Putnam
Equity
Fund 98
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
6-30-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
We are pleased to report that Craig S. Lewis recently joined Richard M.
Frucci on the management team of Putnam Equity Fund 98. Craig came to
Putnam in 1998 from Keystone Investments and has seven years of
investment experience.
Investors in the fund have been highly rewarded for their tenacity
during a particularly volatile market environment. New economy stocks
seemed unstoppable in the second half of 1999 and early 2000, but there
was an abrupt change in March 2000, when the Nasdaq experienced a sharp
decline of more than 30%. Despite this correction, Putnam Equity Fund 98
ended this fiscal year in a remarkably positive position.
Total return for 12 months ended 6/30/00
Net asset value Public offering price
------------------------------------------------------------------
102.02% 90.36%
------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods begins on page 6.
In a portfolio composed of small-capitalization companies, technology
remains an important sector. As most investors realize by now, after
experiencing the harrowing second quarter of this year, technology is
one of the most volatile sectors in the market. Dick and Craig had the
difficult job of determining the most promising subsectors within the
technology sector. They were convinced that the dramatic growth of both
the Internet and wireless communications would necessitate the
regeneration of our entire telecommunications infrastructure. This
growth resulted in significant investment opportunities in
telecommunications equipment, specialty semiconductors, contract
manufacturers, software vendors, data storage providers, and tower
rental companies.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Zygo Corp.
Semiconductors
Act Manufacturing, Inc.
Electronics
Tollgrade Communications, Inc.
Communications equipment
Anaren Microwave, Inc.
Aerospace/defense
SBA Communications Corp.
Telecommunications
California Amplifier, Inc.
Communications equipment
The Management Network Group, Inc.
Technology services
LTX Corp.
Semiconductors
Exar Corp.
Electronics
Aeroflex, Inc.
Aerospace/defense
Footnote reads:
These holdings represent 21.7% of the fund's net assets as of 6/30/00.
Portfolio holdings will vary over time.
One company that contributed strongly to the fund's performance before
being sold was Emulex Corporation. The company designs a number of
network connectivity products. One such product, fiber channel host bus
adapters, is in high demand as data storage needs continue to expand.
Emulex sells its products mainly to equipment manufacturers and
distributors, including IBM and Compaq Computer. Emulex's stock price
moved up about 140% during the past fiscal year.
Zygo Corporation, another top- performing stock, is a company that makes
precision quality automation systems that are used in semiconductors,
data storage devices, and nuclear fusion research. Zygo's stock price
increased from about $18 per share when we acquired it in October to
about $91 per share at fiscal year's end. While this holding and others
discussed in this report were viewed favorably as of June 30, 2000, all
holdings are subject to review in accordance with the fund's investment
strategy and may vary in the future.
Other sectors and companies turned in respectable performance as well.
Within the health-care sector, Molecular Devices Corporation and
Invitrogen are two companies that merit some discussion. Molecular
Devices produces bioanalytical measurement systems that make the drug
development process more efficient and more cost effective. Invitrogen
makes kits that speed up the process of gene cloning and related
research in more than 30 countries. Both of these companies experienced
strong demand from a long list of biotechnology companies and this was
reflected in their favorable stock price performance. Molecular Devices
was named on Forbes 200 Best Small Companies list in 1999.
Within the media sector, Pegasus Communications, a leading provider of
direct broadcast satellite (DBS) television in rural markets, posted
notable appreciation in its stock price. The company, which has expanded
with the acquisition of Golden Sky Holdings, has about 1.2 million DBS
subscribers in 41 U.S. states. Pegasus's stock price went from
approximately $39 per share to $49 per share during the fiscal year.
Tollgrade Communications also performed extremely well this year. This
company's testing devices enable telephone and cable TV companies to
diagnose problems in their wire-line networks from remote locations.
Growth in broadband networks is the primary driver behind Tollgrade's
newest products. Tollgrade's stock price went from about $37 per share
when it was purchased in February 2000 to more than $130 per share by
fiscal year's end.
Unlike their more mature larger capitalization counterparts, emerging
growth companies with leading-edge products and low levels of market
penetration can prosper in most economic environments. While the equity
market is likely to remain volatile, the small-capitalization growth
universe should continue to provide fertile investment opportunities.
* CONFIDENT LOOK AHEAD
As we look to the future, we are certain that the changes that lie ahead
will be even more breathtaking in their scope. What will not change is
the Trustees' dedication to serving the best interests of our
shareholders.
