Putnam
Low Volatility Equity
Fund
Annual report
7
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31
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13
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Message from the Trustees
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1
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Performance snapshot
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2
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Interview with your fund’s portfolio manager
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3
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Your fund’s performance
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8
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Your fund’s expenses
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10
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Terms and definitions
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12
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Other information for shareholders
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13
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Important notice regarding Putnam’s privacy policy
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14
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Trustee approval of management contract
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15
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Financial statements
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20
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Federal tax information
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43
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About the Trustees
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44
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Officers
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46
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Consider these risks before investing:
Risks associated with derivatives include increased investment exposure (which may be considered leverage) and, in the case of over-the-counter instruments, the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Stock prices may fall or fail to rise over time for several reasons, including general financial market conditions and factors related to a specific issuer or industry. There may be times when stocks in the fund’s portfolio exhibit higher volatility than we anticipate, are not correlated with market movements as we expect, or underperform the markets. By selling covered call options, the fund limits its opportunity to profit from an increase in the price of the underlying portfolio securities, but continues to bear the risk of a decline in the value of these securities. The fund also risks losing all or part of the cash paid for purchasing put options. You can lose money by investing in the fund.
Message from the Trustees
Dear Fellow Shareholder:
At the midpoint of 2013, U.S. equity market indexes were near record highs, and the overarching theme of the domestic economy appeared to be one of slow healing. Equity investors were encouraged by improving housing and jobs data, as well as by solid corporate earnings. In Europe, the worst of the financial crisis appears to have passed, with some economic forecasts predicting that the eurozone will return to positive growth later this year. Meanwhile, thanks to its government’s massive stimulus initiatives, Japan recently has experienced stronger economic growth after years of stagnation.
A primary question confronting markets is how the U.S. central bank will gradually reduce its $85 billion-a-month bond-buying program without derailing the fragile economic recovery. Investors have reacted positively to public reassurances by Fed Chairman Ben Bernanke, who said the central bank would not draw down stimulus until the economy finds itself on firm footing.
We cannot predict the pace at which economies will recover, nor can we forecast the full impact of the Fed’s tapering decisions. However, we believe that Putnam’s in-depth fundamental research, active investing, and risk management strategies can serve investors well through changing markets. Putnam’s investment professionals integrate innovative thinking with traditional and alternative approaches to address a diverse range of financial goals.
We also believe that investing in any market environment is most effective when combined with the guidance of a professional advisor who can help you develop a financial plan suited to your goals and risk tolerance.
We would like to welcome new shareholders of the fund and to thank you for investing with Putnam. We would also like to extend our thanks to Elizabeth Kennan, who recently retired from the Board of Trustees, for her 20 years of dedicated service.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would
have been lower. See pages 3 and 8–9 for additional performance information. For a portion of the period, the fund had expense limitations, without which returns would have been lower. The short-term results of a relatively new fund are not necessarily indicative of its long-term prospects. To obtain the most recent month-end performance, visit putnam.com.
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2
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Low Volatility Equity Fund
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Interview with your fund’s portfolio manager
Putnam Low Volatility Equity Fund is a new product. Would you explain the objective and the potential benefit the strategy provides that others products may not?
Putnam Low Volatility Equity Fund is designed for investors who are averse to stock market volatility but still want to benefit from the long-term growth potential of stocks. The fund seeks a total return comparable to that of the U.S. equity markets, but with lower volatility, over a market cycle [generally at least three years or more].
We combine low-beta stock selection — selecting stocks with relatively low volatility — with option strategies that seek to generate income, further dampen volatility, and control downside risk. One of the biggest issues with equities is the unknown risks that
can result from market crashes or natural disasters. Our option strategy is designed to limit the downside risk that equity portfolios can experience. We believe the fund may also complement any portfolio that has equity exposure because of its low correlation with traditional equity benchmarks, which, we believe, offers more diversification than small-cap, growth, value, or international equities.
How did the fund perform?
The fund posted a small single-digit gain from its inception on March 18, 2013, through the end of its initial fiscal year on July 31, 2013, but underperformed the broad U.S. equity market, as represented by its benchmark, the S&P 500 Index. That four-and-a-half month span is a relatively short period by which to
This comparison shows your fund’s performance in the context of broad market indexes for the period from 3/18/13 (commencement of operations) to 7/31/13. See pages 2 and 8–9 for additional fund performance information. Index descriptions can be found on page 12. The short-term results of a relatively new fund are not indicative of its long-term prospects.
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Low Volatility Equity Fund
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3
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judge any investment’s performance. So any observation we might make at this juncture would necessarily focus on a brief snapshot in time, which may not be particularly useful for drawing long-term conclusions.
Please tell us more about the investment strategies the fund employs, including its use of options.
The fund pursues two major strategies. First, it seeks to target “beta anomaly” in the equity markets. Beta anomaly refers to the observation that stocks with lower volatility relative to a benchmark have historically had better risk-adjusted returns than stocks with higher volatility. This anomaly creates an opportunity to pursue better risk-adjusted returns with a portfolio of stocks that historically have been less volatile than the market, rather than by investing in higher-risk stocks. Data gathered between 1983 and 2012 suggest that low-beta stocks have produced compelling risk-adjusted returns, quantified in a metric called the Sharpe ratio
[a measure of risk-adjusted performance], in each of the 10 industry sectors that make up the Russell 1000 Index, which comprises the 1,000 largest U.S. companies.
Second, the fund implements an options strategy in an effort to reduce volatility and smooth out its long-term performance. Generally speaking, the fund pursues a strategy of selling [or “writing”] call options and buying put options. The fund primarily writes and buys options on equity indexes. Writing a call option on a particular security or index of securities — or agreeing to sell it to a buyer at a certain price — is a strategy that is negatively correlated with the security’s or index’s positive performance. Writing a call option earns the writer a premium. Buying a put option, by contrast, gives the buyer the right to resell a security or index of securities at a predetermined price. We use the put-option strategy as a means of providing downside protection when a stock underperforms because it allows the option
Allocations are shown as a percentage of the fund’s net assets as of 7/31/13. Short-term investments and net other assets, if any, represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the portfolio. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities, any interest accruals, the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings and allocations may vary over time.
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4
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Low Volatility Equity Fund
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owner to sell the stock at a higher price than it would otherwise command.
Our use of options involves instituting so-called option “collars” [a protective option strategy] around an index, whereby we sell “out-of-the-money” calls and buy “out-of-the-money” puts. This strategy aims to narrow the range of expected return while providing better risk-adjusted returns in the fund. We are essentially selling potential upside in order to provide greater downside protection in the event of broad losses on the index level.
As managers of the fund, we actively manage our option strategies to reflect our current expectations of market volatility and will
adjust our use of these strategies based on anticipated changes so as to smooth out the effects of the market’s inevitable ups and downs.
What is your investment process?
As portfolio managers, we identify and select low-beta stocks across all industry sectors. Insofar as we seek to capitalize on a diverse range of low-beta stocks across all industries, we are sector neutral, meaning that we do not focus the fund’s assets only on low-beta, or so-called defensive, sectors. By contrast, a low-beta strategy that is not sector neutral can result in large concentrations in sectors that include many low-beta stocks. For example, as of June 30, 2013, the S&P 500 Low Volatility Index, which tracks the 100 least volatile stocks in the S&P 500, had large concentrations in the utilities and consumer staples sectors, which together represented 50% of that index. We believe that degree of concentration is too high, and believe in investing more widely within large-cap markets while applying a low-beta strategy.
This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 7/31/13.
Short-term holdings and derivatives, if any, are excluded. Holdings may vary over time.
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Low Volatility Equity Fund
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5
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Generally speaking, we tend to maintain the portfolio’s sector weightings at levels that approximate the sector weightings of the fund’s benchmark, the S&P 500. We may vary our weightings to take advantage of perceived sector strengths or weaknesses.
Which individual holdings most influenced the fund’s performance versus the benchmark?
We held overweights relative to the benchmark in two large information technology companies — consumer electronics giant Apple and multinational IT services and consulting firm IBM — both of which had spotty performance during the period and, therefore, detracted from our relative result. Not having a position in Gilead Sciences, a biotechnology firm that delivered strong returns, hurt as well, as did an underweight in diversified health-care company Johnson & Johnson, a top performer within the index’s best-performing sector during the period.
The fund had a positive relative contribution from its timely ownership of an underweight position in Oracle, the big enterprise software manufacturer, which was hard hit during the market correction that occurred in May and June. As of period-end, we had sold the fund’s position in Oracle. An overweight in Starbucks, the strong-earning and still-expanding coffee store chain, also helped.
What are your current expectations for market volatility?
We believe that the next 12 months will be a continuation of economic recovery and accommodative monetary policy. We also believe this could be a favorable environment for risky assets, although we do expect some higher volatility and potentially significant corrections along the way.
Benchmark-relative performance of our portfolio will be affected by the performance of the equity market. If the stock market is very strong with continued low volatility, it will be difficult to outperform the benchmark.
Allocations are shown as a percentage of the fund’s net assets as of 7/31/13. Short-term investments and net other assets, if any, represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the portfolio. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities, any interest accruals, the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings and allocations may vary over time.
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6
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Low Volatility Equity Fund
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Risk-adjusted performance of our portfolio relative to the benchmark will be affected by the relative performance of lower-beta stocks versus higher-beta stocks and by the success of our option strategies. Higher volatility and major market corrections could be favorable to the risk-adjusted performance of our portfolio compared with the benchmark.
Our outlook includes a major concern about the risk of significantly higher interest rates. Standard low-beta stock selection strategies entail significant interest-rate risk because they tend to be concentrated in interest-rate-sensitive sectors like utilities, telecommunications, and consumer staples. Our strategy seeks lower interest-rate sensitivity because our stock selection is constructed to be sector-neutral.
Thanks for your insights, Rob.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future. Current and future portfolio holdings are subject to risk.
Portfolio Manager
Robert J. Schoen
is Co-Head of Global Asset Allocation at Putnam. He holds an M.B.A. from New York University’s Stern School of Business and a B.A. from Tufts University. He joined Putnam in 1997 and has been in the investment industry since 1990.
