Putnam
International
Growth and Income
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
6-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The past year represented a period characterized by sharp shifts in
investor sentiment and strong indications of global stock markets' return
to more conventional conditions. Furthermore, the period dramatized the
growing globalization of the financial markets.
Global stock markets were feeling the effects of a flight from equities
when Putnam International Growth and Income Fund began its fiscal year
last summer. Uncertainty in Russia ignited fears of worldwide economic
instability. Within a matter of months, however, the markets returned to
greater calmness, with many climbing back toward their previous high
levels. In the latter half of the fund's annual period, which ended on
June 30, 1999, equity investors around the globe overcame their remaining
reservations, allowing financial markets to achieve gains that few might
have foreseen.
Your fund's successful ride through the market turmoil represented yet
another confirmation of its value-oriented strategy. Fund managers Deborah
Kuenstner and George Stairs provide a review and an outlook in the
following report.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
August 18, 1999
Report from the Fund Managers
Deborah F. Kuenstner
George W. Stairs
In a year of dramatic events and surprising market movements, it is a
pleasure to report that Putnam International Growth and Income Fund's
performance at net asset value remains comfortably ahead of its benchmark.
The unexpected nature of many of the trends, especially those that emerged
during the financial market turmoil in August and September of 1998,
reminded us once again of the prudence of our value-oriented investment
approach. By holding undervalued stocks of companies experiencing positive
change, we avoided the most volatile situations and emphasized companies
with fundamental strength and bright futures. This helped us deliver
results that surpassed the 7.62% posted by the Morgan Stanley Capital
International Europe, Australasia, and the Far East (MSCI EAFE) Index for
the 12 months ended June 30, 1999.
Total return for 12 months ended 6/30/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -----------------------------------------------------------------------
9.87% 3.53% 9.04% 4.04% 9.11% 8.11% 9.24% 5.44%
- -----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 7.
* FREQUENT SHIFTS IN MARKET PERFORMANCE
Shortly after the fiscal year began, equities around the globe slid when
Japan's economic reforms stalled and Russia announced a foreign debt
restructuring and currency devaluation. The ensuing debt crisis led to
significant short-term losses at major global banks. Although serious, the
situation did not persist. The markets gained confidence and rebounded
following a gradual reduction of interest rates by the U.S. Federal
Reserve Board.
Following the general rebound, various sectors emerged as standouts.
During the winter months, technology stocks responded to reviving demand
for computer components. As this trend died out in February, oil prices
began to rise sharply, the first such rally in nearly two years, and
helped the performance of the fund's oil stocks. During April and May,
evidence of greater-than-expected economic growth throughout Asia boosted
other value-oriented sectors sensitive to commodity prices and economic
growth. These sectors, including chemicals, metals, paper, and industrial
cyclicals, moved toward market leadership for the first time since 1997.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunication
services 12.4%
Banks 12.0%
Electric and
water utilities 10.0%
Electronics and
electrical
equipment 8.1%
Insurance and
finance 7.9%
Footnote reads:
*Based on net assets as of 6/30/99. Holdings will vary over time.
Because we invest with a value-oriented style, your fund was well
positioned for these frequent changes. During 1998's feverish selling, we
took advantage of depressed prices and added to many financial holdings
that subsequently recovered. Although the fund's holdings in technology
were generally light, performance benefited from a large position in
STMicroelectronics, a French maker of computer hardware that nearly
doubled in value during the fiscal year. We took profits on this stock
during the period, selling the position once it became fully valued. The
fund's energy stocks performed well, as oil prices rose in the spring.
Some positions in recovering secondary markets, such as Development Bank
of Singapore, Hong Kong Shanghai Bank (represented by HSBC Holdings of the
United Kingdom) and Fomento Economico Mexicano in Mexico, also contributed
strong gains. Pohang Iron & Steel Company, the fund's only South Korean
company and the world's lowest-cost producer of steel, also doubled in
value, as steel prices rose and South Korean economic reforms succeeded.
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.
