Putnam
Investment
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:
After taking a back seat to the better-known large-cap stocks for several
years, small- and mid-cap stocks are finally getting in the driver's seat.
Confidence in the global economy was the key to this shift in market
leadership. As the U.S. economy has grown and weathered one international
crisis after another, investors have gained confidence in companies of all
sizes, including the small- and mid-cap stocks that are the primary focus
of Putnam Investment Fund 98. This confidence has contributed to the
outstanding performance of your fund for the 12 months ended June 30,
1999.
Total return for 12 months ended 6/30/99
NAV POP
- ----------------------------------------------------------------
50.35% 41.74%
- ----------------------------------------------------------------
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
mid-size companies, fund managers Charles Swanberg and Roland Gillis have
continued their pursuit of undervalued growth stocks. Many of the
strongest performers have come from the technology and media sectors in
which the explosive demand for the Internet, cellular phones, and cable
underpins their success. One example is Metromedia Fiber Network, Inc. of
White Plains, New York, which is building a fiber-optic network in major
metropolitan markets, providing capacity for data, video, Internet, and
multimedia applications. It has recently announced plans to acquire
AboveNet Communications Inc., which makes products designed to improve
Internet traffic.
Another top-performing stock in the fund is Comverse Technology, Inc. of
Woodbury, New York. Comverse is the world's leading supplier of enhanced
service platforms to wireless and wireline network operators. One of its
divisions, Comverse Network Systems, has just been selected by Advanced
Info Service in Thailand to install prepaid wireless services throughout
the country.
* RADIO AND BILLBOARD ADVERTISING ON RISE
Chuck and Roland plan to continue their long-term focus on radio and
outdoor advertising. The billboard industry in North America is showing
dramatic growth, primarily through a process called large-format digital
printing -- wrapping billboard frames with digital imagery. One company
worth highlighting is Lamar Advertising, Inc. This Louisiana-based company
operates approximately 71,900 billboards in 36 states and also encompasses
a logo sign business.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
VeriSign, Inc.
Computer services
Marschollek, Lautenschlaeger und
Partner AG
Financial services
Intuit, Inc.
Computer software
Ames Department Stores, Inc.
Retail
Concord EFS, Inc.
Financial services
QLogic Corp.
Semiconductors
Harmonic Lightwaves, Inc.
Electronics and electrical equipment
E-Tek Dynamics, Inc.
Networking equipment
CMG Information Services, Inc.
Computer services
Silknet Software, Inc.
Computer software
Footnote reads:
These holdings represent 16.3% of the fund's net assets as of 6/30/99.
Portfolio holdings will vary over time.
In the radio industry, Cumulus Media, Inc. of Milwaukee, Wisconsin,
performed well during this 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. It owns and operates
180 stations in 39 markets, and on June 23 announced the acquisition of
nine more stations in Alabama, Florida, and Texas.
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.
The fund has benefited from an underweighting in the health-care industry
in general, although the portfolio still includes some long-time strong
performers. Concern over government regulations and cutbacks continues to
cast a shadow over many companies in this industry.
* INFLATION WATCH REMAINS IN PLACE AMID CONTINUING GROWTH
Going forward, the fund 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 your fund
managers would respond accordingly.
"The quarter ended June 30 was the first time since the third quarter of 1993
that small stocks beat all three major big-stock benchmarks."
- -- The Wall Street Journal, July 15, 1999
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 Investment
Fund 98 seeks capital appreciation by investing primarily in the equity
securities of companies of all sizes.
TOTAL RETURNS FOR PERIODS ENDED 6/30/99
S&P Consumer
NAV POP 500 Index price index
- --------------------------------------------------------------------------
1 year 50.35% 41.74% 22.76% 1.96%
- --------------------------------------------------------------------------
Life of fund (since 2/17/98) 74.59 64.52 33.30 2.66
Annual average 50.64 44.21 27.99 2.05
- --------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION* 12 MONTHS ENDED 6/30/99
Share value: NAV POP
- --------------------------------------------------------------------------
6/30/98 $9.87 $10.47
- --------------------------------------------------------------------------
6/30/99 14.84 15.75
- --------------------------------------------------------------------------
*The fund has not paid distributions for fiscal 1999. Please see p. 24 for
more information.
