Putnam
International
Growth and
Income Fund
SEMIANNUAL REPORT
December 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "The prospect for rising equity preference holds out the hope of a
fundamental shift in the financial structure of European economies
that should be very bullish for long-run economic performance."
-- The Bank Credit Analyst, January 1997
* "The lofty Dow may mean this is a good time to diversify.... A surge in
corporate profitability is making for lots of winners overseas."
-- Business Week, January 6, 1997
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
10 Portfolio holdings
14 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
U.S. investors are increasingly taking a "global village" approach to their
investment programs by including equities of companies from all over the
world. Many of these investors, seeking a relatively conservative vehicle for
participating abroad, have given Putnam International Growth and Income Fund
an enthusiastic greeting. I am pleased to report that in the five months
between the fund's introduction on August 1, 1996, and the close of its
abbreviated first semiannual period on December 31, 1996, it has delivered
encouraging results.
In pursuing the fund's objective of long-term growth of capital with some
current income from corporate dividends, Fund Manager Justin Scott seeks out
attractively valued stocks of efficient and competitive international
companies. Over the past few months, he believes he has found several
excellent examples for your fund's portfolio in the vibrant markets of Sweden,
France, Germany, and Hong Kong. I am sure you will find Justin's report on the
following pages interesting and informative.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
February 19, 1997
Report from the Fund Manager
Justin M. Scott
With this report, we are pleased to welcome you to Putnam International Growth
and Income Fund, which took advantage of vibrant stock markets and companies
abroad over its abbreviated semiannual period. Between August 1, 1996, and
December 31, 1996, your fund's class A shares gained 8.62% at net asset value
(NAV) and 2.38% at public offering price (POP). The results at NAV handily
outpaced the Morgan Stanley Capital International EAFE index, which rose 4.52%
over the same period. For performance of different class shares, please turn
to page 8 of this report.
* TARGETING LEADING, ATTRACTIVELY VALUED COMPANIES
Your fund takes a relatively conservative approach to international investing,
focusing on stocks of attractively valued foreign companies experiencing
positive changes. This strategy is designed to allow investors to pursue
long-term growth of capital and income while potentially limiting volatility.
We target large international companies that are experiencing improving
business conditions or that are taking steps to improve their profitability.
Putnam believes that most investment portfolios should have some international
exposure and that this fund's emphasis on foreign blue-chip companies is well
suited to the needs of conservative investors looking to diversify abroad.
* EUROPEAN MARKETS GENERALLY UPBEAT
Over its brief period of operation, your fund benefited from a strengthening
trend among many European companies. In order to attract equity capital and
satisfy existing shareholders, these already well-managed companies have made
enhancement of shareholder value a key strategic goal, streamlining their
operations and optimizing the business mix to place more emphasis on
profitability and return on capital. In many cases, these companies have been
well managed from an operational standpoint and have strong products, but they
have not necessarily been managed on behalf of shareholders. But the
broadening acceptance of these practices may bode well for many European
stocks -- much as similar reforms undertaken in the late 1980s helped to
underpin the recent U.S. equity rally.
Over this reporting period, some of the fund's strongest performers
exemplified Europe's embrace of the equity culture. BMW, the German automaker,
has been manufacturing superb performance automobiles for decades. It is now
matching this engineering excellence with a renewed focus on profitability and
return to shareholders. Bayer, a German pharmaceutical and chemical company,
is a successful, increasingly profitable shareholder-friendly firm with a
renewed emphasis on increasing returns from its high-quality businesses. Elf
Aquitaine, a French oil company now completely privatized, has implemented an
ambitious restructuring program. France's Total is another oil company in the
fund's portfolio experiencing positive change. While these stocks, along with
others discussed in this report, were viewed favorably at the end of the
fiscal period, all portfolio holdings are subject to review and adjustment in
accordance with the fund's investment strategy and may vary in the future.
The United Kingdom is the fund's largest allocation because we have found many
inexpensively priced stocks of companies experiencing positive changes. In
addition, these companies are supported by an attractive economic backdrop.