* FERTILE PERIOD FOR CORPORATE CHANGE
In selecting stocks to buy and sell for this fund, we rely primarily on
fundamental stock-by-stock analysis. We spend most of our time analyzing
company financial statements and meeting with corporate leaders in Putnam
headquarters and abroad. Our goal is to sift through hundreds of large
international companies to find those that have an attractive combination
of financial strength and a strategy for introducing changes that can
increase future earnings. Such stocks, we believe, are wise to own because
in the short run they are likely to be stable and pay dividends while down
the road they are likely to enjoy capital appreciation as the benefits of
the positive changes produce greater profits.
"[T]he Telecom [Italia] battle is likely to have a lasting impact on European
business. No European company, no matter how large or how important, is immune
to hostile takeovers any longer. That means not only more takeover attempts,
but more preemptive friendly mergers and greater determination by managements
to restructure companies for continued independence."
- -- Institutional Investor, May 1999
During the period, a surprising number of corporate restructurings were
announced in Japan. We have long been skeptical of Japanese companies
because they have tended to resist change internally, even after
announcing ambitious plans. Nevertheless, we have been pleased with the
performance of Nikko Securities, a global investment banking partnership
that we believe represents the best case of restructuring in Japan. Nikko
has now appreciated to become one of the fund's largest holdings. A new
chief executive officer, Masashi Kaneka, took the helm in 1997 and has
molded the company into a global competitor. In 1998, Kaneka convinced a
leading U.S. investment bank, Salomon Smith Barney, to take a 25% equity
stake in Nikko to form a global banking partnership. This relationship
allows Nikko access to the worldwide distribution strength of Citigroup.
We also have growing confidence in Nippon Telephone & Telegraph Co., which
we added during the period. This company, which has issued publicly traded
shares only in the past decade, is evolving from a bureaucracy to a
company with distinct business units -- local telephone, mobile cellular,
and long-distance services. NTT's new president, who joined the company in
1998, has introduced new capital discipline procedures to increase cash
flow, to cut costs, and make the organizational structure more responsive
to the company's markets.
In spite of these strong individual stories, we are still generally
cautious regarding Japan. After analyzing Toshiba's restructuring plan,
for example, we decided to postpone establishing a position because the
company had not yet made the difficult cost-cutting moves we believed
necessary. We also continue to avoid Japanese banks, though they have
rallied in recent months. In our view, the infusion of government funds
has helped the economy but has only forestalled the day of reckoning for
banks that need fundamental reform.
* EUROPEAN MERGER ACTIVITY HEATS UP
European corporations are ahead of Japan on the path of restructuring. At
this point, mergers and acquisitions are driving corporate changes in
Europe. Most of the major mergers affecting performance of your fund have
been motivated by global industry conditions, though the introduction of
the euro at the beginning of 1999 is also facilitating cross-border
mergers.
One of the most prominent deals was the struggle to take over Telecom
Italia, one of the fund's top 10 holdings sold prior to the end of the
period. Olivetti, a smaller Italian telecommunications service company
formerly best known as a typewriter manufacturer, used tactics common to
leveraged buyouts in the 1980s in the United States: a small company bids
to take over a larger company, financing the purchase price with extensive
debt. Telecom Italia responded to the challenge by formulating an
industrial plan that the CEO, Franco Bernabe, promised would create more
value for shareholders than the Olivetti offer. The struggle itself was a
victory for shareholders of Telecom Italia.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Hoechst
Germany
Chemicals
Nikko Securities
Japan
Financial services
Elf Aquitaine
France
Oil and gas
Akzo-Nobel
Netherlands
Chemicals
BCE
Canada
Telecommunications services
ENI
Italy
Oil and gas
Invensys
United Kingdom
Electronics and electrical equipment
VEBA
Germany
Electric and water utilities
Axa
France
Insurance and finance
ING Groep
Netherlands
Insurance and finance
Footnote reads:
These holdings represent 19.5% of the fund's net assets as of 6/30/99.
Portfolio holdings will vary over time.
In the oil industry, British Petroleum, a fund holding, completed its
acquisition of Amoco during the annual period and is already cutting costs
by integrating the two companies. BP Amoco went on to announce the
acquisition of Atlantic Richfield, which has a strong market share in the
western United States. Another fund holding, French oil company Elf
Aquitaine, has been executing an internal restructuring and as the annual
period ended, was in merger talks with French competitor TotalFina.
