Dynamic Risk Asset Allocation: Annual Report - Putnam Investments

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Putnam Dynamic Risk Allocation FundA strategy forallocating risks ratherthan assetsTraditional balanced funds can be unbalanced in terms of risk. Instead of balancingstocks and bonds, Putnam Dynamic Risk Allocation Fund makes allocations acrossfour different risk sources — equity, credit, inflation, and interest rates. We believe thisflexible approach can produce better risk-adjusted returns for investors over time.A traditional balancedfund emphasizesequity riskIn a traditionally balancedportfolio — 60% stocksand 40% bonds — stocksdominate overall portfoliorisk, which can lead to anunbalanced risk profile.Traditional asset allocationFixedincome40%Stocks60%Asset weightContribution to riskStocks90%Fixed income10%Contribution to riskThe fund’s management team hasexperience in global allocationstrategies over several market cycles.Featuredfrom left to right:James A. Fetch(industry since 1994)Robert J. Kea, CFA(industry since 1988)Joshua B. Kutin, CFA(industry since 1998)Robert J. Schoen(industry since 1990)Jason R. Vaillancourt, CFA(industry since 1993)Diversification does not assure a profit or protect against loss. It is possible to lose money in a diversified portfolio.The fund is not intended to outperform stocks and bonds during strong market rallies.A risk allocationfund de-emphasizesequity riskPutnam DynamicRisk Allocation Funddiversifies its exposuresacross a wider range ofrisk sources, adjustingthese allocations basedon the portfolio managers’expectations forrisk-adjusted returns.46%16%Equity16%RatesInflationCreditContribution to riskIllustrations are hypothetical and are not intended to represent the current allocation of any Putnam fund. Atraditional balanced fund is represented by a 60%/40% split between equities and fixed income, as definedby Lipper. Risk contribution is from Putnam research, which uses the historical standard deviation for therespective asset classes multiplied by the appropriate asset weight. Leverage may be achieved either throughshort-term borrowing or through the use of derivatives. Asset weights may exceed 100% in funds that employleverage due to borrowed capital and/or derivatives exposure. Risk, as measured by standard deviation,gauges how widely a set of values varies from the mean. It is a historical measure of the variability of returnearned by an investment portfolio over a 3-year period. Asset weight for Putnam Dynamic Risk AllocationFund represents a baseline allocation selected by the fund’s portfolio managers and is subject to change. It isinclusive of leverage and represents a starting point for future active allocation.22%2 Dynamic Risk Allocation FundDynamic Risk Allocation Fund3
PerformancesnapshotAnnualized total return (%) comparison as of 5/31/14The fund — class A shares before sales chargePutnam Dynamic Risk Allocation Fund (PDREX)Fund’s benchmarkPutnam Dynamic Risk Allocation Blended Index*Fund’s Lipper peer group averageGlobal Flexible Portfolio Funds12.389.949.219.598.727.90LIFE OF FUND (since 9/19/11)Current performance may be lower or higher thanthe quoted past performance, which cannot guaranteefuture results. Share price, principal value,and return will fluctuate, and you may have a gainor a loss when you sell your shares. Performance ofclass A shares assumes reinvestment of distributionsand does not account for taxes. Fund returns in thebar chart do not reflect a sales charge of 5.75%; hadthey, returns would have been lower. See pages 5and 11–13 for additional performance information.For a portion of the periods, the fund had expense1 YEARlimitations, without which returns would havebeen lower. To obtain the most recent month-endperformance, visit putnam.com.* The Putnam Dynamic Risk Allocation Blended Indexis an unmanaged index administered by PutnamManagement, 50% of which is the MSCI World Index(ND), 40% of which is the Barclays Global AggregateBond Index, and 10% of which is the S&P GoldmanSachs Commodity Index. See index descriptions onpages 15–16.4 Dynamic Risk Allocation Fund
Page 1 and 2: PutnamDynamic RiskAllocation FundFU
Page 3: Message from the TrusteesDear Fello
Page 7 and 8: program late in 2013 and end it by
Page 9 and 10: In this shifting environment, where
Page 11 and 12: at the same rate as during the past
Page 13 and 14: Change in the value of a $10,000 in
Page 15 and 16: Expenses per $1,000The following ta
Page 17 and 18: S&P 500 Index is an unmanaged index
Page 19 and 20: Financial statementsThese sections
Page 21 and 22: The fund’s portfolio 5/31/14COMMO
Page 23 and 24: COMMON STOCKS (43.3%)* cont. Shares
Page 37 and 38: CORPORATE BONDS AND NOTES (17.6%)*
Page 51 and 52: U.S. TREASURY OBLIGATIONS (0.2%)* P
Page 53 and 54: PURCHASED OPTIONSOUTSTANDING (0.3%)
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S Security on loan, in part or in e
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FORWARD CURRENCY CONTRACTS at 5/31/
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FORWARD CURRENCY CONTRACTS at 5/31/
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OTC TOTAL RETURN SWAP CONTRACTS OUT
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OTC CREDIT DEFAULT CONTRACTS OUTSTA
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Statement of assets and liabilities
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Statement of operations Year ended
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Financial highlights (For a common
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Notes to financial statements 5/31/
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eceive all of the interest and prin
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OTC total return swap contracts out
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Federal taxes It is the policy of t
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The fund has adopted an unfunded no
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Year ended 5/31/14For the period 7/
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The following is a summary of the f
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Federal tax information (Unaudited)
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About the TrusteesIndependent Trust
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OfficersIn addition to Robert L. Re
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Absolute ReturnAbsolute Return 100
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A BALANCED APPROACHSince 1937, when
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