N-30D 1 0001.txt PUTNAM FUNDS TRUST Putnam International Growth and Income Fund SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 12-31-00 [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Shareholder: The latter half of 2000 certainly tested the mettle of investors in most of the world's equity markets. The year that began with great optimism closed with most of these markets lower or only marginally higher than they had been the year before. Putnam International Growth and Income Fund also suffered negative performance but managed to outperform its benchmark. Seasoned long-term investors have come to understand that all markets experience occasional periods of turbulence . They also have learned that from such adversity often comes opportunity. As your fund's management team notes in the following report, they are continually seeking out opportunities that they believe represent potential future value for your fund. Your fund's managers caution that we may still be in for a bit more turbulence before global equity investors become convinced that the world's key economies are not headed for recession. However, investor perceptions are known for their tendency to turn on a dime, and we believe that at some point in the months ahead many of these uncertainties will diminish. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds February 21, 2001 REPORT FROM FUND MANAGEMENT Deborah F. Kuenstner George W. Stairs Colin Moore To quote American writer Sherwood Anderson, international markets were "beset by a ghostly band of doubts" during the final six months of calendar 2000, which were also the first six months of Putnam International Growth and Income Fund's fiscal year. Many highly-priced growth stocks posted negative results, foreign currencies weakened against the U.S. dollar, and rising energy prices seemed to unnerve investors worldwide. Fortunately, these doubts made international value stocks more attractive to investors because they offered defensive qualities, including low valuations and relatively steady earnings. International value stocks outshone their growth stock counterparts during this volatile period. Your fund, in particular, outperformed its benchmark and experienced a comparatively moderate loss against a backdrop of sharply negative results for many mutual funds. Total return for 6 months ended 12/31/00 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP ----------------------------------------------------------------------- -4.19% -9.70% -4.54% -8.85% -4.50% -5.36% -4.45% -7.78% Past performance is not indicative of future results. Performance information for longer periods and explanation of performance calculation methods begin on page 6. * INTERNATIONAL MARKET CONDITIONS STAYED VOLATILE During the summer of 2000, economic growth in Europe remained strong. As fuel prices increased, however, consumer confidence deteriorated. Protests over high gasoline prices in France, Germany, and the United Kingdom briefly disrupted fuel distribution and brought commuter traffic to a standstill. The fuel crisis in Europe spooked consumers enough to inhibit their spending in the fall, dragging retail sales volume lower in the United Kingdom and France. Currency did not fare well during the period -- the euro exchange rate was at its lowest level since the euro was launched two years ago and hurt fund returns with the exception of a brief recovery in December. [GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS* Banking 10.9% Insurance 9.3% Oil and gas 8.6% Pharmaceuticals 7.3% Electric utilities 6.3% Footnote reads: *Based on net assets as of 12/31/00. Holdings will vary over time. Outside of Europe, we kept a cautious eye on the pace of Japan's economic recovery, which remained sluggish throughout the period. The pace of its corporate restructuring also has been disappointing to many investors. However, we believe there are still attractive fundamentals to be found, especially in Japan's industrial, automotive, and consumer electronics businesses. These companies are focused on the bottom line, and seek to consolidate their industries with joint ventures and alliances. When the economic recession ends, and as the pace of corporate and regulatory change picks up, we believe Japan will provide some rewarding investment opportunities. * WITH UNCERTAINTY COMES OPPORTUNITY With these economic factors in mind, we continued to utilize our strategy of focusing on undervalued large-cap dividend-paying stocks that we believe are undergoing positive fundamental change. Our meticulous stock selection within these parameters helped the fund achieve favorable results in the period. Emphasis on stocks with low valuations kept the fund's exposure to the volatile technology and telecommunications services sectors relatively low, which protected the fund against undue risk. Our stock selection in these sectors was also successful. For example, BCE, Inc., Canada's largest telecommunications company, continued to be one of the fund's best performers during the period. Its core businesses of local and long distance lines and data continued to grow, as well as demand for Internet access. BCE's cellular telephony subsidiary, which leads the Canadian cellular phone market, raised prices and profits rose accordingly. Newly acquired subsidiary Teleglobe continued to expand its global broadband, data and Internet networks, which should make BCE's global positioning even more attractive. "The shift back to value now under way, if history is any guide, is in its early stages and will continue for some time. In my view, that means investors need to examine their portfolios to see if they are positioned to take advantage of this trend." -- James B. Stewart, SmartMoney.com November 21, 2000 Your fund's technology holdings were not immune from the sector's weakness, however. Fujitsu leads the Japanese software industry, but it suffered spending cutbacks during the volatile market period following Y2K transition. Another drawback is that its semiconductors business is under severe price pressure, due to slowing of volume growth. However, Fujitsu's silver lining may be in its telecommunications equipment business, which has been focused on research and development while it gears up for the rollout of its third-generation mobile internet-enabled equipment later this year. We believe Fujitsu is one of many over-sold, well-positioned technology companies in Japan that offer good value. Therefore we have increased our weighting in the sector to take advantage of the current price weakness. * CONTINUED CORPORATE RESTRUCTURING BENEFITED FUND Two of the better-performing sectors during the period were health care and financials. In health care, pharmaceutical stock holdings such as Astra-Zeneca continued to serve the fund well. This company was the result of a successful merger between the Swedish pharmaceutical company Astra and the British company Zeneca last year. Astra-Zeneca's gastrointestinal drug Prilosec is the world's top-selling prescription drug, and the company is hoping to follow up that success with Nexium, a comparably-priced faster-acting successor to Prilosec. We are optimistic that the company's upcoming patent expiration will be extended without problems. Astra-Zeneca's next star on the horizon is Crestor, the first of the next generation of cholestrol-lowering drugs. It is due to be launched next year. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS Astra-Zeneca Group PLC United Kingdom Pharmaceuticals Aventis S.A. France Pharmaceuticals BCE, Inc. Canada Telephone/telecommunications Koninklijke Philips Electronics NV Netherlands Technology E.On AG Germany Electric utilities Shell Transportation & Trading PLC United Kingdom Oil and gas Fortis NL Netherlands Financial Internationale Nederlanden Groep (ING) NV Netherlands Insurance Total Fina Elf S.A. Class B France Oil and gas Scottish Power PLC United Kingdom Electric utilities Footnote reads: These holdings represent 22.4% of the fund's net assets as of 12/31/00. Portfolio holdings will vary over time. In financials, there were a number of success stories, particularly with Royal Bank of Scotland, one of the fund's holdings. We bought this stock when its price tumbled in March following the announcement that it was acquiring National Westminster Bank (NatWest), one of the leading British banks. We were convinced that the acquisition of Nat West was well planned, and are pleased that it is being successfully executed. Royal Bank of Scotland is integrating its proven management practices into the Nat West banking systems to streamline services and to reduce costs. At the same time it is creating many opportunities for cross-selling financial services in both consolidated retail banking branch systems. A good example of our approach to undervalued companies is ING, the Dutch financial services company. Its new top management has initiated a program to consolidate its operations and to focus on its core retail financial services businesses. It bought Equitable of Iowa several years ago and put its CEO Fred Hubbell onto its Board. Recently it became a major player in the under-appreciated U.S. life and annuity business by acquiring Reliastar and Aetna Financial, at reasonable prices. Mr. Hubbell, now in charge of ING's Americas and Asia/Pacific operations, will lead the drive to integrate the combined back offices, while preserving and expanding the 3 separate distribution networks. We believe ING is poised to extend its record of strong profitable growth in the years ahead. * 2001: SIGNS OF A POSSIBLE VALUE TREND? Despite warnings from some economic pundits that the markets could be headed for a recession, we believe that recent performance in the technology sector is merely bringing these stocks into line with more realistic valuations. As the U.S. economy slows, relative valuations outside of the U.S. will be more attractive. In regard to sector weightings, we believe there are attractive valuations in the cyclical sectors. In addition to their current attractive valuations, these sectors (that are sensitive to the business cycle) may be poised to rally. The current round of interest rates starting in the U.S. will be followed by the major European communities, which will form a basis for strengthened economic growth in the second half of 2001. We are optimistic in our outlook for international value investing; mergers and acquisitions continue unabated, bringing companies the benefits of improved cost structures and wider global reach. International businesses also are continuing to embrace positive changes, such as restructurings, which strengthen their competitiveness and increase profits. While we anticipate that volatility will continue within the technology and telecommunications sectors, we are confident that the fund's conservative strategy should enable it to weather these conditions. In this environment, the market favors strong companies with steady revenues and cash flow that focus on improving shareholder value, exactly the kinds of stocks in which your fund invests. Your fund begins the second half of its fiscal 2001 well positioned to take advantage of the opportunities that an improving economic outlook can bring. 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 12/31/00, 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. A NOTE ABOUT DUPLICATE MAILINGS In response to investors' requests, the SEC has modified mailing regulations for semiannual and annual reports and prospectuses. Putnam is now able to send a single copy of these materials to customers who share the same address. This change will automatically apply to all shareholders except those who notify us. If you prefer to receive your own copy, please call Putnam at 1-800-225-1581. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy. Putnam International Growth and Income Fund is designed for investors seeking long-term growth of capital. Current income is a secondary objective. TOTAL RETURN FOR PERIODS ENDED 12/31/00 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 ------------------------------------------------------------------------------ 6 months -4.19% -9.70% -4.54% -8.85% -4.50% -5.36% -4.45% -7.78% ------------------------------------------------------------------------------ 1 year 1.02 -4.78 0.21 -4.31 0.30 -0.61 0.43 -3.08 ------------------------------------------------------------------------------ Life of fund 85.54 74.89 79.34 77.34 79.70 79.70 81.46 75.09 Annual average 15.01 13.48 14.13 13.84 14.18 14.18 14.43 13.51 ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/00 MSCI EAFE MSCI World Consumer Index Ex-U.S. Index* price index ------------------------------------------------------------------------- 6 months -10.53 -10.73% 1.22% ------------------------------------------------------------------------- 1 year -14.17 -13.37 3.38 ------------------------------------------------------------------------- Life of fund 39.11 41.54 11.01 Annual average 7.76 8.18 2.39 ------------------------------------------------------------------------- Past performance is no assurance of future results. More recent returns may be more or less than those shown. Returns for class A and class M shares reflect the current maximum initial sales charges of 5.75% and 3.50%, respectively. Class B share returns for the 1-year, 5- and 10-year, if available, and life-of-fund periods reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declines to 1% in the sixth year, and is eliminated thereafter. Returns shown for class B and class M shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect both the initial sales charge or CDSC, if any, currently applicable to each class and in the case of class B and class M shares the higher operating expenses applicable to such shares. 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 reflects an expense limitation currently or previously in effect, without which returns would have been lower. *The benchmark index for Putnam International Growth and Income Fund is changing to MSCI World Ex-U.S. Index. Putnam Investment Management has made changes to the benchmarks of several mutual funds to more accurately reflect the investment strategies of the funds. Prior to the change the funds were benchmarked to broad market indices rather than style-specific indices. In recent years, market dynamics have resulted in prolonged periods with either growth or value styles out of favor and the deviations in performance between the two styles and the broad market indices have become greater. As a result, broad market indices are not indicative of the kinds the returns that investors in style-based strategies may experience over one to two years periods. PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 12/31/00 Class A Class B Class C Class M --------------------------------------------------------------------------- Distributions (number) 2 2 2 2 --------------------------------------------------------------------------- Income $0.163 $0.127 $0.128 $0.133 --------------------------------------------------------------------------- Capital gains Long-term 0.646 0.646 0.646 0.646 --------------------------------------------------------------------------- Short-term 0.359 0.359 0.359 0.359 --------------------------------------------------------------------------- Total $1.168 $1.132 $1.133 $1.138 --------------------------------------------------------------------------- Share value: NAV POP NAV NAV NAV POP --------------------------------------------------------------------------- 6/30/00 $12.80 $13.58 $12.65 $12.75 $12.76 $13.22 --------------------------------------------------------------------------- 12/31/00 11.04 11.71 10.89 10.99 11.00 11.40 --------------------------------------------------------------------------- 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. Morgan Stanley Capital International (MSCI) World Ex-U.S. Index* is an unmanaged list of equity securities from Europe, Australasia, the Far East and the Americas with the exception of the United States. All values are expressed in U.S. dollars. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. *Securities indexes assume reinvestment of all distributions and interest payments and do not take into 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. 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.
