Putnam
Equity
Fund 98
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
6-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Although Putnam Equity Fund 98 began fiscal 1999 in a volatile market
environment, the second half of the fiscal year has brought a shift in
market leadership, with smaller-cap stocks outperforming larger-cap issues
for the first time in several years. Investor confidence in the recovering
global economic environment was the key to this change. As the U.S.
economy has grown and weathered one international crisis after another,
investors have gained trust in companies of all sizes, including the
small-cap stocks that are your fund's primary focus. This confidence along
with your managers' astute stock selection has contributed to the
outstanding appreciation of your fund for the 12 months ended June 30,
1999, well ahead of its Russell 2000 benchmark, which returned 1.50% for
the period.
Total return for 12 months ended 6/30/99
NAV POP
- ----------------------------------------------------------------
42.62% 34.44%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 5.
* TECHNOLOGY AND MEDIA SECTORS COMMAND ATTENTION
While leadership in the stock market has broadened to include small and
micro-size companies, fund managers Richard Frucci and Roland Gillis have
continued their pursuit of undervalued less-known stocks. Many of the
strongest-performing equities have come from the technology and media
sectors. The technology focus has been on the beneficiaries of the
exploding demand for telecommunications and data communications services.
Portfolio holdings such as Emulex and QLogic, two leaders in the emerging
fiber channel networking products area, and Power Integrations, a leader
in high-voltage integrated circuits for wireless applications, contributed
significantly to the fund's performance.
Similarly key media sector holdings, Cumulus Media, Inc. and Pegasus
Communications Corp., performed well during this fiscal year. Cumulus is a
fast-growing radio broadcasting company focused on acquiring, operating,
and developing radio stations in the smaller markets of the United States.
They own and operate 180 stations in 39 markets, and on June 23 announced
the acquisition of nine more stations in Alabama, Florida, and Texas.
Pegasus is a communications and media company with subsidiaries that
provide direct broadcast satellite television services to customers in
rural areas of the United States.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Emulex Corp.
Semiconductors
Power Integrations, Inc.
Semiconductors
Hi/Fn, Inc.
Semiconductors
Pinnacle Holdings, Inc.
Broadcasting
JAKKS Pacific, Inc.
Specialty consumer products
Harmonic Lightwaves, Inc.
Telecommunications
Priority Healthcare Corp., Class B
Pharmaceuticals and biotechnology
TriQuint Semiconductor, Inc.
Semiconductors
Cumulus Media, Inc.
Broadcasting
Globix Corp.
Computer services and software
Footnote reads:
These holdings represent 21.3% of the fund's net assets as of 6/30/99.
Portfolio holdings will vary over time.
The fund has benefited from an underweighting in the health-care industry,
which has been hurt by reimbursement and regulatory concerns. However,
there have been some attractive fundamental values in this sector, notably
Medical Manager, a health-care information company which agreed to be
acquired during the period. By the end of the fiscal year, we sold this
holding from the portfolio.
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.
* INFLATION WATCH REMAINS IN PLACE AMID CONTINUING GROWTH
Going forward, your fund's managers believe there is no question that the
Federal Reserve Board is on an inflation watch. But barring any major
surprises, they expect strong economic growth to continue (but not
accelerate) along with the broadening of the leadership in the U.S. stock
market. Smaller companies should continue to benefit. If inflation begins
to exceed expectations, the Fed will most likely raise interest rates
again, which may cause a correction in the stock market. Any correction
from a Fed tightening will be seen as a buying opportunity to invest in
fundamentally strong companies at more reasonable prices, and Dick and
Roland will respond accordingly.
"After five years of sitting in the penalty box, small stocks have finally
been let out."
- -- The Wall Street Journal, July 15, 1999
Despite the gains from the last few months, the valuations of small- and
micro-cap companies, while somewhat higher, remain near the low end of the
historical relative range. As investors become more receptive to the
changing leadership in the market amid reports of strong quarterly
earnings, your managers remain optimistic about future performance.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
August 18, 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 6/30/99, 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 RETURNS FOR PERIODS ENDED 6/30/99
Russell Consumer
NAV POP 2000 Index price index
- ----------------------------------------------------------------------------
1 year 42.62% 34.44% 1.50% 1.96%
- ----------------------------------------------------------------------------
Life of fund
(since 12/31/97) 75.48 65.42 6.50 3.04
Annual average 45.85 40.19 4.30 2.02
- ----------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 6/30/99
- ----------------------------------------------------------------------------
Distributions (number) 1
- ----------------------------------------------------------------------------
Income $ --
- ----------------------------------------------------------------------------
Capital gains
Long-term --
- ----------------------------------------------------------------------------
Short-term 0.105
- ----------------------------------------------------------------------------
Total $0.105
- ----------------------------------------------------------------------------
Share value: NAV POP
- ----------------------------------------------------------------------------
6/30/98 $10.52 $11.16
- ----------------------------------------------------------------------------
6/30/99 14.85 15.76
- ----------------------------------------------------------------------------
Performance is for class A shares. Past performance is no assurance of
future results. More recent returns may be more or less than those shown.
