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
<TABLE>
<CAPTION>
Portfolio of investments owned
April 30, 1999
COMMON STOCKS (99.1%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1999
<S> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period May 4, 1998 (commencement of operations) to April 30, 1999
<S> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
May 4, 1998
(commencement
of operations)
to April 30
1999
- --------------------------------------------------------------------------------------------------
<S> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share May 4, 1998+
operating performance to April 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
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).
</TABLE>
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
