Putnam
International
Growth and
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
12-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
2000. In the following report, the fund's managers discuss performance for
the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
International Growth and Income Fund that I will be signing. After more
than 30 years as Chairman of the Trustees and President of the Putnam
Funds, the time has come for me to step aside. In June, John Hill will
become Chairman. John is currently an independent Trustee and has served
on the board for the past 14 years. In addition, my son, George Putnam,
III, will take on the role of President. I am confident that the
leadership of the funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay in
close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
February 16, 2000
Report from the Fund Managers
Deborah F. Kuenstner
George W. Stairs
Investment conditions in nearly all international markets were better in
the final six months of calendar 1999 than many forecasts had anticipated.
Improving international economies, ongoing merger activity, and investors'
optimism for technology stocks all contributed to solid equity
performance. All over the world, companies are following the example set
by U.S. companies, learning to manage themselves in ways that enrich
shareholders. We believe that this international effort to emulate U.S.
companies and reward shareholders was a primary reason why Putnam
International Growth and Income Fund appreciated 10.34% (3.97% at public
offering price), in the six months that ended December 31, 1999, the first
half of the fund's 2000 fiscal year. We also think the current strength of
international stocks could herald a return to the situation of the
mid-1980s when international stocks outperformed U.S. stocks in several
consecutive years.
Total return for 6 months ended 12/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -------------------------------------------------------------------------
10.34% 3.97% 9.94% 5.11% 9.98% 9.01% 10.20% 6.31%
- -------------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 6.
* INTERNATIONAL MARKETS FLOURISH
In the past six months international stocks benefited from three major
trends. First, international technology companies finally caught up with
their U.S. counterparts, showing competitiveness in business innovation
that caught the fancy of investors. Second, the wave of corporate
restructuring, mergers, and acquisitions, -- changes that our investment
process is designed to identify -- gathered pace and had an impact on
performance. Finally, Asia's ongoing recovery from its 1997-98 economic
crisis contributed to demand for a host of basic materials and industrial
goods, while providing a positive backdrop for stocks in other sectors.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banks 9.5%
Telephone services 9.2%
Electronics and
electrical equipment 7.9%
Financial services 7.0%
Electric utilities 6.6%
Footnote reads:
*Based on net assets as of 12/31/99. Holdings will vary over time.
Your fund benefited from each of these trends, but most of all from the
corporate consolidation abroad. As you know from previous reports, our
research seeks to identify undervalued stocks of large international
companies experiencing positive changes. Restructurings and corporate
takeovers are two of the primary changes we look for because they can
strategically re-position companies to achieve better future earnings.
The fund participated to a degree in the technology rally and the Asian
rebound, but our value discipline prompted us to take profits on many
stocks as their prices rose to more expensive levels. For example, we
reduced our positions in many telecommunications utilities and
manufacturers of electronic, communications, and computer equipment as
they experienced a fourth-quarter rally of historic proportions. While
this price discipline limits the degree to which this fund can enjoy
explosive gains, we believe this strategy also helps to avoid the steep
plunges that often follow rallies. We believe investing in undervalued,
mostly dividend-paying stocks of large companies can achieve growth with
income while experiencing less risk over time.
* TECHNOLOGY AND TELECOMMUNICATIONS STOCKS SOAR
Two of our top-performing stocks benefited from the recent demand for
technology and telecommunications issues. Their gains were not
attributable solely to a short-term trend, however, but also to positive
internal changes -- good examples of the type of change we look for when
we research stocks. We purchased Telecom Italia Mobile during the summer.
This Italian cellular phone service company is part of Telecom Italia,
which was acquired by Olivetti last spring in a hostile takeover. Olivetti
subsequently announced a plan to complete the merger in a manner
detrimental to shareholders. Because the market opposed this plan, Telecom
Italia Mobile shares fell in price. Despite its attractive growth rates,
it thereby became one of the cheapest cellular phone company stocks in
Europe and we established a position. Shareholder opposition later
convinced Olivetti to scuttle its proposal, and Telecom Italia Mobile's
stock price has nearly doubled in the past six months. 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.
"Bankers and market soothsayers say many of the factors that made 1999 a
record-breaker in European mergers and acquisitions are just gaining steam."