We welcome the challenges ahead and are confident that Putnam and your
Board will continue to meet those challenges successfully, as they have
done for more than 60 years. We look forward to helping you meet your
financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
August 16, 2000
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 6/30/00, there is no guarantee the fund will
continue to hold these securities in the future. This fund invests a
portion of its assets in small-size companies. Such investments increase
the risk of greater price fluctuations.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Equity Fund 98 seeks capital appreciation by investing primarily in the
equity securities of small, rapidly growing companies.
TOTAL RETURN FOR PERIODS ENDED 6/30/00
Russell 2000 Consumer
NAV POP Index price index
--------------------------------------------------------------------
1 year 102.02% 90.36% 14.32% 3.67%
--------------------------------------------------------------------
Life of fund
(since 12/31/97) 254.51 234.19 21.76 6.49
Annual average 65.90 62.03 8.20 2.55
--------------------------------------------------------------------
Past performance is no assurance of future results. Returns were
achieved during favorable market conditions and may not be sustained.
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. The fund is offered on a limited basis and has limited
assets. 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.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 6/30/00
--------------------------------------------------------------------
Distributions (number) 1
--------------------------------------------------------------------
Income --
--------------------------------------------------------------------
Capital gains
Long-term $0.807
--------------------------------------------------------------------
Short-term 1.882
--------------------------------------------------------------------
Total $2.689
--------------------------------------------------------------------
Share value: NAV POP
--------------------------------------------------------------------
6/30/99 $14.85 $15.76
--------------------------------------------------------------------
6/30/00 26.90 28.54
--------------------------------------------------------------------
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 12/31/97
Fund's class A Russell 2000 Consumer price
Date shares at POP Index index
12/31/97 9,427 10,000 10,000
3/31/98 11,665 11,006 10,025
6/30/98 11,599 10,493 10,074
9/30/98 9,041 8,379 10,111
12/31/98 12,543 9,745 10,161
3/31/99 13,412 9,217 10,204
6/30/99 16,542 10,650 10,272
9/30/99 18,748 9,977 10,371
12/31/99 32,077 11,817 10,433
3/31/00 36,624 12,654 10,581
6/30/00 $33,419 $12,176 $10,649
Footnote reads:
Past performance is no assurance of future results. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge.
COMPARATIVE BENCHMARKS
Russell 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 into account brokerage fees or taxes. Securities in the
fund do not match those in the index and performance of the fund will
differ. It is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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 are determined. All investment and noninvestment 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-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended June 30, 2000
To the Trustees and Shareholders of
Putnam Equity Fund 98
(a series of Putnam Funds 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, 2000, and the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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, 2000 by correspondence with the custodian,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 9, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
June 30, 2000
COMMON STOCKS (96.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Advertising and Marketing Services (1.4%)
-------------------------------------------------------------------------------------------------------------------
15,500 FreeShop.com, Inc. (NON) $ 92,031
10,000 Interep National Radio Sales, Inc. - Class A (NON) 53,125
26,500 L90, Inc. (NON) 278,250
----------------
423,406
Aerospace/Defense (5.8%)
-------------------------------------------------------------------------------------------------------------------
11,000 Aeroflex, Inc. (NON) 546,563
5,050 Anaren Microwave, Inc. (NON) 662,734
20,500 Signal Technology Corp. (NON) 512,500
----------------
1,721,797
Biotechnology (1.0%)