In addition to Rob, your fund is managed by Adrian H. Chan, CFA.
IN THE NEWS
Citing a lengthier economic slowdown in emerging-market economies, the deep recession in the eurozone, and the expected tapering of the U.S. Fed’s monetary stimulus, the International Monetary Fund (IMF) has downgraded its growth projections for economies worldwide.
Economic growth around the world is projected to remain subdued at 3.1% in 2013, the same as it was in 2012, the IMF stated in a mid-year update. Worldwide growth in 2014 will be 3.8%, the IMF predicted. As for the IMF’s regional economic forecasts, growth in the United States is projected to
rise from 1.75% in 2013 to 2.75% in 2014. In Japan, growth will average 2% this year, while slowing but remaining positive in 2014. The eurozone economy, however, had a slightly positive second quarter, at 0.3%, according to the European Union’s statistics office, bringing to an end six straight quarters of negative growth. Still, the IMF believes that the 17-nation currency bloc overall will remain mired in recession this year, with negative growth, and in 2014 growth will rise to just below 1%, which is weaker than previously reported.
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Low Volatility Equity Fund
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7
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for period ended July 31, 2013. In accordance with regulatory requirements for mutual funds, we also include performance information as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance
Total return for period ended 7/31/13
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Class A
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Class B
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Class C
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Class M
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Class Y
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(inception dates)
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(3/18/13)
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(3/18/13)
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(3/18/13)
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(3/18/13)
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(3/18/13)
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Before
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After
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Before
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After
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Net
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sales
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sales
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Before
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After
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Before
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After
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sales
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sales
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asset
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charge
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charge
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CDSC
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CDSC
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CDSC
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CDSC
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charge
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charge
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value
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Life of fund
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3.10%
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–2.83%
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2.80%
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–2.20%
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2.80%
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1.80%
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2.90%
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–0.70%
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3.20%
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 5.75% and 3.50% sales charge, respectively, levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class Y shares have no initial sales charge or CDSC.
The short-term results of a relatively new fund are not necessarily indicative of its long-term prospects.
For a portion of the period, the fund had expense limitations, without which returns would have been lower.
Comparative index returns
For period ended 7/31/13
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Lipper Large-Cap Core
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S&P 500 Index
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Funds category average*
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Life of fund
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9.39%
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8.88%
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Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* Over the life-of-fund period ended 7/31/13, there were 991 funds in this Lipper category.
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8
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Low Volatility Equity Fund
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Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B shares would have been valued at $10,280 ($9,780 with contingent deferred sales charge). A $10,000 investment in the fund’s class C shares would have been valued at $10,280 ($10,180 with contingent deferred sales charge). A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $9,930. A $10,000 investment in the fund’s class Y shares would have been valued at $10,320.
Fund price and distribution information
For the period ended 7/31/13
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Class A
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Class B
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Class C
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Class M
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Class Y
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Before
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After
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Net
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Net
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Before
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After
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Net
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sales
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sales
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asset
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asset
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sales
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sales
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asset
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Share value
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charge
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charge
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value
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value
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charge
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charge
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value
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3/18/13*
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$10.00
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$10.61
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$10.00
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$10.00
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$10.00
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$10.36
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$10.00
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7/31/13
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10.31
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10.94
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10.28
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10.28
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10.29
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10.66
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10.32
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The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares and 3.50% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
The fund made no distributions during the period.
* Inception date of the fund.
Fund performance as of most recent calendar quarter
Total return for period ended 6/30/13
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Class A
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Class B
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Class C
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Class M
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Class Y
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(inception dates)
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(3/18/13)
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(3/18/13)
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(3/18/13)
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(3/18/13)
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(3/18/13)
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Before
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After
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Before
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After
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Net
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sales
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sales
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Before
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After
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Before
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After
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sales
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sales
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asset
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charge
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charge
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CDSC
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CDSC
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CDSC
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CDSC
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charge
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charge
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value
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Life of fund
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0.70%
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–5.09%
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0.50%
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–4.50%
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0.50%
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–0.50%
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0.60%
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–2.92%
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0.80%
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See the discussion following the Fund performance table on page 8 for information about the calculation of fund performance.
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Low Volatility Equity Fund
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9
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Your fund’s expenses
As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. During the period from the fund’s commencement of operations (March 18, 2013) through July 31, 2013, your fund’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.
Expense ratios
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Class A
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Class B
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Class C
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Class M
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Class Y
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Estimated net expenses for the fiscal year
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ended 7/31/13*‡
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1.20%
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1.95%
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1.95%
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1.70%
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0.95%
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Estimated total annual operating expenses for
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the fiscal year ended 7/31/13‡
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1.57%
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2.32%
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2.32%
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2.07%
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1.32%
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Annualized expense ratio from 3/18/13
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(commencement of operations) to 7/31/13†
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1.20%
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1.95%
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1.95%
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1.70%
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0.95%
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Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Reflects Putnam Management’s contractual obligation to limit expenses through 6/30/14.
† From the period 3/18/13 (commencement of operations) to 7/31/13; may differ from expense ratios based on current fiscal period data in the financial highlights.
‡ Other expenses are based on estimated amounts for the current fiscal year.
Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from March 18, 2013 (commencement of operations) to July 31, 2013. It also shows how much a $1,000 investment would be worth at the close of the period, assuming
actual returns
and expenses.
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Class A
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Class B
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Class C
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Class M
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Class Y
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Expenses paid per $1,000*†
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$4.54
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$7.37
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$7.37
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$6.43
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$3.60
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Ending value (after expenses)
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$1,031.00
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$1,028.00
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$1,028.00
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$1,029.00
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$1,032.00
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* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the period from 3/18/13 (commencement of operations) to 7/31/13. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
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10
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Low Volatility Equity Fund
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Estimate the expenses you paid
To estimate the ongoing expenses you paid for the period ended July 31, 2013, use the following calculation method. To find the value of your investment on March 18, 2013 (commencement of operations) call Putnam at 1-800-225-1581.
Compare expenses using the SEC’s method
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a
hypothetical 5% annualized return
. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
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Class A
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Class B
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Class C
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Class M
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Class Y
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Expenses paid per $1,000*†
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$6.01
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$9.74
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$9.74
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$8.50
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$4.76
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Ending value (after expenses)
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$1,018.84
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$1,015.12
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$1,015.12
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$1,016.36
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$1,020.08
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* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the period from 3/18/13 (commencement of operations) to 7/31/13. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the six-month period; then multiplying the result by the number of days in the six-month period; and then dividing that result by the number of days in the year.
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Low Volatility Equity Fund
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11
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Terms and definitions
Important terms
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.
Before sales charge
, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge
is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC)
is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares
are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares
are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares
are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares
have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class Y shares
are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays U.S. Aggregate Bond Index
is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA Merrill Lynch U.S. 3-Month Treasury Bill Index
is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
S&P 500 Index
is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.
Lipper
is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.
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12
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Low Volatility Equity Fund
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Other information for shareholders
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the period from March 18, 2013 (commencement of operations) to June 30, 2013, are available in the Individual Investors section of putnam.com, and on the Securities and Exchange Commission (SEC) website, www.sec.gov. If you have questions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s website at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of July 31, 2013, Putnam employees had approximately $394,000,000 and the Trustees had approximately $94,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
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Low Volatility Equity Fund
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Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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Low Volatility Equity Fund
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Trustee approval of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management (“Putnam Management”) and the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”). The Board of Trustees, with the assistance of its Contract Committee, requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. The Contract Committee consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of the Putnam funds (“Independent Trustees”).
At the outset of the review process, members of the Board’s independent staff and independent legal counsel met with representatives of Putnam Management to review the annual contract review materials furnished to the Contract Committee during the course of the previous year’s review and to discuss possible changes in these materials that might be necessary or desirable for the coming year. Following these discussions and in consultation with the Contract Committee, the Independent Trustees’ independent legal counsel requested that Putnam Management furnish specified information, together with any additional information that Putnam Management considered relevant, to the Contract Committee. Over the course of several months ending in June 2013, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided. Throughout this
process, the Contract Committee was assisted by the members of the Board’s independent staff and by independent legal counsel for the Putnam funds and the Independent Trustees.
In May 2013, the Contract Committee met in executive session to discuss and consider its preliminary recommendations with respect to the continuance of the contracts. At the Trustees’ June 20, 2013 meeting, the Contract Committee met in executive session with the other Independent Trustees to review a summary of the key financial data that the Contract Committee considered in the course of its review. The Contract Committee then presented its written report, which summarized the key factors that the Committee had considered and set forth its final recommendations. The Contract Committee then recommended, and the Independent Trustees approved, the continuance of your fund’s management and sub-management contracts, effective July 1, 2013, subject to certain changes in these contracts noted below. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
•
That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds, and the costs incurred by Putnam Management in providing services to the fund, and
•
That the fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of
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Low Volatility Equity Fund
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scale as may exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the management arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years. For example, with some minor exceptions, the current fee arrangements in the management contracts for the Putnam funds were implemented at the beginning of 2010 following extensive review and discussion by the Trustees, as well as approval by shareholders. (Your fund is a relatively new fund, and the Trustees initially approved your fund’s management contract in December 2012).
As noted above, the Trustees considered certain changes to the management contracts of all funds that are organized as series of Putnam Funds Trust, including your fund, that were proposed by Putnam Management in an attempt to consolidate the contracts of these funds into three separate contracts based on the structure of each fund’s management fee. The Independent Trustees’ approval of these consolidated management contracts was based on their conclusion that the changes were purely for administrative convenience and would not result in any substantive change to the terms of a fund’s existing management
contract with Putnam Management or any reduction in the nature and quality of services provided to your fund.
The Trustees also considered certain administrative revisions to your fund’s sub-management contract. Putnam Management recommended that the sub-management contract be revised to reduce the sub-management fee that Putnam Management pays to PIL with respect to the portion of the portfolios of certain funds, but not your fund, that may be allocated to PIL from time to time. The Independent Trustees’ approval of this recommendation was based on their conclusion that these changes would have no practical effect on Putnam Management’s continued responsibility for the management of these funds or the costs borne by fund shareholders and would not result in any reduction in the nature and quality of services provided to the funds.