Significantly the ruling Conservative party has expressed skepticism about
participating in European Monetary Union (EMU). European Union countries that
plan to join EMU have had to cut back government spending and attack inflation
- -- dampening economic growth across the Continent. Not so in Britain, where
1996 brought a slew of good news for the economy, including falling
unemployment and positive retail sales. In the year ahead, we believe
Britain's economic growth will outpace that of the Continent.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: REGIONAL ALLOCATIONS]
REGIONAL ALLOCATIONS*
United Kingdom 16.5%
France 14.1%
Germany 12.1%
The Netherlands 9.6%
Japan 9.3%
Hong Kong 7.5%
Switzerland 7.2%
Sweden 5.7%
Footnote reads:
* Based on net assets as of 12/31/96. Allocations will vary over time.
Elsewhere in Europe, shares of ABN Amro, a Netherlands financial services
firm, were inexpensive, considering that the company has been carefully
expanding its banking operations, and has been establishing a retail presence
in the United States. Sweden's exceptionally robust stock market was one of
the strongest in Europe during 1996. Sweden's Pharmacia & Upjohn is
implementing far-reaching cost-cutting measures.
* STRENGTH IN HONG KONG IN SHARP CONTRAST TO JAPAN'S PROBLEMS
The Japan of the 1990s has frustrated many investors, with periodic bursts of
optimism often giving way to bad news. In spite of years of falling share
prices, we believe that a number of sectors of the Japanese stock market
remain overvalued. Nevertheless, we do consider some Japanese companies
attractive targets for investment, particularly multinationals with large
exports. Canon, for example, earns two thirds of its sales outside of Japan,
and its foray into the computer peripherals market has been profitable.
In marked contrast with Japan, an upbeat sentiment has recently prevailed in
Hong Kong. Most importantly, attitudes toward the hand-over of power to China
later this year are surprisingly positive. Indeed, investors are clamoring to
buy shares of Hong Kong companies with close ties to the booming mainland.
Stocks of many property companies have moved sharply higher, benefiting fund
holdings such as Cheung Kong, Sun Hung, and Amoy Properties. Financial
services companies have also turned in exceptional performance; for example,
fund holding HSBC (headquartered in the United Kingdom) continues to do well.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
BAT Industries (U.K.)
Tobacco
Bayer (Germany)
Pharmaceuticals and chemicals
BMW (Germany)
Automobiles
Canon (Japan)
Office equipment
Elf Aquitaine (France)
Oil, energy
Total (France)
Oil, energy
ABN Amro (The Netherlands)
Financial services
Pharmacia & Upjohn (Sweden)
Pharmaceuticals
HSBC Holdings (U.K.)
Financial services
Shell Trans. & Trading (U.K.)
Oil, energy
These holdings represent 21.2% of the fund's assets as of 12/31/96. Portfolio
holdings will vary over time.
* OUTLOOK: WESTERN EUROPE AN AREA OF FOCUS
We continue to find a number of attractively valued, competitive companies in
Europe, particularly in the United Kingdom, France, the Netherlands, and
Germany. In Japan, we see some opportunity in viable export-driven companies
that we believe have the potential to thrive despite the country's economic
difficulties, but we remain cautious regarding near-term prospects. Elsewhere
in Asia, many of Hong Kong's companies appear poised to continue its move
upward. Wherever we invest, we will employ all of Putnam's extensive global
research capabilities and investment management experience.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 12/31/96, there is no guarantee the fund will continue to hold
these securities in the future. International investing involves certain
risks, including currency fluctuations, political developments, and economic
instability.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam International Growth and Income Fund is designed for
investors seeking long-term total return. Current income is a secondary
objective.
This section provides, at a glance, information about your fund's performance.
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.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
(inception date) (8/1/96) (8/1/96) (8/1/96)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
Life of class 8.62% 2.38% 8.28% 3.28% 8.42% 4.62%
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/96
Consumer
MSCI EAFE Price Index
- ------------------------------------------------------------------------------
Life of class 4.52% 1.02%
- ------------------------------------------------------------------------------
Footnote reads:
Performance data represent past results, do not reflect future performance,
and will differ for each share class. They do not take into account any
adjustment for taxes payable on reinvested distributions. Performance data
reflect an expense limitation in effect. Without the limitation, total returns
would have been lower. Short-term results are not necessarily indicative of
long-term prospects. Investment returns and principal value will fluctuate so
that an investor's shares, when sold, may be worth more or less than their
original cost. POP assumes 5.75% maximum sales charge for class A shares and
3.50% for class M shares. CDSC for class B shares assumes the applicable sales
charge, with the maximum being 5%. Performance is for a short period and is
not indicative of future results.