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.
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.
[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 2/17/98
Fund's S&P 500 Consumer price
Date shares at POP Index index
2/17/98 9,424 10,000 10,000
6/30/98 10,942 10,859 10,068
6/30/99 $16,452 $13,330 $10,266
Footnote reads:
Past performance is no assurance of future results.
Comparative benchmarks
Standard & Poor's 500 Index is an unmanaged list of common stocks that is
frequently used as a measure of stock market performance. 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 Investment 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 Investment Fund
98 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 (96.0%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Advertising (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
425 Catalina Marketing Corp. (NON) $ 39,100
1,006 Lamar Advertising Co. (NON) 41,183
590 Omnicom Group, Inc. 47,200
945 Outdoor Systems, Inc. (NON) 34,493
550 Young & Rubicam, Inc. 24,991
--------------
186,967
Airlines (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
900 COMAIR Holdings, Inc. 18,731
580 Ryanair Holdings, PLC ADR (Ireland) (NON) 30,740
--------------
49,471
Apparel (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
600 Nike, Inc. 37,988
Automotive (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
750 O'Reilly Automotive, Inc. (NON) 37,781
Banks (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
680 Fifth Third Bancorp 45,263
400 Firstar Corp. 11,200
250 Net.B@nk, Inc. (NON) 9,500
260 Northern Trust Corp. 25,220
--------------
91,183
Basic Industrial Products (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
250 Sidel S.A. (France) 30,492
250 W W Grainger 13,453
--------------
43,945
Beverages (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
300 Itoen, Ltd. (Japan) (NON) 20,091
Broadcasting (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
945 Citadel Communications Corp. (NON) 34,197
3,000 Cumulus Media Inc. Class A (NON) 65,625
898 Entercom Communications Corp. (NON) 38,390
500 Infinity Broadcasting Corp. Class A (NON) 14,875
1,200 Radio One, Inc. (NON) 55,800
--------------
208,887
Business Equipment and Services (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
550 Affiliated Computer Services, Inc. Class A (NON) 27,844
300 Abacus Direct Corp. (NON) 27,450
660 Cintas Corp. 44,344
350 Interpublic Group Cos. Inc. 30,319
800 Metzler Group, Inc. (NON) 22,100
--------------
152,057
Cable Television (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
300 Comcast Corp. Class A 11,531
Computer Services (14.4%)
- --------------------------------------------------------------------------------------------------------------------------
100 Ariba, Inc. (NON) 9,725
1,109 Aware, Inc. (NON) 51,153
100 BackWeb Technologies Ltd. (Israel) (NON) 2,738
100 Brocade Communications Systems (NON) 9,644
2,980 Capita Group PLC (United Kingdom) (NON) 30,785
610 CMG Information Services, Inc. (NON) 69,578
200 CNET, Inc. (NON) 11,525
725 Comverse Technology, Inc. (NON) 54,738
1,086 Covad Communications Group 144A (NON) 57,897
800 Critical Path, Inc. (NON) 44,250
450 EarthLink Network, Inc. (NON) 27,647
1,675 Multex.com Inc. (NON) 43,759
100 nFront, Inc. (NON) 1,519
100 Scient Corp. (NON) 4,756
100 StarMedia Network, Inc. (NON) 6,413
550 Sterling Commerce, Inc. (NON) 20,075
650 Sykes Enterprises, Inc. (NON) 21,694
1,045 USWeb Corp. (NON) 23,186
500 Verio Inc. (NON) 34,750
2,050 VeriSign, Inc. (NON) 176,813
1,700 Viant Corp. (NON) 59,500
350 WebTrends Corp. (NON) 16,144
100 Whittman-Hart, Inc. (NON) 3,175
--------------
781,464
Computer Software (15.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,400 Beyond.com Corp. (NON) 40,163
