Putnam
International
Growth and
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
12-31-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund Highlights
* "[Putnam International Growth and Income Fund's] strategy has worked
well overall. . . . So far, this looks to be a good way to invest
overseas."
-- Morningstar Mutual Funds, September 8, 1998
* "The launch of the euro, which threatens to intensify regional
competition and to undermine pricing power, makes the need for firms to
improve their financial performance all the greater."
-- The Economist, November 21, 1998
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
18 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
In steering Putnam International Growth and Income Fund through the first
half of fiscal 1999, your fund's management team focused mainly beyond the
global equity environment that prevailed during the period. The managers
were seeking out stocks of solid companies whose prices had declined to
attractive levels following equity investors' rush to safety in the
financial crisis that erupted in Asia last year.
The managers were able to acquire a number of holdings they believe will
provide worthwhile capital appreciation when other investors come to
recognize the underlying value of these stocks. They discuss the fund's
"cheapness and change" strategy in detail in the following management
report.
I am pleased to announce the recent appointment of Deborah F. Kuenstner to
your fund's management team, where she joins George Stairs, who has been a
member of the team since 1997. Deborah, who came to Putnam in 1997, is
chief investment officer of the International Value Equity Group. She
previously held positions with DuPont Pension Fund Investment and Merrill
Lynch Securities Research and was an economist with the Federal Reserve
Bank of New York. She has 18 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
February 17, 1999
Report from the Fund Managers
Deborah F. Kuenstner
George W. Stairs
The first six months of Putnam International Growth and Income Fund's 1999
fiscal year, which began July 1, 1998, provided a clear lesson in the
effects of globalization. The fear that the slowdown in Asia, especially
the recession in Japan, could spread around the globe and reduce corporate
profits prompted investors throughout the world to sell stocks nearly
simultaneously. This sharp selloff was marked by an equally quick rebound.
By the end of the period, many international stocks were approaching their
previous high levels.
True to our assessments of them, many of the stocks we selected performed
well under these adverse conditions. Nevertheless, the fund did sustain a
modest loss with a total return of -3.55% at NAV (-9.11% at public
offering price) for the six months ended December 31, 1998, the first half
of its 1999 fiscal year. The loss stemmed in part from our decision to
partially hedge the fund's exposure to the Japanese yen because of that
country's economic weakness; when the yen rose instead, the fund did not
receive the full benefit of this appreciation. For complete performance
information, including the returns of all share classes, please turn to
the performance tables on page 9.
* FUND WEATHERS UNUSUAL GLOBAL STORMS
In the middle of July, many international stocks started on a downward
path, as global investors reacted to events in Japan and Russia. At the
time, the Japanese government appeared incapable of resolving the nation's
recession and banking crisis. It became clear that this paralysis had the
potential to weaken the yen and cause renewed instability in Asia.
Meanwhile, in Moscow, the government decided unilaterally to reschedule
its foreign debt, dealing a heavy blow to the confidence of global
investors. For much of July, August, and September, global stock markets
sank.
In retrospect, this sudden risk aversion appears to have been an
overreaction. Economic growth in Europe and the United States remained
positive throughout the period. Japan's government, though moving at a
snail's pace, began the process of reform; it has since closed two
insolvent banks and stimulated its economy with fiscal policy measures.
International investors began to consider these problems from a more
appropriate perspective -- Russia's economy, after all, is far too small
to influence the global economy -- and nerves were further calmed by
interest-rate cuts in a number of countries. As investors began to relax,
global markets rallied.
It is important to remember that although these general conditions affect
the performance of your fund, we are far more concerned with
company-specific issues than with short-term swings in investor sentiment.
As we have stated in previous reports, we analyze international companies
to identify those that are financially solid, generate strong cash flow,
are priced attractively, and are experiencing positive change that can
improve their long-term earnings prospects. We consider stocks with these
qualities of cheapness and change to be less volatile over time and
thereby to offer a relatively low-risk way to invest in international
stocks.
* VALUE STOCKS PERFORM WELL IN ROUGH MARKETS
Our search for stocks exhibiting cheapness and change leads us to many
unsung heroes, or stocks that we believe are misjudged by the market. When
other investors fail to recognize a company for its solid financial
condition or strong management capabilities, the stock can become
inexpensive and represent a great value investment opportunity. Here are a
few examples.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banks 14.0%
Telecommunications 12.5%
Electronics and
electrical equipment 11.8%
Food and beverages 7.4%
Oil and gas 6.5%
Footnote reads:
*Based on net assets as of 12/31/98. Holdings will vary over time.