- -- The Wall Street Journal, January 4, 2000
Another telecommunications company stock, Canada's BCE, appreciated by
approximately 85% during the past six months. The former Bell Canada, BCE
is benefiting from its ownership stake in Nortel Networks, which makes
optical fibers and digital switching equipment. Businesses and consumers
are spending hefty sums for this equipment to build Internet connections.
BCE has also been successfully integrating Bay Networks, a U.S. company it
acquired in 1998. Finally, BCE has come to dominate the Canadian cellular
phone market, which is growing more attractive because prices have
stabilized. Its main competitor is in disarray, which makes BCE's growth
prospects even more formidable.
* FRUITS OF CHANGE IN ASIA; UNITED KINGDOM REMAINS UNDERVALUED
We are encouraged that many of the top-performing stocks in the fund
during this semiannual period have posted solid fundamental operating
results. In Japan, for example, Nikko Securities, is reaping the benefits
of changes undertaken over the past two to three years. Its alliance with
Salomon Smith Barney, which is now part of Citigroup, has helped generate
new revenue growth from investment banking fees. At the same time, Nikko
remains a leader in its traditional brokerage business in Japan. Because
Nikko's executives cut costs by introducing methods developed by more
efficient international competitors, the company has been able to maintain
attractive earnings even as brokerage commissions in Japan have fallen in
the past two years.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
BCE, Inc.
Canada
Telephone services
Aventis S.A.
France
Pharmaceuticals and biotechnology
Akzo-Nobel N.V.
Netherlands
Chemicals
Total S.A.
France
Oil and gas
Cable & Wireless Plc.
United Kingdom
Telephone services
Veba AG
Germany
Electric utilities
AMP, Ltd.
Australia
Financial services
Diageo Plc.
United Kingdom
Food and beverages
Siebe Plc.
United Kingdom
Electronics and electrical equipment
Internationale Nederlanden Groep (ING)
Netherlands
Insurance
Footnote reads:
These holdings represent 21.5% of the fund's net assets as of 12/31/99.
Portfolio holdings will vary over time.
Another Asian stock, DBS Group, has appreciated by about one third over
the semiannual period thanks to the recovery in southeast Asian economies.
We held on to this stock during the Asian recession because it had very
conservative lending policies and brought in new top management who
proceeded to focus the bank on its best businesses while selling weaker
ones. DBS Group has also cut costs by eliminating staff redundancies.
Stocks in the United Kingdom have struggled in the past six months but
many still have attractive prospects, we believe. One of our top holdings,
Diageo, owns several globally recognized brands, such as Pillsbury, Burger
King, Guinness and Smirnoff's, which have appeal to consumers around the
world. The company's management team is realizing gains from acquiring
these brands and is improving the company's cash flow. BAT Industries,
another one of the fund's large British holdings, has successfully
restructured to reduce its reliance on tobacco revenues while moving to
more attractive businesses. We believe investors misunderstand BAT. The
stock has not performed well recently because investors are concerned
about lawsuits brought by cigarette smokers in the United States. BAT is
priced similarly to other tobacco companies, although in our view it is
the top company in the industry. We anticipate that the stock will perform
well when other investors recognize what they have overlooked.
* RISING GLOBAL GROWTH AND CORPORATE RESTRUCTURINGS CAN LIFT FUND
As the year 2000 begins, international economies appear to be continuing
their strong performance and helping to lift equities higher. We
anticipate the Japanese economy will experience a bona fide recovery in
the coming year while Europe continues its gradual acceleration.