-------------------------------------------------------------------------------------------------------------------
1,900 Maxim Pharmaceuticals, Inc. (NON) 97,613
5,200 Neurocrine Biosciences, Inc. (NON) 184,925
2,600 OraPharma, Inc. (NON) 26,000
----------------
308,538
Broadcasting (2.7%)
-------------------------------------------------------------------------------------------------------------------
2,700 Citadel Communications Corp. (NON) 94,331
4,600 Pegasus Communications Corp. (NON) 225,688
6,000 Radio One, Inc. - Class A (NON) 132,375
3,000 Radio One, Inc. - Class D (NON) 88,688
29,600 Regent Communications, Inc. (NON) 254,375
----------------
795,457
Commercial and Consumer Services (3.9%)
-------------------------------------------------------------------------------------------------------------------
10,700 CoStar Group, Inc. (NON) 268,169
9,600 Hall, Kinion & Associates, Inc. (NON) 319,800
4,200 Macrovision Corp. (NON) 268,472
7,000 Professional Detailing, Inc. (NON) 238,438
5,400 SkillSoft Corp. (NON) 76,275
----------------
1,171,154
Communications Equipment (11.7%)
-------------------------------------------------------------------------------------------------------------------
13,000 Ancor Communications, Inc. (NON) 464,953
12,500 California Amplifier, Inc. (NON) 571,875
4,600 Crossroads Systems, Inc. (NON) 116,150
1,899 Hybrid Networks, Inc. (NON) 16,863
13,300 Information Resource Engineering, Inc. (NON) 335,825
12,000 MCK Communications, Inc. (NON) 277,500
3,500 Natural Microsystems Corp. (NON) 393,531
4,200 Proxim, Inc. (NON) 415,669
11,500 SpectraLink Corp. (NON) 168,188
5,500 Tollgrade Communications, Inc. (NON) 728,750
----------------
3,489,304
Computers (--%)
-------------------------------------------------------------------------------------------------------------------
1,200 Mobility Electronics, Inc. (NON) 14,400
Consumer Goods (1.6%)
-------------------------------------------------------------------------------------------------------------------
22,800 Yankee Candle Company, Inc. (The) (NON) 493,050
Consumer Services (0.4%)
-------------------------------------------------------------------------------------------------------------------
4,500 Hotel Reservations Network, Inc. - Class A (NON) 133,875
Electrical Equipment (3.1%)
-------------------------------------------------------------------------------------------------------------------
3,000 Benchmark Electronics, Inc. (NON) 109,688
15,000 DDi Corp. (NON) 427,500
9,300 Manufacturers' Services, Ltd. (NON) 191,231
7,700 Universal Electronics, Inc. (NON) 189,131
----------------
917,550
Electronics (11.3%)
-------------------------------------------------------------------------------------------------------------------
17,000 Act Manufacturing, Inc. (NON) 789,438
4,000 American Superconductor Corp. (NON) 193,000
5,200 Keithley Instruments, Inc. 453,050
3,400 Nanometrics, Inc. (NON) 140,038
6,000 Oak Technology, Inc. (NON) 129,375
16,700 PSi Technologies Holdings, Inc. ADR (Philippines) (NON) 346,525
28,600 Semitool, Inc. (NON) 495,138
13,900 Sipex Corp. (NON) 384,856
9,000 Trimble Navigation, Ltd. (NON) 439,313
----------------
3,370,733
Health Care Services (4.8%)
-------------------------------------------------------------------------------------------------------------------
4,550 Accredo Health, Inc. (NON) 157,259
8,100 Allscripts, Inc. (NON) 186,300
5,700 Invitrogen Corp. (NON) 428,658
13,700 LifePoint Hospitals, Inc. (NON) 304,825
10,100 Province Healthcare Co. (NON) 364,863
----------------
1,441,905
Machinery (0.7%)
-------------------------------------------------------------------------------------------------------------------
10,000 FSI International, Inc. (NON) 216,875
Manufacturing (0.8%)
-------------------------------------------------------------------------------------------------------------------
6,500 GSI Lumonics, Inc. (Canada) (NON) 228,313
Medical Technology (1.9%)
-------------------------------------------------------------------------------------------------------------------
3,300 ArthroCare Corp. (NON) 175,725
3,000 Molecular Devices Corp. (NON) 207,563
6,000 ResMed, Inc. (NON) 160,500
1,400 Sonic Innovations, Inc. (NON) 25,988
----------------
569,776
Pharmaceuticals (3.0%)
-------------------------------------------------------------------------------------------------------------------
10,300 Anesta Corp. (NON) 256,213
3,400 Angiotech Pharmaceuticals, Inc. (Canada) (NON) 141,950
6,900 ChiRex, Inc. (NON) 138,000
4,900 Priority Healthcare Corp. - Class B (NON) 364,131
----------------
900,294
Photography/Imaging (0.3%)