PRICE AND DISTRIBUTION INFORMATION
period ended 12/31/96
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.015 $0.006 $0.008
- ------------------------------------------------------------------------------
Total $0.015 $0.006 $0.008
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
8/1/96 $8.53 $9.05 $8.53 $8.53 $8.84
(commencement
of operations)
- ------------------------------------------------------------------------------
12/31/96 9.25 9.81 9.23 9.24 9.58
- ------------------------------------------------------------------------------
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 5.75% sales charge for class A shares and 3.50%
for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Europe, Australia, and the Far East* (EAFE) component of the Morgan Stanley
Capital International World Index is an unmanaged list of international equity
securities, excluding U.S., with all values expressed in U.S. dollars.
Performance figures reflect changes in market prices and reinvestment of
distributions net of withholding taxes. Securities in the fund do not match
those in the index and performance of the fund will differ. It is not possible
to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
Portfolio of investments owned
December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (94.5%) *
NUMBER OF SHARES VALUE
Australia (2.3%)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
527,300 Goodman Fielder Ltd. ADR $ 653,546
224,000 Pioneer International Ltd. 667,380
153,500 Westpac Banking Corp. 873,203
--------------
2,194,129
Belgium (0.7%)
- ---------------------------------------------------------------------------------------------------------
2,180 Kredietbank, NV 714,439
Brazil (0.9%)
- ---------------------------------------------------------------------------------------------------------
11,400 Telebras Co. ADR 872,100
France (14.1%)
- ---------------------------------------------------------------------------------------------------------
16,300 Chargeurs International S.A. + 807,382
7,100 Compagnie Generale des Eaux 879,888
16,650 Credit Locale de France S.A. 1,450,477
20,200 Credit National 1,163,296
22,189 Lafarge S.A. 1,331,297
27,700 Michelin (CGDE) Class B 1,495,378
12,600 SGS-Thomson Micrelectronics + 891,240
7,700 Societe Generale de Paris 832,553
22,200 Societe Nationale Elf Aquitaine 2,020,827
27,900 Sommer Allibert 833,478
24,692 Total S.A. Class B 2,008,292
--------------
13,714,108
Germany (12.1%)
- ---------------------------------------------------------------------------------------------------------
1,450 Altana AG 1,127,621
54,285 Bayer AG ADR 2,212,982
2,944 Bayerische Motoren Werke (BMW) AG 2,050,576
1,590 Degussa A.G. 718,880
41,000 Deutsche Telekom AG + 863,648
40,700 Deutsche Telekom AG ADR + 829,263
4,900 Preussag AG 1,108,504
30,622 SKW Trostberg AG 831,098
4,800 Thyssen AG + 850,321
20,470 Veba AG 1,182,623
--------------
11,775,516
Hong Kong (7.5%)
- ---------------------------------------------------------------------------------------------------------
585,000 Amoy Properties Ltd. $ 843,386
83,000 Cheung Kong (Holdings) Ltd. 737,814
182,000 Dao Heng Bank Group Ltd. 873,054
156,000 Guoco Group Ltd. 873,390
322,000 Hong Kong Land Holdings Ltd. 895,160
696,000 JCG Holdings Ltd. 679,441
1,171,000 Oriental Press Group 526,148
62,000 Sun Hung Kai Properties Ltd. 759,568
117,000 Swire Pacific Ltd. Class A 1,115,690
--------------
7,303,651
Ireland (3.4%)
- ---------------------------------------------------------------------------------------------------------
245,600 Allied Irish Banks PLC 1,628,976
165,359 CRH PLC 1,706,703
--------------
3,335,679
Italy (1.3%)
- ---------------------------------------------------------------------------------------------------------