Meanwhile, positive corporate changes are merely beginning. We expect a
rising tide of European mergers, restructurings, and takeovers. More
companies are also giving their managers performance incentives such as
stock options that align their interests with shareholders and focus their
goals on lifting stock prices. Hostile takeover activity, long absent on
the European scene, is putting even more pressure on managers to show
results or face consequences. Japan and other Asian markets are also
starting down this bountiful path. Our research efforts remain focused on
identifying international companies that are focused on rewarding
shareholders and investing in them while they are still undervalued to
achieve capital appreciation with less risk.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 12/31/99, 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 12/31/99
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
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months 10.34% 3.97% 9.94% 5.11% 9.98% 9.01% 10.20% 6.31%
- --------------------------------------------------------------------------------------
1 year 25.68 18.42 24.72 19.72 24.82 23.82 25.16 20.79
- --------------------------------------------------------------------------------------
Life of fund 83.68 73.13 78.96 75.96 79.17 79.17 80.68 74.34
Annual average 19.52 17.46 18.61 18.02 18.65 18.65 18.94 17.70
- --------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/99
MSCI Consumer
EAFE Index price index
- ---------------------------------------------------------------------
6 months 22.12% 1.56%
- ---------------------------------------------------------------------
1 year 26.96 2.80
- ---------------------------------------------------------------------
Life of fund 62.07 7.52
Annual average 15.18 2.14
- ---------------------------------------------------------------------
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 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.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 12/31/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 2 1 1 1
- --------------------------------------------------------------------------------------
Income $0.338 $0.299 $0.302 $0.307
- --------------------------------------------------------------------------------------
Capital gains
Long-term 0.681 0.681 0.681 0.681
- --------------------------------------------------------------------------------------
Short-term 0.683 0.683 0.683 0.683
- --------------------------------------------------------------------------------------
Total $1.702 $1.663 $1.666 $1.671
- --------------------------------------------------------------------------------------
Share value NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------------
6/30/99 $12.59 $13.36 $12.49 $12.57 $12.55 $13.01
- --------------------------------------------------------------------------------------
12/31/99 12.17 12.91 12.05 12.14 12.14 12.58
- --------------------------------------------------------------------------------------
</TABLE>
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 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 are determined. All investment and noninvestment 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-end funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
December 31, 1999 (Unaudited)
COMMON STOCKS (96.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
861,418 British Aerospace Plc (United Kingdom) $ 5,705,292
794,000 Rolls-Royce Plc (United Kingdom) (NON) 2,744,823
--------------
8,450,115
Automobiles (5.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,249,000 Fuji Heavy Industries (Japan) 15,407,123
509,000 Honda Motor Co., Ltd. (Japan) (NON) 18,929,338
62,000 Hyundai Motor Co., GDR (South Korea) (NON) 666,500
203,840 Hyundai Motor Co., GDR 144A Deal Stock (South Korea) (NON) 2,191,280
226,000 Hyundai Motor Co., Ltd. (South Korea) (NON) 3,584,152
5,542,000 PT Astra International Inc. (Indonesia) (NON) 2,979,581
197,408 Valeo S.A. (France) 15,212,182
--------------
58,970,156
Banks (9.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,053,547 Australia & New Zealand Banking Group, Ltd. (Australia) (NON) 7,664,214
760,573 Bank of Nova Scotia (Canada) 16,317,136
87,316 Banque Nationale de Paris (France) 8,046,134
97,194 Barclays Plc (United Kingdom) 2,797,868
340,769 DBS Group Holdings, Ltd. (Singapore) 5,590,740
810,498 HSBC Holdings Plc (United Kingdom) 11,365,533
1,043,318 Istituto Bancario San Paolo di Torino (Italy) 14,158,806
1,730 Julius Baer Holdings AG (Switzerland) 5,226,947
675,297 National Bank of Canada (Canada) 8,631,931
378,000 Overseas-Chinese Banking Corp., Ltd. (Singapore) 3,475,601
23,031 Societe Generale (France) 5,352,082
80,290 Unidanmark AS (Denmark) 5,646,425
27,778 United Bank of Switzerland (UBS) AG (Switzerland) 7,502,852
--------------
101,776,269
Building Products (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
537,112 Blue Circle Industries Plc (United Kingdom) 3,121,373
279,462 CRH Plc (Ireland) 6,016,370
4,035,200 Pioneer Internationa,l Ltd. (Australia) 12,159,409
--------------
21,297,152
Business Equipment (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
330,000 Canon, Inc. (Japan) 13,112,154
275,000 Ricoh Co., Ltd. (Japan) 5,183,499
--------------
18,295,653
Business Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
468,000 Dai Nippon Printing Co., Ltd. (Japan) 7,465,648
Cellular Communications (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,277,429 Telecom Italia Mobile SpA (Italy) 14,251,688
239,089 Telesp Celular Participacoes S.A. ADR (Brazil) 10,131,396
--------------
24,383,084
Chemicals (5.9%)
- --------------------------------------------------------------------------------------------------------------------------
491,137 Akzo-Nobel N.V. (Netherlands) 24,605,374
181,541 Bayer AG (Germany) (NON) 8,583,622
252,900 BOC Group Plc (United Kingdom) 5,433,511
22,400 Clariant AG 144A Deal Stock (Switzerland) 10,679,397
1,700 Clariant AG (Switzerland) 810,490
262,300 Rhodia SA (France) 5,921,328
1,982,000 Teijin, Ltd. (Japan) 7,312,722
--------------
63,346,444
Conglomerates (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
361,565 Canadian Pacific, Ltd. (Canada) 7,756,922
1,939,345 Cookson Group Plc (United Kingdom) 7,832,045
2,179,801 Tomkins Plc (United Kingdom) 7,042,501
--------------
22,631,468
Cosmetics (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
330,000 Shiseido Co., Ltd. (Japan) 4,812,096
Electric Utilities (6.6%)
- --------------------------------------------------------------------------------------------------------------------------
632,300 Chubu Electric Power, Inc. (Japan) 10,303,184
2,495,768 Hong Kong Electric Holdings, Ltd. (Hong Kong) 7,802,285
1,313,095 Scottish and Southern Energy Plc (United Kingdom) 10,483,901
2,348,183 Scottish Power Plc (United Kingdom) 17,790,365
7,554,000 Shandong International Power Development Co., Ltd.