During October, we purchased Swisscom AG in an initial public offering.
This company, which could be thought of as the AT&T of Switzerland, is
being privatized after years as a state-run utility, the sort of
investment opportunity that is available primarily in international
markets. Swisscom operates the traditional telephone service in
Switzerland, but its skillful executive management has also enabled it to
dominate the Swiss markets for cellular phones and computer data
networking. We acquired the stock for what we considered a compelling
discount and it had appreciated approximately 40% by the end of the
reporting period. Although this holding, as well as others mentioned in
this report, was 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.
Dao Heng Bank Group Ltd. is a midsize Hong Kong bank whose stock was hurt
unfairly, we believe, by the Asian crisis. It had no exposure to
commercial lending, which might have put it at risk. Instead, it boasts a
nicely growing business of domestic consumer credit services. We added to
the fund's existing stake in Dao Heng during the summer, when general
pessimism regarding Asia depressed the stock price even further. Since
then, it has risen substantially and we sold it at a profit. Another Asian
stock, one that exemplifies our expertise in identifying companies making
the right kinds of internal change, is Kirin Brewery. While the Japanese
stock market declined 17% over the semiannual period, Kirin's stock
appreciated 12%, bucking the trend, because of positive changes in its
operations and product line. A new president restructured the company by
closing older and smaller plants and trimming the work force, while a new
marketing team introduced a line of low-malt beer that has quickly grown
popular with Japanese consumers.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Philips Electronics (Netherlands)
Electronics and electrical equipment
Akzo-Nobel NV (Netherlands)
Chemicals
Telecom Italia SpA (Italy)
Telecommunications
Pharmacia & Upjohn (Sweden)
Pharmaceuticals and biotechnology
CRH PLC (Ireland)
Building and construction
Elf Aquitaine (France)
Oil and gas
ENI SpA (Italy)
Oil and gas
STMicroelectronics (France)
Semiconductors
Hoechst AG (Germany)
Chemicals
Promise Co. (Japan)
Financial services
Footnote reads:
These holdings represent 22.2% of the fund's net assets as of 12/31/98.
Portfolio holdings will vary over time.
Of course, portfolio management also involves making the correct sell
decisions. During the period, we decided to sell the fund's stake in
Total, a French oil company. We believed that the company's recent
decisions about acquisitions would not lead to the sort of earnings
improvement that we had anticipated.
* EURO CURRENCY TO BENEFIT MULTINATIONALS
After much preparation and fanfare, the euro debuted on January 1, 1999.
This new currency unites 11 European Union nations into one monetary bloc,
thereby eliminating fluctuations in exchange rates among those countries.
We view this as a positive event for the European economy and for the type
of companies that we buy for this fund. Since most of our holdings are
large companies with multinational operations, the elimination of currency
conversions should help them reduce costs. The euro is also likely to
increase the pace of industry consolidation and should allow large
companies that have operations in the 11 euro countries to take advantage
of their size, financial strength, and operational excellence. In general,
we invest in companies whose strategic goals seek to achieve greater
efficiencies: these goals are aligned with the sort of change that
Europe's Economic and Monetary Union is striving to promote.
* FUND POSITIONED FOR MODERATE GROWTH CLIMATE
As the fund enters the second half of its fiscal year, we believe that its
holdings, chosen for their long-term prospects, are also well positioned
for events on the immediate investment horizon. In comparison with
previous years, the fund has less emphasis on companies whose earnings are
heavily influenced by the economic cycle or by commodity prices. Although
economic growth is likely to continue, we anticipate better performance
from companies focused on internal changes that have sufficient cash flow
to finance their strategies. At this time, Europe is the most fertile area
for this type of company. Although the fund has relatively few Japanese
holdings, the low level of stock prices in Japan relative to the rest of
the world is presenting some value opportunities. We believe our
insistence on value in the stocks we purchase helps to offset the numerous
risks of international investing while still providing the fund exposure
to companies around the world that lead their industries in undertaking
positive change.
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 12/31/98, 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.