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. The Trustees also reviewed the total expenses of each Putnam fund, recognizing that in most cases management fees represented the major, but not the sole, determinant of total costs to shareholders.
In reviewing fees and expenses, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management, changes in a fund’s investment style, changes in Putnam Management’s operating costs or profitability, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund.
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Low Volatility Equity Fund
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Under its management contract, your fund has the benefit of breakpoints in its management fee schedule that provide shareholders with economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Trustees concluded that the fee schedule in effect for your fund represented an appropriate sharing of economies of scale between fund shareholders and Putnam Management.
The Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet competitive standards, the Trustees and Putnam Management have implemented certain expense limitations. These expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 32 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions, extraordinary expenses and acquired fund fees and expenses). These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds had sufficiently low expenses that these expense limitations did not apply during their fiscal years ending in 2012. These expense limitations did not apply to your fund in 2012 because it did not commence operations until March 2013. However, these limitations remain in effect and may benefit your fund in 2013. In addition, Putnam Management agreed to waive fees (and, to the extent necessary, bear other expenses) of your fund through June 30, 2014 to the extent that the expenses of your fund (excluding brokerage, interest, taxes, investment-related expenses, extraordinary expenses, payments under the
fund’s distribution plans, and acquired fund fees and expenses, but including payments under the fund’s investor servicing contract and investment management contract) exceed an annual rate of 0.95% of the fund’s average net assets. Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management and sub-management contracts.
In connection with their initial approval of your fund’s management and sub-management contract in December 2012, the Trustees reviewed comparative fee and expense information for the funds expected to be in your fund’s Lipper peer group, which is a group of funds with similar current investment styles or objectives as determined by Lipper Inc. This information included a comparison of your fund’s proposed management fees and total expenses (excluding any applicable 12b-1 fee) against the comparable fees for each fund in the expected Lipper peer group, which provides a general indication of your fund’s relative standing.
In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for
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Low Volatility Equity Fund
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the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the Putnam funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and mutual funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes are higher on average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
Investment performance
The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the
Putnam funds’ investment process and performance by the work of the investment oversight committees of the Trustees, which meet on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other senior members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investment results for every fund in every time period.
The Trustees considered that 2012 was a year of strong competitive performance for many of the Putnam funds, with only a relatively small number of exceptions. They noted that this strong performance was exemplified by the fact that the Putnam funds were recognized by Barron’s as the best performing mutual fund complex for 2012 — the second time in four years that Putnam Management has achieved this distinction for the Putnam funds. They also noted, however, the disappointing investment performance of some funds for periods ended December 31, 2012 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
For purposes of evaluating investment performance, the Trustees generally focus on competitive industry rankings for the one-year, three-year, and five-year periods. For a number of Putnam funds with relatively unique
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Low Volatility Equity Fund
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investment mandates, the Trustees evaluated performance based on comparisons of their absolute gross returns with the returns of selected investment benchmarks or targeted annualized returns. Because your fund had only recently commenced operations, the Trustees were not able to consider one-year, three-year, or five-year performance for your fund.
The Trustees also considered a number of other changes that Putnam Management had made in recent years in efforts to support and improve fund performance generally. These changes included Putnam Management’s efforts to increase accountability and to reduce complexity in the portfolio management process for the Putnam equity funds by moving generally from a portfolio management team structure to a decision-making process that vests full authority and responsibility with individual portfolio managers and by affirming its commitment to a fundamental-driven approach to investing. The Trustees noted that Putnam Management had also worked to strengthen its fundamental research capabilities by adding new investment personnel to the large-cap equities research team and by bringing U.S. and international research under common leadership. In addition, the Trustees recognized that Putnam Management has adjusted the compensation structure for portfolio managers and research analysts so that only those who achieve top-quartile returns over a rolling three-year basis are eligible for full bonuses.
Brokerage and soft-dollar allocations; investor servicing
The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund.
These include benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft dollars generated by these means are used primarily to acquire brokerage and research services that enhance Putnam Management’s investment capabilities and supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft dollars continues to be used to pay fund expenses. The Trustees indicated their continued intent to monitor regulatory and industry developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the allocation of the Putnam funds’ brokerage in order to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management and sub-management contracts, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services, the fees paid by competitive funds, and the costs incurred by PSERV and PRM, as applicable, in providing such services.
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Low Volatility Equity Fund
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Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 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 liquidation preference of preferred shares.)
Statement of operations
shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net
investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal year.
Statement of changes in net assets
shows how the fund’s net assets were affected by the fund’s net investment gain or loss, 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 highlights table also includes the current reporting period.
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20
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Low Volatility Equity Fund
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Funds Trust:
We have audited the accompanying statement of assets and liabilities of Putnam Low Volatility Equity Fund (the fund), a series of Putnam Funds Trust, including the fund’s portfolio, as of July 31, 2013, and the related statements of operations, changes in net assets, and the financial highlights for the period from March 18, 2013 (commencement of operations) to July 31, 2013. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Low Volatility Equity Fund as of July 31, 2013, the results of its operations, the changes in its net assets and the financial highlights for the period from March 18, 2013 (commencement of operations) to July 31, 2013, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
September 10, 2013
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Low Volatility Equity Fund
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The fund’s portfolio
7/31/13
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COMMON STOCKS (91.5%)*
|
Shares
|
Value
|
|
Aerospace and defense (4.6%)
|
|
|
Boeing Co. (The)
|
1,492
|
$156,809
|
|
General Dynamics Corp.
|
1,997
|
170,424
|
|
Honeywell International, Inc.
|
4,305
|
357,229
|
|
L-3 Communications Holdings, Inc.
|
788
|
73,402
|
|
Lockheed Martin Corp.
|
943
|
113,273
|
|
Northrop Grumman Corp.
|
1,678
|
154,477
|
|
Raytheon Co.
|
2,183
|
156,827
|
|
Rockwell Collins, Inc.
|
853
|
60,708
|
|
United Technologies Corp.
|
1,376
|
145,264
|
|
|
|
1,388,413
|
Air freight and logistics (1.4%)
|
|
|
C.H. Robinson Worldwide, Inc.
|
1,198
|
71,425
|
|
United Parcel Service, Inc. Class B
|
3,981
|
345,551
|
|
|
|
416,976
|
Airlines (0.4%)
|
|
|
Copa Holdings SA Class A (Panama)
|
323
|
44,952
|
|
Southwest Airlines Co.
|
6,141
|
84,930
|
|
|
|
129,882
|
Beverages (1.0%)
|
|
|
Coca-Cola Co. (The)
|
1,621
|
64,970
|
|
PepsiCo, Inc.
|
2,765
|
230,988
|
|
|
|
295,958
|
Biotechnology (0.9%)
|
|
|
Amgen, Inc.
|
2,522
|
273,107
|
|
|
|
273,107
|
Capital markets (1.9%)
|
|
|
BlackRock, Inc.
|
443
|
124,908
|
|
Northern Trust Corp.
|
3,323
|
194,528
|
|
T. Rowe Price Group, Inc.
|
3,457
|
260,105
|
|
|
|
579,541
|
Chemicals (2.7%)
|
|
|
Ecolab, Inc.
|
2,826
|
260,388
|
|
International Flavors & Fragrances, Inc.
|
1,190
|
96,009
|
|
PPG Industries, Inc.
|
1,395
|
223,814
|
|
Sherwin-Williams Co. (The)
|
1,028
|
179,047
|
|
Sigma-Aldrich Corp.
|
709
|
59,244
|
|
|
|
818,502
|
Commercial banks (1.9%)
|
|
|
Bank of Hawaii Corp.
|
3,424
|
190,511
|
|
Cullen/Frost Bankers, Inc.
|
3,635
|
261,865
|
|
Wells Fargo & Co.
|
2,677
|
116,450
|
|
|
|
568,826
|
Communications equipment (0.7%)
|
|
|
Harris Corp.
|
1,170
|
66,772
|
|
Motorola Solutions, Inc.
|
2,742
|
150,344
|
|
|
|
217,116
|
Computers and peripherals (3.1%)
|
|
|
Apple, Inc.
|
2,083
|
942,558
|
|
|
|
942,558
|
|
|
22
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Low Volatility Equity Fund
|
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COMMON STOCKS (91.5%)*
cont.
|
Shares
|
Value
|
|
Consumer finance (1.7%)
|
|
|
American Express Co.
|
2,399
|
$176,974
|
|
Discover Financial Services
|
6,751
|
334,242
|
|
|
|
511,216
|
Containers and packaging (0.9%)
|
|
|
Ball Corp.
|
2,205
|
98,762
|
|
Bemis Co., Inc.
|
1,613
|
66,439
|
|
Packaging Corp. of America
|
1,788
|
96,177
|
|
|
|
261,378
|
Diversified financial services (1.5%)
|
|
|
IntercontinentalExchange, Inc. †
|
1,117
|
203,797
|
|
JPMorgan Chase & Co.
|
2,025
|
112,853
|
|
McGraw-Hill Cos., Inc. (The)
|
2,047
|
126,627
|
|
|
|
443,277
|
Diversified telecommunication services (2.4%)
|
|
|
AT&T, Inc.
|
6,559
|
231,336
|
|
CenturyLink, Inc.
|
2,699
|
96,759
|
|
Verizon Communications, Inc.
|
8,132
|
402,371
|
|
|
|
730,466
|
Electric utilities (0.4%)
|
|
|
Pinnacle West Capital Corp.
|
1,940
|
114,266
|
|
|
|
114,266
|
Electrical equipment (0.3%)
|
|
|
Roper Industries, Inc.
|
723
|
91,069
|
|
|
|
91,069
|
Energy equipment and services (0.5%)
|
|
|
Diamond Offshore Drilling, Inc.
|
938
|
63,259
|
|
Oceaneering International, Inc.
