Putnam
International
Growth and
Income Fund
ANNUAL REPORT
June 30, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Putnam International Growth and Income Fund has delivered strong
competitive results, as evidenced by the rankings of international funds
tracked by Lipper Analytical Services. For the 1-year period ended June
30, 1998, the fund's class A shares ranked in the top 12% of Lipper's
international funds category, or 56 out of 480.*
* "So far, the fund's returns have been just as impressive as its
subdued risk."
-- Morningstar Mutual Funds, March 30, 1998
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
18 Financial statements
* Past performance is not indicative of future results. Lipper Analytical
Services is an industry research firm whose rankings are based on total
return performance, vary over time, and do not reflect the effects of
sales charges. The fund was not ranked over longer periods. Performance
of other share classes will vary.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
An emphasis on Europe's stock markets in recent months paid off for Putnam
International Growth and Income Fund, as your fund participated in the rise of
a number of those markets to historic heights. At the same time, the fund's
holdings in the still-troubled Asian and emerging markets took some of the
luster off Europe's performance.
With the keen-eyed vision of hindsight, it might be tempting to wish that the
fund had invested even more heavily in the former and less heavily elsewhere.
It is important, however, to keep in mind the benefits of both diversification
and maintaining a longer-term perspective. Diversification spreads the risks
because indeed we cannot know what the future holds. Perspective allows us to
see the future potential of opportunities that must be acted upon today. Your
fund's management team applied both principles during the fiscal year that
closed on June 30, 1998.
In the following report, the team discusses its strategies in greater detail
and then provides a look at prospects for the fiscal year just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
August 19, 1998
Report from the Fund Manager
George W. Stairs
The performance of international markets in the past year has been marked by
sharply contrasting results from one region to another. The financial crisis
that began in Southeast Asia last summer dragged down all Asian markets as
well as many other emerging markets and it worsened Japan's economic woes by
hurting its competitiveness and shrinking important export markets. Meanwhile,
European securities have delivered historic gains. Fortunately, in Putnam
International Growth and Income Fund, we decided to emphasize European
companies that were benefiting from restructuring and industry consolidation.
We are pleased to report a return of 19.56% at NAV (12.65% at public offering
price) for class A shares for the fund's fiscal year that ended June 30, 1998.
For complete performance information, including the returns of other shares
classes, please turn to the performance tables that begin on page 9.
* EUROPEAN STOCKS POST ROBUST RETURNS
European stock markets have surged to record highs in 1997 and 1998, thanks to
relatively low interest rates, improving corporate profitability, and strong
economic growth in continental Europe. Markets also cheered the May 1, 1998,
agreement to accept 11 nations into the European Economic and Monetary Union.
This union's new currency -- the euro -- will be introduced beginning in 1999
and is expected to promote greater trade and corporate competitiveness in
Europe.
These macroeconomic factors had a positive influence on the fund's
performance, though the primary focus of our research is on company-specific
circumstances. We buy attractively priced dividend-paying companies undergoing
positive change. We believe that the transition to a single currency will
encourage such change -- for example, consolidation in the banking and
industrial sectors in which the fund has large holdings. Economic expansion
provides substantial support to the industrial and financial stocks which are
overweight in the portfolio, and which typically are more sensitive to the
business cycle than growth stocks.
Merger activity has already boosted the prices of several Swiss bank stocks in
the portfolio. Switzerland's two largest banks -- UBS and SBC, both of which
were portfolio holdings -- completed their merger during the fiscal period as
UBS absorbed SBC. The combined entity should be able to realize gains by
reducing the redundancies in Swiss retail banking and by positioning itself as
a global asset manager. Another company in the portfolio, Julius Baer
Holdings, is also benefiting indirectly from the merger by winning the
accounts of the small number of former UBS-SBC clients who preferred to work
with a smaller company. As a midsize asset manager, Julius Baer has enjoyed a
huge upswing in business and its stock has performed exceptionally well.
Although these holdings, as well as others discussed in this report, were
viewed favorably at the end of the fiscal period, all are subject to review
and adjustment in accordance with the fund's investment strategy and may vary
in the future.
Because many of the fund's European holdings have had such rapid gains in the
past 12 months, we are monitoring their prices closely to make sure that they
still satisfy our value standards. In selective cases, we have decided to take
profits to preserve the fund's gains. For example, Allied Irish Banks, a
company that solidified its low-cost operations in Ireland and undertook a
strategic international expansion, met our price targets and we reduced our
position during the fiscal period.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banks 17.7%
Electronics and
electrical equipment 10.3%
Conglomerates 10.3%
Oil and gas 9.2%
Telephone services 5.9%
Footnote reads:
* Based on net assets as of 6/30/98. Holdings will vary over time.