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 12/31/98
Class A Class B Class M
(inception date) (8/1/96) (8/1/96) (8/1/96)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months -3.55% -9.11% -3.88% -8.40% -3.82% -7.16%
- ------------------------------------------------------------------------------
1 year 11.64 5.20 10.76 5.76 11.01 7.16
- ------------------------------------------------------------------------------
Life of fund 46.15 37.75 43.50 40.50 44.36 39.29
Annual average 17.05 14.21 16.17 15.15 16.46 14.74
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/98
MSCI EAFE Consumer
Index Price Index
- ------------------------------------------------------------------------------
6 months 3.51% 0.74%
- ------------------------------------------------------------------------------
1 year 20.00 1.80
- ------------------------------------------------------------------------------
Life of fund 27.65 4.59
Annual average 10.62 1.87
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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
NAV. Investment return and principal value will fluctuate so that an
investor's shares when redeemed may be worth more or less than their
original cost. 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 12/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 4 1 2
- ------------------------------------------------------------------------------
Income $0.248 $0.183 $0.191
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.318 0.318 0.318
- ------------------------------------------------------------------------------
Short-term 0.178 0.178 0.178
- ------------------------------------------------------------------------------
Total $0.744 $0.679 $0.687
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
6/30/98 $12.25 $13.00 $12.18 $12.22 $12.66
- ------------------------------------------------------------------------------
12/31/98 11.08 11.76 11.01 11.05 11.45
- ------------------------------------------------------------------------------
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 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
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.
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<TABLE>
<CAPTION>
Portfolio of investments owned
December 31, 1998 (Unaudited)
COMMON STOCKS (94.9%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Apparel (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,740 Christian Dior (France) $ 302,990
17,550 Gucci Group (Netherlands) 831,045
--------------
1,134,035
Automobiles (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
321,000 Honda Motor Co., Ltd. (Japan) 10,522,266
205,215 Michelin Corp. Class B, (France) 8,206,838
306,727 Volvo AB (Sweden) 7,026,013
--------------
25,755,117
Banks (14.0%)
- --------------------------------------------------------------------------------------------------------------------------
168,280 ABN Amro Holdings N.V. (Netherlands) 3,536,611
731,154 Bank of Nova Scotia (Canada) 16,123,128
1,686,432 Den Norske Bank A.S.A. (Norway) 5,812,996
110,808 Deutsche Bank AG (Germany) 6,524,184
1,187,300 Development Bank of Singapore Ltd. (Singapore) 10,724,929
174,688 ForeningsSparbanken AB (Sweden) 4,517,793
590,189 HSBC Holdings PLC (United Kingdom) 14,704,061
3,579 Julius Baer Holdings AG (Switzerland) 11,895,257
631,284 National Bank of Canada (Canada) 10,229,234
574,851 National Westminster Bancorp Inc. (United Kingdom) 11,043,798
57,683 Societe Generale (France) 9,340,833
45,710 UBS AG (Switzerland) 14,044,135
--------------
118,496,959
Broadcasting (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
12,463 Television Francaise I (France) 2,218,885
Building and Construction (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,095,847 Cemex, S.A. de C.V. (Mexico) 4,519,832
1,061,959 CRH PLC (Ireland) 18,317,943
4,368,600 Pioneer International Ltd. (Australia) 9,216,326
--------------
32,054,101
Chemicals (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
443,461 Akzo-Nobel N.V. (Netherlands) 20,173,406
154,210 Bayer AG ADR (Germany) (NON) 6,440,464
412,863 Hoechst AG (Germany) 17,131,348
--------------
43,745,218
Conglomerates (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
6,159,398 BTR PLC (United Kingdom) 12,660,174
500,461 SKF AB Class B, (Sweden) 5,824,331
23,107 Suez Lyonnaise Eaux Finance (France) (NON) 4,746,513
2,784,467 Tomkins PLC (United Kingdom) 13,085,035