780 BroadVision, Inc. (NON) 57,525
331 Concord Communications, Inc. (NON) 14,895
1,134 Exchange Applications, Inc. (NON) 46,211
1,100 I2 Technologies, Inc. (NON) 47,300
1,020 Intuit, Inc. (NON) 91,928
984 ISS Group, Inc. (NON) 37,146
417 Lycos, Inc. (NON) 38,312
1,010 Macromedia, Inc. (NON) 35,603
800 Oracle Corp. (NON) 29,700
1,650 Parametric Technology Corp. (NON) 22,894
13 Peregrine Systems, Inc. (NON) 334
100 Phone.com, Inc. (NON) 5,600
1,362 Rational Software Corp. (NON) 44,861
555 RealNetworks, Inc. (NON) 38,226
1,800 Research in Motion Ltd. (Canada) (NON) 36,450
100 Rhythms Netconnections, Inc. (NON) 5,838
792 Security First Technologies Corp. (NON) 35,739
1,700 Silknet Software, Inc. (NON) 68,850
100 Softbank Corp. (Japan) (NON) 20,265
398 Synopsys, Inc. (NON) 21,965
602 VERITAS Software Corp. (NON) 57,152
1,062 Verity, Inc. (NON) 57,547
100 Vignette Corp. (NON) 7,500
--------------
862,004
Consumer Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
100 Ask Jeeves, Inc. (NON) 1,400
600 Central Parking Corp. 20,550
762 SportsLine USA, Inc. (NON) 27,337
--------------
49,287
Electronic Components (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
496 Applied Micro Circuits Corp. (NON) 40,796
2,500 Artisan Components, Inc. (NON) 29,063
1,904 Metromedia Fiber Network, Inc. Class A (NON) 68,425
650 Optical Coating Laboratory, Inc. 54,356
715 Sipex Corp. (NON) 14,658
2,000 Zoran Corp. (NON) 33,500
--------------
240,798
Electronics and Electrical Equipment (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
400 Applied Materials, Inc. (NON) 29,550
1,300 Harmonic Lightwaves, Inc. (NON) 74,669
673 Jabil Circuit, Inc. (NON) 30,369
--------------
134,588
Entertainment (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
747 SFX Entertainment, Inc. Class A (NON) 47,808
Financial Services (4.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,770 Concord EFS, Inc. (NON) 74,893
150 Knight/Trimark Group, Inc. (NON) 9,150
203 Marschollek, Lautenschlaeger und
Partner AG (Germany) 95,552
350 Schwab (Charles) Corp. 38,456
350 TCF Financial Corp. (NON) 9,756
200 TD Waterhouse Group, Inc. (NON) 5,013
--------------
232,820
Health Care Information Systems (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
945 Medquist, Inc. (NON) 41,344
Health Care Services (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
750 Lincare Holdings, Inc. (NON) 18,750
756 MEDE AMERICA Corp. (NON) 28,539
2,450 Province Healthcare Co. (NON) 47,775
2,400 RehabCare Group, Inc. (NON) 44,250
900 TLC The Laser Center Inc. (Canada) (NON) 43,200
600 United Healthcare Corp. 37,575
--------------
220,089
Hospital Management and Medical Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
119 Advance Paradigm, Inc. (NON) 7,259
Insurance (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
183 Progressive Corp. (The) 26,535
Lodging (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,050 Florida Panthers Holdings, Inc. (NON) 11,222
Medical Supplies and Devices (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
800 Biomet, Inc. 31,800
3,500 PSS World Medical, Inc. (NON) 39,156
340 Stryker Corp. 20,443
--------------
91,399
Networking (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
400 Entrust Technologies Inc. (NON) 13,300
101 Juniper Networks, Inc. (NON) 15,049
100 NorthPoint Communications Group, Inc. (NON) 3,650
100 Reback Networks Inc. (NON) 12,556
--------------
44,555
Networking Equipment (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
550 ADC Telecommunications, Inc. (NON) 25,059
1,525 E-Tek Dynamics, Inc. (NON) 72,533
600 Emulex Corp. (NON) 66,713
597 Network Appliance, Inc. (NON) 33,357
--------------
197,662