* VIVENDI: CASE STUDY IN RESTRUCTURING
In our quest for "cheapness and change," we seek overseas corporations that
are following the U.S. model of focusing managerial strategies on improving
shareholder value. Through efforts such as restructuring, selling off
peripheral subsidiaries, and investing in their most profitable business
units, even large, long-established companies that expand slowly can improve
earnings and raise their stock prices.
A French company held by the fund, Vivendi, is a classic example of
restructuring. Formerly known as Generale des Eaux, the company capped its
makeover with a name change this year. Years ago, it was a water utility that
owned a variety of smaller companies. Under the leadership of Jean-Marie
Messier, who became chairman in 1995, the company has shed many of its
unrelated and less productive units. It has cut costs in its core water
business while expanding its presence in the growing telecommunications
industry. Since 1996, it has disposed of more than 60 billion francs worth of
assets, has reduced the number and variety of subsidiaries it owns, and has
cut its debt-to-equity ratio from 150% to just 50%. All of these moves have
enhanced shareholder value and the stock has responded positively. Vivendi is
now focused on two growing businesses: European media and telecommunication
services and water utilities around the globe.
* ASIA CONTINUES TO CAUSE CONCERN
The Asian financial crisis, which we discussed in the fund's semiannual
report, has continued to affect global markets. Most of Asia is now in
recession. Japan has been unable to serve as an engine of recovery because its
own economy has contracted in 1998. A weakening yen, huge bank loan losses,
and political inaction add to the uncertainty.
As the fiscal year came to an end, we had limited the portfolio's exposure to
Asia, focusing on corporations with global, rather than regional, operations.
Examples are Sony, Canon, and Fuji Photo in Japan and HSBC Holdings, a Hong
Kong bank. As value investors, however, we have looked for opportunities as
stock prices declined. In Japan, especially weak prices in late 1997 and early
1998 represented, in our opinion, a more reasonable pricing of risk in that
market. In that period, we decided to add to the fund's position in Nikko
Securities when its price declined to attractive levels. Nikko is Japan's
third largest brokerage house and meets our criteria for positive change. Its
new president is intent on delivering the shareholder value that we require,
as indicated by his decision to sell a 25% stake to Salomon Smith Barney in an
effort to employ U.S. business methods in Japan. In the first six months of
1998, the company's stock rose sharply. Late in the fiscal period, we also
added to our Hong Kong position. Although we remain aware of the risks in
Japan and the rest of Asia, we believe in the potential rewards of investments
in undervalued companies undertaking positive change.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Vivendi (France)
Utilities
UBS AG (Switzerland)
Banks
Nestle (Switzerland)
Food and beverages
Pharmacia & Upjohn ADS (Sweden)
Pharmaceuticals
Elf Aquitaine (France)
Oil and gas
Akzo-Nobel (Netherlands)
Chemicals
Philips Electronics (Netherlands)
Electronics and electrical equipment
B T R Ltd. PLC (United Kingdom)
Conglomerate
Ente Nazionale Idrocarburi (ENI) (Italy)
Oil and gas
B A T Industries PLC (United Kingdom)
Conglomerate
These holdings represent 22.0% of the fund's net assets as of 6/30/98.
Portfolio holdings will vary over time.
* VALUE STOCKS: LOWER-RISK STRATEGY FOR INTERNATIONAL INVESTING
International markets during the past 12 months have demonstrated many of the
risks and the benefits of international investing. We have seen dramatic
currency declines, economic contraction, and political instability while at
the same time we have experienced the benefits of recovery in Europe and
corporate restructuring globally. Our management team monitors the effects of
these conditions on companies and stock prices and attempts to seize
opportunities they present. We believe that the fund's performance in the
fiscal year has validated our emphasis on attractively priced, less volatile
value stocks and our flexibility to invest around the globe. Even in difficult
periods, this approach has demonstrated the ability to deliver gains with a
minimum of risk.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 6/30/98, there is no guarantee the fund will continue to hold
these securities in the future. International investing involves certain
risks, such as currency fluctuations, economic instability and political
developments, not present with domestic investments.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam International
Growth and Income Fund is designed for investors seeking long-term growth of
capital. Current income is a secondary objective.