249,700 Ente Nazionale Idrocarburi SPA (ENI) 1,281,428
Japan (9.3%)
- ---------------------------------------------------------------------------------------------------------
92,000 Canon, Inc. 2,030,345
110,000 KAO Corp. 1,280,172
41,000 Sankyo Co., Ltd. 1,159,310
51,000 Santen Pharmaceutical 1,055,172
110,000 Seventy Seven Bank 900,862
58,000 Sharp Corp. 825,000
27,000 TDK Corp. 1,757,328
--------------
9,008,189
Netherlands (9.6%)
- ---------------------------------------------------------------------------------------------------------
30,862 ABN AMRO Holding N.V. 2,007,691
7,000 Akzo Nobel N.V. 956,129
50,200 Internationale Nederlanden Groep 1,807,177
21,018 K.L.M. Royal Dutch Airlines N.V. 591,200
38,007 Philips Electronics N.V. 1,539,814
5,120 Royal Dutch Petroleum Co. 897,585
21,200 Royal PTT ADR 808,589
16,100 Vendex International N.V. 688,616
--------------
9,296,801
Portugal (1.4%)
- ---------------------------------------------------------------------------------------------------------
48,000 Portugal Telecom S.A. 1,367,891
Singapore (0.4%)
- ---------------------------------------------------------------------------------------------------------
81,000 Far East Levingston Shipbuilding Ltd. 422,659
Spain (1.4%)
- ---------------------------------------------------------------------------------------------------------
30,600 Argentaria Corp. $ 1,369,375
Sweden (5.7%)
- ---------------------------------------------------------------------------------------------------------
10,175 Electrolux AB 589,122
48,546 Pharmacia & Upjohn ADS 1,983,860
52,484 Sandvik AB Class B 1,419,627
28,250 Skandia Forsakrings AB 797,171
35,500 Svenska Cellulosa AB Class B 718,876
--------------
5,508,656
Switzerland (7.2%)
- ---------------------------------------------------------------------------------------------------------
747 Julius Baer Holdings AG 781,537
12,470 Credit Suisse Group 1,278,617
356 Kuoni Reisen Holdings AG 862,789
1,666 Nestle S.A. 1,785,266
6,100 Publicitas Holding S.A. 1,046,234
2,200 Sulzer AG 1,268,158
--------------
7,022,601
United Kingdom (16.5%)
- ---------------------------------------------------------------------------------------------------------
292,600 B A T Industries PLC 2,427,012
121,200 British Petroleum Co. PLC 1,453,498
221,600 General Electric Co. 1,449,229
89,500 Glaxo Wellcome PLC 1,452,564
86,500 HSBC Holdings PLC 1,934,029
123,000 National Westminster Bank PLC 1,443,498
89,600 RTZ Corp. PLC 1,436,546
159,854 Scottish Power PLC 963,319
112,800 Shell Transportation & Trading Co. 1,953,344
62,400 Unilever PLC 1,513,230
--------------
16,026,269
United States (0.7%)
- ---------------------------------------------------------------------------------------------------------
32,800 New Holland N.V. + 684,700
--------------
Total Common Stocks (cost $87,895,635) $ 91,898,191
SHORT-TERM INVESTMENTS (5.1%) * (cost $4,998,937)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$ 4,998,000 Interest in $624,569,000 joint repurchase agreement
dated December 31, 1996 with SBC Warburg Inc.
due January 2, 1997 with respect to various
U.S. Treasury obligations-maturity value of $4,999,874
for an effective yield of 6.75% $ 4,998,937
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $92,894,572) *** $ 96,897,128
- ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $97,301,977.
*** The aggregate identified cost on a tax basis is $92,894,572, resulting in gross unrealized appreciation
and depreciation of $5,039,762 and $1,037,206, respectively, or net unrealized appreciation of $4,002,556.
+ Non-income-producing security.
ADR or ADS after the name of a foreign holding stands for American Depository Receipts or American
Depository Shares, respectively, representing ownership of foreign securities on deposit with a
domestic custodian bank.