THE FUND'S PORTFOLIO December 31, 2000 (Unaudited) COMMON STOCKS (96.8%) (a) NUMBER OF SHARES VALUE Aerospace/Defense (1.0%) ------------------------------------------------------------------------------------------------------------------- 1,958,193 BAE Systems PLC (United Kingdom) $ 11,171,824 Airlines (0.6%) ------------------------------------------------------------------------------------------------------------------- 264,100 Deutsche Lufthansa AG (Germany) 6,690,396 Automotive (2.9%) ------------------------------------------------------------------------------------------------------------------- 415,000 Honda Motor Co., Ltd. (Japan) 15,487,516 595,500 Hyundai Motor Co., Ltd. (Korea) 5,705,107 221,503 Valeo S.A. (France) 9,887,853 ------------- 31,080,476 Banking (10.9%) ------------------------------------------------------------------------------------------------------------------- 593,700 ABN AMRO Holding NV (Netherlands) 13,496,518 778,547 Australia & New Zealand Banking Group, Ltd. (Australia) 6,217,984 723,422 Bank of Nova Scotia (Canada) 20,813,740 424,851 Barclays PLC (United Kingdom) 13,147,150 426,767 DBS Group Holdings, Ltd. (Singapore) 4,826,678 481,597 National Bank of Canada (Canada) 8,531,788 884,000 Overseas-Chinese Banking Corp., Ltd. (Singapore) 6,580,265 489,972 Royal Bank of Scotland Group PLC (United Kingdom) 11,576,652 930,415 San Paolo SpA (Italy) 15,038,011 385,000 Toronto-Dominion Bank (Canada) 11,141,026 40,010 UBS AG (Switzerland) 6,532,497 ------------- 117,902,309 Beverage (2.9%) ------------------------------------------------------------------------------------------------------------------- 1,154,090 Bass PLC (United Kingdom) 12,565,288 1,096,222 Diageo PLC (United Kingdom) 12,279,057 2,007,334 Fomento Economico Mexicano, S.A. de C.V. (Mexico) 6,000,467 ------------- 30,844,812 Chemicals (5.5%) ------------------------------------------------------------------------------------------------------------------- 344,637 Akzo-Nobel N.V. (Netherlands) 18,502,844 567,499 BOC Group PLC (United Kingdom) 8,619,683 156,591 Henkel KGaA (Germany) 8,892,067 956,800 Rhodia S.A. (France) 14,817,866 1,559,000 Teijin, Ltd. (Japan) 8,057,906 ------------- 58,890,366 Communications Equipment (1.6%) ------------------------------------------------------------------------------------------------------------------- 296,166 Alcatel (France) 16,817,875 Computers (2.5%) ------------------------------------------------------------------------------------------------------------------- 699,000 Fujitsu, Ltd. (Japan) 10,312,011 530,000 NEC Corp. (Japan) 9,703,898 1,048,000 Toshiba Corp. (Japan) 7,014,209 ------------- 27,030,118 Conglomerates (3.0%) ------------------------------------------------------------------------------------------------------------------- 311,765 Canadian Pacific, Ltd. (Canada) 8,876,426 2,633,813 Cookson Group PLC (United Kingdom) 6,923,136 1,355,950 Smiths Industries PLC (United Kingdom) 16,362,900 ------------- 32,162,462 Construction (1.4%) ------------------------------------------------------------------------------------------------------------------- 342,943 CRH PLC (Ireland) 6,379,786 105,700 Lafarge SA (France) 8,859,455 ------------- 15,239,241 Consumer Finance (1.8%) ------------------------------------------------------------------------------------------------------------------- 99,175 Aiful Corp. (Japan) 8,106,025 157,700 Promise Co., Ltd. (Japan) 11,190,276 ------------- 19,296,301 Consumer Goods (0.7%) ------------------------------------------------------------------------------------------------------------------- 678,000 Shiseido Co., Ltd. (Japan) 7,572,930 Electric Utilities (6.3%) ------------------------------------------------------------------------------------------------------------------- 408,516 E.On AG (Germany) 24,846,466 2,539,768 Hong Kong Electric Holdings, Ltd. (Hong Kong) 9,378,326 1,313,095 Scottish & Southern Energy PLC (United Kingdom) 12,158,866 2,694,629 Scottish Power PLC (United Kingdom) 21,289,226 ------------- 67,672,884 Electrical Equipment (2.6%) ------------------------------------------------------------------------------------------------------------------- 6,975,539 Invensys PLC (United Kingdom) 16,304,119 164,310 Schneider Electric S.A. (France) 11,983,000 ------------- 28,287,119 Electronics (2.0%) ------------------------------------------------------------------------------------------------------------------- 20,900 Hirose Electric Co., Ltd. (Japan) 2,014,017 21,032 Swatch Group AG (The) (Switzerland) 5,491,689 2,469,520 Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan) (NON) 5,935,090 82,000 TDK Corp. (Japan) 7,988,086 ------------- 21,428,882 Financial (2.2%) ------------------------------------------------------------------------------------------------------------------- 716,304 Fortis NL (Netherlands) 23,262,374 Food (1.6%) ------------------------------------------------------------------------------------------------------------------- 7,607 Nestle S.A. (Switzerland) 17,749,667 Insurance (9.3%) ------------------------------------------------------------------------------------------------------------------- 47,272 Allianz AG (Germany) 17,778,858 1,642,080 AMP, Ltd. (Australia) 18,441,779 78,009 Axa S.A. (France) 11,275,764 285,379 Internationale Nederlanden Groep (ING) NV (Netherlands) 22,789,251 13,600 Muenchener Rueckversicherungs AG (Germany) 4,850,685 13,000 Muenchener Rueckversicherungs AG 144A (Germany) 4,636,684 34,544 Zurich Financial Services AG (Switzerland) 20,833,017 ------------- 100,606,038 Investment Banking/Brokerage (2.3%) ------------------------------------------------------------------------------------------------------------------- 2,052,000 Nikko Securities Co., Ltd. (Japan) 15,909,067 491,000 Nomura Securities Co., Ltd. (Japan) 8,839,290 ------------- 24,748,357 Manufacturing (0.8%) ------------------------------------------------------------------------------------------------------------------- 599,263 SKF AB Class B (Sweden) 9,055,191 Metals (0.2%) ------------------------------------------------------------------------------------------------------------------- 135,500 Pohang Iron & Steel Company, Ltd. ADR (Korea) 2,108,719 Office Equipment & Supplies (1.0%) ------------------------------------------------------------------------------------------------------------------- 300,000 Canon, Inc. (Japan) 10,512,484 Oil & Gas (8.6%) ------------------------------------------------------------------------------------------------------------------- 282,600 Alberta Energy Company, Ltd. (Canada) 13,513,606 1,255,360 BP Amoco PLC (United Kingdom) 10,124,353 2,915,780 Ente Nazionale Idrocarburi (ENI) SpA (Italy) 18,609,908 186,778 Petroleo Brasileiro ADR (Brazil) (NON) 4,716,145 2,997,474 Shell Transportation & Trading PLC (United Kingdom) 24,577,234 146,373 TotalFinaElf S.A. Class B (France) 21,761,895 ------------- 93,303,141 Paper & Forest Products (2.3%) ------------------------------------------------------------------------------------------------------------------- 1,373,124 Abitibi-Consolidated, Inc. (Canada) 12,620,121 6,149,826 Jefferson Smurfit Group PLC (Ireland) 11,986,119 ------------- 24,606,240 Pharmaceuticals (7.3%) ------------------------------------------------------------------------------------------------------------------- 557,780 Astra-Zeneca Group PLC (United Kingdom) 28,115,250 289,234 Aventis S.A. (France) 25,382,916 504,069 GlaxoSmithKline PLC (United Kingdom) (NON) 14,228,431 246,000 Yamanouchi Pharmaceutical Co., Ltd. (Japan) 10,645,992 ------------- 78,372,589 Photography/Imaging (0.7%) ------------------------------------------------------------------------------------------------------------------- 416,000 Ricoh Co., Ltd. (Japan) 7,689,531 Publishing (0.7%) ------------------------------------------------------------------------------------------------------------------- 500,000 Dai Nippon Printing Co., Ltd. (Japan) 7,450,723 Restaurants (1.9%) ------------------------------------------------------------------------------------------------------------------- 1,872,211 Granada Compass PLC (United Kingdom) 20,369,932 Retail (0.8%) ------------------------------------------------------------------------------------------------------------------- 591,000 Marui Co., Ltd. (Japan) 8,931,012 Software (1.4%) ------------------------------------------------------------------------------------------------------------------- 1,585,519 Misys PLC (United Kingdom) 15,628,619 Technology (2.3%) ------------------------------------------------------------------------------------------------------------------- 680,377 Koninklijke Philips Electronics NV (Netherlands) 24,918,244 Telecommunications (5.4%) ------------------------------------------------------------------------------------------------------------------- 1,217,388 Cable & Wireless PLC (United Kingdom) 16,418,066 627,282 Mahanager Telephone GDR 144A (India) 4,955,528 2,897 Nippon Telegraph and Telephone Corp. (Japan) 20,886,820 4,346,758 Vodafone Group PLC (United Kingdom) 15,937,573 -------------- 58,197,987 Telephone (2.3%) ------------------------------------------------------------------------------------------------------------------- 865,700 BCE, Inc. (Canada) 25,051,194 -------------- Total Common Stocks (cost $988,669,627) $1,044,650,037 UNITS (0.4%) (a) (cost $4,169,943) NUMBER OF UNITS VALUE ------------------------------------------------------------------------------------------------------------------- 168,700 Nortel Networks Structured Warrants expiration March 26, 2001 (issued by Salomon Smith Barney Holding, Inc.) (Canada) $ 4,141,585 SHORT-TERM INVESTMENTS (3.0%) (a) (cost $31,922,000) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $31,922,000 Interest in $1,000,000,000 joint repurchase agreement dated December 29, 2000 with Merrill Lynch. Pierce, Fenner & Smith, Inc. due January 2, 2001 with respect to various U.S. Government obligations -- maturity value of $31,944,700 for an effective yield of 6.40% $ 31,922,000 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,024,761,570) (b) $1,080,713,622 ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $1,078,738,236. (b) The aggregate identified cost on a tax basis is $1,043,879,352, resulting in gross unrealized appreciation and depreciation of $121,886,450 and $85,052,180, respectively, or net unrealized appreciation of $36,834,270. (NON) Non-income-producing security. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR or 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 December 31, 2000: (as percentage of Market Value) Australia 2.3% Canada 9.3 France 11.2 Germany 6.3 Ireland 1.7 Italy 3.1 Japan 16.5 Netherlands 9.5 Singapore 1.1 Switzerland 4.7 United Kingdom 26.6 United States 3.3 Other 4.4 ------ Total 100.0% ------------------------------------------------------------------------------ Forward Currency Contracts to Buy at December 31, 2000 (Unaudited) Aggregate Face Delivery Unrealized Market Value Value Date Appreciation ------------------------------------------------------------------------------ Euro Dollar $87,439,432 $79,774,160 1/18/01 $7,665,272 ------------------------------------------------------------------------------ Forward Currency Contracts to Sell at December 31, 2000 (Unaudited) (aggregate face value $64,311,416) Unrealized Market Aggregate Face Delivery Appreciation/ Value Value Date (Depreciation) ------------------------------------------------------------------------------ British Pound $32,777,568 $31,784,000 3/21/01 $(993,568) Canadian Dollar 32,349,021 32,527,416 2/12/01 178,395 ------------------------------------------------------------------------------ $(815,173) ------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES December 31, 2000 (Unaudited) Assets --------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $1,024,761,570) (Note1) $1,080,713,622 --------------------------------------------------------------------------------------------- Cash 101 --------------------------------------------------------------------------------------------- Foreign currency (cost $861,088) 1,003,792 --------------------------------------------------------------------------------------------- Dividends and other receivables 2,344,604 --------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 3,519,525 --------------------------------------------------------------------------------------------- Receivable for securities sold 4,766,454 --------------------------------------------------------------------------------------------- Receivable for open forward currency contracts 7,843,667 --------------------------------------------------------------------------------------------- Unamortized organization expenses (Note 1) 12,327 --------------------------------------------------------------------------------------------- Total assets 1,100,204,092 Liabilities --------------------------------------------------------------------------------------------- Payable for securities purchased 7,571,326 --------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 9,663,524 --------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 1,945,823 --------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 354,935 --------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 27,276 --------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 4,344 --------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 755,338 --------------------------------------------------------------------------------------------- Payable for organization expense (Note 1) 64,834 --------------------------------------------------------------------------------------------- Payable for open forward currency contracts 993,568 --------------------------------------------------------------------------------------------- Other accrued expenses 84,888 --------------------------------------------------------------------------------------------- Total liabilities 21,465,856 --------------------------------------------------------------------------------------------- Net assets $1,078,738,236 Represented by --------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $1,055,157,250 --------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (17,035,644) --------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (22,502,644) --------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 63,119,274 --------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $1,078,738,236 Computation of net asset value and offering price --------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($558,653,185 divided by 50,594,747 shares) $11.04 --------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $11.04)* $11.71 --------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($452,601,398 divided by 41,543,606 shares)** $10.89 --------------------------------------------------------------------------------------------- Net asset value and offering price per class C share ($27,686,737 divided by 2,518,655)** $10.99 --------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($36,684,762 divided by 3,334,687 shares) $11.00 --------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $11.00)* $11.40 --------------------------------------------------------------------------------------------- Net asset value and redemption price per class Y share ($3,112,154 divided by 281,853 shares) $11.04 --------------------------------------------------------------------------------------------- * 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.
STATEMENT OF OPERATIONS Six months ended December 31, 2000 (Unaudited) Investment income: ------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $1,127,271) $ 8,695,339 ------------------------------------------------------------------------------------------- Interest 1,105,077 ------------------------------------------------------------------------------------------- Total investment income 9,800,416 Expenses: ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 3,997,545 ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 1,108,226 ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 11,805 ------------------------------------------------------------------------------------------- Administrative services (Note 2) 4,221 ------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 694,638 ------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 2,272,407 ------------------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 118,069 ------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 140,818 ------------------------------------------------------------------------------------------- Amortization of organizational expenses (Note 1) 8,481 ------------------------------------------------------------------------------------------- Other 321,544 ------------------------------------------------------------------------------------------- Total expenses 8,677,754 ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (548,062) ------------------------------------------------------------------------------------------- Net expenses 8,129,692 ------------------------------------------------------------------------------------------- Net investment income 1,670,724 ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (11,173,104) ------------------------------------------------------------------------------------------- Net realized loss on futures contracts (Note 1) (202,960) ------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (7,521,905) ------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 7,510,932 ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and futures during the period (39,385,572) ------------------------------------------------------------------------------------------- Net loss on investments (50,772,609) ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(49,101,885) ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Six months ended Year ended December 31 June 30 2000* 2000 -------------------------------------------------------------------------------------------------- Increase (decrease) in net assets -------------------------------------------------------------------------------------------------- Operations: -------------------------------------------------------------------------------------------------- Net investment income $ 1,670,724 $ 6,669,507 -------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments and foreign currency transactions (18,897,969) 137,580,858 -------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies (31,874,640) 12,300,260 -------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (49,101,885) 156,550,625 -------------------------------------------------------------------------------------------------- Distributions to shareholders: -------------------------------------------------------------------------------------------------- From net investment income Class A (7,478,720) (7,374,706) -------------------------------------------------------------------------------------------------- Class B (4,773,784) (5,480,410) -------------------------------------------------------------------------------------------------- Class C (273,370) (190,172) -------------------------------------------------------------------------------------------------- Class M (399,743) (462,972) -------------------------------------------------------------------------------------------------- Class Y (38,963) -- -------------------------------------------------------------------------------------------------- In excess of net investment income Class A -- (6,948,131) -------------------------------------------------------------------------------------------------- Class B -- (5,163,407) -------------------------------------------------------------------------------------------------- Class C -- (179,172) -------------------------------------------------------------------------------------------------- Class M -- (436,191) -------------------------------------------------------------------------------------------------- From net realized gain on investments Class A (46,124,906) (52,384,086) -------------------------------------------------------------------------------------------------- Class B (37,776,791) (48,555,741) -------------------------------------------------------------------------------------------------- Class C (2,146,383) (1,668,165) -------------------------------------------------------------------------------------------------- Class M (3,020,615) (3,994,975) -------------------------------------------------------------------------------------------------- Class Y (254,273) -- -------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 95,536,473 150,225,853 -------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (55,852,960) 173,938,350 Net assets -------------------------------------------------------------------------------------------------- Beginning of period 1,134,591,196 960,652,846 -------------------------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $17,035,644 and $5,741,788, respectively) $1,078,738,236 $1,134,591,196 -------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
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 ----------------------------------------------------------------------------------------------------- 2000 2000 1999 1998 1997 ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $12.80 $12.59 $12.25 $10.76 $8.53 ----------------------------------------------------------------------------------------------------- Investment operations ----------------------------------------------------------------------------------------------------- Net investment income (a) .04 .13 .11 .23 .15 ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.63) 1.81 .98 1.78 2.13 ----------------------------------------------------------------------------------------------------- Total from investment operations (.59) 1.94 1.09 2.01 2.28 ----------------------------------------------------------------------------------------------------- Less distributions: ----------------------------------------------------------------------------------------------------- From net investment income (.16) (.20) (.25) (.16) (.05) ----------------------------------------------------------------------------------------------------- In excess of net investment income -- (.17) -- -- -- ----------------------------------------------------------------------------------------------------- From net realized gain on investments (1.01) (1.36) (.50) (.36) -- ----------------------------------------------------------------------------------------------------- Total distributions (1.17) (1.73) (.75) (.52) (.05) ----------------------------------------------------------------------------------------------------- Net asset value, end of period $11.04 $12.80 $12.59 $12.25 $10.76 ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (4.19)* 16.33 9.87 19.56 26.73* ----------------------------------------------------------------------------------------------------- Ratios and supplemental data ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $558,653 $582,386 $469,726 $409,456 $157,990 ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .65* 1.28 1.30 1.36 1.52* ----------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) .33* 1.02 .94 1.98 1.61* ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 39.80* 82.07 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).