(China) (NON) 1,069,008
474,342 Veba (Vereinigte Elektrizitaets Bergwerks) AG (Germany) 23,024,324
--------------
70,473,067
Electronics and Electrical Equipment (7.9%)
- --------------------------------------------------------------------------------------------------------------------------
238,000 Matsushita Electric Industrial Co. (Japan) 6,591,700
94,397 Philips Electronics N.V. (Netherlands) 12,820,057
156,110 Schneider SA (France) 12,241,787
3,675,430 Siebe Plc (United Kingdom) 20,008,666
24,900 Sony Corp. (Japan) 7,383,734
67,000 TDK Corp. (Japan) (NON) 9,252,005
2,072,000 Toshiba Corp. (Japan) 15,816,792
--------------
84,114,741
Energy Related (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
692,359 Iberdola S.A. (Spain) (NON) 9,584,021
325,300 Iberdrola II S.A. 144A (Spain) (NON) 4,502,985
582,200 Kansai Electric Power, Inc. (Japan) (NON) 10,147,760
--------------
24,234,766
Financial Services (7.0%)
- --------------------------------------------------------------------------------------------------------------------------
52,950 Aiful Corp. (Japan) 6,477,539
2,053,098 AMP, Ltd. (Australia) 22,684,464
408,400 Investor AB (Sweden) 5,761,919
423,454 Manulife Financial Corp. (Canada) (NON) 5,398,139
1,293,000 Nikko Securities Co., Ltd. (Japan) (NON) 16,361,801
324,000 Nomura Securities Co., Ltd. (Japan) 5,850,264
235,300 Promise Co., Ltd. (Japan) 11,974,553
--------------
74,508,679
Food and Beverages (5.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,445,926 Bass Plc (United Kingdom) 17,996,945
2,629,427 Diageo Plc (United Kingdom) 21,152,930
2,727,120 Fomento Economico Mexicano, S.A. de C.V. (Mexico) 12,194,205
1,170,000 Kirin Brewery Co., Ltd. (Japan) (NON) 12,309,159
--------------
63,653,239
Insurance (6.5%)
- --------------------------------------------------------------------------------------------------------------------------
136,048 AGF (Assurances Generales de France) (France) 7,363,299
1,567,758 Allied Zurich AG (United Kingdom) 18,474,998
140,963 Axa S.A. (France) 19,626,335
330,977 Internationale Nederlanden Groep (ING) (Netherlands) 19,957,794
82,243 Scor (France) 3,623,857
--------------
69,046,283
Media (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
370,600 Carlton Communications Plc (United Kingdom) 3,609,963
Oil and Gas (5.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,805,850 British Petroleum Co. Plc (United Kingdom) 18,159,384
3,519,892 Ente Nazionale Idrocarburi (ENI) SpA (Italy) 19,333,922
182,446 Total S.A. Class B (France) 24,319,140
--------------
61,812,446
Paper and Forest Products (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
991,951 Abitibi-Consolidated, Inc. (Canada) 11,582,928
3,793,100 Jefferson Smurfit Group Plc (Ireland) 11,366,278
560,978 Sappi, Ltd. (South Africa) 5,552,700
306,195 Svenska Cellulosa AB (SCA) Class B (Sweden) 9,071,911
--------------
37,573,817
Pharmaceuticals and Biotechnology (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
442,110 Aventis S.A. (France) (NON) 25,573,869
