 Perclose, Inc. (NON) 62,150
2,000 ResMed, Inc. (NON) 91,125
2,000 Ventana Medical Systems, Inc. (NON) 56,000
2,500 Xomed Surgical Products, Inc. (NON) 77,813
--------------
332,982
Networking (1.7%)
- -------------------------------------------------------------------------------------------------------------
900 Exodus Communications, Inc. (NON) 40,275
4,100 First Virtual Corp. (NON) 49,713
--------------
89,988
Pharmaceuticals (1.0%)
- -------------------------------------------------------------------------------------------------------------
3,000 Priority Healthcare Corp. Class B (NON) 54,375
Pharmaceuticals and Biotechnology (1.2%)
- -------------------------------------------------------------------------------------------------------------
3,000 Fuisz Technologies Ltd. (NON) 33,188
1,000 Kendle International, Inc. (NON) 30,250
--------------
63,438
Retail (6.7%)
- -------------------------------------------------------------------------------------------------------------
2,000 99 Cents Only Stores (NON) 83,000
3,500 A.C. Moore Arts & Crafts, Inc. (NON) 56,875
500 Coldwater Creek, Inc. (NON) 13,750
1,700 Cost Plus, Inc. (NON) 50,575
2,200 Hibbett Sporting Goods, Inc. (NON) 88,000
1,900 Rent-Way, Inc. (NON) 57,950
--------------
350,150
Semiconductors (1.0%)
- -------------------------------------------------------------------------------------------------------------
1,400 QLogic Corp. (NON) 49,952
--------------
Total Common Stocks (cost $4,437,857) $ 4,954,041
SHORT-TERM INVESTMENTS (cost $266,043) (5.1%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$ 266,000 Interest in $750,000,000 joint repurchase agreement dated
June 30, 1998 with Goldman, Sachs & Co. due July 1, 1998
with respect to various U.S. Treasury obligations -- maturity
value of $266,043 for an effective yield of 5.8% $ 266,043
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,703,900) (b) $ 5,220,084
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $5,205,156.
(b) The aggregate identified cost on a tax basis is $4,704,609, resulting in gross unrealized appreciation
and depreciation of $762,996 and $247,521, respectively, or net unrealized appreciation of $515,475.
(NON) Non-income-producing security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
June 30, 1998
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $4,703,900) (Note 1) $5,220,084
- ---------------------------------------------------------------------------------------------------
Cash 656
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,331
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 83,922
- ---------------------------------------------------------------------------------------------------
Total assets 5,306,993
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 29,812
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 49,670
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,324
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 435
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 120
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 20,469
- ---------------------------------------------------------------------------------------------------
Total liabilities 101,837
- ---------------------------------------------------------------------------------------------------
Net assets $5,205,156
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $4,635,487
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 53,485
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 516,184
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $5,205,156
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($5,205,156 divided by 494,621 shares) $10.52
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $10.52)* $11.16
- ---------------------------------------------------------------------------------------------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period December 31, 1997 (commencement of operations) to June 30, 1998
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $ 7,838
- --------------------------------------------------------------------------------------------------
Dividends 312
- --------------------------------------------------------------------------------------------------
Total investment income 8,150
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 17,977
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,786
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,041
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 16
- --------------------------------------------------------------------------------------------------
Reports to shareholders 2,755
- --------------------------------------------------------------------------------------------------
Registration fees 1,379
- --------------------------------------------------------------------------------------------------
Auditing 15,005
- --------------------------------------------------------------------------------------------------
Legal 3,476
- --------------------------------------------------------------------------------------------------
Postage 27
- --------------------------------------------------------------------------------------------------
Other 25
- --------------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (22,112)
- --------------------------------------------------------------------------------------------------
Total expenses 23,375
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,972)
- --------------------------------------------------------------------------------------------------
Net expenses 21,403
- --------------------------------------------------------------------------------------------------
Net investment loss (13,253)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 66,738
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 516,184
- --------------------------------------------------------------------------------------------------
Net gain on investments 582,922
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $569,669
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
December 31, 1997
(commencement of operations)
to June 30, 1998
- ------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------
Net investment loss $ (13,253)
- ------------------------------------------------------------------------------------------------------
Net realized gain on investments 66,738
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 516,184
- ------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 569,669
- ------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 3,135,487
- ------------------------------------------------------------------------------------------------------
Total increase in net assets 3,705,156
Net assets
- ------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 1,500,000
- ------------------------------------------------------------------------------------------------------
End of period $5,205,156
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share December 31, 1997+
operating performance to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (.04)(a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.06
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.02
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.52
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (b) 23.77*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,205
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .65*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) (.37)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 85.45*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid $.0381
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 investment 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 (Note 2). As a result of such limitation,
expenses of the fund for the period ending June 30, 1998, reflect a reduction of $0.06 per share.