|
1,097
|
88,956
|
|
|
|
152,215
|
Food and staples retail (0.1%)
|
|
|
Wal-Mart Stores, Inc.
|
298
|
23,226
|
|
|
|
23,226
|
Food products (2.6%)
|
|
|
General Mills, Inc.
|
5,297
|
275,444
|
|
Hershey Co. (The)
|
1,689
|
160,235
|
|
JM Smucker Co. (The)
|
804
|
90,466
|
|
Kellogg Co.
|
2,429
|
160,896
|
|
Kraft Foods Group, Inc.
|
1,575
|
89,114
|
|
|
|
776,155
|
Health-care equipment and supplies (1.4%)
|
|
|
Abbott Laboratories
|
4,754
|
174,139
|
|
Becton, Dickinson and Co.
|
1,247
|
129,339
|
|
C.R. Bard, Inc.
|
1,099
|
125,945
|
|
|
|
429,423
|
Health-care providers and services (3.1%)
|
|
|
AmerisourceBergen Corp.
|
3,199
|
186,406
|
|
Cardinal Health, Inc.
|
4,074
|
204,066
|
|
Henry Schein, Inc. †
|
1,217
|
126,361
|
|
McKesson Corp.
|
2,512
|
308,122
|
|
Quest Diagnostics, Inc.
|
2,018
|
117,670
|
|
|
|
942,625
|
|
|
Low Volatility Equity Fund
|
23
|
|
|
|
COMMON STOCKS (91.5%)*
cont.
|
Shares
|
Value
|
|
Hotels, restaurants, and leisure (1.8%)
|
|
|
Dunkin’ Brands Group, Inc.
|
887
|
$38,318
|
|
McDonald’s Corp.
|
1,294
|
126,916
|
|
Panera Bread Co. Class A †
|
301
|
50,282
|
|
Starbucks Corp.
|
4,387
|
312,530
|
|
|
|
528,046
|
Household products (2.7%)
|
|
|
Church & Dwight Co., Inc.
|
1,253
|
79,816
|
|
Colgate-Palmolive Co.
|
4,692
|
280,910
|
|
Kimberly-Clark Corp.
|
2,972
|
293,634
|
|
Procter & Gamble Co. (The)
|
1,946
|
156,264
|
|
|
|
810,624
|
Industrial conglomerates (2.8%)
|
|
|
3M Co.
|
3,685
|
432,730
|
|
Danaher Corp.
|
3,521
|
237,104
|
|
General Electric Co.
|
6,333
|
154,335
|
|
|
|
824,169
|
Insurance (4.0%)
|
|
|
Alleghany Corp. †
|
341
|
137,723
|
|
Allied World Assurance Co. Holdings AG
|
887
|
83,955
|
|
Arch Capital Group, Ltd. †
|
1,548
|
83,824
|
|
Arthur J Gallagher & Co.
|
2,577
|
114,367
|
|
Berkshire Hathaway, Inc. Class B †
|
881
|
102,081
|
|
Chubb Corp. (The)
|
2,671
|
231,042
|
|
Everest Re Group, Ltd.
|
1,061
|
141,675
|
|
PartnerRe, Ltd.
|
1,338
|
119,805
|
|
RenaissanceRe Holdings, Ltd.
|
1,174
|
102,103
|
|
Validus Holdings, Ltd.
|
2,422
|
85,811
|
|
|
|
1,202,386
|
Internet and catalog retail (2.5%)
|
|
|
Amazon.com, Inc. †
|
1,542
|
464,481
|
|
Priceline.com, Inc. †
|
313
|
274,085
|
|
|
|
738,566
|
Internet software and services (1.9%)
|
|
|
Google, Inc. Class A †
|
495
|
439,362
|
|
IAC/InterActiveCorp.
|
2,455
|
124,248
|
|
|
|
563,610
|
IT Services (5.6%)
|
|
|
IBM Corp.
|
3,367
|
656,700
|
|
MasterCard, Inc. Class A
|
776
|
473,833
|
|
Paychex, Inc.
|
4,774
|
188,287
|
|
Visa, Inc. Class A
|
2,006
|
355,082
|
|
|
|
1,673,902
|
Media (2.6%)
|
|
|
Omnicom Group, Inc.
|
2,057
|
132,203
|
|
Scripps Networks Interactive Class A
|
848
|
60,013
|
|
Time Warner, Inc.
|
5,489
|
341,745
|
|
Viacom, Inc. Class B
|
3,309
|
240,795
|
|
|
|
774,756
|
Multi-utilities (2.0%)
|
|
|
Consolidated Edison, Inc.
|
3,953
|
236,785
|
|
DTE Energy Co.
|
3,148
|
222,564
|
|
SCANA Corp.
|
2,606
|
135,277
|
|
|
|
594,626
|
|
|
24
|
Low Volatility Equity Fund
|
|
|
|
COMMON STOCKS (91.5%)*
cont.
|
Shares
|
Value
|
|
Multiline retail (2.0%)
|
|
|
Dillards, Inc. Class A
|
983
|
$82,995
|
|
Dollar General Corp. †
|
1,597
|
87,308
|
|
Dollar Tree, Inc. †
|
1,884
|
101,077
|
|
Macy’s, Inc.
|
1,225
|
59,217
|
|
Target Corp.
|
3,791
|
270,109
|
|
|
|
600,706
|
Oil, gas, and consumable fuels (8.4%)
|
|
|
Chevron Corp.
|
5,669
|
713,670
|
|
ConocoPhillips
|
2,816
|
182,646
|
|
EQT Corp.
|
1,195
|
103,368
|
|
Exxon Mobil Corp.
|
10,654
|
998,813
|
|
Kinder Morgan, Inc.
|
2,943
|
111,127
|
|
Noble Energy, Inc.
|
1,358
|
84,861
|
|
Phillips 66
|
3,052
|
187,698
|
|
Spectra Energy Corp.
|
3,801
|
136,798
|
|
|
|
2,518,981
|
Pharmaceuticals (6.4%)
|
|
|
AbbVie, Inc.
|
4,852
|
220,669
|
|
Bristol-Myers Squibb Co.
|
5,561
|
240,458
|
|
Eli Lilly & Co.
|
3,342
|
177,494
|
|
Johnson & Johnson
|
1,971
|
184,289
|
|
Merck & Co., Inc.
|
8,933
|
430,303
|
|
Perrigo Co.
|
400
|
49,756
|
|
Pfizer, Inc.
|
20,818
|
608,510
|
|
|
|
1,911,479
|
Professional services (0.6%)
|
|
|
Equifax, Inc.
|
969
|
61,270
|
|
Towers Watson & Co. Class A
|
566
|
47,674
|
|
Verisk Analytics, Inc. Class A †
|
1,174
|
75,559
|
|
|
|
184,503
|
Real estate investment trusts (REITs) (2.7%)
|
|
|
Essex Property Trust, Inc.
|
323
|
52,097
|
|
Federal Realty Investment Trust
|
493
|
51,928
|
|
Health Care REIT, Inc.
|
1,670
|
107,698
|
|
Public Storage
|
906
|
144,253
|
|
Rayonier, Inc.
|
996
|
58,206
|
|
Simon Property Group, Inc.
|
1,613
|
258,176
|
|
Tanger Factory Outlet Centers
|
845
|
27,403
|
|
Ventas, Inc.
|
1,862
|
122,408
|
|
|
|
822,169
|
Road and rail (0.2%)
|
|
|
J. B. Hunt Transport Services, Inc.
|
776
|
58,146
|
|
|
|
58,146
|
Semiconductors and semiconductor equipment (3.3%)
|
|
|
Analog Devices, Inc.
|
3,260
|
160,914
|
|
Avago Technologies, Ltd.
|
3,284
|
120,457
|
|
Linear Technology Corp.
|
3,274
|
132,793
|
|
Maxim Integrated Products, Inc.
|
3,979
|
113,799
|
|
Texas Instruments, Inc.
|
7,479
|
293,177
|
|
Xilinx, Inc.
|
3,453
|
161,221
|
|
|
|
982,361
|
|
|
Low Volatility Equity Fund
|
25
|
|
|
|
|
COMMON STOCKS (91.5%)*
cont.
|
|
Shares
|
Value
|
|
Software (1.4%)
|
|
|
|
Intuit, Inc.
|
|
3,402
|
$217,456
|
|
Microsoft Corp.
|
|
5,940
|
189,070
|
|
|
|
|
406,526
|
Specialty retail (3.5%)
|
|
|
|
Advance Auto Parts, Inc.
|
|
687
|
56,671
|
|
AutoZone, Inc. †
|
|
285
|
127,845
|
|
Home Depot, Inc. (The)
|
|
6,270
|
495,518
|
|
O’Reilly Automotive, Inc. †
|
|
924
|
115,740
|
|
PetSmart, Inc.
|
|
954
|
69,852
|
|
Ross Stores, Inc.
|
|
1,577
|
106,400
|
|
Tractor Supply Co.
|
|
649
|
78,613
|
|
|
|
|
1,050,639
|
Thrifts and mortgage finance (1.0%)
|
|
|
|
People’s United Financial, Inc.
|
|
20,396
|
305,940
|
|
|
|
|
305,940
|
Tobacco (2.1%)
|
|
|
|
Altria Group, Inc.
|
|
7,821
|
274,204
|
|
Philip Morris International, Inc.
|
|
2,134
|
190,310
|
|
Reynolds American, Inc.