Initially TotalFina had launched a hostile takeover of Elf Aquitaine,
which responded with a Pac Man defense in which the target company seeks
to take over the acquiring firm. Whichever side emerges in charge, we
believe a combination of the two entities would eliminate redundant
operations and unlock new value for shareholders.
* FUND POSITIONED FOR VOLATILITY OR GROWTH
While we anticipate few specific problems in the fund's new fiscal year,
the above-average volatility during the 1999 fiscal year has prompted us
to position the fund to avoid a number of risks in international markets.
For example, we continue to underweight Japan (relative to the fund's
benchmark index) and steer clear of Japanese banks in particular. Although
Japanese stocks have performed well in 1999, we believe this country's
economy will continue to contract, while companies have a long way to go
before raising shareholder value. We also have limited the fund's exposure
to emerging markets, focusing on companies we consider to be leading the
way toward global competitiveness in those economies. Based on our
research and stock selection process, the fund has relatively large
weightings in defensive sectors, such as utilities, and sectors that are
benefiting from improved supply-demand fundamentals, such as oil, paper,
and chemicals. The portfolio is underweighted in consumer cyclicals, which
have been volatile recently. In terms of regional exposure, we favor the
United Kingdom and Europe in general, where interest rates are low and
domestic conditions stable, as well as Canada, which we believe can
benefit from increasing global economic growth.
We continue to believe that stocks of established, dividend paying
companies undergoing positive fundamental change, such as the ones we
focus on in the fund, should continue to perform well in the current
market environment.
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 6/30/99, 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 6/30/99
Class A Class B Class C Class M
(inception dates) (8/1/96) (8/1/96) (2/1/99) (8/1/96)
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
1 year 9.87% 3.53% 9.04% 4.04% 9.11% 8.11% 9.24% 5.44%
- ----------------------------------------------------------------------------
Life of fund 66.47 56.91 62.79 59.79 62.92 62.92 63.95 58.20
Annual average 19.14 16.74 18.23 17.47 18.26 18.26 18.52 17.07
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/99
MSCI EAFE Consumer
Index price index
- ----------------------------------------------------------------------------
1 year 7.62% 1.96%
- ----------------------------------------------------------------------------
Life of fund 32.71 5.86
Annual average 10.20 1.97
- ----------------------------------------------------------------------------
Past performance is not indicative of future results. More recent returns
may be worth more or less than those shown. Class A and class M share
performance is shown at public offering price and reflects the current
maximum sales charge of 5.75% for class A shares and 3.50% for class M
shares. Class B share performance reflects the applicable contingent
deferred sales charge which is 5% in the first year, declines to 1% in the
sixth year, and is eliminated thereafter. For class C shares, returns for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the CDSC currently
applicable to class C shares, which is 1% for the first year and is
eliminated thereafter, and the higher operating expenses applicable to
class C shares. 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.
[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
Date shares at POP Index index
8/1/96 9,425 10,000 10,000
6/30/97 11,945 11,623 10,210
6/30/98 14,282 12,332 10,382
6/30/99 $15,691 $13,271 $10,586
Footnote reads:
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 $16,279 ($15,979 with a redemption at the end of the
period); a $10,000 investment in the fund's class C shares would have been
valued at $16,292 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$16,395 ($15,820 at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 6/30/99
Class A Class B Class C Class M
- ------------------------------------------------------------------------------
Distributions (number) 4 1 2 1
- ------------------------------------------------------------------------------
Income $0.248 $0.183 $0.016 $0.189
- ------------------------------------------------------------------------------
Capital gains
Long-term 0.318 0.318 -- 0.318
- ------------------------------------------------------------------------------
Short-term 0.178 0.178 -- 0.178
- ------------------------------------------------------------------------------
Total $0.744 $0.679 $0.016 $0.685
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------
6/30/98 $12.25 $13.00 $12.18 $ -- $12.22 $12.66
- ------------------------------------------------------------------------------
2/1/99* -- -- -- 11.10 -- --
- ------------------------------------------------------------------------------
6/30/99 12.59 13.36 12.49 12.57 12.55 13.01
- ------------------------------------------------------------------------------
*Inception date of class C shares.