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at December 31, 1996 (Unaudited)
(aggregate face value $17,801,127)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutschemarks $1,845,174 $1,891,085 5/12/97 $ 45,911
Dutch Guilders 3,353,730 3,379,481 5/12/97 25,751
French Franc 9,861,749 9,749,926 5/12/97 (111,823)
Japanese Yen 1,482,254 1,579,522 1/6/97 97,268
Swiss Franc 1,141,982 1,201,113 5/12/97 59,131
- ----------------------------------------------------------------------------------------
$ 116,238
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1996 (Unaudited)
<S> <C>
Assets
Investments in securities, at value
(identified cost $92,894,572) (Note 1) $ 96,897,128
- ---------------------------------------------------------------------------------------------------
Cash 15
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 67,410
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,499,171
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 727,876
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 274,086
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 64,728
- ---------------------------------------------------------------------------------------------------
Total assets 100,530,414
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 2,413,423
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 353,351
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 40,298
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 61,597
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 3,000
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 50
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 57,245
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 64,834
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 157,848
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 76,791
- ---------------------------------------------------------------------------------------------------
Total liabilities 3,228,437
- ---------------------------------------------------------------------------------------------------
Net Assets $ 97,301,977
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 93,173,680
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (177,160)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 185,473
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 4,119,984
- ---------------------------------------------------------------------------------------------------
Total - Representing net assets applicable to
capital shares outstanding $ 97,301,977
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($47,879,012 divided by 5,173,496 shares) $9.25
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $9.25)* $9.81
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($44,549,442 divided by 4,828,094 shares)** $9.23
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($4,873,523 divided by 527,552 shares) $9.24
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $9.24)* $9.58
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period August 1, 1996 (commencement of operations)
to December 31, 1996 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $13,604) $ 169,530
- --------------------------------------------------------------------------------------------------
Interest 70,667
- --------------------------------------------------------------------------------------------------
Total investment income 240,197
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 129,460
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 140,604
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 3,013
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 75
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 20,964
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 70,390
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 6,395
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 106
- --------------------------------------------------------------------------------------------------
Reports to shareholders 20,117
- --------------------------------------------------------------------------------------------------
Registration fees 28,354
- --------------------------------------------------------------------------------------------------
Auditing 14,611
- --------------------------------------------------------------------------------------------------
Legal 1,617
- --------------------------------------------------------------------------------------------------
Postage 20,054
- --------------------------------------------------------------------------------------------------
Other 593
- --------------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (124,446)
- --------------------------------------------------------------------------------------------------
Total expenses 331,907
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (18,077)
- --------------------------------------------------------------------------------------------------
Net expenses 313,830
- --------------------------------------------------------------------------------------------------
Net investment loss (73,633)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 181,220
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 4,253
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 117,428
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 4,002,556
- --------------------------------------------------------------------------------------------------
Net gain on investments 4,305,457
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $4,231,824
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
August 1, 1996
(commencement
of operations)
to December 31
1996*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss ($73,633)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 185,473
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 4,119,984
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,231,824
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (72,647)
- ----------------------------------------------------------------------------------------------------------------------
Class B (26,943)
- ----------------------------------------------------------------------------------------------------------------------
Class M (3,937)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 90,173,680
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 94,301,977
- ----------------------------------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 3,000,000
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $177,160) $ 97,301,977
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period For the period For the period
August 1, 1996 August 1, 1996 August 1, 1996
(commencement of (commencement of (commencement of
operations) to operations) to operations) to
December 31 December 31 December 31
(Unaudited) (Unaudited) (Unaudited)
------------------------------------------------------------
1996 1996 1996
------------------------------------------------------------
Class M Class B Class A
------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.53 $8.53 $8.53
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(d) (.02) (.03) --
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments .74 .74 .74
- ----------------------------------------------------------------------------------------------------------------------
Total from investment activities .72 .71 .74
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (.01) (.01) (.02)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.01) (.01) (.02)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.24 $9.23 $9.25
- ----------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 8.42* 8.28* 8.62*
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $4,874 $44,549 $47,879
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .91* 1.01* .72*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) (.27)* (.38)* (.03)*
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.10* 43.10* 43.10*
- ----------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $ .0337 $ .0337 $ .0337
- ----------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid
through brokerage service and expense offset arrangements. (Note 2)
(c) Average commission rate paid on security trades.
(d) Per share net investment income (loss) has been determined on the basis of the
weighted average number of shares outstanding during the period.
</TABLE>
Notes to financial statements
December 31, 1996 (Unaudited)
Note 1
Significant accounting policies
Putnam International Growth and Income Fund (the "fund") is a series of Putnam
Funds Trust (the "Trust") which is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The fund invests primarily in common stocks that offer potential for capital
growth and may invest in stocks that offer potential for current income.
The fund offers class A, class B and class M shares. The fund commenced
operations of class A, class B and class M shares on August 1, 1996. Class A
shares are sold with a maximum front-end sales charge of 5.75%. Class B
shares, which convert to class A shares after approximately eight years, do
not pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class M shares are
sold with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at fair market value, which is determined using the last
reported sale price, or, if no sales are reported--as is the case of some
securities traded over-the-counter--the last reported sale price. Market
quotations are not considered to be readily available for long term corporate
bonds and notes; such investments are stated at fair market value on the basis
of valuations furnished by a pricing service, approved by the Trustees.
Short-term investments having remaining maturities of 60 days or less are
stated at amortized cost, which approximates market value. All other
investments are stated at fair value following procedures approved by the
Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed).