328,000 Eisai Co., Ltd. (Japan) 6,307,692
130,536 Pharmacia & Upjohn, Inc. (Sweden) 5,924,037
352,000 Yamanouchi Pharmaceutical Co., Ltd. (Japan) 12,298,296
144,090 Zeneca Group Plc (United Kingdom) 5,977,353
--------------
56,081,247
Railroads (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
304,162 Canadian National Railway Co. (Canada) 8,028,044
Real Estate (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
493,900 Canary Wharf 144A Plc (United Kingdom) (NON) 3,071,707
485,200 Canary Wharf Finance Plc (United Kingdom) (NON) 3,017,600
1,097,000 Henderson Land Development Co., Ltd. (Hong Kong) (R) 7,042,365
--------------
13,131,672
Retail (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,013,830 Coles Myer, Ltd. (Australia) (NON) 5,236,779
3,638,005 Tesco Plc (United Kingdom) 11,063,138
--------------
16,299,917
Steel (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
141,617 Pohang Iron & Steel Company, Ltd. ADR (South Korea) 4,956,595
268,961 SKF AB Class B (Sweden) 6,545,756
--------------
11,502,351
Telephone Services (9.2%)
- --------------------------------------------------------------------------------------------------------------------------
287,401 BCE, Inc. (Canada) 26,043,414
362,393 British Telecommunications Plc ADR (United Kingdom) 8,857,248
1,358,815 Cable & Wireless Plc (United Kingdom) 23,025,862
373,200 Carso Global Telecom (Mexico) (NON) 3,511,078
288,042 Hellenic Telecommunication Organization S.A. (Greece) 6,848,104
690,882 Mahanager Telephone GDR 144A (Indonesia) (NON) 7,858,783
419 Nippon Telegraph and Telephone Corp. (Japan) 7,176,061
1,408,730 Portugal Telecom S.A. (Portugal) 15,433,116
--------------
98,753,666
Tobacco (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
887,217 BAT Industries Plc (United Kingdom) 5,041,317
--------------
Total Common Stocks (cost $913,045,277) $1,029,293,300
UNITS (0.1%) (a) (NON) (cost $2,213,878)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
57,500 Ito-Yokado Co., Ltd./Seven-Eleven Japan Co., Structured
Stub Warrants (issued by Salomon Smith Barney
Holdings, Inc. Exp. 2/29/00) (Japan) $ 770,538
SHORT-TERM INVESTMENTS (3.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,700,000 U.S. Treasury BIll 5.04s, March 9, 2000 (SEG) $ 1,683,367
34,962,000 Interest in $578,946,000 joint repurchase agreement
dated December 31, 1999 with Morgan (J.P.) & Co., Inc.
due January 3, 2000 with respect to various
U.S. Treasury obligations -- maturity value of
$34,969,284 for an effective yield of 2.50%. 34,962,000
--------------
Total Short-Term Investments (cost $36,645,367) $ 36,645,367
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $951,904,522) (b) $1,066,709,205
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,069,939,985.
(b) The aggregate identified cost on a tax basis is $968,677,145, resulting in gross unrealized appreciation and
depreciation of $149,267,396 and $51,235,336, respectively, or net unrealized appreciation of $98,032,060.