TOTAL RETURN FOR PERIODS ENDED 6/30/98
Class A Class B Class M
(inception date) (8/1/96) (8/1/96) (8/1/96)
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------
1 year 19.56% 12.65% 18.68% 13.68% 18.95% 14.79%
- -------------------------------------------------------------------
Life of fund 51.52 42.82 49.29 45.29 50.09 44.82
Annual average 24.30 20.52 23.34 21.60 23.69 21.40
- -------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/98
MSCI EAFE Consumer
Index Price Index
- -------------------------------------------------------------------
1 year 6.10% 1.68%
- -------------------------------------------------------------------
Life of fund 23.32 3.82
Annual average 11.58 1.98
- -------------------------------------------------------------------
Past performance is no assurance of future results. Returns for class
A and class M shares reflect the current maximum initial sales charges
of 5.75% and 3.50% respectively. Class B share returns for the 1-year
and life-of-fund periods reflect the applicable contingent deferred
sales charge (CDSC), which is 5% in the first year, declines to 1% in
the sixth year, and is eliminated thereafter. All returns assume
reinvestment of distributions at net asset value. Investment return
and principal value will fluctuate so that an investor's shares when
redeemed may be worth more or less than their original cost. Performance
data reflect an expense limitation previously in effect. Without the
expense limitation, total returns would have been lower. Also,
performance data do not take into account any adjustments for taxes
payable on reinvested distributions.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of
a $10,000 investment since
8/1/96
Fund's class A MSCI EAFE Consumer Price
shares at POP Index Index
8/1/96 9,569 10,288 10,051
12/30/96 10,238 10,452 10,102
3/30/97 10,808 10,287 10,191
6/30/97 11,945 11,623 10,210
9/30/97 12,706 11,541 10,268
12/31/97 12,339 10,638 10,274
3/31/98 14,217 12,202 10,331
6/30/98 $14,282 $12,332 $10,382
Past performance is no assurance of 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 $14,929 ($14,529 with a redemption); a $10,000 investment in the
fund's class M shares would have been valued at $15,009 at net asset value
($14,482 at public offering price). See first page of performance section for
performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 6/30/98
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 4 1 3
- ------------------------------------------------------------------------
Income $0.165 $0.101 $0.112
- ------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------
Long-term 0.007 0.007 0.007
- ------------------------------------------------------------------------
Short-term 0.350 0.350 0.350
- ------------------------------------------------------------------------
Total $0.522 $0.458 $0.469
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
6/30/97 $10.76 $11.42 $10.72 $10.74 $11.13
- ------------------------------------------------------------------------
6/30/98 12.25 13.00 12.18 12.22 12.66
- ------------------------------------------------------------------------
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
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 5.75% maximum 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
The 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 indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities
in the fund do not match those in the index and performance of the fund
will differ. It is not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
To the Trustees and Shareholders of
Putnam International Growth and Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam
International Growth and Income Fund (the "fund") at June 30, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at June 30, 1998
by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 14, 1998
Portfolio of investments owned
June 30, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (96.6%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (0.8%)
- -------------------------------------------------------------------------------------------------------------