Packaging and Containers (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
550 Sealed Air Corp. (NON) 35,681
Pharmaceuticals (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
900 QLT PhotoTherapeutics Inc. (Canada) (NON) 49,500
408 Sepracor, Inc. (NON) 33,150
--------------
82,650
Restaurants (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
3,095 PizzaExpress PLC (United Kingdom) 44,421
1,450 Starbucks Corp. (NON) 54,466
--------------
98,887
Retail (7.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,900 Ames Department Stores, Inc. (NON) 86,688
550 Bed Bath & Beyond, Inc. (NON) 21,175
494 Costco Companies, Inc. (NON) 39,551
2,250 Dixons Group PLC (United Kingdom) (NON) 42,052
290 Dollar Tree Stores, Inc. (NON) 12,760
2,500 Factory 2-U Stores, Inc. (NON) 46,250
547 Kohls Corp. (NON) 42,222
1,100 Linens 'N Things, Inc. (NON) 48,125
1,900 Next PLC (United Kingdom) 23,089
1,500 Tuesday Morning Corp. (NON) 38,250
900 Williams-Sonoma, Inc. (NON) 31,331
--------------
431,493
Semiconductors (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
760 Altera Corp. (NON) 27,978
400 American Xtal Technology, Inc. (NON) 9,525
4,500 GaSonics International Corp. (NON) 63,000
100 Hi/Fn, Inc. (NON) 7,613
400 KLA Tencor Corp. (NON) 25,950
760 Linear Technology Corp. 51,110
730 Maxim Integrated Products, Inc. (NON) 48,545
567 QLogic Corp. (NON) 74,844
--------------
308,565
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
110 Fastenal Co. 5,768
100 Rexall Sundown, Inc. 1,202
--------------
6,970
Telecommunication Equipment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
350 Copper Mountain Networks, Inc. (NON) 27,038
512 Qwest Communications International, Inc. (NON) 16,928
--------------
43,966
Telecommunications (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
500 Allegiance Telecom, Inc. (NON) 27,438
296 Global Crossing Ltd. (NON) 12,617
400 GlobeSpan, Inc. (NON) 15,900
650 NTL Inc. (NON) 56,022
2,050 Orange PLC ADR (United Kingdom) (NON) 30,069
--------------
142,046
Telephone Services (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
600 AT&T Corp. (NON) 22,050
462 Lucent Technologies, Inc. 31,156
100 Network Plus Corp. (NON) 2,088
478 NEXTLINK Communications, Inc. Class A (NON) 35,551
--------------
90,845
Transportation (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
700 C.H. Robinson Worldwide, Inc. 25,725
590 FDX Corp. (NON) 32,008
--------------
57,733
Wireless Communications (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
951 American Tower Corp. Class A (NON) 22,824
2,473 Pinnacle Holdings Inc. (NON) 60,589
--------------
83,413
--------------
Total Common Stocks (cost $3,896,592) $ 5,210,984
SHORT-TERM INVESTMENTS (5.2%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 200,000 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 $200,026 for an effective yield of 4.7% $ 200,000
84,000 Interest in $487,755,000 joint repurchase agreement
dated June 30, 1999 with S.B.C. Warburg Inc.
due July 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $84,011 for an
effective yield of 4.8% 84,000
--------------
Total Short-Term Investments (cost $284,000) $ 284,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,180,592) (b) $ 5,494,984
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $5,429,029.
(b) The aggregate identified cost on a tax basis is $4,201,815, resulting in gross unrealized appreciation and
depreciation of $1,407,314 and $114,145, respectively, or net unrealized appreciation of $1,293,169.
(NON) Non-income-producing security.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
ADR after the name of a foreign holding stands for American Depositary Receipts, representing ownership of foreign
securities on deposit with a domestic custodian bank.