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 ----------------------------------------------------------------------------------------------------- 2000 2000 1999 1998 1997 ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $12.65 $12.49 $12.18 $10.72 $8.53 ----------------------------------------------------------------------------------------------------- Investment operations ----------------------------------------------------------------------------------------------------- Net investment income (a) -- (d) .03 .02 .14 .10 ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.62) 1.79 .97 1.78 2.10 ----------------------------------------------------------------------------------------------------- Total from investment operations (.62) 1.82 .99 1.92 2.20 ----------------------------------------------------------------------------------------------------- Less distributions: ----------------------------------------------------------------------------------------------------- From net investment income (.13) (.15) (.18) (.10) (.01) ----------------------------------------------------------------------------------------------------- In excess of net investment income -- (.15) -- -- -- ----------------------------------------------------------------------------------------------------- From net realized gain on investments (1.01) (1.36) (.50) (.36) -- ----------------------------------------------------------------------------------------------------- Total distributions (1.14) (1.66) (.68) (.46) (.01) ----------------------------------------------------------------------------------------------------- Net asset value, end of period $10.89 $12.65 $12.49 $12.18 $10.72 ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (4.54)* 15.41 9.04 18.68 25.80* ----------------------------------------------------------------------------------------------------- Ratios and supplemental data ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $452,601 $488,654 $445,472 $414,609 $174,801 ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.02* 2.03 2.05 2.11 2.21* ----------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) (.04)* .25 .19 1.21 1.03* ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 39.80* 82.07 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). (d) Amount represents less than $0.01 per share.
FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) CLASS C --------------------------------------------------------------------------- Six months ended Year For the period Per-share December 31 ended Feb. 1, 1999+ operating performance (Unaudited) June 30 to June 30 --------------------------------------------------------------------------- 2000 2000 1999 --------------------------------------------------------------------------- Net asset value, beginning of period $12.75 $12.57 $11.10 --------------------------------------------------------------------------- Investment operations --------------------------------------------------------------------------- Net investment income (loss)(a) (.01) .04 .07 --------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.61) 1.80 1.42 --------------------------------------------------------------------------- Total from investment operations (.62) 1.84 1.49 --------------------------------------------------------------------------- Less distributions: --------------------------------------------------------------------------- From net investment income (.13) (.15) (.02) --------------------------------------------------------------------------- In excess of net investment income -- (.15) -- --------------------------------------------------------------------------- From net realized gain on investments (1.01) (1.36) -- --------------------------------------------------------------------------- Total distributions (1.14) (1.66) (.02) --------------------------------------------------------------------------- Net asset value, end of period $10.99 $12.75 $12.57 --------------------------------------------------------------------------- Total return at net asset value (%)(b) (4.50)* 15.50 13.40* --------------------------------------------------------------------------- Ratios and supplemental data --------------------------------------------------------------------------- Net assets, end of period (in thousands) $27,687 $22,903 $9,163 --------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.02* 2.03 .84* --------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) (.05)* .34 .58* --------------------------------------------------------------------------- Portfolio turnover (%) 39.80* 82.07 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).
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 ----------------------------------------------------------------------------------------------------- 2000 2000 1999 1998 1997 ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $12.76 $12.55 $12.22 $10.74 $8.53 ----------------------------------------------------------------------------------------------------- Investment operations ----------------------------------------------------------------------------------------------------- Net investment income (a) .01 .06 .05 .16 .12 ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.63) 1.82 .97 1.79 2.11 ----------------------------------------------------------------------------------------------------- Total from investment operations (.62) 1.88 1.02 1.95 2.23 ----------------------------------------------------------------------------------------------------- Less distributions: ----------------------------------------------------------------------------------------------------- From net investment income (.13) (.16) (.19) (.11) (.02) ----------------------------------------------------------------------------------------------------- In excess of net investment income -- (.15) -- -- -- ----------------------------------------------------------------------------------------------------- From net realized gain on investments (1.01) (1.36) (.50) (.36) -- ----------------------------------------------------------------------------------------------------- Total distributions (1.14) (1.67) (.69) (.47) (.02) ----------------------------------------------------------------------------------------------------- Net asset value, end of period $11.00 $12.76 $12.55 $12.22 $10.74 ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (4.45)* 15.83 9.24 18.95 26.17* ----------------------------------------------------------------------------------------------------- Ratios and supplemental data ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $36,685 $40,648 $36,291 $38,832 $17,105 ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .89* 1.78 1.80 1.86 1.98* ----------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) .09* .51 .40 1.40 1.19* ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 39.80* 82.07 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).
FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) CLASS Y ------------------------------------------------- For the period October 2, 2000+ Per-share to December 31 operating performance (Unaudited) ------------------------------------------------- 2000 ------------------------------------------------- Net asset value, beginning of period $11.75 ------------------------------------------------- Investment operations ------------------------------------------------- Net investment income (a) .02 ------------------------------------------------- Net realized and unrealized gain on investments .43 ------------------------------------------------- Total from investment operations .45 ------------------------------------------------- Less distributions: ------------------------------------------------- From net investment income (.15) ------------------------------------------------- In excess of net investment income -- ------------------------------------------------- From net realized gain on investments (1.01) ------------------------------------------------- Total distributions (1.16) ------------------------------------------------- Net asset value, end of period $11.04 ------------------------------------------------- Total return at net asset value (%)(b) 4.29* ------------------------------------------------- Ratios and supplemental data ------------------------------------------------- Net assets, end of period (in thousands) $3,112 ------------------------------------------------- Ratio of expenses to average net assets (%)(c) .25* ------------------------------------------------- Ratio of net investment income to average net assets (%) .17* ------------------------------------------------- Portfolio turnover (%) 39.80 ------------------------------------------------- + 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).
NOTES TO FINANCIAL STATEMENTS December 31, 2000 (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, class M and class Y shares. The fund began offering class Y shares on October 2, 2000. 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. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C and class M shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that invest at least $150 million in a combination of Putnam funds and other accounts managed by affiliates of Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam Investments, LLC. 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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in 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 Management. 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. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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. These contracts are used to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. H) Line of credit The fund has entered into a committed line of credit with certain banks. This line of credit agreement includes restrictions that the fund maintain an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the six months ended December 31, 2000, 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 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, LLC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. The fund also reduced expenses through brokerage service arrangements. For the six months ended December 31, 2000, the fund's expenses were reduced by $548,062 under these arrangements." Each independent Trustee of the fund receives an annual Trustee fee, of which $1,641 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 Retail Management, Inc., a wholly-owned subsidiary of Putnam Investments LLC, for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management, Inc. 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, 2000, Putnam Retail Management, Inc., acting as underwriter received net commissions of $149,666 and $3,261 from the sale of class A and class M shares, respectively, and received $266,224 and 1,140 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, 2000, Putnam Retail Management, Inc., acting as underwriter received $14,422 on class A redemptions. Note 3 Purchases and sales of securities During the six months ended December 31, 2000, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $406,306,601 and $413,850,877, respectively. There were no purchases and sales of U.S. government obligations. Note 4 Capital shares At December 31, 2000, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended December 31, 2000 --------------------------------------------------------------------------- Class A Shares Amount --------------------------------------------------------------------------- Shares sold 23,490,902 $ 280,267,425 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 4,664,588 49,220,014 --------------------------------------------------------------------------- 28,155,490 329,487,439 Shares repurchased (23,068,544) (275,889,704) --------------------------------------------------------------------------- Net increase 5,086,946 $ 53,597,735 --------------------------------------------------------------------------- Year ended June 30, 2000 --------------------------------------------------------------------------- Class A Shares Amount --------------------------------------------------------------------------- Shares sold 39,521,548 $ 489,707,477 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 4,865,158 58,637,537 --------------------------------------------------------------------------- 44,386,706 548,345,014 Shares repurchased (36,202,992) (450,364,719) --------------------------------------------------------------------------- Net increase 8,183,714 $ 97,980,295 --------------------------------------------------------------------------- Six months ended December 31, 2000 --------------------------------------------------------------------------- Class B Shares Amount --------------------------------------------------------------------------- Shares sold 2,776,161 $ 32,349,429 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 3,721,159 38,700,060 --------------------------------------------------------------------------- 6,497,320 71,049,489 Shares repurchased (3,572,958) (41,821,012) --------------------------------------------------------------------------- Net increase 2,924,362 $ 29,228,477 --------------------------------------------------------------------------- Year ended June 30, 2000 --------------------------------------------------------------------------- Class B Shares Amount --------------------------------------------------------------------------- Shares sold 8,200,397 $ 101,429,906 