1,730,626 Rolls-Royce PLC (United Kingdom) $ 7,139,832
Airlines (1.8%)
- -------------------------------------------------------------------------------------------------------------
820,000 British Airways PLC (United Kingdom) 8,864,074
259,256 Deutsche Lufthansa AG 144A (Germany) 6,519,051
--------------
15,383,125
Automobiles (3.2%)
- -------------------------------------------------------------------------------------------------------------
264,000 Honda Motor Co., Ltd. (Japan) 9,373,676
192,520 Michelin Corp. Class B (France) 11,088,288
228,908 Volvo AB (Sweden) 6,802,509
--------------
27,264,473
Banks (17.7%)
- -------------------------------------------------------------------------------------------------------------
364,071 ABN AMRO Holding N.V. (Netherlands) 8,503,327
499,476 Allied Irish Banks PLC (Ireland) 7,198,118
553,013 Bank of Nova Scotia (Canada) 13,715,116
3,290,000 Dao Heng Bank Group Ltd. (Hong Kong) 4,671,787
2,526,975 Den Norske Bank A.S.A. (Norway) 13,259,939
112,899 Deutsche Bank AG (Germany) 9,531,611
1,614,300 Development Bank of Singapore Ltd. (Singapore) 8,957,688
144,796 ForeningsSparbanken AB (Sweden) 4,348,228
458,389 HSBC Holdings PLC (United Kingdom) 11,213,415
1,883 Julius Baer Holdings AG (Switzerland) 5,882,051
451,634 National Bank of Canada (Canada) 8,846,820
731,831 National Westminster Bank PLC (United Kingdom) 13,065,012
67,955 Societe Generale (France) 14,096,780
54,186 UBS AG (Switzerland) (NON) 20,119,235
1,545,000 Westpac Banking Corp. (Australia) 9,404,879
--------------
152,814,006
Broadcasting (0.7%)
- -------------------------------------------------------------------------------------------------------------
40,023 Television Francaise 1 (France) 6,188,885
Building and Construction (4.6%)
- -------------------------------------------------------------------------------------------------------------
1,846,355 Cemex, S.A. de C.V. (Mexico) 6,957,071
904,016 CRH PLC (Ireland) 12,801,507
3,276,000 Henderson Land Development Co. Ltd. (Hong Kong) 10,805,112
3,688,000 Pioneer International Ltd. (Australia) 8,774,858
--------------
39,338,548
Chemicals (5.2%)
- -------------------------------------------------------------------------------------------------------------
83,800 Akzo-Nobel N.V. (Netherlands) 18,593,896
305,954 Bayer AG (Germany) 15,809,739
3,062,783 Cookson Group PLC (United Kingdom) 10,517,026
--------------
44,920,661
Conglomerates (10.3%)
- -------------------------------------------------------------------------------------------------------------
1,755,754 B A T Industries PLC (United Kingdom) 17,559,998
6,379,205 BTR Ltd. PLC (United Kingdom) 18,076,945
643,087 Peninsular and Oriental Steam Navigation Co.
(United Kingdom) 9,251,028
37,774 Thyssen AG (Germany) 9,592,402
2,293,684 Tomkins PLC (United Kingdom) 12,435,419
101,686 Vivendi (France) 21,664,597
--------------
88,580,389
Consumer Products (2.4%)
- -------------------------------------------------------------------------------------------------------------
926,000 KAO Corp. (Japan) 14,243,077
626,000 Unilever PLC (United Kingdom) 6,657,399
--------------
20,900,476
Electric Utilities (5.3%)
- -------------------------------------------------------------------------------------------------------------
26,967 Electrabel S.A. (Belgium) 7,631,491
3,044,000 Hong Kong Electric Holdings Ltd. (Hong Kong) 9,430,840
262,277 Iberdrola S.A. (Spain) 4,256,193
325,300 Iberdrola II (Spain) (NON) 5,278,921
965,645 Scottish Power PLC (United Kingdom) 8,450,577
160,359 Veba AG (Germany) 10,766,011
--------------
45,814,033
Electronics and Electrical Equipment (10.3%)
- -------------------------------------------------------------------------------------------------------------
312,000 Canon, Inc. (Japan) 7,063,895
266,000 Fuji Photo Film Co. (Japan) 9,234,382
221,117 Philips Electronics N.V. (Netherlands) 18,552,996
814,000 Ricoh Co., Ltd. (Japan) (NON) 8,547,787
310,700 Siebe PLC (United Kingdom) 6,199,333
191,600 Sony Corp. (Japan) 16,456,690
197,794 STMicroelectronics (France) (NON) 13,987,083
286,000 Tokyo Electron Ltd. (Japan) 8,736,431