|
|
3,257
|
160,994
|
|
|
|
|
625,508
|
Trading companies and distributors (0.1%)
|
|
|
|
MSC Industrial Direct Co., Inc. Class A
|
|
443
|
35,861
|
|
|
|
|
35,861
|
Wireless telecommunication services (0.2%)
|
|
|
|
SBA Communications Corp. Class A †
|
|
723
|
53,567
|
|
|
|
|
53,567
|
|
|
|
|
Total common stocks (cost $26,100,975)
|
|
|
$27,373,266
|
|
|
PURCHASED EQUITY OPTIONS
|
Expiration date/
|
Contract
|
|
OUTSTANDING (0.7%)*
|
strike price
|
amount
|
Value
|
|
SPDR S&P 500 ETF Trust (Put)
|
Jul-14/$147.00
|
14,594
|
$68,008
|
|
SPDR S&P 500 ETF Trust (Put)
|
Jun-14/138.00
|
15,807
|
45,208
|
|
SPDR S&P 500 ETF Trust (Put)
|
May-14/145.00
|
12,082
|
40,112
|
|
SPDR S&P 500 ETF Trust (Put)
|
Apr-14/133.00
|
14,840
|
23,536
|
|
SPDR S&P 500 ETF Trust (Put)
|
Mar-14/130.00
|
14,840
|
16,765
|
|
SPDR S&P 500 ETF Trust (Put)
|
Feb-14/130.00
|
14,840
|
12,959
|
|
SPDR S&P 500 ETF Trust (Put)
|
Jan-14/125.00
|
14,840
|
6,440
|
|
SPDR S&P 500 ETF Trust (Put)
|
Dec-13/125.00
|
14,840
|
4,556
|
|
SPDR S&P 500 ETF Trust (Put)
|
Nov-13/125.00
|
14,840
|
1,993
|
|
SPDR S&P 500 ETF Trust (Put)
|
Oct-13/123.00
|
14,840
|
824
|
|
SPDR S&P 500 ETF Trust (Put)
|
Sep-13/125.00
|
14,840
|
154
|
|
SPDR S&P 500 ETF Trust (Put)
|
Aug-13/115.00
|
14,840
|
58
|
|
Total purchased equity options outstanding (cost $418,895)
|
|
$220,613
|
|
|
INVESTMENT COMPANIES (0.3%)*
|
|
Shares
|
Value
|
|
Ares Capital Corp.
|
|
4,787
|
$85,161
|
|
Total investment companies (cost $84,979)
|
|
|
$85,161
|
|
|
26
|
Low Volatility Equity Fund
|
|
|
|
SHORT-TERM INVESTMENTS (9.3%)*
|
Principal amount/shares
|
Value
|
|
Putnam Short Term Investment Fund 0.02%
L
|
1,998,042
|
$1,998,042
|
|
SSgA Prime Money Market Fund 0.02%
P
|
620,000
|
620,000
|
|
U.S. Treasury Bills with an effective yield of 0.09%, April 3, 2014
|
$272,000
|
271,824
|
|
Total short-term investments (cost $2,889,866)
|
|
$2,889,866
|
|
TOTAL INVESTMENTS
|
|
|
|
Total investments (cost $29,494,715)
|
|
$30,568,906
|
Key to holding’s abbreviations
|
|
ETF
|
Exchange Traded Fund
|
SPDR
|
S&P Depository Receipts
|
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from March 18, 2013 (commencement of operations) through July 31, 2013 (the reporting period). Within the following notes to the portfolio, references to “ASC 820” represent Accounting Standards Codification 820
Fair Value Measurements and Disclosures
and references to “OTC”, if any, represent over-the-counter.
* Percentages indicated are based on net assets of $29,929,699.
† Non-income-producing security.
L
Affiliated company (Note 6). The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
P
Security was pledged, or purchased with cash that was pledged, to the fund for collateral on certain derivatives contracts. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period (Note 1).
At the close of the reporting period, the fund maintained liquid assets totaling $8,352 to cover certain derivatives contracts.
WRITTEN EQUITY OPTIONS OUTSTANDING at 7/31/13 (premiums $32,155)
|
|
|
|
|
Expiration date/
|
Contract
|
|
|
strike price
|
amount
|
Value
|
|
SPDR S&P 500 ETF Trust (Call)
|
Aug-13/$175.00
|
87,998
|
$6,134
|
|
SPDR S&P 500 ETF Trust (Call)
|
Aug-13/176.00
|
87,998
|
3,552
|
|
Total
|
|
|
$9,686
|
OTC TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 7/31/13
|
|
|
|
|
|
|
|
|
|
|
Fixed payments
|
Total return
|
Unrealized
|
Swap counterparty/
|
Termination
|
|
received (paid) by
|
received by
|
appreciation/
|
Notional amount
|
|
date
|
|
fund per annum
|
or paid by fund
|
(depreciation)
|
|
Deutsche Bank AG
|
|
|
|
|
|
baskets
|
6,277
|
3/18/14
|
|
(3 month USD-LIBOR-
|
A basket (DBPTNLVE)
|
$15,019
|
|
|
|
|
BBA plus 0.28%)
|
of common stocks
|
|
|
baskets
|
2,930
|
3/18/14
|
|
(3 month USD-LIBOR-
|
A basket (DBPTNLVE)
|
7,010
|
|
|
|
|
BBA plus 0.28%)
|
of common stocks
|
|
|
baskets
|
3,806
|
3/18/14
|
|
(3 month USD-LIBOR-
|
A basket (DBPTNLVE)
|
9,125
|
|
|
|
|
BBA plus 0.28%)
|
of common stocks
|
|
|
baskets
|
7,751
|
3/18/14
|
|
(3 month USD-LIBOR-
|
A basket (DBPTNLVE)
|
28,381
|
|
|
|
|
BBA plus 0.28%)
|
of common stocks
|
|
|
Total
|
|
|
|
|
|
$59,535
|
|
|
Low Volatility Equity Fund
|
27
|
ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1: Valuations based on quoted prices for identical securities in active markets.
Level 2: Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
|
|
|
|
|
|
Valuation inputs
|
|
|
Investments in securities:
|
Level 1
|
Level 2
|
Level 3
|
|
Consumer discretionary
|
$3,692,713
|
$—
|
$—
|
|
Consumer staples
|
2,531,471
|
—
|
—
|
|
Energy
|
2,671,196
|
—
|
—
|
|
Financials
|
4,433,355
|
—
|
—
|
|
Health care
|
3,556,634
|
—
|
—
|
|
Industrials
|
3,129,019
|
—
|
—
|
|
Information technology
|
4,786,073
|
—
|
—
|
|
Materials
|
1,079,880
|
—
|
—
|
|
Telecommunication services
|
784,033
|
—
|
—
|
|
Utilities
|
708,892
|
—
|
—
|
|
Total common stocks*
|
27,373,266
|
—
|
—
|
|
|
|
|
Investment companies
|
85,161
|
—
|
—
|
|
Purchased equity options outstanding
|
—
|
220,613
|
—
|
|
Short-term investments
|
2,618,042
|
271,824
|
—
|
|
Totals by level
|
$30,076,469
|
$492,437
|
$—
|
|
|
|
|
|
|
Valuation inputs
|
|
|
Other financial instruments:
|
Level 1
|
Level 2
|
Level 3
|
|
Written equity options outstanding
|
$—
|
$(9,686)
|
$—
|
|
Total return swap contracts
|
—
|
59,535
|
—
|
|
Totals by level
|
$—
|
$49,849
|
$—
|
* Common stock classifications are presented at the sector level, which may differ from the fund’s portfolio presentation.
The accompanying notes are an integral part of these financial statements.
|
|
28
|
Low Volatility Equity Fund
|
Statement of assets and liabilities
7/31/13
|
|
ASSETS
|
|
|
Investment in securities, at value, (Note 1):
|
|
Unaffiliated issuers (identified cost $27,496,673)
|
$28,570,864
|
Affiliated issuers (identified cost $1,998,042) (Notes 1 and 6)
|
1,998,042
|
|
Dividends, interest and other receivables
|
36,454
|
|
Receivable for shares of the fund sold
|
597
|
|
Receivable from Manager (Note 2)
|
30,267
|
|
Unamortized offering costs (Note 1)
|
69,767
|
|
Prepaid Trustee compensation and expenses (Note 2)
|
67
|
|
Unrealized appreciation on OTC swap contracts (Note 1)
|
59,535
|
|
Total assets
|
30,765,593
|
|
|
LIABILITIES
|
|
|
Payable to custodian
|
17,147
|
|
Payable for shares of the fund repurchased
|
10,068
|
|
Payable for custodian fees (Note 2)
|
7,764
|
|
Payable for investor servicing fees (Note 2)
|
6,220
|
|
Payable for administrative services (Note 2)
|
31
|
|
Payable for distribution fees (Note 2)
|
924
|
|
Payable for auditing and tax fees
|
37,043
|
|
Collateral on certain derivative contracts, at value (Note 1)
|
620,000
|
|
Written options outstanding, at value (premiums $32,155) (Notes 1 and 3)
|
9,686
|
|
Payable for offering costs (Note 1)
|
111,626
|
|
Other accrued expenses
|
15,385
|
|
Total liabilities
|
835,894
|
|
|
Net assets
|
$29,929,699
|
|
|
REPRESENTED BY
|
|
|
Paid-in capital (Unlimited shares authorized) (Notes 1, 4 and 5)
|
$29,414,336
|
|
Undistributed net investment income (Note 1)
|
95,817
|
|
Accumulated net realized loss on investments (Note 1)
|
(736,649)
|
|
Net unrealized appreciation of investments
|
1,156,195
|
|
Total — Representing net assets applicable to capital shares outstanding
|
$29,929,699
|
|
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
|
|
|
Net asset value and redemption price per class A share
($3,776,054 divided by 366,266 shares)
|
$10.31
|
|
Offering price per class A share
(100/94.25 of $10.31)*
|
$10.94
|
|
Net asset value and offering price per class B share
($77,121 divided by 7,500 shares)**
|
$10.28
|
|
Net asset value and offering price per class C share
($64,878 divided by 6,310 shares)**
|
$10.28
|
|
Net asset value and redemption price per class M share
($20,322 divided by 1,975 shares)
|
$10.29
|
|
Offering price per class M share
(100/96.50 of $10.29)*
|
$10.66
|
|
Net asset value, offering price and redemption price per class Y share
|
|
($25,991,324 divided by 2,518,566 shares)
|
$10.32
|
|
*
On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
**
Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
|
|
Low Volatility Equity Fund
|
29
|
Statement of operations
For the period 3/18/13 (commencement of operations) to 7/31/13
|
|
INVESTMENT INCOME
|
|
|
Dividends
|
$122,082
|
|
Interest (including interest income of $224 from investments in affiliated issuers) (Note 6)
|
274
|
|
Total investment income
|
122,356
|
|
EXPENSES
|
|
|
Compensation of Manager (Note 2)
|
39,986
|
|
Investor servicing fees (Note 2)
|
16,338
|
|
Custodian fees (Note 2)
|
7,780
|
|
Trustee compensation and expenses (Note 2)
|
390
|
|
Distribution fees (Note 2)
|
3,416
|
|
Administrative services (Note 2)
|
132
|
|
Amortization of offering costs (Note 1)
|
41,859
|
|
Reports to shareholders
|
10,535
|
|
Auditing and tax fees
|
37,163
|
|
Other
|
5,600
|
|
Fees waived and reimbursed by Manager (Note 2)
|
(99,265)
|
|
Total expenses
|
63,934
|
|
|
Expense reduction (Note 2)
|
(17)
|
|
Net expenses
|
63,917
|
|
|
Net investment income
|
58,439
|
|
|
Net realized loss on investments (Notes 1 and 3)
|
(3,424)
|
|
Net realized gain on swap contracts (Note 1)
|
49,974
|
|
Net realized loss on written options (Notes 1 and 3)
|
(745,821)
|
|
Net unrealized appreciation of investments, swap contracts, and written options during the year
|
1,156,195
|
|
Net gain on investments
|
456,924
|
|
|
Net increase in net assets resulting from operations
|
$515,363
|
|
The accompanying notes are an integral part of these financial statements.