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no 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 or C shares and assumes redemption at the end of
the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after
purchase.
Comparative benchmarks
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
list of equity securities from Europe, Australasia and the Far East, with
all values expressed in U.S. dollars. 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 indexes 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type and
industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
sources listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the fiscal year ended June 30, 1999
To the Trustees of Putnam Funds Trust and Shareholders of
Putnam International Growth and Income Fund
(a series of Putnam Funds Trust)
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, 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, 1999, 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, 1999 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 11, 1999
<TABLE>
<CAPTION>
The fund's portfolio
June 30, 1999
COMMON STOCKS (91.4%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
71,010 Aerospatiale Matra (France) (NON) $ 1,641,828
7,400 Aerospatiale Matra 144A (France) (NON) 171,096
--------------
1,812,924
Automobiles (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
343,000 Honda Motor Co., Ltd. (Japan) (NON) 14,548,079
Banks (12.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,329,019 Australia & New Zealand Banking Group Ltd. (Australia) (NON) 9,825,490
723,212 Bank of Nova Scotia (Canada) 15,798,201
85,700 Barclays PLC (United Kingdom) 2,495,165
256,364 Deutsche Bank AG (Germany) 15,687,086
286,300 Development Bank of Singapore Ltd. (Singapore) 3,502,965
275,187 ForeningsSparbanken AB (Sweden) 3,905,208
270,166 HSBC Holdings PLC (United Kingdom) 9,854,989
4,762 Julius Baer Holdings AG (Switzerland) 13,636,496
582,124 National Bank of Canada (Canada) (NON) 7,669,461
285,185 National Westminster Bancorp Inc. (United Kingdom) 6,049,726
53,259 Societe Generale (France) 9,415,981
65,104 Unidanmark AS (Denmark) 4,331,543
44,308 United Bank of Switzerland (UBS) AG (Switzerland) 13,289,536
--------------
115,461,847
Building Products (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
513,201 CRH PLC (Ireland) 9,131,591
4,368,600 Pioneer International Ltd. (Australia) 11,193,118
229,631 Pohang Iron & Steel Company, Ltd. ADR (South Korea) 7,721,342
--------------
28,046,051
Chemicals (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
455,758 Akzo-Nobel N.V. (Netherlands) 19,236,451
221,976 Bayer AG (Germany) (NON) 9,277,221
456,140 Hoechst AG (Germany) (NON) 20,715,393
--------------
49,229,065
Conglomerates (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
295,800 Canadian Pacific, Ltd. (Canada) (NON) 7,067,377
2,865,578 Cookson Group PLC (United Kingdom) 9,671,922
2,713,001 Tomkins PLC (United Kingdom) 11,767,099
--------------
28,506,398
Electric and Water Utilities (10.0%)
- --------------------------------------------------------------------------------------------------------------------------
806,225 Anglian Water PLC (United Kingdom) 8,920,121
560,100 Chubu Electric Power, Inc. (Japan) 9,331,142
645,443 Iberdola S.A. (Spain) 9,862,088
325,300 Iberdrola II (Spain) 4,970,442
2,333,768 Hong Kong Electric Holdings Ltd. (Hong Kong) 7,520,327
492,400 Kansai Electric Power Inc. (Japan) (NON) 9,363,539
1,203,244 National Power (United Kingdom) 8,767,635
918,929 Scottish and Southern Energy PLC (United Kingdom) 9,406,183
1,038,101 Scottish Power PLC (United Kingdom) 8,972,365
7,554,000 Shandong International Power Development Co. Ltd. (China) (NON) 1,703,939
294,741 Veba (Vereinigte Elektrizitaets Bergwerks) AG (Germany) 17,379,845
--------------
96,197,626
Electronics and Electrical Equipment (8.1%)
- --------------------------------------------------------------------------------------------------------------------------
332,000 Canon, Inc. (Japan) 9,552,378
3,840,815 Invensys PLC (United Kingdom) 18,188,345
100,397 Philips Electronics N.V. (Netherlands) 9,934,276