(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, 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 custodian bank.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at December 31, 1999: (as percentage of Market Value)
Australia 4.6%
Brazil 1.0
Canada 8.1
France 12.4
Germany 3.1
Hong Kong 1.4
Indonesia 1.1
Ireland 1.7
Italy 4.6
Japan 20.5
Mexico 1.5
Netherlands 5.6
Portugal 1.5
South Korea 1.1
Spain 1.4
Sweden 2.7
Switzerland 2.4
United Kingdom 22.7
Other 2.6
------
Total 100.0%
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at December 31, 1999 (Unaudited)
Aggregate Face Delivery Unrealized
Market Value Value Date Depreciation
- -------------------------------------------------------------------------------
Japanese Yen $31,616,449 $31,656,185 3/9/00 $(39,736)
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at December 31, 1999 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- -------------------------------------------------------------------------------
Topix Index (Long) $33,006,851 $31,285,173 Mar-00 $1,721,678
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $951,904,522) (Note 1) $1,066,709,205
- -----------------------------------------------------------------------------------------------
Cash 192,847
- -----------------------------------------------------------------------------------------------
Foreign currency 1,113
- -----------------------------------------------------------------------------------------------
Dividends and other receivables 3,131,716
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,498,893
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 6,226,758
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 192,797
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 32,689
- -----------------------------------------------------------------------------------------------
Total assets 1,078,986,018
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 4,907,961
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 900,871
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,936,833
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 240,555
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 17,916
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,985
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 39,736
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 818,185
- -----------------------------------------------------------------------------------------------
Payable for organization expense (Note 1) 64,834
- -----------------------------------------------------------------------------------------------
Other accrued expenses 116,157
- -----------------------------------------------------------------------------------------------
Total liabilities 9,046,033
- -----------------------------------------------------------------------------------------------
Net assets $1,069,939,985
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $950,609,750
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (29,857,664)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 32,381,635
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 116,806,264
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,069,939,985
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($528,097,358 divided by 43,402,636 shares) $12.17
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $12.17)* $12.91
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($484,460,773 divided by 40,218,524 shares)** $12.05
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($17,128,073 divided by 1,411,260 shares)** $12.14
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($40,253,781 divided by 3,316,884 shares) $12.14
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $12.14)* $12.58
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended December 31, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $834,278) $ 9,936,330
- -----------------------------------------------------------------------------------------------
Interest 1,047,654
- -----------------------------------------------------------------------------------------------
Total investment income 10,983,984
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,810,217
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,042,599
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,995
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,917
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 624,723
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,343,570
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 67,324
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 144,862
- -----------------------------------------------------------------------------------------------
Amortization of organizational expenses (Note 1) 5,474
- -----------------------------------------------------------------------------------------------
Reports to shareholders 42,084
- -----------------------------------------------------------------------------------------------
Registration fees 36,723
- -----------------------------------------------------------------------------------------------
Auditing 36,808
- -----------------------------------------------------------------------------------------------
Legal 5,008
- -----------------------------------------------------------------------------------------------
Postage 55,546
- -----------------------------------------------------------------------------------------------
Other 104,584
- -----------------------------------------------------------------------------------------------
Total expenses 8,339,434
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (108,530)
- -----------------------------------------------------------------------------------------------
Net expenses 8,230,904
- -----------------------------------------------------------------------------------------------
Net investment income 2,753,080
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 56,452,140
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 3,329,032
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 2,931,054
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 32,360
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 34,080,250
- -----------------------------------------------------------------------------------------------
Net gain on investments 96,824,836
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $99,577,916
- -----------------------------------------------------------------------------------------------
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
1999* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 2,753,080 $ 4,748,298
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 62,712,226 81,831,321
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies 34,112,610 (6,464,816)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 99,577,916 80,114,803
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (12,974,668) (8,562,227)
- ---------------------------------------------------------------------------------------------------------------
Class B (10,643,817) (6,251,787)
- ---------------------------------------------------------------------------------------------------------------
Class C (369,344) (4,975)
- ---------------------------------------------------------------------------------------------------------------
Class M (899,162) (571,933)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (52,384,086) (17,231,317)
- ---------------------------------------------------------------------------------------------------------------
Class B (48,555,742) (17,184,367)
- ---------------------------------------------------------------------------------------------------------------
Class C (1,668,165) --
- ---------------------------------------------------------------------------------------------------------------
Class M (3,994,975) (1,524,471)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 141,199,182 68,971,565
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 109,287,139 97,755,291
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 960,652,846 862,897,555
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $29,857,664 and
$7,723,753, respectively) $1,069,939,985 $960,652,846
- ---------------------------------------------------------------------------------------------------------------
* 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 August 1, 1996+
operating performance (Unaudited) Year ended June 30 to June 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $12.59 $12.25 $10.76 $8.53
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .06 .11 .23 .15
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.22 .98 1.78 2.13