-------------------------------------------------------------------------------------------------------------------
15,300 T/R Systems, Inc. (NON) 97,538
Publishing (0.9%)
-------------------------------------------------------------------------------------------------------------------
7,100 Information Holdings, Inc. (NON) 262,700
Restaurants (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,200 Applebee's International, Inc. 66,688
2,480 P.F. Chang's China Bistro, Inc. (NON) 79,205
----------------
145,893
Retail (1.1%)
-------------------------------------------------------------------------------------------------------------------
9,100 Factory 2-U Stores, Inc. (NON) 344,094
Schools (2.3%)
-------------------------------------------------------------------------------------------------------------------
6,500 Learning Tree International, Inc. (NON) 398,125
17,100 ProsoftTraining.com (NON) 287,494
----------------
685,619
Semiconductor (15.3%)
-------------------------------------------------------------------------------------------------------------------
2,600 Alpha Industries, Inc. (NON) 114,563
3,800 ANADIGICS, Inc. (NON) 129,438
7,000 Aware, Inc. (NON) 357,875
4,500 Centillium Communications, Inc. (NON) 310,500
6,350 Exar Corp. (NON) 553,641
9,000 Helix Technology Corp. 351,000
10,000 Integrated Silicon Solutions, Inc. (NON) 380,000
16,200 LTX Corp. (NON) 565,988
1,500 Photon Dynamics, Inc. (NON) 112,031
2,800 Power Integrations, Inc. (NON) 65,975
3,100 Rudolph Technologies, Inc. (NON) 120,125
4,100 Veeco Instruments, Inc. (NON) 300,325
4,600 Zoran Corp. (NON) 303,313
10,000 Zygo Corp. (NON) 908,112
----------------
4,572,886
Shipping (0.6%)
-------------------------------------------------------------------------------------------------------------------
5,800 EGL, Inc. (NON) 178,350
Software (9.0%)
-------------------------------------------------------------------------------------------------------------------
8,600 BackWeb Technologies, Ltd. (Israel) (NON) 196,725
1,100 Brio Technology, Inc. (NON) 23,306
1,800 Clarus Corp. (NON) 69,975
7,200 Click Commerce, Inc. (NON) 162,900
5,900 Digimarc Corp. (NON) 227,150
6,400 DSET Corp. (NON) 194,400
25,000 eXcelon Corp. (NON) 198,438
5,800 Exchange Applications, Inc. (NON) 154,425
3,600 Informatica Corp. (NON) 294,975
9,100 Manugistics Group, Inc. (NON) 425,425
2,900 Netegrity, Inc. (NON) 218,406
7,000 SAGA Systems, Inc. (NON) 87,063
6,300 Verity, Inc. (NON) 239,400
11,000 Vertel Corp. (NON) 192,500
----------------
2,685,088
Technology Services (5.1%)
-------------------------------------------------------------------------------------------------------------------
1,000 About.com, Inc. (NON) 31,500
6,100 Braun Consulting, Inc. (NON) 128,863
4,700 C-Bridge Internet Solutions, Inc. (NON) 81,663
3,200 Cysive, Inc. (NON) 76,400
5,500 eLoyalty Corp. (NON) 70,125
16,300 Management Network Group, Inc. (The) (NON) 570,500
3,500 McAfee.com Corp. (NON) 91,219
10,000 Pilot Network Services, Inc. (NON) 148,750
2,900 Predictive Systems, Inc. (NON) 104,219
3,000 Proxicom, Inc. (NON) 143,625
4,150 Razorfish, Inc. (NON) 66,659
----------------
1,513,523
Telecommunications (7.5%)
-------------------------------------------------------------------------------------------------------------------
5,000 Airgate PCS, Inc. (NON) 262,813
5,800 Alamosa PCS Holdings, Inc. (NON) 121,075
3,300 Choice One Communications, Inc. (NON) 134,681
7,000 CTC Communications Group, Inc. (NON) 252,000
5,000 Net2000 Communications, Inc. (NON) 81,875
8,000 Pinnacle Holdings, Inc. (NON) 432,000
7,200 Price Communications Corp (NON) 169,650
2,700 Rural Cellular Corp. Class A (NON) 206,719
11,400 SBA Communications Corp. (NON) 592,088
----------------
2,252,901
----------------
Total Common Stocks (cost $21,547,120) $ 28,935,019
SHORT-TERM INVESTMENTS (3.7%) (a) (cost $1,095,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 1,095,000 Interest in $500,000,000 joint tri-party repurchase agreement
dated June 30, 2000 with S.B.C. Warburg, Inc. due July 3, 2000
with respect to various U.S. Treasury obligations -- maturity
value of $1,095,602 for an effective yield of 6.60%. $ 1,095,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $22,642,120) (b) $ 30,030,019
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $29,924,395.
(b) The aggregate identified cost on a tax basis is $22,673,280,
resulting in gross unrealized appreciation and depreciation of
$10,151,288 and $2,794,549, respectively, or net unrealized appreciation
of $7,356,739.
(NON) Non-income-producing security.