--------------
88,778,597
Financial Services (3.2%)
- -------------------------------------------------------------------------------------------------------------
3,463,000 Nikko Securities Co. Ltd. (Japan) 14,311,970
323,700 Promise Co., Ltd. (Japan) 13,284,887
--------------
27,596,857
Food and Beverages (4.5%)
- -------------------------------------------------------------------------------------------------------------
621,867 Bass PLC (United Kingdom) 11,640,907
218,619 Fomento Economico Mexicano, S.A. de C.V. (Mexico) 6,931,762
47,500 Fomento Economico Mexicano, S.A. de C.V. Class B (Mexico) 222,731
9,297 Nestle AG (Switzerland) 19,867,059
--------------
38,662,459
Insurance (3.0%)
- -------------------------------------------------------------------------------------------------------------
71,564 AGF (Assurances Generales de France) (France) 4,040,275
229,874 Internationale Nederlanden Groep (Netherlands) 15,024,149
102,339 Scor (France) 6,476,938
--------------
25,541,362
Metals and Mining (1.5%)
- -------------------------------------------------------------------------------------------------------------
1,158,591 Rio Tinto PLC (United Kingdom) 13,035,974
Oil and Gas (9.2%)
- -------------------------------------------------------------------------------------------------------------
898,178 British Petroleum Co. PLC (United Kingdom) 13,085,291
2,694,902 Ente Nazionale Idrocarburi SPA (ENI) (Italy) 17,632,088
899,055 Shell Transportation & Trading Co. (United Kingdom) 6,324,239
134,237 Elf Aquitaine S.A. (France) 18,830,176
112,748 Total Corp. S.A. Class B (France) 14,624,957
305,584 YPF S.A. ADR (Argentina) 9,186,619
--------------
79,683,370
Paper and Forest Products (2.0%)
- -------------------------------------------------------------------------------------------------------------
687,100 Abitibi-Consolodated Inc. (Canada) 8,871,394
339,861 Svenska Cellulosa AB Class B (Sweden) 8,781,444
--------------
17,652,838
Pharmaceuticals (4.1%)
- -------------------------------------------------------------------------------------------------------------
259,357 Glaxo Wellcome PLC (United Kingdom) 7,777,476
420,514 Pharmacia & Upjohn Inc. ADS (Sweden) 19,310,391
368,000 Sankyo Co., Ltd. (Japan) 8,358,223
--------------
35,446,090
Steel (0.9%)
- -------------------------------------------------------------------------------------------------------------
427,838 SKF AB Class B (Sweden) 7,762,326
Telephone Services (5.9%)
- -------------------------------------------------------------------------------------------------------------
410,354 Deutsche Telekom AG (Germany) (NON) 11,215,208
355,916 Hellenic Telecommunication Organization S.A. (Greece) 9,114,666
887,500 Mahanagar Telephone Nigam Ltd. (India) (NON) 9,301,000
77,362 Portugal Telecom S.A. (Portugal) 4,093,032
2,789,100 Telecom Corp. of New Zealand Ltd. (New Zealand) 7,933,165
1,233,657 Telecom Italia SPA (Italy) 9,065,734
--------------
50,722,805
--------------
Total Common Stocks (cost $742,056,852) $ 833,227,106
CONVERTIBLE PREFERRED STOCKS (0.6%) (a) (cost $4,975,625)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
100,700 St. George Bank Ltd. 144A $4.50 cv. pfd. (Australia) $ 4,833,600
SHORT-TERM INVESTMENTS (3.0%) (a) (cost $25,633,129)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$25,629,000 Interest in $511,687,000 joint repurchase agreement
dated June 30, 1998 with SBC Warburg
due July 1, 1998 with respect to various
U.S. Treasury obligations -- maturity value of $25,633,129
for an effective yield of 5.8% $ 25,633,129
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $772,665,606) (b) $ 863,693,835
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $862,897,555.
(b) The aggregate identified cost on a tax basis is $777,225,541, resulting in gross unrealized appreciation
and depreciation of $131,484,396 and $45,016,102, respectively, or net unrealized appreciation of
$86,468,294.
(NON) Non-income-producing security.
144A after the name of a security represents those exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR 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.