Returns at public offering price reflect the current maximum initial sales
charge of 5.75%. 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.
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.
[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 Russell 2000 Consumer price
Date shares at POP Index index
12/31/97 9,426 10,000 10,000
6/30/98 11,598 10,493 10,105
6/30/99 $16,542 $10,650 $10,304
Footnote reads:
Past performance is no assurance of future results.
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 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.
Indexes assume reinvestment of all distributions and interest payments and
do not take in 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
sources listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the fiscal year ended June 30, 1999
To the Trustees of Putnam Fund Trust and
Shareholders of Putnam Equity Fund 98
(a series of Putnam Fund Trust)
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Equity Fund 98
(the "fund") at June 30, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, 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 audits. We conducted our audits 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 audits, which included confirmation of investments owned at June
30, 1999 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 12, 1999
<TABLE>
<CAPTION>
The fund's portfolio
June 30, 1999
COMMON STOCKS (98.9%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Banks (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
700 Net.B@nk, Inc. (NON) $ 26,600
Broadcasting (7.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,400 Citadel Communications Corp. (NON) 86,850
7,500 Cumulus Media, Inc. Class A (NON) 164,063
2,700 Pegasus Communications Corp. (NON) 106,481
7,500 Pinnacle Holdings, Inc. (NON) 183,750
3,000 Radio One, Inc. (NON) 139,500
--------------
680,644
Business Services (6.0%)
- --------------------------------------------------------------------------------------------------------------------------
9,000 Act Manufacturing, Inc. (NON) 126,000
1,100 Daisytek International Corp. (NON) 17,944
3,700 DII Group, Inc., (The) (NON) 138,056
2,500 On Assignment, Inc. (NON) 65,313
2,000 ProBusiness Services, Inc. (NON) 71,750
3,100 Realty Information Group, Inc. (NON) 134,850
--------------
553,913
Computer Equipment (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,000 Overland Data, Inc. (NON) 38,250
Computer Services and Software (23.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,100 Allaire Corp. (NON) 75,075
2,000 Aware, Inc. (NON) 92,250
5,100 BackWeb Technologies Ltd. (Israel) (NON) 139,613
674 Bottomline Technologies, Inc. (NON) 35,722
4,000 Brio Technology, Inc. (NON) 80,000
1,000 BroadVision, Inc. (NON) 73,750
6,000 Catapult Communications Corp. (NON) 113,250
200 Clarent Corp. (NON) 3,000
2,800 Exchange Applications, Inc. (NON) 114,100
3,500 Genesys Telecommunications Laboratories, Inc. (NON) 87,500
3,700 Globix Corp. (NON) 163,494
2,100 Informatica Corp. (NON) 74,813
1,700 InterVU, Inc. (NON) 65,131
1,700 Micromuse, Inc. (NON) 84,788
2,500 Mpath Interactive, Inc. (NON) 55,000
2,700 Multex.com, Inc. (NON) 70,538
1,671 Net Perceptions, Inc. (NON) 36,449
300 nFront, Inc. (NON) 4,556
300 OneSource Information Services, Inc. (NON) 2,625
137 Peregrine Systems, Inc. (NON) 3,519
5,100 Proxicom, Inc. (NON) 131,006
1,200 Ramp Networks, Inc. (NON) 17,175
800 Security First Technologies Corp. (NON) 36,100
3,100 Silknet Software, Inc. (NON) 125,550
8,000 Spyglass, Inc. (NON) 161,000
100 StarMedia Network, Inc. (NON) 6,413
3,800 TSI International Software Ltd. (NON) 107,825
200 VerticalNet, Inc. (NON) 21,000
2,600 Verity, Inc. (NON) 140,888
100 Viant Corp. (NON) 3,500
--------------
2,125,630
Consumer Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
100 Ask Jeeves, Inc. (NON) 1,400
1,300 SportsLine USA, Inc. (NON) 46,638
--------------
48,038
Electronics and Electrical Equipment (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
7,500 GaSonics International Corp. (NON) 105,000
6,000 Helix Technology Corp. 143,625
15,000 Nanometrics, Inc. (NON) 118,125
800 PRI Automation, Inc. (NON) 29,000
900 Veeco Instruments, Inc. (NON) 30,600