1,016,000 Ricoh Co., Ltd. (Japan) 13,994,677
165,564 Schneider SA (France) 9,325,976
99,800 Sony Corp. (Japan) 10,768,004
67,000 TDK Corp. (Japan) (NON) 6,132,204
--------------
77,895,860
Financial Services (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
3,143,000 Nikko Securities Co. Ltd. (Japan) (NON) 20,295,024
274,000 Promise Co., Ltd. (Japan) 16,197,603
1,870 Shohkoh Fund & Co., Ltd. (Japan) 1,342,009
--------------
37,834,636
Food and Beverages (7.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,056,010 Bass PLC (United Kingdom) 15,331,286
1,582,147 Diageo PLC (United Kingdom) 16,531,775
2,727,120 Fomento Economico Mexicano, S.A. de C.V. (Mexico) 10,963,150
53,387 Groupe Danone (France) 13,807,213
713,000 Kirin Brewery Co. Ltd. (Japan) (NON) 8,547,748
3,869 Nestle S.A. (Switzerland) 7,005,216
--------------
72,186,388
Insurance and Finance (7.9%)
- --------------------------------------------------------------------------------------------------------------------------
196,048 AGF (Assurances Generales de France) (France) 9,471,304
1,264,223 Allied Zurich AG (United Kingdom) 15,901,612
1,079,538 AMP Ltd. (Australia) 11,865,632
140,963 Axa S.A. (France) 17,251,242
309,005 Internationale Nederlanden Groep (ING) (Netherlands) 16,782,448
82,243 Scor (France) 4,092,366
--------------
75,364,604
Oil and Gas (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
384,165 BP Amoco PLC (United Kingdom) 6,889,140
133,722 Elf Aquitaine S.A. (France) 19,685,129
3,057,188 Ente Nazionale Idrocarburi (ENI) SpA (Italy) 18,311,807
167,400 Royal Dutch Petroleum Co. (Netherlands) 9,836,357
--------------
54,722,433
Paper and Forest Products (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,027,252 Abitibi-Consolidated Inc. (Canada) (NON) 11,851,020
1,706,000 Jefferson Smurfit Group PLC 4,036,055
329,195 Svenska Cellulosa AB (SCA) Class B, (Sweden) 8,564,676
--------------
24,451,751
Pharmaceuticals and Biotechnology (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,139 Novartis AG ADR (Switzerland) 4,606,031
216,356 Pharmacia & Upjohn, Inc. (Sweden) 12,025,463
217,000 Yamanouchi Pharmaceutical Co., Ltd. (Japan) 8,306,822
--------------
24,938,316
Real Estate (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
294,700 Canary Wharf Finance PLC (United Kingdom) (NON) 1,859,854
493,900 Canary Wharf Finance 144A PLC (United Kingdom) (NON) 3,117,007
1,097,000 Henderson Land Development Co. Ltd. (Hong Kong) (R) 6,306,386
--------------
11,283,247
Retail (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,763,430 Coles Myer Ltd. (Australia) (NON) 10,315,616
2,617,326 Tesco PLC (United Kingdom) 6,739,036
--------------
17,054,652
Steel (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
925,000 British Steel PLC (United Kingdom) 2,396,260
500,461 SKF AB Class B, (Sweden) 9,291,908
--------------
11,688,168
Telecommunication Services (12.4%)
- --------------------------------------------------------------------------------------------------------------------------
391,503 BCE, Inc. (Canada) (NON) 19,175,603
868,600 Cable & Wireless Optus Ltd. (Australia) (NON) 1,988,503
1,237,179 Cable & Wireless PLC (United Kingdom) 15,776,088
346,500 Carso Global Telecom (Mexico) (NON) 2,205,806
339,484 Hellenic Telecommunication Organization S.A. (Greece) 7,310,168
74,100 Korea Telecom Corp. (South Korea) 2,964,000
889,982 Mahanager Telephone GDR 144A (India) 9,033,317
419 Nippon Telephone and Telegraph Corp. (Japan) 4,884,581
256,037 Portugal Telecom S.A. (Portugal) 10,449,132
38,985 Swisscom AG ADR (Switzerland) 14,742,213
1,739,677 Telecom Corp. of New Zealand Ltd. (New Zealand) 7,506,480
97,628 Tele Danmark A/S (Denmark) 4,790,396
269,515 Telesp Celular Participacoes S.A. ADR (Brazil) 7,209,526
234,032 Telfonica S.A. (Spain) (NON) 11,308,756
--------------
119,344,569
Tobacco (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
509,261 BAT Industries PLC (United Kingdom) 4,791,126
Transportation (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
667,781 British Airways PLC (United Kingdom) 4,610,489
40,200 Canadian National Railway Co. (Canada) (NON) 2,714,028
367,744 Peninsular and Oriental Steam Navigation Co.