Interest income is recorded on the accrual basis. Dividend income is recorded
on the ex-dividend date except that certain dividends from foreign securities
are recorded as soon as the fund is informed of the ex-dividend date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or losses
on closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized gains and losses on foreign currency
transactions arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the period end,
resulting from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is "marked to
market" daily and the change in market value is recorded as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The fund could be exposed to
risk if the value of the currency changes unfavorably, if the counterparties
to the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid
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. 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.
I) Expenses of the trust Expenses directly charged or attributable to any fund
will be paid from the assets of that fund. Generally, expenses of the trust
will be allocated among and charged to the assets of each fund on a basis that
the Trustees deem fair and equitable, which may be based on the relative
assets of each fund or the nature of the services performed and relative
applicability to each fund.
J) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering of
its shares were $64,834. These expenses are being amortized on projected net
asset levels over a five-year period. The fund will reimburse Putnam
Management for the payment of these expenses.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund for the
quarter. Such fee is based on the following annual rates: 0.80% of the first
$500 million of average net assets, 0.70% of the next $500 million, 0.65% of
the next $500 million, 0.60% of the next $5 billion, 0.575% of the next $5
billion, 0.555% of the next $5 billion, 0.54% of the next $5 billion and
0.53% thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through July 1, 1997, to the extent that
expenses of the fund (exclusive of brokerage, interest, taxes, deferred
organizational and extraordinary expense, credits from Putnam Fiduciary Trust
Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc., and
payments under the Trust's distribution plan) would exceed an annual rate of
1.45% of the fund's average net assets.
The fund reimburses Putnam Management 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.
Trustees of the fund receive an annual Trustees fee of $581 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "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 in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
"Compensation of Trustees" in the Statement of operations. Accrued pension
liability is included in "Payable for compensation of Trustees" in the
Statement of assets and liabilities.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the period ended December 31, 1996, fund expenses were reduced by $18,077
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B 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 Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments,
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees have approved payments by the fund at an annual rate of 0.25%, 1.00%
and 0.75% of the average net assets attributable to class A, class B and class
M shares, respectively.
For the period ended December 31, 1996, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $107,790 and $4,432 from the sale of
class A and class M shares, respectively and received $5,578 in contingent
deferred sales charges from redemptions of class B shares. A deferred sales
charge of up to 1% is assessed on certain redemptions of class A shares. For
the period ended December 31, 1996, Putnam Mutual Funds Corp., acting as
underwriter received no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the period ended December 31, 1996, purchases and sales of investment
securities other than short-term investments aggregated $101,883,218 and
$14,166,465, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At December 31, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period
August 1, 1996
(commencement
of operations)
to December 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 4,822,418 $42,789,478
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,179 65,259
- ------------------------------------------------------------
4,829,597 42,854,737
Shares
repurchased -- --
- ------------------------------------------------------------
Net increase 4,829,597 $42,854,737
- ------------------------------------------------------------
For the period
August 1, 1996
(commencement
of operations)
to December 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 4,821,474 $42,676,830
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,698 24,442
- ------------------------------------------------------------
4,824,172 42,701,272
Shares
repurchased -- --
- ------------------------------------------------------------
Net increase 4,824,172 $42,701,272
- ------------------------------------------------------------
For the period
August 1, 1996
(commencement
of operations)
to December 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 523,261 $4,614,328
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 369 3,343
- ------------------------------------------------------------
523,630 4,617,671
Shares
repurchased -- --
- ------------------------------------------------------------
Net increase 523,630 $4,617,671
- ------------------------------------------------------------
Note 5
Initial capitalization and
offering of shares
The Trust was established as a Massachusetts business trust on January
22, 1996. During the period January 22, 1996 to August 1, 1996 the fund had no
operations other than those related to organizational matters, including the
initial capital contributions of $33,334, $33,333, and $33,333 for class A,
class B and class M, respectively, and the issuance of 3,922 shares for each
class to Putnam Mutual Funds Corp. on July 2, 1996. On August 1, 1996, Putnam
Mutual Funds Corp. made a subsequent capital contribution of $2,900,000 to
class A and received 339,977 shares.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Tim Ferguson
Vice President
Brett C. Browchuk
Vice President
Anthony W. Regan
Vice President
Justin M. Scott
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam International
Growth and Income Fund. It may also be used as sales literature when preceded
or accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and the
most recent copy of Putnam's Quarterly Performance Summary. For more
information, or to request a prospectus, call toll free: 1-800-225-1581. You
can also learn more at Putnam Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
30806-2CE 2/97