62,166 Vivendi (France) 16,129,100
--------------
52,445,153
Consumer Products (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
456,405 BAT PLC (United Kingdom) (NON) 3,998,298
454,908 Unilever Group (United Kingdom) 5,082,334
--------------
9,080,632
Electric Utilities (5.5%)
- --------------------------------------------------------------------------------------------------------------------------
21,348 Electrabel S.A. (Belgium) 9,369,410
419,702 Iberdrola S.A. (Spain) (NON) 7,852,222
325,300 Iberdrola S.A. II (Spain) (NON) 6,086,051
748,647 Scottish Power PLC (United Kingdom) 7,662,911
264,888 Veba (Vereinigte Elektrizitaets Bergwerks)
AG (Germany) 15,858,604
--------------
46,829,198
Electronics and Electrical Equipment (11.8%)
- --------------------------------------------------------------------------------------------------------------------------
277,000 Canon, Inc. (Japan) 5,910,539
4,134,335 Cookson Group PLC (United Kingdom) 8,977,527
230,000 Fuji Photo Film Co. (Japan) 8,535,074
335,384 Philips Electronics N.V. (Netherlands) 22,483,844
902,000 Ricoh Co., Ltd. (Japan) 8,304,326
3,610,021 Siebe PLC (United Kingdom) 14,182,011
196,300 Sony Corp. (Japan) 14,274,151
223,677 STMicroelectronics (France) 17,610,156
--------------
100,277,628
Financial Services (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,775,000 Nikko Securities Co. Ltd. (Japan) 16,072,843
323,700 Promise Co., Ltd. (Japan) 16,817,064
--------------
32,889,907
Food and Beverages (7.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,084,573 Bass PLC (United Kingdom) 15,730,647
218,500 Diageo PLC (United Kingdom) 2,477,350
4,614,591 Fomento Economico Mexicano, S.A. de C.V. (Mexico) 12,585,248
22,469 Groupe Danone (France) 6,432,695
963,000 Kirin Brewery Co. Ltd. (Japan) 12,252,337
3,224 Nestle S.A. (Switzerland) 7,018,391
525,839 Scottish & Newcastle PLC (United Kingdom) 6,083,982
--------------
62,580,650
Insurance (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
86,152 AGF (Assurances Generales de France) (France) 5,145,658
877,877 Allied Zurich AG (United Kingdom) (NON) 13,045,589
274,635 Internationale Nederlanden Groep (Netherlands) 16,730,890
3,318,788 Istituto Nazionale delle Assicurazioni (Italy) 8,772,306
64,540 SCOR (France) 4,267,098
--------------
47,961,541
Oil and Gas (6.5%)
- --------------------------------------------------------------------------------------------------------------------------
667,149 British Petroleum Co. PLC (United Kingdom) 9,925,151
153,742 Elf Aquitaine S.A. (France) (NON) 17,771,098
2,708,834 Ente Nazionale Idrocarburi (ENI) SpA (Italy) (NON) 17,715,612
355,592 YPF S.A. ADR (Argentina) 9,934,352
--------------
55,346,213
Paper (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,027,252 Abitibi-Consolidated, Inc. (Canada) 9,530,858
363,052 Svenska Cellulosa AB Class B (Sweden) 7,913,818
--------------
17,444,676
Pharmaceuticals and Biotechnology (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,173 Novartis AG ADR (Switzerland) 4,271,642
352,230 Pharmacia & Upjohn, Inc. (Sweden) 19,693,648
368,000 Sankyo Co., Ltd. (Japan) 8,031,098
178,000 Yamanouchi Pharmaceutical Co., Ltd. (Japan) 5,724,684
--------------
37,721,072
Steel (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
141,856 Pohang Iron & Steel Company, Ltd. ADR
(South Korea) 2,393,820
Telecommunications (12.5%)
- --------------------------------------------------------------------------------------------------------------------------
527,800 Cable & Wireless Optus Ltd. 144A (Australia) (NON) 1,107,031
410,354 Deutsche Telekom AG (Germany) (NON) 13,503,512
355,952 Hellenic Telecommunication Organization
S.A. (Greece) 9,465,804
913,900 Mahanager Telephone GDR 144A (India) 11,314,082
1,406 Nippon Telegraph and Telephone Corp. (Japan) 10,832,581
198,933 Portugal Telecom S.A. (Portugal) 9,107,251
31,528 Swisscom AG (Switzerland) 13,198,835
1,011,100 Telecom Corp. of New Zealand Ltd. (New Zealand) 4,385,166
1,979,077 Telecom Corp. of New Zealand Ltd. (partly paid shares)
(New Zealand) 4,317,663
2,330,337 Telecom Italia SpA (Italy) 19,897,012
188,408 Telfonica de Espana (Spain) 8,377,525
188,408 Telfonica de Espana (Rights) (Spain) (NON) 167,285
--------------
105,673,747
Transportation (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
645,628 British Airways PLC (United Kingdom) 4,336,957
367,744 Peninsular and Oriental Steam Navigation Co.