--------------
426,350
Health Care (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,100 Accredo Health, Inc. (NON) 68,775
1,800 Laser Vision Centers, Inc. (NON) 113,400
4,100 LCA-Vision, Inc. (NON) 38,181
1,900 Province Healthcare Co. (NON) 37,050
--------------
257,406
Health Care Information Systems (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,000 Medquist, Inc. (NON) 131,250
Medical Supplies and Devices (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,700 Colorado MEDtech, Inc. (NON) 37,294
2,500 ResMed, Inc. (NON) 82,969
4,000 Ventana Medical Systems, Inc. (NON) 76,500
2,450 Xomed Surgical Products, Inc. (NON) 119,284
--------------
316,047
Networking Equipment (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
7,500 Computer Network Technology Corp. (NON) 162,188
2,000 Concur Technologies, Inc. (NON) 56,250
--------------
218,438
Pharmaceuticals and Biotechnology (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Priority Healthcare Corp. Class B (NON) 172,500
6,400 Trimeris, Inc. (NON) 92,800
--------------
265,300
Restaurants (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,780 P.F. Chang's China Bistro, Inc. (NON) 38,493
Retail (6.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,900 David's Bridal, Inc. (NON) 76,256
8,000 Factory 2-U Stores, Inc. (NON) 148,000
4,300 Sunglass Hut International, Inc. (NON) 73,906
2,400 Tuesday Morning Corp. (NON) 61,200
3,600 Tweeter Home Entertainment Group, Inc. (NON) 141,300
7,800 Zany Brainy, Inc. (NON) 75,563
--------------
576,225
Semiconductors (21.9%)
- --------------------------------------------------------------------------------------------------------------------------
6,000 Aavid Thermal Technologies, Inc. (NON) 135,750
1,100 Alpha Industries, Inc. (NON) 52,388
2,600 American Xtal Technology, Inc. (NON) 61,912
2,300 ANADIGICS, Inc. (NON) 85,100
2,800 ATMI, Inc. (NON) 83,300
700 Cree Research, Inc. (NON) 53,856
1,700 DuPont Photomasks, Inc. (NON) 81,388
2,600 Emulex Corp. (NON) 289,080
2,500 Hi/Fn, Inc. (NON) 190,313
100 Maker Communications, Inc. (NON) 3,100
1,500 Micrel, Inc. (NON) 111,000
4,000 Photronics, Inc. (NON) 98,000
3,600 Power Integrations, Inc. (NON) 263,250
800 QLogic Corp. (NON) 105,600
7,500 Sipex Corp. (NON) 153,750
600 TranSwitch Corp. (NON) 28,425
3,000 TriQuint Semiconductor, Inc. (NON) 170,438
2,900 Zoran Corp. (NON) 48,575
--------------
2,015,225
Specialty Consumer Products (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,000 JAKKS Pacific, Inc. (NON) 178,875
4,000 Meade Instruments Corp. (NON) 69,000
--------------
247,875
Telecommunications (5.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Act Networks, Inc. (NON) 85,313
3,200 Ditech Communications Corp. (NON) 64,000
1,600 GlobeSpan, Inc. (NON) 63,600
3,700 GST Telecommunications, Inc. (Canada) (NON) 48,795
3,100 Harmonic Lightwaves, Inc. (NON) 178,056
3,000 Stanford Telecommunications, Inc. (NON) 88,875
--------------
528,639
Telephone Services (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Intermedia Communications, Inc. (NON) 150,000
200 Network Plus Corp. (NON) 4,175
3,500 Orckit Communications Ltd. (Israel) (NON) 86,625
4,800 Price Communications Corp. (NON) 72,000
--------------
312,800
Transportation (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,400 Eagle USA Airfreight, Inc. (NON) 101,850
3,000 Forward Air Corp. (NON) 84,375
9,000 Fritz Companies, Inc. (NON) 96,750
--------------
282,975
--------------
Total Common Stocks (cost $6,206,816) 9,090,098
SHORT-TERM INVESTMENTS (2.4%) (a) (cost $225,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$225,000 Interest in $402,952,000 joint repurchase agreement dated
June 30, 1999 with Merrill Lynch, Pierce, Fenner & Smith, Inc.
due July 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $225,029 for an effective
yield of 4.70% $ 225,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $6,431,816) (b) $ 9,315,098
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $9,192,279.
(b) The aggregate identified cost on a tax basis is $6,445,730, resulting in gross unrealized appreciation and
depreciation of $3,049,888 and $180,520, respectively, or net unrealized appreciation of $2,869,368.