</TABLE>
Notes to financial statements
June 30, 1998
Note 1
Significant accounting policies
Putnam Equity Fund 98 (the "fund") is a series of Putnam Fund Trust (the
"trust") which is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
objective of the fund is to seek capital appreciation by investing primarily
in the equity securities of small, rapidly growing companies that Putnam
Investment Management, Inc. ("Putnam Management"), the fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc. believes have the
potential for capital appreciation.
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.
E) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code 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 and for
excise tax on income and capital gains.
F) 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 treatment of losses on wash sale transactions and
net operating losses. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the period ended
June 30, 1998, the fund reclassified $13,253 to decrease accumulated net
investment loss and $13,253 to decrease accumulated net realized gain. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
G) Expenses of the trust Expenses directly charged or attributable to any fund
will be paid from the assets of that fund. Generally, expenses of the trust
will be allocated among and charged to the assets of each fund on a basis that
the Trustees deem fair and equitable, which may be based on the relative
assets of each fund or the nature of the services performed and relative
applicability to each fund.
Note 2
Management fee, administrative
services, and other transactions
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: 1.00% of the first $500 million of
the fund's average net asset value; 0.90% of the next $500 million; 0.85% of
the next $500 million; 0.80% of the next $5 billion; 0.775% of the next $5
billion; 0.755% of the next $5 billion; 0.74% of the next $5 billion; and
0.73% of any excess thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through December 31, 1998, to the extent that
expenses of the fund (exclusive of brokerage commissions, interest, taxes, and
extraordinary expense, 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 1.30% 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 June 30, 1998, fund expenses were reduced by $1,972 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 payments by the fund to
Putnam Mutual Funds Corp. at an annual rate up to 0.35% of the average net
assets. The fund is not currently making any payments pursuant to the Plan.
For the period ended June 30, 1998, Putnam Mutual Funds Corp., acting as
underwriter received no net commissions from the sale of shares of the fund. A
deferred sales charge of up to 1% is assessed on certain redemptions of
shares. For the period ended June 30, 1998, Putnam Mutual Funds Corp., acting
as underwriter received no monies on redemptions.
Note 3
Purchases and sales of securities
During the period ended June 30, 1998, purchases and sales of investment
securities other than short-term investments aggregated $7,230,243 and
$2,859,123, 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 June 30, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period
December 31, 1997
(commencement of
operations) to
June 30, 1998
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 342,911 $3,398,434
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
342,911 3,398,434
Shares
repurchased (24,761) (262,947)
- ------------------------------------------------------------
Net increase 318,150 $3,135,487
- ------------------------------------------------------------
Note 5
Initial capitalization and
offering of shares
The fund was established as a Massachusetts business trust on January
22, 1996. During the period January 22, 1996 to December 31, 1997 the fund had
no operations other than those related to organizational matters, including
the initial capital contribution of $1,500,000, and the issuance of 176,471
shares to Putnam Mutual Funds Corp. on December 30, 1997.
At June 30, 1998 Putnam Investments, Inc. owned 214,093 shares of the fund
(43.3% of shares outstanding) valued at $2,252,258.
Federal tax information
(Unaudited)
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
The fund has designated 0.58% from investment company taxable income as
qualifying for the dividends received deduction for corporations.
Fund information
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
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
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
Richard Frucci
Vice President and Fund Manager
Roland Gillis
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Equity Fund 98.
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' website: 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.
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