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 $4,180,592) (Note 1) $5,494,984
- -----------------------------------------------------------------------------------------------
Cash 1,066
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 621
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 66,583
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,050
- -----------------------------------------------------------------------------------------------
Total assets 5,564,304
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 112,800
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,797
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 485
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 272
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 10
- -----------------------------------------------------------------------------------------------
Other accrued expenses 18,911
- -----------------------------------------------------------------------------------------------
Total liabilities 135,275
- -----------------------------------------------------------------------------------------------
Net assets $5,429,029
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,451,201
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 663,436
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 1,314,392
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $5,429,029
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($5,429,029 divided by 365,764 shares) $14.84
- -----------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $14.84)* $15.75
- -----------------------------------------------------------------------------------------------
* 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
Year ended June 30, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $359) $ 5,093
- -----------------------------------------------------------------------------------------------
Interest 691
- -----------------------------------------------------------------------------------------------
Total investment income 5,784
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 24,399
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 6,927
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 2,251
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 40
- -----------------------------------------------------------------------------------------------
Reports to shareholders 5,782
- -----------------------------------------------------------------------------------------------
Registration fees 971
- -----------------------------------------------------------------------------------------------
Auditing 15,330
- -----------------------------------------------------------------------------------------------
Legal 3,464
- -----------------------------------------------------------------------------------------------
Postage 63
- -----------------------------------------------------------------------------------------------
Other 16
- -----------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (24,387)
- -----------------------------------------------------------------------------------------------
Total expenses 34,856
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,488)
- -----------------------------------------------------------------------------------------------
Net expenses 32,368
- -----------------------------------------------------------------------------------------------
Net investment loss (26,584)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 697,536
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (284)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 45
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 909,441
- -----------------------------------------------------------------------------------------------
Net gain on investments 1,606,738
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,580,154
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
February 17, 1998
Year ended (commencement
June 30 of operations) to
1999 June 30, 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (26,584) $ (6,502)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 697,252 (7,232)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 909,486 404,906
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,580,154 391,172
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 893,580 564,123
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 2,473,734 955,295
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year (Note 5) 2,955,295 2,000,000
- ---------------------------------------------------------------------------------------------------------------
End of year $5,429,029 $2,955,295
- ---------------------------------------------------------------------------------------------------------------
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 Feb. 17, 1998+
operating performance June 30 to June 30
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $9.87 $8.50
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (a)(b) (.08) (.02)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 5.05 1.39
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.97 1.37
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.84 $9.87
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(c) 50.35 16.12*
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,429 $2,955
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (a)(d) 1.00 .37*
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (a) (.76) (.25)*
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 207.77 72.22*
- -------------------------------------------------------------------------------------------------------------------------------
+ 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 $0.08 and $0.06 per share, for the periods ended June 30, 1999 and June 30, 1998 respectively. (see Note 2)
(b) Per share net investment loss has been determined on the basis of the weighted average number of shares 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 Investment Fund 98 (the "fund") is 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 objective of the fund is to seek long-term growth of capital
by investing primarily in equity securities of companies that Putnam
Investment Management, Inc. ("Putnam Management"), the fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc., believes have
potential for capital appreciation which is significantly greater than
that of the market averages.
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 on the principal market in which the securities are
traded, 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 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 except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) 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.
G) 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.
H) 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, foreign currency gains and losses 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 $26,584 to decrease accumulated net investment
loss, with a decrease to accumulated net realized gains of $26,584. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
I) 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 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 1.00% 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 year ended June 30, 1999, fund expenses were reduced by $2,488
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 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 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 $7,843,963 and
$7,155,805, 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 102,912 $1,249,914
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
102,912 1,249,914
Shares
repurchased (36,675) (356,334)
- -----------------------------------------------------------------------------
Net increase 66,237 $ 893,580
- -----------------------------------------------------------------------------
For the period February 17, 1998
(commencement
of operations) to
June 30, 1998
- -----------------------------------------------------------------------------
Shares Amount
- -----------------------------------------------------------------------------
Shares sold 77,395 $687,677
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
77,395 687,677
Shares
repurchased (13,162) (123,554)
- -----------------------------------------------------------------------------
Net increase 64,233 $564,123
- -----------------------------------------------------------------------------
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 February 17, 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., a wholly-owned subsidiary
of Putnam Investments, Inc. on February 13, 1998.
At June 30, 1999, Putnam Investments, Inc. owned 265,888 shares of the
fund (72.7% of shares outstanding), valued at $3,945,778.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the fund
hereby designates $169,755 as capital gain, for its taxable year ended
June 30, 1999.
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
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
Charles Swanberg
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 Investment
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.
53943 2HW 8/99