(United Kingdom) 4,331,012
--------------
$ 8,667,969
--------------
Total Common Stocks (cost $744,116,390) $ 802,716,521
CONVERTIBLE PREFERRED STOCKS (0.6%) (a) (cost $4,855,625)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
98,300 St George Bank Ltd. 144A $4.50 cv. pfd. (Australia) $ 4,706,113
SHORT-TERM INVESTMENTS (5.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$4,367,000 Delaware Funding Corp. effective yield of 5.73%,
January 20, 1999 $ 4,353,099
15,000,000 Metlife Funding effective yield of 5.35%,
January 29, 1999 14,934,479
712,000 U.S. Treasury Bill due March 4, 1999 (SEG) 706,690
30,118,000 Interest in $750,000,000 tri-party repurchase agreement
dated December 31, 1998 with Goldman Sachs & Co.
due January 4, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $30,133,728 for an
effective yield of 4.7% 30,121,932
--------------
Total Short-Term Investments (cost $50,116,200) $ 50,116,200
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $799,088,215) (b) $ 857,538,834
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $846,156,478.
(b) The aggregate identified cost on a tax basis is $803,648,150, resulting in gross unrealized appreciation and
depreciation of $114,024,221 and $60,133,537, respectively, or net unrealized appreciation of $53,890,684.
(NON) Non-income-producing security.
(SEG) This security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at December 31, 1998.
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 GDR or after the name of a foreign holding stands for American Depository Receipts or Global Depository
Receipts, respectively, representing ownership of foreign securities on deposit with a domestic custodian bank.
Diversification by Country
Distribution of investments by country of issue at December 31, 1998: (as percentage of Market Value)
Argentina 1.2% Mexico 2.0%
Australia 1.7 Netherlands 7.4
Belgium 1.1 New Zealand 1.0
Canada 4.2 Portugal 1.1
France 10.8 Singapore 1.3
Germany 6.9 Spain 2.6
Greece 1.1 Sweden 5.2
India 1.3 Switzerland 5.9
Ireland 2.1 United Kingdom 17.2
Italy 5.4 Other 1.0
Japan 13.7 United States 5.8
----
Total 100.0%
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at December 31, 1998 (Unaudited)
(aggregate face value $7,316,816)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
French Franc $3,322,576 $3,338,192 1/29/99 $(15,616)
Japanese Yen 4,259,895 3,978,624 3/17/99 281,271
- -------------------------------------------------------------------------------
$265,655
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at December 31, 1998 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- -------------------------------------------------------------------------------
CAC40 Index (Long) $3,549,646 $3,392,626 Jan-99 $157,020
Topix Index (Long) 3,992,932 3,918,393 Mar-99 74,539
- -------------------------------------------------------------------------------
$231,559
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $799,088,215) (Note 1) $857,538,834
- -----------------------------------------------------------------------------------------------
Cash 35,970
- -----------------------------------------------------------------------------------------------
Dividends and other receivables 1,532,063
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,192,103
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 927,175
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 281,271
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 94,410
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 463,559
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 49,042
- -----------------------------------------------------------------------------------------------
Total assets 862,114,427
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,641
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 1,802,849
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,599,858
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,520,592
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 205,711
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 11,124
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,863
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 637,443
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 15,616
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 8,999,262
- -----------------------------------------------------------------------------------------------
Other accrued expenses 160,990
- -----------------------------------------------------------------------------------------------
Total liabilities 15,957,949
- -----------------------------------------------------------------------------------------------
Net assets $846,156,478
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $807,532,249
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,526,473)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (17,510,680)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 59,661,382
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $846,156,478
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($405,958,555 divided by 36,628,755 shares) $11.08
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $11.08)* $11.76
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($404,317,314 divided by 36,726,356 shares)** $11.01
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($35,880,609 divided by 3,245,739 shares) $11.05
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $11.05)* $11.45
- -----------------------------------------------------------------------------------------------
* 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
Six months ended December 31, 1998 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $496,118) $ 5,630,442
- -----------------------------------------------------------------------------------------------
Interest 1,065,566
- -----------------------------------------------------------------------------------------------
Total investment income 6,696,008
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,093,551
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 990,425
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 17,234
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,742
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 486,333
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,949,248
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 132,627
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 7,736
- -----------------------------------------------------------------------------------------------
Reports to shareholders 33,167
- -----------------------------------------------------------------------------------------------
Registration fees 18,176
- -----------------------------------------------------------------------------------------------
Auditing 25,643
- -----------------------------------------------------------------------------------------------
Legal 2,994
- -----------------------------------------------------------------------------------------------
Postage 117,426
- -----------------------------------------------------------------------------------------------
Other 103,639
- -----------------------------------------------------------------------------------------------
Total expenses 6,983,941
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (40,902)
- -----------------------------------------------------------------------------------------------
Net expenses 6,943,039
- -----------------------------------------------------------------------------------------------
Net investment loss (247,031)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 8,560,724
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (434,159)
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (11,767,129)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 2,848,963
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (32,346,051)
- -----------------------------------------------------------------------------------------------
Net loss on investments (33,137,652)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(33,384,683)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
December 31 June 30
1998* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (247,031) $ 9,924,381