|
|
30
|
Low Volatility Equity Fund
|
Statement of changes in net assets
|
|
|
For the period 3/18/13
|
|
(commencement of
|
INCREASE IN NET ASSETS
|
operations) to 7/31/13
|
|
Operations:
|
|
Net investment income
|
$58,439
|
|
Net realized loss on investments
|
(699,271)
|
|
Net unrealized appreciation of investments
|
1,156,195
|
|
Net increase in net assets resulting from operations
|
515,363
|
|
Increase from capital share transactions (Note 4)
|
26,414,336
|
|
Total increase in net assets
|
26,929,699
|
|
NET ASSETS
|
|
|
Beginning of period (Note 5)
|
3,000,000
|
|
End of year
(including undistributed net investment income of $95,817)
|
$29,929,699
|
|
The accompanying notes are an integral part of these financial statements.
|
|
Low Volatility Equity Fund
|
31
|
Financial highlights
(For a common share outstanding throughout the period)
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT OPERATIONS:
|
|
|
|
RATIOS AND SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
|
|
|
Net asset
|
Net
|
Net realized
|
|
|
|
|
|
of net investment
|
|
|
value,
|
investment
|
and unrealized
|
Total from
|
|
Total return
|
Net assets,
|
Ratio of expenses
|
income (loss)
|
Portfolio
|
|
beginning
|
income
|
gain (loss)
|
investment
|
Net asset value,
|
at net asset
|
end of period
|
to average
|
to average
|
turnover
|
Period ended
|
of period
|
(loss)
a
|
on investments
|
operations
|
end of period
|
value (%)
b
|
(in thousands)
|
net assets (%)
c,d
|
net assets (%)
d
|
(%)
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
July 31, 2013†
|
$10.00
|
.02
|
.29
|
.31
|
$10.31
|
3.10
*
|
$3,776
|
.45 *
|
.23 *
|
17 *
|
|
Class B
|
|
|
|
|
|
|
|
|
|
|
July 31, 2013†
|
$10.00
|
(.01)
f
|
.29
|
.28
|
$10.28
|
2.80
*
|
$77
|
.73 *
|
(.14) *
f
|
17 *
|
|
Class C
|
|
|
|
|
|
|
|
|
|
|
July 31, 2013†
|
$10.00
|
—
e
|
.28
|
.28
|
$10.28
|
2.80
*
|
$65
|
.73 *
|
.01 *
|
17 *
|
|
Class M
|
|
|
|
|
|
|
|
|
|
|
July 31, 2013†
|
$10.00
|
—
e
|
.29
|
.29
|
$10.29
|
2.90
*
|
$20
|
.63 *
|
.02 *
|
17 *
|
|
Class Y
|
|
|
|
|
|
|
|
|
|
|
July 31, 2013†
|
$10.00
|
.04
|
.28
|
.32
|
$10.32
|
3.20
*
|
$25,991
|
.35 *
|
.37 *
|
17 *
|
|
* Not annualized.
† For the period March 18, 2013 (commencement of operations) to July 31, 2013.
a
Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b
Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
c
Includes amounts paid through expense offset arrangements (Note 2).
d
Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amount (Note 2):
|
|
|
Percentage of
|
|
average net assets
|
|
July 31, 2013
|
0.58%*
|
|
e
Amount represents less than $0.01 per share.
f
The net investment income ratio and per share amount shown for the period ending July 31, 2013 may not correspond with the expected class specific differences for the period due to the timing of subscriptions into the class.
The accompanying notes are an integral part of these financial statements.
|
|
|
|
32
|
Low Volatility Equity Fund
|
Low Volatility Equity Fund
|
33
|
Notes to financial statements
7/31/13
Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC and references to “OTC”, if any, represent over-the-counter. Unless otherwise noted, the “reporting period” represents the period from March 18, 2013 (commencement of operations) through July 31, 2013.
Putnam Low Volatility Equity Fund (the fund) is a diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The investment objective of the fund is to seek a total return comparable to that of the U.S. equity markets, but with lower volatility, over a market cycle (generally at least three years or more).
The fund invests mainly in common stocks of large U.S. companies across all sectors. The fund expects to allocate its investments across sectors so that the fund’s portfolio approximately reflects sector weightings across the broader equity markets. Within each sector, the fund generally focuses its investments on those stocks that Putnam Management believes are likely to have lower sensitivity to broader market or sector movements. Putnam Management refers to these stocks as “low beta” stocks. Beta is a measurement of a stock’s anticipated sensitivity to price movements in a particular market, as measured by a market or sector index. A stock with a beta higher than 1.0 is generally expected to be more volatile than the index, and a stock with a beta of less than 1.0 should be less volatile than the index and may be expected to rise and fall in price more slowly than the market or sector. Putnam Management generally emphasizes investments within each sector in low beta stocks (measured relative to the S&P 500 Index) because Putnam Management believes that, over a full market cycle (generally at least three years or more), a portfolio of low beta stocks may be able to earn investment returns comparable to market returns, but with less volatility than the market, thus earning an attractive risk-adjusted return relative to the market. The fund intends to write (sell) call options, generally on equity indices but also on individual portfolio securities. The fund sells call options to earn premium income. Selling call options may also reduce the volatility of the fund’s portfolio. The fund intends to buy put options, generally on equity indices but also on individual portfolio securities. The fund buys put options to reduce the volatility of the fund’s portfolio by protecting the fund from the impact of significant market declines.
The fund offers class A, class B, class C, class M and class Y shares. The fund began offering each class of shares on March 18, 2013. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. The expenses for class A, class B, class C, and class M shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, and class M shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.
Note 1: Significant accounting policies
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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect
|
|
34
|
Low Volatility Equity Fund
|
to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
Security valuation
Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities under Accounting Standards Codification 820
Fair Value Measurements and Disclosures
(ASC 820). If no sales are reported, as in the case of some securities that are traded OTC, a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Investments in open-end investment companies (excluding exchange traded funds), if any, which can be classified as Level 1 or Level 2 securities, are valued based on their net asset value. The net asset value of such investment companies equals the total value of their assets less their liabilities and divided by the number of their outstanding shares.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which would generally be classified as Level 1 securities, will be transferred to Level 2 of the fair value hierarchy when they are valued at fair value. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
Security transactions and related investment income
Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income, net of any applicable withholding taxes, is recorded on the accrual basis. Dividend income, net of any applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
Options contracts
The fund uses options contracts to generate additional income for the portfolio and to manage downside risk.
The potential risk to the fund is that the change in value of options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.
Exchange traded options are valued at the last sale price or, if no sales are reported, the last bid price for purchased options and the last ask price for written options. OTC traded options are valued using prices supplied by dealers. Forward premium swap option contracts include premiums that do not settle until the expiration date of the contract. The delayed settlement of the premiums are factored into the daily valuation of the option contracts.
|
|
Low Volatility Equity Fund
|
35
|
Written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.
Total return swap contracts
The fund entered into OTC total return swap contracts, which are arrangements to exchange a market linked return for a periodic payment, both based on a notional principal amount, to gain exposure to specific sectors or industries.
To the extent that the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. OTC total return swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain OTC total return swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. The fund’s maximum risk of loss from counterparty risk is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities.
OTC total return swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.
Master agreements
The fund is a party to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern OTC derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio.
Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty.
Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund did not have a net liability position on open derivative contracts subject to the Master Agreements.
Interfund lending
The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the SEC. This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
Line of credit
The fund participates, along with other Putnam funds, in a $315 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street. Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.11% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
|
|
36
|
Low Volatility Equity Fund
|
Federal taxes
It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the 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 Code.
The fund is subject to the provisions of Accounting Standards Codification 740
Income Taxes
(ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. 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.
Under the Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred for an unlimited period and the carry forwards will retain their character as either short-term or long-term capital losses. At July 31, 2013, the fund had the following capital loss carryovers available, to the extent allowed by the Code, to offset future net capital gain, if any:
|
|
|
Loss carryover
|
|
Short-term
|
Long-term
|
Total
|
|
$719,850
|
$—
|
$719,850
|
|
Distributions to shareholders
Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, 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/or permanent differences from losses on wash sale transactions and income on swap contracts. 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 reporting period ended, the fund reclassified $37,378 to increase undistributed net investment income and $37,378 to increase accumulated net realized loss.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
|
|
Unrealized appreciation
|
$1,469,669
|
Unrealized depreciation
|
(412,277)
|
|
Net unrealized appreciation
|
1,057,392
|
Undistributed ordinary income
|
155,351
|
Capital loss carryforward
|
(719,850)
|
Cost for federal income tax purposes
|
$29,511,514
|
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.