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, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $22,642,120) (Note 1) $30,030,019
-------------------------------------------------------------------------------------------
Cash 68,894
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 8,140
-------------------------------------------------------------------------------------------
Receivable for securities sold 145,865
-------------------------------------------------------------------------------------------
Total assets 30,252,918
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 247,260
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 9,921
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 50,258
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 11,834
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,294
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 750
-------------------------------------------------------------------------------------------
Other accrued expenses 7,206
-------------------------------------------------------------------------------------------
Total liabilities 328,523
-------------------------------------------------------------------------------------------
Net assets $29,924,395
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $19,886,579
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 2,649,917
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 7,387,899
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $29,924,395
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($29,924,395 divided by 1,112,562 shares) $26.90
-------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $26.90)* $28.54
-------------------------------------------------------------------------------------------
* 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, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Interest $ 39,966
-------------------------------------------------------------------------------------------
Dividends 3,143
-------------------------------------------------------------------------------------------
Total investment income 43,109
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 194,849
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 59,099
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 2,430
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 1,534
-------------------------------------------------------------------------------------------
Reports to shareholders 4,569
-------------------------------------------------------------------------------------------
Registration fees 3,643
-------------------------------------------------------------------------------------------
Auditing 32,082
-------------------------------------------------------------------------------------------
Legal 3,860
-------------------------------------------------------------------------------------------
Postage 536
-------------------------------------------------------------------------------------------
Other 180
-------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (49,478)
-------------------------------------------------------------------------------------------
Total expenses 253,304
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (4,660)
-------------------------------------------------------------------------------------------
Net expenses 248,644
-------------------------------------------------------------------------------------------
Net investment loss (205,535)
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 4,535,861
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 4,504,617
-------------------------------------------------------------------------------------------
Net gain on investments 9,040,478
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $8,834,943
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended June 30
-----------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss $ (205,535) $ (59,769)
--------------------------------------------------------------------------------------------------
Net realized gain on investments 4,535,861 348,955
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,504,617 2,367,098
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 8,834,943 2,656,284
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net realized gain on investments (1,967,266) (55,814)
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 13,864,439 1,386,653
--------------------------------------------------------------------------------------------------
Total increase in net assets 20,732,116 3,987,123
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 9,192,279 5,205,156
--------------------------------------------------------------------------------------------------
End of year $29,924,395 $9,192,279
--------------------------------------------------------------------------------------------------
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 Dec. 31, 1997+
operating performance Year ended June 30 to June 30
-------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $14.85 $10.52 $8.50
-------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------
Net investment loss (a)(b) (.24) (.11) (.04)
-------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 14.98 4.55 2.06
-------------------------------------------------------------------------------------------
Total from
investment operations 14.74 4.44 2.02
-------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------
From net realized gain
on investments (2.69) (.11) --
-------------------------------------------------------------------------------------------
Net asset value,
end of period $26.90 $14.85 $10.52
-------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------
Total return at
net asset value (%)(c) 102.02 42.62 23.77*
-------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $29,924 $9,192 $5,205
-------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a)(d) 1.30 1.30 .65*
-------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%)(a) (1.05) (1.04) (.37)*
-------------------------------------------------------------------------------------------
Portfolio turnover (%) 152.49 184.61 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
$0.06, $0.04 and $0.06 per share for the periods ended June 30, 2000,
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, 2000
Note 1
Significant accounting policies
Putnam Equity 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 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 sales price on its principal exchange, 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. Other investments, including
restricted securities, 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). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date.
Non-cash dividends, if any, are recorded at the fair market value of the
securities received.
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, 2000, the fund had no borrowings against the line of credit.
F) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
G) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent
differences of net operating loss and losses on wash sale transactions.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended June 30,
2000, the fund reclassified $205,535 to decrease accumulated net
investment loss with a decrease to accumulated net realized gains of
$205,535. 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 June 30, 2001, 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 1.30% 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, 2000, fund expenses were reduced by $4,660
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 Trustees
meeting attended. 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 a 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 Retail Management, Inc., 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 Retail Management, Inc. at an
annual rate of up to 0.35% of the fund's average net assets. The
Trustees currently have not approved any payments pursuant to the plan.
For the year ended June 30, 2000, Putnam Retail Management, Inc., acting
as underwriter received no net commissions from the sale of shares from
the fund. A deferred sales charge of up to 1% is assessed on certain
redemptions of shares. For the year ended June 30, 2000, Putnam Retail
Management, Inc., acting as underwriter received no monies on
redemptions.
Note 3
Purchases and sales of securities
During the year ended June 30, 2000, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $39,342,921 and $28,533,150, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At June 30, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended June 30, 2000
---------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------
Shares sold 576,823 $15,911,036
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 84,191 1,964,171
---------------------------------------------------------------------------
661,014 17,875,207
Shares
repurchased (167,432) (4,010,768)
---------------------------------------------------------------------------
Net increase 493,582 $13,864,439
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
At June 30, 2000, Putnam Investments, Inc. owned 700,674 shares of the
fund (63.0% of shares outstanding) valued at $18,848,131.
FEDERAL TAX INFORMATION
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $1,475,147 as capital gain, for its taxable year
ended June 30, 2000.
The fund has designated 0.11% from investment company taxable income as
qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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, III
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 M. Frucci
Vice President and Fund Manager
Craig S. Lewis
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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.putnaminvestments.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.
63296 2HF 8/00