(United Kingdom) 5,524,556
--------------
12,849,073
--------------
Total Common Stocks (cost $800,369,424) $ 878,206,813
UNITS (1.0%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
501,700 Development Bank of Singapore ser. C structured note
(issued by Credit Suisse First Boston), 2000 (Singapore) $ 5,353,139
351,000 Development Bank of Singapore structured note
(issued by Merrill Lynch & Co., Inc.) 3s, 2000 (Singapore) 3,806,700
--------------
Total Units (cost $4,740,829) $ 9,159,839
CONVERTIBLE PREFERRED STOCKS (0.5%) (cost $4,845,625) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
98,100 St. George Bank Ltd. 144A $4.50 cv. pfd. (Australia) $ 4,929,525
SHORT-TERM INVESTMENTS (5.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,856,000 U. S. Treasury Bills 4.65s, September 16, 1999 (SEG) $ 1,838,216
35,000,000 Interest in $500,000,000 joint tri-party repurchase agreement
dated June 30, 1999 with Goldman Sachs & Co.
due July 1, 1999 with respect to various U. S. Treasury
obligations -- maturity value of $35,004,715 for an effective
yield of 4.85% 35,000,000
20,223,000 Interest in $250,000,000 joint tri-party repurchase agreement
dated June 30, 1999 with Lehman Brothers, Inc.
due July 1, 1999 with respect to various U. S. Treasury
obligations -- maturity value of $20,225,753 for an effective
yield of 4.90% 20,223,000
--------------
Total Short-Term Investments (cost $57,061,216) $ 57,061,216
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $867,017,094) (b) $ 949,357,393
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $960,652,846.
(b) The aggregate identified cost on a tax basis is $883,789,717, resulting in gross unrealized appreciation and
depreciation of $98,777,541 and $33,209,865, respectively, or net unrealized appreciation of $65,567,676.
(NON) Non-income-producing security.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at June 30, 1999.
(R) Real Estate Investment Trust.
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 after the name of a foreign holding stands for American Depositary Receipts or Global Depositary 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 June 30, 1999: (as percentage of Market Value)
Australia 5.3% Netherlands 5.9%
Canada 6.8 Portugal 1.1
Denmark 1.0 Singapore 1.3
France 8.9 South Korea 1.1
Germany 6.6 Spain 2.8
Hong Kong 1.5 Sweden 3.6
India 1.0 Switzerland 5.6
Ireland 1.0 United Kingdom 20.4
Italy 1.9 United States 6.4
Japan 14.0 Other 2.4
Mexico 1.4 -----
Total 100.0%
- --------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at June 30, 1999
(aggregate face value $32,523,654)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- --------------------------------------------------------------------------------------
British Pounds $13,723,214 $13,952,990 9/17/99 $(229,776)
Euro Dollars 4,875,917 4,864,680 9/17/99 11,237
Japanese Yen 13,772,809 13,705,984 9/9/99 66,825
- --------------------------------------------------------------------------------------
$(151,714)
- --------------------------------------------------------------------------------------
Futures Contracts Outstanding at June 30, 1999
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- --------------------------------------------------------------------------------------
DAX Index (Long) $ 4,737,803 $ 4,847,423 Sep-99 $(109,620)
FT-SE 100 (Long) 13,515,224 13,953,855 Sep-99 (438,631)
Topix Index (Long) 14,192,147 13,538,084 Sep-99 654,063
- --------------------------------------------------------------------------------------
$ 105,812
- --------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
June 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $867,017,094) (Note 1) $949,357,393
- -----------------------------------------------------------------------------------------------
Dividends and other receivables 3,064,523
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,123,268
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 17,750,788
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 78,062
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 38,163
- -----------------------------------------------------------------------------------------------
Total assets 975,412,197
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 3,823,185
- -----------------------------------------------------------------------------------------------
Payable for variation margin 216,845
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 6,242,511
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 973,428
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,733,921
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 220,836
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,056
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,941
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 714,471
- -----------------------------------------------------------------------------------------------
Payable for organization expense (Note 1) 64,834
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 229,776
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 381,550
- -----------------------------------------------------------------------------------------------
Other accrued expenses 140,997
- -----------------------------------------------------------------------------------------------
Total liabilities 14,759,351
- -----------------------------------------------------------------------------------------------
Net assets $960,652,846
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $809,410,568
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (7,723,753)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 76,272,377
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 82,693,654
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $960,652,846
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($469,725,836 divided by 37,324,087 shares) $12.59
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $12.59)* $13.36
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($445,472,475 divided by 35,678,768 shares)** $12.49
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($9,163,208 divided by 728,943 shares)** $12.57
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($36,291,327 divided by 2,891,290 shares) $12.55
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $12.55)* $13.01
- -----------------------------------------------------------------------------------------------