Offering costs
The offering costs of $111,626 are being fully amortized on a straight-line basis over a twelve-month period. The fund will reimburse Putnam Management for the payment of these expenses.
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
|
|
|
|
|
0.780%
|
of the first $5 billion,
|
|
0.580%
|
of the next $50 billion,
|
|
|
|
0.730%
|
of the next $5 billion,
|
|
0.560%
|
of the next $50 billion,
|
|
|
|
0.680%
|
of the next $10 billion,
|
|
0.550%
|
of the next $100 billion and
|
|
|
|
0.630%
|
of the next $10 billion,
|
|
0.545%
|
of any excess thereafter.
|
|
|
|
|
|
Low Volatility Equity Fund
|
37
|
Putnam Management has agreed to waive fees (and, to the extent necessary, bear other expenses) of the fund through June 30, 2014, to the extent that total expenses of the fund (excluding brokerage, interest, taxes, investment-related expenses, payments under distribution plans, extraordinary expenses and acquired fund fees and expenses) would exceed an annual rate of 0.95% of the fund’s average net assets. During the reporting period, the fund’s expenses were reduced by $8,602 as a result of this limit.
Putnam Management has also contractually agreed, through June 30, 2014, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses, acquired fund fees and expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were reduced by $90,663 as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.32% of the fund’s average net assets. During the reporting period, the expenses for each class of shares related to investor servicing fees were as follows:
|
|
|
|
|
Class A
|
$3,195
|
|
Class M
|
13
|
|
|
|
Class B
|
36
|
|
Class Y
|
13,050
|
|
|
|
Class C
|
44
|
|
Total
|
$16,338
|
|
|
|
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $17 under the expense offset arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $14, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
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 and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the Plans) with respect to its class A, class B, class C and class M shares pursuant to Rule 12b–1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, an indirect wholly-owned subsidiary of Putnam Investments, LLC,
|
|
38
|
Low Volatility Equity Fund
|
for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00% and 1.00 of the average net assets attributable to class A, class B, class C and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of the average net assets attributable to class A, class B, class C and class M shares, respectively. During the reporting period, the class specific expenses related to distribution fees were as follows:
|
|
|
|
|
Class A
|
$3,099
|
|
Class M
|
36
|
|
|
|
Class B
|
115
|
|
Total
|
$3,416
|
|
|
|
Class C
|
166
|
|
|
|
|
|
|
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $2,858 and $51 from the sale of class A and class M shares, respectively, and received no monies in contingent deferred sales charges from redemptions of class B and class C shares.
A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A and class M redemptions.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $28,980,294 and $2,671,927, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
Written option transactions during the reporting period are summarized as follows:
|
|
|
|
Written equity option
|
Written equity option
|
|
number of contracts
|
premiums
|
|
Written options outstanding at the
|
|
|
beginning of the reporting period
|
—
|
$—
|
|
Options opened
|
472,151
|
175,929
|
Options exercised
|
—
|
—
|
Options expired
|
(10,718)
|
(38,049)
|
Options closed
|
(285,437)
|
(105,725)
|
|
Written options outstanding at the
|
|
|
end of the reporting period
|
175,996
|
$32,155
|
|
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized.
Transactions in capital shares were as follows:
|
|
|
|
|
|
|
|
For the period 3/18/13 (commencement of
|
|
|
|
operations) to 7/31/13
|
|
Class A
|
|
|
Shares
|
Amount
|
|
Shares sold
|
|
|
71,947
|
$731,138
|
|
Shares issued in connection with reinvestment of distributions
|
|
|
—
|
—
|
|
|
|
|
71,947
|
731,138
|
|
Shares repurchased
|
|
|
(1,681)
|
(17,032)
|
|
Net increase
|
|
|
70,266
|
$714,106
|
|
|
|
Low Volatility Equity Fund
|
39
|
|
|
|
|
|
|
|
|
For the period 3/18/13 (commencement of
|
|
|
|
operations) to 7/31/13
|
|
Class B
|
|
|
Shares
|
Amount
|
|
Shares sold
|
|
|
6,500
|
$65,215
|
|
Shares issued in connection with reinvestment of distributions
|
|
|
—
|
—
|
|
|
|
|
6,500
|
65,215
|
|
Shares repurchased
|
|
|
—
|
—
|
|
Net increase
|
|
|
6,500
|
$65,215
|
|
|
|
|
|
For the period 3/18/13 (commencement of
|
|
|
|
operations) to 7/31/13
|
|
Class C
|
|
|
Shares
|
Amount
|
|
Shares sold
|
|
|
5,310
|
$54,102
|
|
Shares issued in connection with reinvestment of distributions
|
|
|
—
|
—
|
|
|
|
|
5,310
|
54,102
|
|
Shares repurchased
|
|
|
—
|
—
|
|
Net increase
|
|
|
5,310
|
$54,102
|
|
|
|
|
|
For the period 3/18/13 (commencement of
|
|
|
|
operations) to 7/31/13
|
|
Class M
|
|
|
Shares
|
Amount
|
|
Shares sold
|
|
|
975
|
$9,649
|
|
Shares issued in connection with reinvestment of distributions
|
|
|
—
|
—
|
|
|
|
|
975
|
9,649
|
|
Shares repurchased
|
|
|
—
|
—
|
|
Net increase
|
|
|
975
|
$9,649
|
|
|
|
|
|
For the period 3/18/13 (commencement of
|
|
|
|
operations) to 7/31/13
|
|
Class Y
|
|
|
Shares
|
Amount
|
|
Shares sold
|
|
|
2,537,685
|
$25,776,423
|
|
Shares issued in connection with reinvestment of distributions
|
|
|
—
|
—
|
|
|
|
|
2,537,685
|
25,776,423
|
|
Shares repurchased
|
|
|
(20,119)
|
(205,159)
|
|
Net increase
|
|
|
2,517,566
|
$25,571,264
|
|
At the close of the reporting period, Putnam Investments, LLC owned the following class shares of the fund:
|
|
|
|
|
Shares owned
|
Percentage of ownership
|
Value
|
|
Class A
|
296,000
|
80.82%
|
$3,051,760
|
|
Class B
|
1,000
|
13.33
|
10,280
|
|
Class C
|
1,000
|
15.85
|
10,280
|
|
Class M
|
1,000
|
50.63
|
10,290
|
|
Class Y
|
1,000
|
0.04
|
10,320
|
|
At the close of the reporting period two shareholders of record owned 35.2% and 12.4%, respectively, of the outstanding shares of the fund.
|
|
40
|
Low Volatility Equity Fund
|
Note 5: Initial capitalization and offering of shares
The fund was established as a series of the Trust on March 15, 2013 and commenced operations on March 18, 2013. Prior to March 18, 2013, the fund had no operations other than those related to organizational matters, including as noted below, the initial capital contributions by Putnam Investments, LLC and issuance of shares:
|
|
|
|
Capital contribution
|
Shares issued
|
|
Class A
|
$2,960,000
|
296,000
|
|
Class B
|
10,000
|
1,000
|
|
Class C
|
10,000
|
1,000
|
|
Class M
|
10,000
|
1,000
|
|
Class Y
|
10,000
|
1,000
|
|
Note 6: Transactions with affiliated issuer
Transactions during the reporting period with Putnam Short Term Investment Fund, which is under common ownership and control, were as follows:
|
|
|
|
|
|
|
Market value at
|
|
|
|
Market value
|
|
the beginning
|
|
|
|
at the end of
|
|
of the reporting
|
|
|
Investment
|
the reporting
|
Name of affiliate
|
period
|
Purchase cost
|
Sale proceeds
|
income
|
period
|
|
Putnam Short Term
|
|
|
|
|
|
Investment Fund*
|
$—
|
$25,002,853
|
$23,004,811
|
$224
|
$1,998,042
|
|
* Management fees charged to Putnam Short Term Investment Fund have been waived by Putnam Management.
Note 7: Market, credit and other risks
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
Note 8: Summary of derivative activity
The average volume of activity for the reporting period for any derivative type that was held during the period is listed below and was as follows:
|
|
Purchased equity option contracts (number of contracts)
|
110,000
|
|
Written equity option contracts (number of contracts)
|
110,000
|
|
OTC total return swap contracts (notional)
|
$940,000
|
|
The following is a summary of the market values of derivative instruments as of the close of the reporting period:
Market values of derivative instruments as of the close of the reporting period
|
|
|
|
|
|
Asset derivatives
|
Liability derivatives
|
|
Derivatives not
|
|
|
|
|
accounted for as
|
Statement of
|
|
Statement of
|
|
hedging instruments
|
assets and
|
|
assets and
|
|
under ASC 815
|
liabilities location
|
Market value
|
liabilities location
|
Market value
|
|
|
Investments,
|
|
|
|
Equity contracts
|
Receivables
|
$280,148
|
Payables
|
$9,686
|
|
Total
|
|
$280,148
|
|
$9,686
|
|
|
|
Low Volatility Equity Fund
|
41
|
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
|
|
|
|
Derivatives not accounted for as hedging
|
|
|
|
instruments under ASC 815
|
Options
|
Swaps
|
Total
|
|
Equity contracts
|
$(755,590)
|
49,974
|
$(705,616)
|
|
Total
|
$(755,590)
|
$49,974
|
$(705,616)
|
|
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
|
|
|
|
Derivatives not accounted for as hedging
|
|
|
|
instruments under ASC 815
|
Options
|
Swaps
|
Total
|
|
Equity contracts
|
$(175,813)
|
$59,535
|
$(116,278)
|
|
Total
|
$(175,813)
|
$59,535
|
$(116,278)
|
|
Note 9: Offsetting of financial and derivative assets and liabilities
|
|
|
|
|
Bank of
|
Deutsche
|
|
|
America N.A.
|
Bank AG
|
Total
|
|
Assets:
|
|
|
|
|
OTC Total return swap contracts*#
|
$—
|
$59,535
|
$59,535
|
|
Purchased equity options**#
|
220,613
|
—
|
220,613
|
|
Total Assets
|
$220,613
|
$59,535
|
$280,148
|
|
Liabilities:
|
|
|
|
|
Written equity options#
|
9,686
|
—
|
9,686
|
|
Total Liabilities
|
$9,686
|
$—
|
$9,686
|
|
Total Financial and Derivative Net Assets
|
$210,927
|
$59,535
|
$270,462
|
|
Total collateral received (pledged)##†
|
$210,927
|
$—
|
$210,927
|
|
Net amount
|
$—
|
$59,535
|
$59,535
|
|
* Excludes premiums. Included in unrealized appreciation and depreciation on OTC swap contracts on the Statement of assets and liabilities.