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 4,497,245 53,607,145 --------------------------------------------------------------------------- 12,697,642 155,037,051 Shares repurchased (9,757,166) (119,736,468) --------------------------------------------------------------------------- Net increase 2,940,476 $ 35,300,583 --------------------------------------------------------------------------- Six months ended December 31, 2000 --------------------------------------------------------------------------- Class C Shares Amount --------------------------------------------------------------------------- Shares sold 873,415 $10,111,177 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 196,386 2,062,055 --------------------------------------------------------------------------- 1,069,801 12,173,232 Shares repurchased (347,363) (4,065,940) --------------------------------------------------------------------------- Net increase 722,438 $ 8,107,292 --------------------------------------------------------------------------- Year ended June 30, 2000 --------------------------------------------------------------------------- Class C Shares Amount --------------------------------------------------------------------------- Shares sold 1,766,149 $ 22,209,445 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 139,826 1,679,314 --------------------------------------------------------------------------- 1,905,975 23,888,759 Shares repurchased (838,701) (10,543,328) --------------------------------------------------------------------------- Net increase 1,067,274 $ 13,345,431 --------------------------------------------------------------------------- Six months ended December 31, 2000 --------------------------------------------------------------------------- Class M Shares Amount --------------------------------------------------------------------------- Shares sold 769,944 $ 9,098,266 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 314,488 3,302,121 --------------------------------------------------------------------------- 1,084,432 12,400,387 Shares repurchased (936,093) (11,105,795) --------------------------------------------------------------------------- Net increase 148,339 $ 1,294,592 --------------------------------------------------------------------------- Year ended June 30, 2000 --------------------------------------------------------------------------- Class M Shares Amount --------------------------------------------------------------------------- Shares sold 2,053,808 $ 25,485,200 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 394,356 4,732,271 --------------------------------------------------------------------------- 2,448,164 30,217,471 Shares repurchased (2,153,106) (26,617,927) --------------------------------------------------------------------------- Net increase 295,058 $ 3,599,544 --------------------------------------------------------------------------- For the period October 2, 2000 (commencement of operations) to December 31, 2000 --------------------------------------------------------------------------- Class Y Shares Amount --------------------------------------------------------------------------- Shares sold 443,064 $ 5,179,658 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 27,822 293,236 --------------------------------------------------------------------------- 470,886 5,472,894 Shares repurchased (189,033) (2,164,517) --------------------------------------------------------------------------- Net increase 281,853 $ 3,308,377 --------------------------------------------------------------------------- Note 5 New accounting pronouncement In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits of Investment Companies, which is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the fund to amortize premium and accrete discount on all fixed-income securities, and classify as interest income gains and losses realized on paydowns on mortgage-backed securities which are presently included in realized gain/loss. Adopting these accounting principles will not affect the fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of operations. The adoption of this principle will not be material to the financial statements. OUR COMMITMENT TO QUALITY SERVICE * CHOOSE AWARD-WINNING SERVICE Putnam has won the DALBAR Service Award 10 times in the past 11 years. In 1997, 1998 and 2000, Putnam won all 3 DALBAR awards -- for service to investors, to financial advisors, and to variable annuity contract holders.* * HELP YOUR INVESTMENTS GROW Set up a systematic program for investing with as little as $25 a month from a Putnam money market fund or from your checking or savings account.+ * SWITCH FUNDS EASILY Within the same class of shares, you can move money from one account to another without a service charge. (This privilege is subject to change or termination.) * ACCESS YOUR MONEY QUICKLY You can get checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than the original cost of the shares. For details about any of these or other services, contact your financial advisor or call the toll-free number shown below and speak with a helpful Putnam representative. To learn more about Putnam, visit our Web site. www.putnaminvestments.com To make an additional investment in this or any other Putnam fund, contact your financial advisor or call our toll-free number. 1-800-225-1581 * DALBAR, Inc., an independent research firm, presents the awards to financial services firms that provide consistently excellent service. + Regular investing, of course, does not guarantee a profit or protect against a loss in a declining market. WELCOME TO WWW.PUTNAMINVESTMENTS.COM Now you can use your PC to get up-to-date information about your funds, learn more about investing and retirement planning, and access market news and economic outlooks from Putnam. VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR: * the benefits of investing with Putnam * Putnam's money management philosophy * complete fund information, daily pricing and long-term performance * your current account value, portfolio value and transaction history * the latest on new funds and other Putnam news You can also read Putnam economist Dr. Robert Goodman's commentary and Putnam's Capital Markets outlook, search for a particular fund by name or objective, use our glossary to decode investment terms . . . and much more. The site can be accessed through any of the major online services (America Online, CompuServe, Prodigy) that offer web access. Of course, you can also access it via Netscape or Microsoft Internet Explorer, using an independent Internet service provider. New features will be added to the site regularly. So be sure to bookmark us at http://www.putnaminvestments.com THE PUTNAM FAMILY OF FUNDS The following is a complete list of Putnam's open-end mutual funds. Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund Capital Opportunities Fund Europe Growth Fund Global Equity Fund Global Growth Fund Global Natural Resources Fund Growth Opportunities Fund Health Sciences Trust International Growth Fund International New Opportunities Fund Investors Fund New Century Growth Fund New Opportunities Fund OTC & Emerging Growth Fund Research Fund Tax Smart Equity Fund Technology Fund Vista Fund Voyager Fund Voyager Fund II GROWTH AND INCOME FUNDS Balanced Fund Balanced Retirement Fund Classic Equity Fund * Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston Global Growth and Income Fund The Putnam Fund for Growth and Income International Growth and Income Fund Mid Cap Value Fund New Value Fund Small Cap Value Fund Utilities Growth and Income Fund INCOME FUNDS American Government Income Fund Diversified Income Trust Global Governmental Income Trust High Yield Advantage Fund [DBL. DAGGER] High Yield Trust [DBL. DAGGER] High Yield Trust II Income Fund Intermediate U.S. Government Income Fund Money Market Fund ** Preferred Income Fund Strategic Income Fund U.S. Government Income Trust TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax Exempt Money Market Fund ** Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds [SECTION MARK] Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania State tax-free money market funds [SECTION MARK] ** California, New York ASSET ALLOCATION FUNDS Putnam Asset Allocation Funds--three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio * Formerly Putnam Growth and Income Fund II [DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact Putnam for details. [SECTION MARK] Not available in all states. ** An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve your investment at $1.00 per share, it is possible to lose money by investing in the fund. Check your account balances and current performance at www.putnaminvestments.com. FUND INFORMATION WEB SITE www.putnaminvestments.com INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management, Inc. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES John A. Hill, Chairman Jameson A. 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, III 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 Deborah F. Kuenstner Vice President and Fund Manager George W. Stairs Vice President and Fund Manager Colin Moore Vice President and Fund Manager Richard A. Monaghan Vice President Richard G. Leibovitch 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 and Putnam's Quarterly Ranking 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.putnaminvestments.com. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 --------------------- PRST STD U.S. POSTAGE PAID PUTNAM INVESTMENTS --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com SA024 68400 2CE/2CG/2CH 2/01 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] ---------------------------------------------------------------------------- Putnam International Growth and Income Fund Supplement to semiannual Report dated 12/31/00 The following information has been prepared to provide class Y shareholders with a performance overview specific to their holdings. Class Y shares are offered exclusively to defined contribution plans investing $150 million or more in one or more of Putnam's funds or private accounts. Performance of class Y shares, which incur neither a front-end load, distribution fee, nor contingent deferred sales charge, will differ from performance of class A, B, C, and M shares, which are discussed more extensively in the annual report. SEMIANNUAL RESULTS AT A GLANCE ---------------------------------------------------------------------------- Total return for periods ended 12/31/00 NAV 6 months -4.14% 1 year 1.07 Life of fund (since class A inception, 8/1/96) 85.64 Annual average 15.02 Share value: NAV 6/30/00 $12.80 12/31/00 $11.04 ---------------------------------------------------------------------------- Distributions: No. Income Capital gains Total 2 $0.169 $1.041 $1.174 ---------------------------------------------------------------------------- Please note that past performance is not indicative of future results. More recent returns may be more or less than those shown. Returns shown for class Y shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect the initial sales charge currently applicable to class A shares. These returns have not been adjusted to reflect differences in operating expenses which, for class Y shares, typically are lower than the operating expenses applicable to class A shares. All returns assume reinvestment of distributions at net asset value. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. See full report for information on comparative benchmarks. If you have questions, please consult your fund prospectus or call Putnam toll free at 1-800-752-9894. Putnam New Century Growth Fund SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 12-31-00 [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Shareholder: We would be less than candid if we did not acknowledge the concerns of many shareholders over the stock market's performance during the latter half of 2000. Indeed, some time may have to pass before equity investors can look back comfortably over the period. Putnam New Century Growth Fund's results reflect the market's turbulence during the semiannual period. Not surprisingly, the fund's technology holdings bore the brunt of the market drop. But even in this troubled sector, the management team found some bright spots. As Chuck Swanberg and Roland Gillis explain in the accompanying report, they have focused a good deal of effort on repositioning the portfolio for the better times they see ahead. We may still be in for a bit more turbulence until the markets become convinced that the Federal Reserve Board has engineered a soft landing for the economy. However, investor perceptions are known for their tendency to turn on a dime, and we believe that at some point in the months ahead such a shift will occur. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds February 21, 2001 REPORT FROM FUND MANAGEMENT Charles H. Swanberg Roland W. Gillis The stock market punished technology stocks with a heavy hand during the first half of Putnam New Century Growth Fund's 2001 fiscal year, and the fund took its share of the blows. A reduction in the fund's tech holdings in favor of better-performing health-care and financial issues during the six months ended December 31, 2000, was not enough to offset the impact of technology's free fall. Total return for 6 months ended 12/31/00 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP ------------------------------------------------------------------------ -28.47% -32.59% -28.73% -32.29% -28.73% -29.44% -28.65% -31.16% ------------------------------------------------------------------------ Past performance is not indicative of future results. Performance information for longer periods and explanation of performance calculation methods begin on page 6. * PORTFOLIO MANAGEMENT FOCUSES ON REPOSITIONING There is no question that the fund's results for the semiannual period stand in stark contrast to the fund's outstanding performance from its introduction in February 1998 through the end of June 2000. However, this is a fund designed to seek aggressive growth, and when the growth companies in which it invests experience a meltdown, as they did over the past several months, the fund inevitably participates in that downturn. Shareholders with long-term investment horizons can take consolation in the fact that these aggressive growth stocks also tend to be the ones that rebound most dramatically when the equity market turns upward. The fund's technology-related holdings are down significantly from their level at the start of the period. This is due in part to the fact that many of the holdings have declined in value, but we also sold a number of tech stocks during the period. At the close of the previous fiscal year, technology stocks made up about half of the portfolio. At the current fiscal year's midpoint at the end of December, they made up around a third of the fund's holdings. [GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS* Software 15.4% Electronics 14.3% Communications equipment 6.8% Health-care services 6.0% Biotechnology 5.2% Footnote reads: *Based on net assets as of 12/31/00. Holdings will vary over time. Telecommunications companies also were hit hard during the period. We include radio in this sector, and as dot-com companies began failing, their heavy spending on advertising virtually disappeared, drying up a major source of revenue for the broadcast industry. The telecom sector weighting at the end of fiscal 2000 was around 18%; at the end of the semiannual period, it was 8%. During the period, we increased the health-care weighting from 8% to about 17%. We boosted financials from about 4% to 9%. Energy was around 2.7% at the end of June, and those holdings moved up significantly during the period, making a positive impact on performance. The consumer-related sector weightings also rose, from 4.4% to around 8%. * TECHNOLOGY HAD A FEW BRIGHT SPOTS Some of the fund's technology holdings did reasonably well during portions of this difficult period, given that they were part of an out-of-favor sector. Among them were VERITAS Software Corp., Brocade Communications Systems, Inc., Sanmina Corp., Jabil Circuit, Inc., Siebel Systems, Inc., and VeriSign, Inc. While these holdings and others discussed in this report were viewed favorably at the end of the fiscal period, all are subject to review and adjustment in accordance with the fund's investment strategy and may vary in the future. VERITAS is an independent supplier of storage management software. Its products help improve the levels of centralization, control, automation, and manageability in computing environments. They also offer protection against data loss and file corruption and allow rapid recovery after disk or computer system failure. Brocade is a provider of fiber channel-switching solutions for storage area networks. Its switches provide cost-effective management of storage capacity requirements, enabling users to operate data-intensive applications for data backup and disaster recovery. Sanmina provides customized integrated electronic manufacturing services, including turnkey electronic assembly and manufacturing management services to original equipment manufacturers in the electronics industry. Jabil is a worldwide independent provider of electronic manufacturing services. It designs and manufactures electronic circuit board assemblies and systems for major original equipment manufacturers in the communications, computer peripherals, personal computer, automotive, and consumer products industries. "We are actively seeking out technology stocks that we believe have good business plans, strong competitive positions, and attractive earnings prospects, especially in semiconductors and semiconductor capital equipment." -- Charles H. Swanberg, portfolio manager Siebel's electronic business applications enable organizations to sell to, market to, and service customers across multiple channels, including the Internet, call centers, resellers, retail, and dealer networks. VeriSign provides Internet-based trust services to Web-based enterprises, e-commerce service providers, and individuals, for the conduct of trusted and secure electronic commerce and communications. * HEALTH CARE, FINANCIALS, AND ENERGY HELPED PERFORMANCE An interesting array of health-related companies helped performance during the period. Among them were CryoLife, Inc., Healthsouth Corp. and Stryker Corp. Cryolife develops and commercializes technology to enable low-temperature preservation of viable human tissues for organ transplants. Healthsouth provides comprehensive rehabilitative, clinical, diagnostic, and surgical health-care services. Stryker develops, manufactures, and markets specialty surgical and medical products. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS VERITAS Software Corp. Software Brocade Communications Systems Communications equipment Nabors Industries, Inc. Energy Fifth Third Bancorp Banking EOG Resources, Inc. Oil and gas Stryker Corp. Medical technology Maxim Integrated Products, Inc. Electronics Informatica Corp. Software United Health Group, Inc. Health-care services Nokia OYJ AB Class A (Finland) Communications equipment Footnote reads: These holdings represent 16.8% of the fund's net assets as of 12/31/00. Portfolio holdings will vary over time. A number of the fund's financial stocks also did reasonably well in a challenging environment. Fifth Third Bancorp, Northern Trust Corp., and TCF Financial Corp. are holding companies engaged largely in commercial and community banking activities. Capital One Financial Corp. offers a variety of credit card products and financial services, and Fidelity National is engaged in issuing title insurance policies and performing other title-related services. Energy holdings represented a small portion of the portfolio but in general performed well. EOG Resources, Inc., is engaged in oil and natural gas exploration, development, production, and marketing, primarily in the United States and Canada. Global Marine, Inc., provides offshore drilling services. Nabors Industries, Inc., conducts oil, gas, and geothermal land drilling operations in North, South, and Central America and the Middle East. Schlumberger, Ltd., a holding that we held earlier in the period, is engaged in technical services spanning the oil and gas, utility, semiconductor, and Internet solutions industries. * OUTLOOK: PROSPECTS RISE FOR A MARKET UPTURN Now that the Federal Reserve Board has reduced short-term interest rates and given a strong indication that it is on a track to make further cuts, we believe the stage is set for a resumption in economic growth. In addition, the federal government may provide a tax cut to add further impetus to renewed economic expansion. We believe that such moves should be powerful medicine to the stock market. Economic fundamentals remain sound, the companies in your fund's portfolio all have been carefully selected for their solid long-term growth potential, and we are confident that as investors shift their perceptions from negative to positive, the market will begin to make up lost ground in the months ahead. 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 12/31/00, there is no guarantee the fund will continue to hold these securities in the future. The fund invests all or a portion of its assets in small and midsize companies. Such investments increase the risk of greater price fluctuations. A NOTE ABOUT DUPLICATE MAILINGS In response to investors' requests, the SEC has modified mailing regulations for semiannual and annual reports and prospectuses. Putnam is now able to send a single copy of these materials to customers who share the same address. This change will automatically apply to all shareholders except those who notify us. If you prefer to receive your own copy, please call Putnam at 1-800-225-1581. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy. Putnam New Century Growth Fund is designed for investors seeking capital appreciation by investing primarily in the equity securities of companies of all sizes. TOTAL RETURN FOR PERIODS ENDED 12/31/00 Class A Class B Class C Class M (inception dates) (2/17/98) (1/21/00) (1/21/00) (1/21/00) NAV POP NAV CDSC NAV CDSC NAV POP ------------------------------------------------------------------------------ 6 months -28.47% -32.59% -28.73% -32.29% -28.73% -29.44% -28.65% -31.16% ------------------------------------------------------------------------------ 1 year -32.64 -36.50 -33.12 -36.46 -33.12 -33.79 -32.97 -35.30 ------------------------------------------------------------------------------ Life of fund 133.72 120.25 128.76 125.76 128.76 128.76 130.49 122.46 Annual average 34.42 31.67 33.42 32.81 33.42 33.42 33.77 32.13 ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/00 Russell Midcap Consumer Growth Index price index -------------------------------------------------------------------------- 6 months -21.31% 1.22% -------------------------------------------------------------------------- 1 year -11.75 3.38 -------------------------------------------------------------------------- Life of fund 60.25 7.72 Annual average 17.56 2.58 -------------------------------------------------------------------------- Past performance is no assurance of future results. More recent returns may be more or less than those shown. Returns for class A and class M shares reflect the current maximum initial sales charges of 5.75% and 3.50%, respectively. Class B share returns for the 1-year, 5- and 10-year, if available, and life-of-fund periods reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declines to 1% in the sixth year, and is eliminated thereafter. Returns shown for class B and class M shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect both the initial sales charge or CDSC, if any, currently applicable to each class and in the case of class B and class M shares the higher operating expenses applicable to such shares. 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 reflects an expense limitation currently or previously in effect. Had it not been in effect, the fund's total returns would have been lower. During a portion of these periods, the fund was offered on a limited basis and had limited assets. For actual class B, class C, and class M share returns, see the financial highlights section. PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 12/31/00 Class A Class B Class C Class M ------------------------------------------------------------------------------ Distributions (number)* -- -- -- -- ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV NAV POP ------------------------------------------------------------------------------ 6/30/00 $24.76 $26.27 $24.68 $24.68 $24.71 $25.61 ------------------------------------------------------------------------------ 12/31/00 17.71 18.79 17.59 17.59 17.63 18.27 ------------------------------------------------------------------------------ *The fund did not make any distributions during the period. 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 Russell Midcap Growth Index measures the performance of Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values. The index assumes reinvestment of all distributions and interest payments and does not take into account brokerage fees or taxes. Securities in the fund do not match those in the index and performance of the fund will differ. It is not possible to invest directly in an index. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. 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.