* 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, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,779,151) $16,769,497
- -----------------------------------------------------------------------------------------------
Interest 2,119,690
- -----------------------------------------------------------------------------------------------
Total investment income 18,889,187
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,411,022
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,866,340
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 32,760
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,522
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,016,892
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,021,029
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 15,987
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 263,474
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 18,615
- -----------------------------------------------------------------------------------------------
Reports to shareholders 75,704
- -----------------------------------------------------------------------------------------------
Registration fees 18,615
- -----------------------------------------------------------------------------------------------
Auditing 48,808
- -----------------------------------------------------------------------------------------------
Legal 7,937
- -----------------------------------------------------------------------------------------------
Postage 210,248
- -----------------------------------------------------------------------------------------------
Other 195,563
- -----------------------------------------------------------------------------------------------
Total expenses 14,214,516
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (73,627)
- -----------------------------------------------------------------------------------------------
Net expenses 14,140,889
- -----------------------------------------------------------------------------------------------
Net investment income 4,748,298
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 93,364,058
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 766,587
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (12,299,324)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 2,117,302
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (8,582,118)
- -----------------------------------------------------------------------------------------------
Net gain on investments 75,366,505
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 80,114,803
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended June 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 4,748,298 $ 9,924,381
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 81,831,321 37,478,782
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies (6,464,816) 62,552,558
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 80,114,803 109,955,721
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (8,562,227) (4,316,678)
- ---------------------------------------------------------------------------------------------------------------
Class B (6,251,787) (2,639,976)
- ---------------------------------------------------------------------------------------------------------------
Class C (4,975) --
- ---------------------------------------------------------------------------------------------------------------
Class M (571,933) (294,261)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (17,231,317) (9,086,740)
- ---------------------------------------------------------------------------------------------------------------
Class B (17,184,367) (9,331,399)
- ---------------------------------------------------------------------------------------------------------------
Class M (1,524,471) (939,594)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 68,971,565 429,655,129
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 97,755,291 513,002,202
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 862,897,555 349,895,353
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income and undistributed net investment
income of $7,723,753 and $11,210,879, respectively) $960,652,846 $862,897,555
- ---------------------------------------------------------------------------------------------------------------
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
Per-share August 1, 1996+
operating performance Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $12.25 $10.76 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .11 .23 .15
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .98 1.78 2.13
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.09 2.01 2.28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.16) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.50) (.36) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.75) (.52) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.59 $12.25 $10.76
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 9.87 19.56 26.73*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $469,726 $409,456 $157,990
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.30 1.36 1.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .94 1.98 1.61*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 88.09 53.57 70.25*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share August 1, 1996+
operating performance Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 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 .97 1.78 2.10
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .99 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 $12.49 $12.18 $10.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 9.04 18.68 25.80*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $445,472 $414,609 $174,801
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 2.05 2.11 2.21*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .19 1.21 1.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 88.09 53.57 70.25*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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 C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share February 1, 1999+
operating performance to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $11.10
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .07
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.49
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.57
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 13.40*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $9,163