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.28 1.09 2.01 2.28
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.34) (.25) (.16) (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.36) (.50) (.36) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.70) (.75) (.52) (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.17 $12.59 $12.25 $10.76
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.34* 9.87 19.56 26.73*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $528,097 $469,726 $409,456 $157,990
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (c) .63* 1.30 1.36 1.52*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .46* .94 1.98 1.61*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 39.39* 88.09 53.57 70.25*
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements and brokerage service arrangements. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 August 1, 1996+
operating performance (Unaudited) Year ended June 30 to June 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $12.49 $12.18 $10.72 $8.53
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .01 .02 .14 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.21 .97 1.78 2.10
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.22 .99 1.92 2.20
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.30) (.18) (.10) (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.36) (.50) (.36) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.66) (.68) (.46) (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.05 $12.49 $12.18 $10.72
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 9.94* 9.04 18.68 25.80*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $484,461 $445,472 $414,609 $174,801
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (c) 1.01* 2.05 2.11 2.21*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .08* .19 1.21 1.03*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 39.39* 88.09 53.57 70.25*
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements and brokerage service arrangements. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 Feb. 1, 1999+
operating performance (Unaudited) to June 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $12.57 $11.10
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .01 .07
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.22 1.42
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.23 1.49
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.30) (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.36) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.66) (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.14 $12.57
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 9.98* 13.40*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $17,128 $9,163
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (c) 1.01* .84*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .11* .58*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 39.39* 88.09
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements and brokerage service arrangements. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 August 1, 1996+
operating performance (Unaudited) Year ended June 30 to June 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $12.55 $12.22 $10.74 $8.53
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .03 .05 .16 .12
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.23 .97 1.79 2.11
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.26 1.02 1.95 2.23
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.31) (.19) (.11) (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.36) (.50) (.36) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.67) (.69) (.47) (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.14 $12.55 $12.22 $10.74
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.20* 9.24 18.95 26.17*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $40,254 $36,291 $38,832 $17,105
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (c) .88* 1.80 1.86 1.98*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .21* .40 1.40 1.19*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 39.39* 88.09 53.57 70.25*
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements and brokerage service arrangements. (Note 2)
</TABLE>
Notes to financial statements
December 31, 1999 (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, class C 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 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 higher than class A shares but lower than class B and class C
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 that 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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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 sales price on its principal exchange, or if no sales are
reported -- as in 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. Other investments,
including restricted securities, 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). Gains or losses on securities sold are determined on
the identified cost basis.
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. Investments in foreign securities involve
certain risks, including those related to economic instability,
unfavorable political developments, and currency fluctuations, not present
with domestic investments.
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 ended December 31, 1999, 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. 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.
For the six months ended December 31, 1999, fund expenses were reduced by
$108,530 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 $1,189
has been allocated to the fund and an additional fee for each Trustees
meeting attended. 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 a 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 have approved
payment by the fund at 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 six months ended December 31, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $157,149 and $7,546 from
the sale of class A and class M shares, respectively, and received
$306,554 and $3,023 in contingent deferred sales charges from redemptions
of class B and class C shares, respectively. A deferred sales charge of up
to 1% is assessed on certain redemptions of class A shares. For the six
months ended December 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received $1,503 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended December 31, 1999, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $425,033,073 and $376,181,938, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At December 31, 1999, there were an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended December 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 15,786,977 $204,449,198
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,769,918 57,465,736
- -----------------------------------------------------------------------------
20,556,895 261,914,934
Shares
repurchased (14,478,346) (188,555,231)
- -----------------------------------------------------------------------------
Net increase 6,078,549 $ 73,359,703
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended December 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,021,496 $51,613,287
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,498,391 53,620,812
- -----------------------------------------------------------------------------
8,519,887 105,234,099
Shares
repurchased (3,980,131) (51,210,214)
- -----------------------------------------------------------------------------
Net increase 4,539,756 $54,023,885
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended December 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,027,309 $13,333,112
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 140,042 1,681,905
- -----------------------------------------------------------------------------
1,167,351 15,015,017
Shares
repurchased (485,034) (6,324,673)
- -----------------------------------------------------------------------------
Net increase 682,317 $ 8,690,344
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended December 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 791,786 $10,294,978
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 394,356 4,732,270
- -----------------------------------------------------------------------------
1,186,142 15,027,248
Shares
repurchased (760,548) (9,901,998)
- -----------------------------------------------------------------------------
Net increase 425,594 $ 5,125,250
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
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
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
SA024-58383 2CE/2CG/2CH 2/00