(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, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $6,431,816) (Note 1) $9,315,098
- -----------------------------------------------------------------------------------------------
Cash 14,112
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 46
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,167
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 74,137
- -----------------------------------------------------------------------------------------------
Total assets 9,404,560
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 166,886
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 9,670
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 14,885
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,145
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 769
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 10
- -----------------------------------------------------------------------------------------------
Other accrued expenses 18,916
- -----------------------------------------------------------------------------------------------
Total liabilities 212,281
- -----------------------------------------------------------------------------------------------
Net assets $9,192,279
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $6,022,140
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 286,857
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,883,282
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $9,192,279
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($9,192,279 divided by 618,980 shares) $14.85
- -----------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $14.85)* $15.76
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 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
Year ended June 30, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $ 5,349
- -----------------------------------------------------------------------------------------------
Dividends 2,834
- -----------------------------------------------------------------------------------------------
Total investment income 8,183
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 57,705
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 11,497
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 2,861
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 43
- -----------------------------------------------------------------------------------------------
Reports to shareholders 3,988
- -----------------------------------------------------------------------------------------------
Registration fees 415
- -----------------------------------------------------------------------------------------------
Auditing 16,065
- -----------------------------------------------------------------------------------------------
Legal 3,351
- -----------------------------------------------------------------------------------------------
Postage 192
- -----------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (21,100)
- -----------------------------------------------------------------------------------------------
Total expenses 75,017
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (7,065)
- -----------------------------------------------------------------------------------------------
Net expenses 67,952
- -----------------------------------------------------------------------------------------------
Net investment loss (59,769)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 348,955
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 2,367,098
- -----------------------------------------------------------------------------------------------
Net gain on investments 2,716,053
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,656,284
- -----------------------------------------------------------------------------------------------
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)
Year ended to June 30
June 30, 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (59,769) $ (13,253)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 348,955 66,738
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,367,098 516,184
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 2,656,284 569,669
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments (55,814) --
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions
(Note 4) 1,386,653 3,135,487
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 3,987,123 3,705,156
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year (Note 5) 5,205,156 1,500,000
- ---------------------------------------------------------------------------------------------------------------
End of year $9,192,279 $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 Year ended Dec. 31, 1997+
operating performance June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $10.52 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (a)(b) (.11) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 4.55 2.06
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.44 2.02
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (0.11) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.85 $10.52
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(c) 42.62 23.77*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $9,192 $5,205
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a)(d) 1.30 .65*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%)(a) (1.04) (.37)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 184.61 85.45*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect a
reduction of $0.04 and $0.06 per share for the periods ended June 30, 1999 and June 30, 1998, respectively. (Note 2)
(b) Per share net investment loss has been determined on the basis of the weighted average number of shares outstanding during
the period.
(c) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(d) Includes amounts paid through expense offset arrangements. (Note 2)
</TABLE>
Notes to financial statements
June 30, 1999
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) 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 year ended June
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. 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.
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 and permanent differences 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 year ended June 30, 1999, the fund reclassified
$59,769 to decrease accumulated net investment loss, with a decrease to
accumulated net realized gains of $59,769. 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: 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, 1999, to the extent
that expenses of the fund (exclusive of brokerage commissions, interest,
taxes, 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 year ended June 30, 1999, fund expenses were reduced by $7,065
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
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 year ended June 30, 1999, Putnam Mutual Funds Corp., acting as
underwriter, received no net commissions from the sale of shares of the
fund.
Note 3
Purchases and sales of securities
During the year ended June 30, 1999, purchases and sales of investment
securities other than short-term investments aggregated $12,042,134 and
$10,622,130, 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, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended June 30, 1999
- -----------------------------------------------------------------------------
Shares Amount
- -----------------------------------------------------------------------------
Shares sold 266,398 $2,772,527
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,482 55,693
- -----------------------------------------------------------------------------
271,880 2,828,220
Shares
repurchased (147,521) (1,441,567)
- -----------------------------------------------------------------------------
Net increase 124,359 $1,386,653
- -----------------------------------------------------------------------------
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., a wholly-owned subsidiary
of Putnam Investments, Inc. on December 30, 1997.
At June 30, 1999, Putnam Investments, Inc. owned 369,059 shares of the
fund (59.6% of shares outstanding) valued at $5,480,526.
Federal tax information
(Unaudited)
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
The fund has designated 1.55% from investment company taxable income as
qualifying for the dividends received deduction for corporations.
Pursuant to section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $120,414 as a 20% capital gain, for its taxable year
ended June 30, 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
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
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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.
53942 2HF 8/99