** Included with Investments in securities on the Statement of assets and liabilities
# Covered by master netting agreement.
## Any over-collateralization of total financial and derivative net assets is not shown.
† Additional collateral may be required from certain brokers based on individual agreements.
|
|
42
|
Low Volatility Equity Fund
|
Federal tax information (Unaudited)
The fund designated 72.65% of ordinary income distributions as qualifying for the dividends received deduction for corporations.
For the reporting period ended, the fund hereby designates 73.68%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
The Form 1099 that will be mailed to you in January 2014 will show the tax status of all distributions paid to your account in calendar 2013.
|
|
Low Volatility Equity Fund
|
43
|
About the Trustees
Independent Trustees
|
|
44
|
Low Volatility Equity Fund
|
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of July 31, 2013, there were 116 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 75, removal, or death.
|
|
Low Volatility Equity Fund
|
45
|
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
|
|
Jonathan S. Horwitz
(Born 1955)
|
Janet C. Smith
(Born 1965)
|
Executive Vice President, Principal Executive
|
Vice President, Principal Accounting Officer,
|
Officer, and Compliance Liaison
|
and Assistant Treasurer
|
Since 2004
|
Since 2007
|
|
Director of Fund Administration Services,
|
Steven D. Krichmar
(Born 1958)
|
Putnam Investments and Putnam Management
|
Vice President and Principal Financial Officer
|
|
Since 2002
|
Susan G. Malloy
(Born 1957)
|
Chief of Operations, Putnam Investments and
|
Vice President and Assistant Treasurer
|
Putnam Management
|
Since 2007
|
|
Director of Accounting & Control Services,
|
Robert T. Burns
(Born 1961)
|
Putnam Investments and Putnam Management
|
Vice President and Chief Legal Officer
|
|
Since 2011
|
James P. Pappas
(Born 1953)
|
General Counsel, Putnam Investments, Putnam
|
Vice President
|
Management, and Putnam Retail Management
|
Since 2004
|
|
Director of Trustee Relations,
|
Robert R. Leveille
(Born 1969)
|
Putnam Investments and Putnam Management
|
Vice President and Chief Compliance Officer
|
|
Since 2007
|
Mark C. Trenchard
(Born 1962)
|
Chief Compliance Officer, Putnam Investments,
|
Vice President and BSA Compliance Officer
|
Putnam Management, and Putnam Retail
|
Since 2002
|
Management
|
Director of Operational Compliance,
|
|
Putnam Investments and Putnam
|
Michael J. Higgins
(Born 1976)
|
Retail Management
|
Vice President, Treasurer, and Clerk
|
|
Since 2010
|
Nancy E. Florek
(Born 1957)
|
Manager of Finance, Dunkin’ Brands (2008–
|
Vice President, Director of Proxy Voting and
|
2010); Senior Financial Analyst, Old Mutual Asset
|
Corporate Governance, Assistant Clerk,
|
Management (2007–2008); Senior Financial
|
and Associate Treasurer
|
Analyst, Putnam Investments (1999–2007)
|
Since 2000
|
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
|
|
46
|
Low Volatility Equity Fund
|
The Putnam family of funds
The following is a list of Putnam’s open-end mutual funds offered to the public.
Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial advisor at 1-800-225-1581 and ask for a prospectus. Please read the prospectus carefully before investing.
|
|
Growth
|
International Value Fund
|
Growth Opportunities Fund
|
Multi-Cap Value Fund
|
International Growth Fund
|
Small Cap Value Fund
|
Multi-Cap Growth Fund
|
|
Small Cap Growth Fund
|
Income
|
Voyager Fund
|
American Government Income Fund
|
|
Diversified Income Trust
|
Blend
|
Emerging Markets Income Fund
|
Asia Pacific Equity Fund
|
Floating Rate Income Fund
|
Capital Opportunities Fund
|
Global Income Trust
|
Capital Spectrum Fund
|
High Yield Advantage Fund
|
Emerging Markets Equity Fund
|
High Yield Trust
|
Equity Spectrum Fund
|
Income Fund
|
Europe Equity Fund
|
Money Market Fund*
|
Global Equity Fund
|
Short Duration Income Fund
|
International Capital Opportunities Fund
|
U.S. Government Income Trust
|
International Equity Fund
|
|
Investors Fund
|
Tax-free income
|
Low Volatility Equity Fund
|
AMT-Free Municipal Fund
|
Multi-Cap Core Fund
|
Intermediate-Term Municipal Income Fund
|
Research Fund
|
Short-Term Municipal Income Fund
|
Strategic Volatility Equity Fund
|
Tax Exempt Income Fund
|
|
Tax Exempt Money Market Fund*
|
Value
|
Tax-Free High Yield Fund
|
Convertible Securities Fund
|
|
Equity Income Fund
|
State tax-free income funds:
|
George Putnam Balanced Fund
|
Arizona, California, Massachusetts, Michigan,
|
Global Dividend Fund
|
Minnesota, New Jersey, New York, Ohio,
|
The Putnam Fund for Growth and Income
|
and Pennsylvania.
|
*
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
|
|
Low Volatility Equity Fund
|
47
|
|
|
Absolute Return
|
Putnam RetirementReady
®
Funds
— portfolios
|
Absolute Return 100 Fund
®
|
with automatically adjusting allocations to
|
Absolute Return 300 Fund
®
|
stocks, bonds, and money market instruments,
|
Absolute Return 500 Fund
®
|
becoming more conservative over time.
|
Absolute Return 700 Fund
®
|
|
|
RetirementReady 2055 Fund
|
Global Sector
|
RetirementReady 2050 Fund
|
Global Consumer Fund
|
RetirementReady 2045 Fund
|
Global Energy Fund
|
RetirementReady 2040 Fund
|
Global Financials Fund
|
RetirementReady 2035 Fund
|
Global Health Care Fund
|
RetirementReady 2030 Fund
|
Global Industrials Fund
|
RetirementReady 2025 Fund
|
Global Natural Resources Fund
|
RetirementReady 2020 Fund
|
Global Sector Fund
|
RetirementReady 2015 Fund
|
Global Technology Fund
|
|
Global Telecommunications Fund
|
Putnam Retirement Income Lifestyle
|
Global Utilities Fund
|
Funds
— portfolios with managed
|
|
allocations to stocks, bonds, and money
|
Asset Allocation
|
market investments to generate
|
Putnam Global Asset Allocation Funds
—
|
retirement income.
|
portfolios with allocations to stocks, bonds,
|
|
and money market instruments that are
|
Retirement Income Fund Lifestyle 1
|
adjusted dynamically within specified ranges
|
Retirement Income Fund Lifestyle 2
|
as market conditions change.
|
Retirement Income Fund Lifestyle 3
|
|
|
Dynamic Asset Allocation Balanced Fund
|
|
Dynamic Asset Allocation
|
|
Conservative Fund
|
|
Dynamic Asset Allocation Growth Fund
|
|
Dynamic Risk Allocation Fund
|
|
Check your account balances and the most recent month-end performance in the Individual Investors section at putnam.com.
|
|
48
|
Low Volatility Equity Fund
|
Fund information
Founded over 75 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
|
|
|
Investment Manager
|
Trustees
|
Robert R. Leveille
|
Putnam Investment
|
Jameson A. Baxter,
Chair
|
Vice President and
|
Management, LLC
|
Liaquat Ahamed
|
Chief Compliance Officer
|
One Post Office Square
|
Ravi Akhoury
|
|
Boston, MA 02109
|
Barbara M. Baumann
|
Michael J. Higgins
|
|
Charles B. Curtis
|
Vice President, Treasurer,
|
Investment Sub-Manager
|
Robert J. Darretta
|
and Clerk
|
Putnam Investments Limited
|
Katinka Domotorffy
|
|
57–59 St James’s Street
|
John A. Hill
|
Janet C. Smith
|
London, England SW1A 1LD
|
Paul L. Joskow
|
Vice President,
|
|
Kenneth R. Leibler
|
Principal Accounting Officer,
|
Investment Sub-Advisor
|
Robert E. Patterson
|
and Assistant Treasurer
|
The Putnam Advisory
|
George Putnam, III
|
|
Company, LLC
|
Robert L. Reynolds
|
Susan G. Malloy
|
One Post Office Square
|
W. Thomas Stephens
|
Vice President and
|
Boston, MA 02109
|
|
Assistant Treasurer
|
|
Officers
|
|
Marketing Services
|
Robert L. Reynolds
|
James P. Pappas
|
Putnam Retail Management
|
President
|
Vice President
|
One Post Office Square
|
|
|
Boston, MA 02109
|
Jonathan S. Horwitz
|
Mark C. Trenchard
|
|
Executive Vice President,
|
Vice President and
|
Custodian
|
Principal Executive Officer, and
|
BSA Compliance Officer
|
State Street Bank
|
Compliance Liaison
|
|
and Trust Company
|
|
Nancy E. Florek
|
|
Steven D. Krichmar
|
Vice President, Director of
|
Legal Counsel
|
Vice President and
|
Proxy Voting and Corporate
|
Ropes & Gray LLP
|
Principal Financial Officer
|
Governance, Assistant Clerk,
|
|
|
and Associate Treasurer
|
Independent Registered
|
Robert T. Burns
|
|
Public Accounting Firm
|
Vice President and
|
|
KPMG LLP
|
Chief Legal Officer
|
|
This report is for the information of shareholders of Putnam Low Volatility Equity Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.