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (3,640,564) 37,478,782
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and
liabilities in foreign currencies (29,497,088) 62,552,558
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (33,384,683) 109,955,721
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (7,569,224) (4,316,678)
- ---------------------------------------------------------------------------------------------------------------
Class B (6,340,200) (2,639,976)
- ---------------------------------------------------------------------------------------------------------------
Class M (580,897) (294,261)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (17,231,317) (9,086,740)
- ---------------------------------------------------------------------------------------------------------------
Class B (17,184,366) (9,331,399)
- ---------------------------------------------------------------------------------------------------------------
Class M (1,524,471) (939,594)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 67,074,081 429,655,129
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (16,741,077) 513,002,202
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 862,897,555 349,895,353
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed net
investment income of $3,526,473 and
$11,210,879, respectively) $846,156,478 $862,897,555
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 Year ended August 1, 1996+
operating performance (Unaudited) June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $12.25 $10.76 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .02 .23 .15
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.45) 1.78 2.13
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.43) 2.01 2.28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.16) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.50) (.36) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.74) (.52) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.08 $12.25 $10.76
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) (3.55)* 19.56 26.73*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $405,959 $409,456 $157,990
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .67* 1.36 1.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .16* 1.98 1.61*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 36.11* 53.57 70.25*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 Year ended August 1, 1996+
operating performance (Unaudited) June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $12.18 $10.72 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) (.02) .14 .10
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.47) 1.78 2.10
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.49) 1.92 2.20
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.10) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.50) (.36) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.68) (.46) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.01 $12.18 $10.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) (3.88)* 18.68 25.80*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $404,317 $414,609 $174,801
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.05* 2.11 2.21*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.21)* 1.21 1.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 36.11* 53.57 70.25*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 Year ended August 1, 1996+
operating performance (Unaudited) June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $12.22 $10.74 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) (.01) .16 .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.47) 1.79 2.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.48) 1.95 2.23
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.11) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.50) (.36) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.69) (.47) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.05 $12.22 $10.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) (3.82)* 18.95 26.17*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $35,881 $38,832 $17,105
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .92* 1.86 1.98*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.09)* 1.40 1.19*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 36.11* 53.57 70.25*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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
December 31, 1998 (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. 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). 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 realized 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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. 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. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
H) 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 six months
ended December 31, 1998, the fund had no borrowings against the line of
credit.
I) 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.
J) 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.
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.
K) 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.
L) 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.
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 by
Putnam Fiduciary Trust Company (PFTC), a subsidiary 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 December 31, 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 six months ended December 31, 1998, fund expenses were reduced by
$40,902 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 $1,300
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 have approved 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 six months ended December 31, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $208,761 and $7,109 from
the sale of class A and class M shares, respectively and $301,188 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 six months ended December 31, 1998, Putnam Mutual
Funds Corp., acting as underwriter received $14,351 on class A
redemptions.
Note 3
Purchases and sales of securities
During the six months ended December 31, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$263,290,002 and $270,773,880, 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, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,874,726 $110,368,835
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,178,364 23,462,847
- -----------------------------------------------------------------------------
12,053,090 133,831,682
Shares
repurchased (8,851,637) (98,142,711)
- -----------------------------------------------------------------------------
Net increase 3,201,453 $ 35,688,971
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,608,533 $ 52,035,853
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,003,681 21,479,417
- -----------------------------------------------------------------------------
6,612,214 73,515,270
Shares
repurchased (3,923,563) (42,785,078)
- -----------------------------------------------------------------------------
Net increase 2,688,651 $ 30,730,192
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 367,881 $ 4,172,776
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 177,638 1,911,373
- -----------------------------------------------------------------------------
545,519 6,084,149
Shares
repurchased (477,729) (5,429,231)
- -----------------------------------------------------------------------------
Net increase 67,790 $ 654,918
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund [DAGGER]
High Yield Advantage Fund [DOUBLE DAGGER]
High Yield Total Return Fund
High Yield Trust [DOUBLE DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund **
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DAGGER] Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam Fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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 and Fund Manager
George W. Stairs
Vice President and Fund Manager
Richard A. Monaghan
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.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
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PUTNAM
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