Diversification by Country
Distribution of investments by country of issue at June 30, 1998: (as percentage of market Value)
Argentina 1.1%
Australia 2.7
Canada 3.6
France 12.9
Germany 7.3
Greece 1.1
Hong Kong 2.9
India 1.1
Ireland 2.3
Italy 3.1
Japan 12.7
Mexico 1.6
Netherlands 7.0
Norway 1.5
Singapore 1.0
Spain 1.1
Sweden 5.4
Switzerland 5.3
United Kingdom 21.0
United States 3.0
Other 2.3
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at June 30, 1998
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $77,999,148 $76,135,268 9/14/98 $(1,863,880)
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
June 30, 1998
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $772,665,606) (Note 1) $863,693,835
- ---------------------------------------------------------------------------------------------------
Dividends and other receivables 3,086,902
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,546,646
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 8,471,537
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 498,551
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 56,778
- ---------------------------------------------------------------------------------------------------
Total assets 879,354,249
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 605,462
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 10,248,997
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,134,628
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,580,281
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 111,122
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,006
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,855
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 648,743
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 64,834
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 1,863,880
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 189,886
- ---------------------------------------------------------------------------------------------------
Total liabilities 16,456,694
- ---------------------------------------------------------------------------------------------------
Net assets $862,897,555
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $740,458,168
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 11,210,879
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 22,070,038
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 89,158,470
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $862,897,555
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($409,456,249 divided by 33,427,302 shares) $12.25
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $12.25)* $13.00
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($414,609,326 divided by 34,037,705 shares)** $12.18
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($38,831,980 divided by 3,177,949 shares) $12.22
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $12.22)* $12.66
- ---------------------------------------------------------------------------------------------------
* 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
Year ended June 30, 1998
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,085,226) $ 18,785,161
- --------------------------------------------------------------------------------------------------
Interest 1,868,189
- --------------------------------------------------------------------------------------------------
Total investment income 20,653,350
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,900,678
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,657,802
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 21,169
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,404
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 741,029
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,027,556
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 224,047
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 6,644
- --------------------------------------------------------------------------------------------------
Reports to shareholders 55,652
- --------------------------------------------------------------------------------------------------
Registration fees 130,679
- --------------------------------------------------------------------------------------------------
Auditing 35,751
- --------------------------------------------------------------------------------------------------
Legal 8,990
- --------------------------------------------------------------------------------------------------
Postage 73,031
- --------------------------------------------------------------------------------------------------
Other 81,451
- --------------------------------------------------------------------------------------------------
Total expenses 10,975,883
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (246,914)
- --------------------------------------------------------------------------------------------------
Net expenses 10,728,969
- --------------------------------------------------------------------------------------------------
Net investment income 9,924,381
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 33,114,783
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 4,363,999
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (2,689,693)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 65,242,251
- --------------------------------------------------------------------------------------------------
Net gain on investments 100,031,340
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $109,955,721
- --------------------------------------------------------------------------------------------------
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
Year ended of operations)
June 30 to June 30
1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 9,924,381 $ 1,695,612
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 37,478,782 11,272,068
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 62,552,558 26,605,912
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 109,955,721 39,573,592
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A (4,316,678) (416,988)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,639,976) (54,244)
- ----------------------------------------------------------------------------------------------------------------------
Class M (294,261) (18,125)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
- ----------------------------------------------------------------------------------------------------------------------
Class A (9,086,740) --
- ----------------------------------------------------------------------------------------------------------------------
Class B (9,331,399) --
- ----------------------------------------------------------------------------------------------------------------------
Class M (939,594) --
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 429,655,129 307,811,118
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 513,002,202 346,895,353
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year (Note 5) 349,895,353 3,000,000
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $11,210,879 and $4,165,273, respectively) $862,897,555 $349,895,353
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Year ended August 1, 1996+
Per-share operating performance June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $10.76 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .23(d) .15(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.78 2.13
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.01 2.28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.16) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.52) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.25 $10.76
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 19.56 26.73*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $409,456 $157,990
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.36 1.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.98 1.61*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 53.57 70.25*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $.0246 $.0302
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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 for the period includes amounts paid through expense
offset arrangements and brokerage service arrangements. (Note 2)
(c) Average commission rate paid on security trades.
(d) Per share net investment income has been determined on the basis of weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended August 1, 1996+
operating performance June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $10.72 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .14(d) .10(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.78 2.10
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.92 2.20
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.46) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.18 $10.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 18.68 25.80*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $414,609 $174,801
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 2.11 2.21*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.21 1.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 53.57 70.25*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $.0246 $.0302
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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 for the period includes amounts paid through expense
offset arrangements and brokerage service arrangements. (Note 2)
(c) Average commission rate paid on security trades.
(d) Per share net investment income has been determined on the basis of weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended August 1, 1996+
operating performance June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $10.74 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .16 (d) .12(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.79 2.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.95 2.23
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.11) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.22 $10.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 18.95 26.17*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $38,832 $17,105
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.86 1.98*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.40 1.19*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 53.57 70.25*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $.0246 $.0302
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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 for the period includes amounts paid through expense
offset arrangements and brokerage service arrangements. (Note 2)
(c) Average commission rate paid on security trades.
(d) Per share net investment income has been determined on the basis of weighted average
number of shares outstanding during the period.