THE FUND'S PORTFOLIO December 31, 2000 (Unaudited) COMMON STOCKS (99.6%) (a) NUMBER OF SHARES VALUE Advertising and Marketing Services (1.2%) ------------------------------------------------------------------------------------------------------------------- 210,000 Lamar Advertising Co. (NON) $ 8,104,688 72,300 Omnicom Group, Inc. 5,991,863 ------------- 14,096,551 Aerospace/Defense (0.6%) ------------------------------------------------------------------------------------------------------------------- 102,900 Anaren Microwave, Inc. (NON) 6,913,594 Airlines (1.0%) ------------------------------------------------------------------------------------------------------------------- 208,400 Ryanair Holdings, PLC ADR (Ireland) (NON) 11,605,275 Banking (3.4%) ------------------------------------------------------------------------------------------------------------------- 348,000 Fifth Third Bancorp 20,793,000 50,700 Northern Trust Corp. 4,135,219 65,300 State Street Corp. 8,110,913 140,000 TCF Financial Corp. 6,238,750 ------------- 39,277,882 Biotechnology (5.2%) ------------------------------------------------------------------------------------------------------------------- 101,600 Albany Molecular Research, Inc. (NON) 6,261,100 54,800 Alexion Pharmaceuticals, Inc. (NON) 3,558,575 33,400 Applied Molecular Evolution, Inc. (NON) 569,888 60,000 BioChem Pharma, Inc. (Canada) (NON) 1,920,000 167,700 Biovail Corporation (Canada) (NON) 6,513,468 132,000 Cephalon, Inc. (NON) 8,357,250 172,400 CryoLife, Inc. (NON) 5,215,100 14,400 Genaissance Pharmaceuticals (NON) 259,200 196,100 Genentech, Inc. (NON) 15,982,150 50,000 Intermune Pharmaceuticals Inc. (NON) 2,231,250 82,150 Sepracor, Inc. (NON) 6,582,269 94,300 Tanox, Inc. (NON) 3,695,381 ------------- 61,145,631 Broadcasting (4.5%) ------------------------------------------------------------------------------------------------------------------- 227,600 Citadel Communications Corp. (NON) 2,731,200 273,800 Cox Radio, Inc. Class A (NON) 6,177,613 274,100 Entercom Communications Corp. (NON) 9,439,319 269,200 Entravision Communications Corp. (NON) 4,946,550 96,000 Hispanic Broadcasting Corp. (NON) 2,448,000 82,900 Infinity Broadcasting Corp. Class A (NON) 2,316,019 238,900 Radio One, Inc. Class A (NON) 2,553,244 477,900 Radio One, Inc. Class D (NON) 5,256,900 122,970 Regent Communications, Inc. (NON) 730,134 215,600 Univision Communications, Inc. Class A (NON) 8,826,125 388,800 WestWood One, Inc. (NON) 7,508,700 ------------- 52,933,804 Cable Television (0.3%) ------------------------------------------------------------------------------------------------------------------- 263,600 AT&T Corp. - Liberty Media Group Class A (NON) 3,575,075 Commercial and Consumer Services (3.8%) ------------------------------------------------------------------------------------------------------------------- 800,700 Capita Group PLC (United Kingdom) 5,979,227 66,600 Capita Group PLC 144A (United Kingdom) 497,336 60,500 Choicepoint, Inc. (NON) 3,966,531 307,603 Cintas Corp. 16,360,635 76,850 Corporate Executive Board Co. (NON) 3,055,988 67,500 DeVry, Inc. (NON) 2,548,125 134,100 Paychex, Inc. 6,520,613 197,100 Robert Half International, Inc. (NON) 5,223,150 19,600 StorageNetworks, Inc. (NON) 486,325 ------------- 44,637,930 Communications Equipment (6.8%) ------------------------------------------------------------------------------------------------------------------- 244,700 Brocade Communications Systems (NON) 22,466,519 72,150 Comverse Technology, Inc. (NON) 7,837,294 88,600 Efficient Networks, Inc. (NON) 1,262,550 79,200 Extreme Networks, Inc. (NON) 3,098,700 71,500 Juniper Networks, Inc. (NON) 9,013,469 380,000 MCK Communications, Inc. (NON) 3,206,250 102,400 NEON Communications, Inc. (NON) 665,600 368,550 Nokia OYJ AB Class A, (Finland) 16,431,249 5,400 Polycom, Inc. (NON) 173,813 64,300 Powerwave Technologies, Inc. (NON) 3,761,550 157,200 Redback Networks, Inc. (NON) 6,445,200 221,200 Sonus Networks, Inc. (NON) 5,585,300 ------------- 79,947,494 Computers (2.6%) ------------------------------------------------------------------------------------------------------------------- 111,100 Ariba, Inc. (NON) 5,957,738 324,260 Convera Corp. (NON) 5,755,615 101,300 I-Many Inc. (NON) 1,259,919 74,600 Inrange Technologies Corp. (NON) 1,263,538 49,900 Network Appliance, Inc. (NON) 3,202,956 170,462 VeriSign, Inc. (NON) 12,646,150 ------------- 30,085,916 Conglomerates (0.3%) ------------------------------------------------------------------------------------------------------------------- 560,600 Autonation, Inc. (NON) 3,363,600 Consumer Finance (1.1%) ------------------------------------------------------------------------------------------------------------------- 101,000 Capital One Financial Corp. 6,647,063 152,400 MBNA Corp. 5,629,275 ------------- 12,276,338 Consumer Services (1.0%) ------------------------------------------------------------------------------------------------------------------- 78,800 CDW Computer Centers, Inc. (NON) 2,196,550 169,200 TMP Worldwide, Inc. (NON) 9,306,000 ------------- 11,502,550 Distribution (0.4%) ------------------------------------------------------------------------------------------------------------------- 92,200 Black Box Corp. (NON) 4,454,413 Electrical Equipment (0.1%) ------------------------------------------------------------------------------------------------------------------- 42,000 Power-One, Inc. (NON) 1,651,125 Electronics (14.3%) ------------------------------------------------------------------------------------------------------------------- 160,400 Alpha Industries, Inc. (NON) 5,934,800 67,500 Avanex Corp. (NON) 4,020,469 88,800 Applied Micro Circuits Corp. (NON) 6,664,163 110,000 Centillium Communications, Inc. (NON) 2,447,500 158,600 DDi Corp. (NON) 4,321,850 80,000 Emcore Corp. (NON) 3,760,000 163,800 Emulex Corp. (NON) 13,093,742 236,800 Exar Corp. (NON) 7,337,100 331,700 Finisar Corp. (NON) 9,619,300 109,200 GlobeSpan, Inc. (NON) 3,003,000 450,200 Jabil Circuit, Inc. (NON) 11,423,825 32,040 JDS Uniphase Corp. (NON) 1,335,668 16,000 JNI Corp. (NON) 363,000 254,800 Linear Technology Corp. 11,784,500 97,000 Marvell Technology Group Ltd. (NON) 2,127,938 367,200 Maxim Integrated Products, Inc. (NON) 17,556,750 170,900 Micrel, Inc. (NON) 5,757,194 92,000 Microchip Technology, Inc. (NON) 2,018,250 7,500 New Focus, Inc. (NON) 260,625 17,500 Optical Communications Productions, Inc. (NON) 196,875 222,900 Pemstar, Inc. (NON) 1,964,306 34,350 PerkinElmer, Inc. 3,606,750 261,400 Plexus Corp. (NON) 7,944,109 120,300 QLogic Corp. (NON) 9,263,100 137,700 Sanmina Corp. (NON) 10,551,263 130,000 Semtech Corp. (NON) 2,868,125 100,000 Sipex Corp. (NON) 2,393,750 30,200 SMTC Corp. (Canada) (NON) 411,475 147,450 Transmeta Corp. (NON) 3,465,075 122,100 TranSwitch Corp. (NON) 4,777,163 34,300 TTM Technologies, Inc. (NON) 486,631 45,400 Vitesse Semiconductor Corp. (NON) 2,511,188 75,000 Xilinx, Inc. (NON) 3,459,375 ------------- 166,728,859 Energy (3.3%) ------------------------------------------------------------------------------------------------------------------- 91,300 BJ Services Co. (NON) 6,288,288 203,700 Global Marine, Inc. (NON) 5,779,988 363,550 Nabors Industries, Inc. (NON) 21,503,983 124,900 National-Oilwell, Inc. (NON) 4,832,069 ------------- 38,404,328 Engineering & Construction (0.5%) ------------------------------------------------------------------------------------------------------------------- 142,000 Insituform Technologies, Inc. (NON) 5,662,250 Financial (0.7%) ------------------------------------------------------------------------------------------------------------------- 69,900 Marschollek, Lautenschlaeger und Partner AG (Germany) 7,643,348 Food (0.4%) ------------------------------------------------------------------------------------------------------------------- 60,550 Krispy Kreme Doughnuts, Inc. (NON) 5,025,650 Health Care Services (6.0%) ------------------------------------------------------------------------------------------------------------------- 57,200 Advance Paradigm, Inc. (NON) 2,602,600 170,000 Eclipsys Corp. (NON) 4,165,000 171,450 Health Management Assoc., Inc. (NON) 3,557,588 498,350 Healthsouth Corp. (NON) 8,129,334 73,700 Invitrogen Corp. (NON) 6,365,838 52,450 Invitrogen Corp. (acquired 11/15/00, cost $3,147,000) (RES) (NON) 4,077,332 150,000 Pediatrix Medical Group, Inc. (NON) 3,609,375 369,150 Province Healthcare Co. (NON) 14,535,281 273,300 United Health Group, Inc. 16,773,788 55,874 Wellpoint Health Networks, Inc. (NON) 6,439,479 ------------- 70,255,615 Insurance (1.4%) ------------------------------------------------------------------------------------------------------------------- 142,390 AFLAC, Inc. 10,278,778 168,050 Fidelity National Financial, Inc. 6,207,347 ------------- 16,486,125 Investment Banking/Brokerage (1.2%) ------------------------------------------------------------------------------------------------------------------- 492,850 Schwab (Charles) Corp. 13,984,619 Lodging/Tourism (1.6%) ------------------------------------------------------------------------------------------------------------------- 408,750 Extended Stay America, Inc. (NON) 5,252,438 209,750 Four Seasons Hotels, Inc. (Canada) 13,345,344 ------------- 18,597,782 Manufacturing (1.8%) ------------------------------------------------------------------------------------------------------------------- 118,900 Mettler Toledo International, Inc. (NON) 6,465,188 286,000 Shaw Group, Inc. (NON) 14,300,000 ------------- 20,765,188 Medical Technology (3.4%) ------------------------------------------------------------------------------------------------------------------- 100,200 Applera Corp-Applied Biosystems Group 9,425,063 112,000 Cytyc Corp. (NON) 7,007,000 48,200 Molecular Devices Corp. (NON) 3,298,688 91,300 Novoste Corp. (NON) 2,510,750 353,450 Stryker Corp. 17,881,036 ------------- 40,122,537 Oil & Gas (2.3%) ------------------------------------------------------------------------------------------------------------------- 163,100 Burlington Resources, Inc. 8,236,550 339,200 EOG Resources, Inc. 18,550,000 ------------- 26,786,550 Pharmaceuticals (2.0%) ------------------------------------------------------------------------------------------------------------------- 221,250 King Pharmaceuticals, Inc. (NON) 11,435,859 31,200 Medicines Co. (NON) 639,600 109,200 Medicis Pharmaceutical Corp. Class A (NON) 6,456,450 91,900 Shire Pharmaceuticals Group PLC ADR (United Kingdom) (NON) 4,233,144 ------------- 22,765,053 Publishing (0.5%) ------------------------------------------------------------------------------------------------------------------- 227,700 Information Holdings, Inc. (NON) 5,336,719 Restaurants (1.2%) ------------------------------------------------------------------------------------------------------------------- 324,100 Starbucks Corp. (NON) 14,341,425 Retail (5.2%) ------------------------------------------------------------------------------------------------------------------- 144,500 99 Cents Only Stores (NON) 3,955,688 478,350 Bed Bath & Beyond, Inc. (NON) 10,703,081 570,400 Dollar Tree Stores, Inc. (NON) 13,974,800 134,500 Factory 2-U Stores, Inc. (NON) 4,455,313 64,700 Fastenal Co. 3,550,413 123,200 Home Depot, Inc. (The) 5,628,700 144,000 Kohls Corp. (NON) 8,784,000 266,200 Tiffany & Co. 8,418,575 100,000 Too, Inc. (NON) 1,250,000 ------------- 60,720,570 Schools (2.2%) ------------------------------------------------------------------------------------------------------------------- 86,200 Apollo Group, Inc. Class A (NON) 4,239,963 243,000 Career Education Corp. (NON) 9,507,375 76,100 Docent, Inc. (NON) 665,875 86,000 Learning Tree International, Inc. (NON) 4,257,000 175,000 SmartForce PLC ADR (Ireland) (NON) 6,573,438 ------------- 25,243,651 Semiconductor (0.2%) ------------------------------------------------------------------------------------------------------------------- 76,400 Lam Research Corp. (NON) 1,107,800 129,200 LTX Corp. (NON) 1,673,544 ------------- 2,781,344 Software (15.4%) ------------------------------------------------------------------------------------------------------------------- 244,200 Agile Software Corp. (NON) 12,057,375 48,000 Art Technology Group, Inc. (NON) 1,467,000 86,450 BEA Systems, Inc. (NON) 5,819,166 62,100 Blue Martini Software, Inc. (NON) 822,825 280,200 Click Commerce, Inc. (NON) 5,849,175 232,350 E.piphany, Inc. (NON) 12,532,378 211,150 Electronic Arts, Inc. (NON) 9,000,269 215,200 I2 Technologies, Inc. (NON) 11,701,500 432,200 Informatica Corp. (NON) 17,098,913 59,000 Internet Security Systems, Inc. (NON) 4,627,813 123,500 Interwoven, Inc. (NON) 8,143,281 79,300 Macromedia, Inc. (NON) 4,817,475 35,000 Manugistics Group, Inc. (NON) 1,995,000 22,900 McData Corp. (NON) 1,253,775 149,400 Micromuse, Inc. (NON) 9,017,691 161,550 Netegrity, Inc. (NON) 8,784,281 32,039 NetIQ Corp. (NON) 2,799,408 162,208 Openwave Systems, Inc. (NON) 7,775,846 189,300 Peregrine Systems, Inc. (NON) 3,738,675 90,800 Portal Software, Inc. (NON) 712,213 127,100 Quest Software, Inc. (NON) 3,566,744 61,500 SERENA Software, Inc. (NON) 2,105,414 63,400 Siebel Systems, Inc. (NON) 4,287,425 304,900 VERITAS Software Corp. (NON) 26,678,750 203,600 Vignette Corp. (NON) 3,664,800 52,500 Vitria Technology, Inc. (NON) 406,875 107,900 webMethods, Inc. (NON) 9,596,356 ------------- 180,320,423 Technology Services (1.0%) ------------------------------------------------------------------------------------------------------------------- 77,400 CheckFree Corp. (NON) 3,289,500 143,800 Jack Henry & Associates, Inc. 8,933,575 ------------- 12,223,075 Telecommunications (2.7%) ------------------------------------------------------------------------------------------------------------------- 490,900 Asia Global Crossing Ltd. (NON) 3,221,531 94,000 Focal Communications Corp. (NON) 658,000 104,900 Global Crossing Ltd. (NON) 1,501,381 1,500 GT Group Telecom, Inc. (Canada) (NON) 11,250 493,400 Metromedia Fiber Network, Inc. Class A (NON) 4,995,675 46,600 Research in Motion Ltd. (Canada) (NON) 3,728,000 58,700 SBA Communications Corp. (NON) 2,410,369 91,150 Time Warner Telecom, Inc. (NON) 5,782,328 148,000 TyCom, Ltd. (Bermuda) (NON) 3,311,500 352,700 XO Communications, Inc. (NON) 6,282,469 -------------- 31,902,503 -------------- Total Common Stocks (cost $1,322,570,991) $1,163,564,792 PREFERRED STOCKS (1.1%) (a) (cost $16,312,916) NUMBER OF SHARES VALUE ------------------------------------------------------------------------------------------------------------------- 114,400 Marschollek, Lautenschlaeger und Partner AG DEM $3.05 pfd. (Germany) $ 12,509,285 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,338,883,907) (b) $1,176,074,077 ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $1,168,041,429. (b) The aggregate identified cost on a tax basis is $1,358,186,005, resulting in gross unrealized appreciation and depreciation of $128,562,475 and $310,674,403, respectively, or net unrealized depreciation of $182,111,928. (NON) Non-income-producing security. (RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at December 31, 2000 was $4,077,332 or 0.3% of net assets. 