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .84*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .58*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 88.09
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share August 1, 1996+
operating performance Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $12.22 $10.74 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .05 .16 .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .97 1.79 2.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.02 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 $12.55 $12.22 $10.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 9.24 18.95 26.17*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $36,291 $38,832 $17,105
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.80 1.86 1.98*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .40 1.40 1.19*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 88.09 53.57 70.25*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
June 30, 1999
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, class C and class M shares. The fund
began offering class C shares on February 1, 1999. 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 C shares are
subject to the same fees and expenses as class B shares, except that class
C shares have a one-year 1.00% contingent deferred sales charge and do not
convert to class A shares. 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 and class C 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 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, 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, 1999, 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, losses
on wash sale transactions, post-October loss deferrals, organization
costs, foreign taxes, and realized 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, 1999, the fund reclassified
$8,292,008 to decrease undistributed net investment income and $19,165 to
decrease paid-in-capital, with an increase to accumulated net realized
gains of $8,311,173. 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.
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 Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
As part of the subcustodian contract between the subcustodian bank and
PFTC, 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, 1999, the payable to the subcustodian
bank represents the amount due for cash advanced for the settlement of a
security purchased.
For the year ended June 30, 1999, fund expenses were reduced by $73,627
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 $1,260
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
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, class C and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam 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%,
1.00%, and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees currently limit
payment by the fund to an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares, respectively.
For the year ended June 30, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $345,231 and $7,410 from the sale
of class A and class M shares, respectively and $726,060 and $185 in
contingent deferred sales charges from redemptions of class B and C
shares, respectively. A deferred sales charge of up to 1% is assessed on
certain redemptions of class A shares. For the year ended June 30, 1999,
Putnam Mutual Funds Corp., acting as underwriter received $52,542 on class
A redemptions.
Note 3
Purchases and sales of securities
During the year ended June 30, 1999, purchases and sales of investment
securities other than short-term investments aggregated $687,834,849 and
$718,177,824, 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, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended June 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 25,486,440 $ 293,865,844
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,259,777 24,453,045
- -----------------------------------------------------------------------------
27,746,217 318,318,889
Shares
repurchased (23,849,432) (274,006,683)
- -----------------------------------------------------------------------------
Net increase 3,896,785 $ 44,312,206
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended June 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 8,011,247 $ 91,975,997
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,003,520 21,477,689
- -----------------------------------------------------------------------------
10,014,767 113,453,686
Shares
repurchased (8,373,704) (94,136,683)
- -----------------------------------------------------------------------------
Net increase 1,641,063 $ 19,317,003
- -----------------------------------------------------------------------------
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 February 1, 1999
(commencement of operations)
to June 30, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 795,822 $9,522,643
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 308 3,755
- -----------------------------------------------------------------------------
796,130 9,526,398
Shares
repurchased (67,187) (845,963)
- -----------------------------------------------------------------------------
Net increase 728,943 $8,680,435
- -----------------------------------------------------------------------------
Year ended June 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 645,549 $ 7,389,654
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 177,635 1,911,353
- -----------------------------------------------------------------------------
823,184 9,301,007
Shares
repurchased (1,109,843) (12,639,086)
- -----------------------------------------------------------------------------
Net decrease (286,659) $(3,338,079)
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $49,037,985 as a 20% capital gain, for its taxable year
ended June 30, 1999.
For the period, interest and dividends from foreign countries were
$16,769,497 or $.219 per share (for all share classes). Taxes paid to
foreign countries were $1,779,151 or $.023 per share (for all classes of
shares).
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Fund information
WEB SITE
www.putnaminv.com
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
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
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
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' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN024-53938 2CE/2CG/2CH 8/99