</TABLE>
Notes to financial statements
June 30, 1998
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. 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 bid price. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. 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, and other assets and liabilities are recorded in the books and
records of the fund after translation to U.S. dollars based on the exchange
rates on that day. The cost of each security is determined using historical
exchange rates. Income and withholding taxes are translated at prevailing
exchange rates when accrued or incurred. The fund does not isolate that
portion of realized or unrealized gains or losses resulting from changes in
the foreign exchange rate on investments from fluctuations arising from
changes in the market prices of the securities. Such gains and losses are
included with the net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains or losses on closed forward currency contracts, disposition of
foreign currencies and the difference between the amount of investment income
and foreign withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
F) 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 current 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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the year ended ended June 30, 1998, the
fund had no borrowings against the line of credit.
H) Federal Taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences include treatment
of foreign currency gains and losses, organization costs, foreign taxes, and
unrealized gains and losses on passive foreign investment companies.
Reclassifications are made to the fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations.
For the year ended June 30, 1998, the fund reclassified $4,372,140 to increase
undistributed net investment income and $193 to increase paid-in-capital, with
a decrease to accumulated net realized gain on investments of $4,372,333. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
J) 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.
K) 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. 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.
As part of the subcustodian contract between the subcustodian bank and Putnam
Fiduciary Trust Company (PFTC), a subsidary of Putnam Investments, Inc. the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At June 30, 1998, the payable to the subcustodian bank represents the amount
due for cash advance for the settlement of a security purchased.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended June 30, 1998, fund expenses were reduced by $246,914 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.
Each Trustee of the fund receives an annual Trustee fee, of which $1,110 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted 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 currently limit payment by the fund to 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 year ended June 30, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $939,639 and $44,522 from the sale of
class A and class M shares, respectively and $399,986 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 year
ended June 30, 1998, Putnam Mutual Funds Corp., acting as underwriter received
$3,568 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended June 30, 1998, purchases and sales of investment
securities other than short-term investments aggregated $730,145,621 and
$319,934,114, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At June 30, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
June 30, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 31,905,061 $361,530,729
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,227,209 12,820,948
- ------------------------------------------------------------
33,132,270 374,351,677
Shares
repurchased (14,386,557) (162,552,408)
- ------------------------------------------------------------
Net increase 18,745,713 $211,799,269
- ------------------------------------------------------------
For the period
August 1, 1996
(commencement
of operations) to
June 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 20,872,053 $202,737,613
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 38,584 385,337
- ------------------------------------------------------------
20,910,637 203,122,950
Shares
repurchased (6,572,947) (66,331,720)
- ------------------------------------------------------------
Net increase 14,337,690 $136,791,230
- ------------------------------------------------------------
Year ended
June 30, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 20,487,944 $232,271,448
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,068,162 10,991,378
- ------------------------------------------------------------
21,556,106 243,262,826
Shares
repurchased (3,819,022) (43,140,234)
- ------------------------------------------------------------
Net increase 17,737,084 $200,122,592
- ------------------------------------------------------------
For the period
August 1, 1996
(commencement
of operations) to
June 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 17,252,796 $165,297,667
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,352 49,363
- ------------------------------------------------------------
17,258,148 165,347,030
Shares
repurchased (961,449) (9,446,786)
- ------------------------------------------------------------
Net increase 16,296,699 $155,900,244
- ------------------------------------------------------------
Year ended
June 30, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 2,322,501 $26,168,623
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 103,174 1,064,848
- ------------------------------------------------------------
2,425,675 27,233,471
Shares
repurchased (840,499) (9,500,203)
- ------------------------------------------------------------
Net increase 1,585,176 $17,733,268
- ------------------------------------------------------------
For the period
August 1, 1996
(commencement
of operations) to
June 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,700,518 $16,188,983
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,550 15,209
- ------------------------------------------------------------
1,702,068 16,204,192
Shares
repurchased (113,217) (1,084,548)
- ------------------------------------------------------------
Net increase 1,588,851 $15,119,644
- ------------------------------------------------------------
Note 5
Initial capitalization and offering of
shares
The fund was established as a Massachusetts business trust on January
22, 1996. During the period January 22, 1996 to 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.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $10,350,831 as capital gain, which includes $337,208
as 20% capital gain, for its taxable year ended June 30, 1998.
For the period, interest and dividends from foreign countries were
$16,284,856 or $.230 per share (for all share classes). Taxes paid to
foreign countries were $1,085,226 or $.015 per share (for all classes of
shares).
The fund has designated 0.45% of the distributions from net investment
income as qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
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
INDEPENDENT
ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Deborah F. Kuenstner
Vice President
George W. Stairs
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
44640-2CE/2CG/2CH 8/98