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 after the name of a foreign holding stands for American Depositary Receipts, representing ownership of foreign securities on deposit with a domestic custodian bank. The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES December 31, 2000 (Unaudited) Assets ------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $1,338,883,907) (Note 1) $1,176,074,077 ------------------------------------------------------------------------------------------- Dividends, interest and other receivables 163,727 ------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 3,192,371 ------------------------------------------------------------------------------------------- Receivable for securities sold 23,032,328 ------------------------------------------------------------------------------------------- Total assets 1,202,462,503 Liabilities ------------------------------------------------------------------------------------------- Payable to subcustodian (Note 2) 12,589,279 ------------------------------------------------------------------------------------------- Payable for securities purchased 5,429,599 ------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 12,666,019 ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 2,149,764 ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 545,178 ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 1,494 ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 4,327 ------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 936,616 ------------------------------------------------------------------------------------------- Other accrued expenses 98,798 ------------------------------------------------------------------------------------------- Total liabilities 34,421,074 ------------------------------------------------------------------------------------------- Net assets $1,168,041,429 Represented by ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $1,949,022,627 ------------------------------------------------------------------------------------------- Accumulated net investment loss (Note 1) (9,498,067) ------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (608,673,380) ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (162,809,751) ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $1,168,041,429 Computation of net asset value and offering price ------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($560,586,641 divided by 31,650,094 shares) $17.71 ------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $17.71)* $18.79 ------------------------------------------------------------------------------------------- Net asset value and redemption price per class B share ($477,161,698 divided by 27,124,060 shares)** $17.59 ------------------------------------------------------------------------------------------- Net asset value and redemption price per class C share ($93,008,445 divided by 5,286,928 shares)** $17.59 ------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($26,437,054 divided by 1,499,211 shares) $17.63 ------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $17.63)* $18.27 ------------------------------------------------------------------------------------------- Net asset value and redemption price per class Y share ($10,847,591 divided by 611,740 shares)** $17.73 ------------------------------------------------------------------------------------------- * 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.
STATEMENT OF OPERATIONS Six months ended December 31, 2000 (Unaudited) Investment income: ------------------------------------------------------------------------------------------- Interest $ 1,255,227 ------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $6,446) 515,014 ------------------------------------------------------------------------------------------- Total investment income 1,770,241 Expenses: ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 4,689,597 ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 1,172,872 ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 10,851 ------------------------------------------------------------------------------------------- Administrative services (Note 2) 4,322 ------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 917,464 ------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 3,099,718 ------------------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 624,808 ------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 128,943 ------------------------------------------------------------------------------------------- Other 763,804 ------------------------------------------------------------------------------------------- Total expenses 11,412,379 ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (144,071) ------------------------------------------------------------------------------------------- Net expenses 11,268,308 ------------------------------------------------------------------------------------------- Net investment loss (9,498,067) ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (345,562,334) ------------------------------------------------------------------------------------------- Net realized loss on futures contracts (Note 1) (683,907) ------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (169,016) ------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 166,897 ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments during the period (128,875,031) ------------------------------------------------------------------------------------------- Net loss on investments (475,123,391) ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(484,621,458) ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Six months ended Year ended December 31 June 30 2000* 2000 -------------------------------------------------------------------------------------------------- Increase/(decrease) in net assets -------------------------------------------------------------------------------------------------- Operations: -------------------------------------------------------------------------------------------------- Net investment loss $ (9,498,067) $ (6,789,421) -------------------------------------------------------------------------------------------------- Net realized loss on investments and foreign currency transactions (346,415,257) (261,540,635) -------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (128,708,134) (35,416,009) -------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (484,621,458) (303,746,065) -------------------------------------------------------------------------------------------------- Distributions to shareholders: -------------------------------------------------------------------------------------------------- From net realized gain on investments Class A -- (684,659) -------------------------------------------------------------------------------------------------- In excess of net realized gain on investments Class A -- (643,516) -------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 10,927,814 1,941,380,284 -------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (473,693,644) 1,636,306,044 Net assets -------------------------------------------------------------------------------------------------- Beginning of period 1,641,735,073 5,429,029 -------------------------------------------------------------------------------------------------- End of period (including accumulated net investment loss of $9,498,067 and $--, respectfully) $1,168,041,429 $1,641,735,073 -------------------------------------------------------------------------------------------------- *Unaudited The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) CLASS A ---------------------------------------------------------------------------------------- Six months ended For the period Per-share December 31 Feb. 17, 1998+ operating performance (Unaudited) Year ended June 30 to June 30 ---------------------------------------------------------------------------------------- 2000 2000 1999 1998 ---------------------------------------------------------------------------------------- Net asset value, beginning of period $24.76 $14.84 $9.87 $8.50 ---------------------------------------------------------------------------------------- Investment operations ---------------------------------------------------------------------------------------- Net investment loss (a)(b) (.10) (.12) (.08) (.02) ---------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (6.95) 12.87 5.05 1.39 ---------------------------------------------------------------------------------------- Total from investment operations (7.05) 12.75 4.97 1.37 ---------------------------------------------------------------------------------------- Less distributions: ---------------------------------------------------------------------------------------- From net realized gain on investments -- (1.46) -- -- ---------------------------------------------------------------------------------------- In excess of net realized gain -- (1.37) -- -- ---------------------------------------------------------------------------------------- Total distributions -- (2.83) -- -- ---------------------------------------------------------------------------------------- Net asset value, end of period $17.71 $24.76 $14.84 $9.87 ---------------------------------------------------------------------------------------- Total return at net asset value (%)(c) (28.47)* 87.16 50.35 16.12* ---------------------------------------------------------------------------------------- Ratios and supplemental data ---------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $560,587 $797,592 $5,429 $2,955 ---------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(a)(d) .57* 1.11 1.00 .37* ---------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%)(a) (.44)* (.72) (.76) (.25)* ---------------------------------------------------------------------------------------- Portfolio turnover (%) 128.47* 107.86 207.77 72.22* ---------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period ended June 30, 2000 reflect a reduction of $0.01 per share for class A, class B, class C, and class M shares. Expenses for the period ended ended June 30, 1998, and June 30, 1999 reflect a reduction of $0.08 and $0.06, respectively per share for class A shares (Note 2). (b) Per share net investment loss has been determined on the basis of the weighted average number of shares during the period. (c) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (d) Includes amounts paid through expense offset arrangements (Note 2).
FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) CLASS B -------------------------------------------------------------------- Six months ended For the period Per-share December 31 January 21, 2000+ operating performance (Unaudited) to June 30 -------------------------------------------------------------------- 2000 2000 -------------------------------------------------------------------- Net asset value, beginning of period $24.68 $27.16 -------------------------------------------------------------------- Investment operations -------------------------------------------------------------------- Net investment loss (a)(b) (.18) (.15) -------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (6.91) (2.33) -------------------------------------------------------------------- Total from investment operations (7.09) (2.48) -------------------------------------------------------------------- Less distributions: -------------------------------------------------------------------- From net realized gain on investments -- -- -------------------------------------------------------------------- In excess of net realized gain -- -- -------------------------------------------------------------------- Total distributions -- -- -------------------------------------------------------------------- Net asset value, end of period $17.59 $24.68 -------------------------------------------------------------------- Total return at net asset value (%)(c) (28.73)* (9.13)* -------------------------------------------------------------------- Ratios and supplemental data -------------------------------------------------------------------- Net assets, end of period (in thousands) $477,162 $670,618 -------------------------------------------------------------------- Ratio of expenses to average net assets (%)(a)(d) .94* .89* -------------------------------------------------------------------- Ratio of net investment loss to average net assets (%)(a) (.81)* (.71)* -------------------------------------------------------------------- Portfolio turnover (%) 128.47* 107.86 -------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period ended June 30, 2000 reflect a reduction of $0.01 per share for class A, class B, class C, and class M shares. Expenses for the period ended ended June 30, 1998, and June 30, 1999 reflect a reduction of $0.08 and $0.06, respectively per share for class A shares (Note 2). (b) Per share net investment loss has been determined on the basis of the weighted average number of shares during the period. (c) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (d) Includes amounts paid through expense offset arrangements (Note 2).
FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) CLASS C ------------------------------------------------------------------- Six months ended For the period Per-share December 31 January 21, 2000+ operating performance (Unaudited) to June 30 ------------------------------------------------------------------- 2000 2000 ------------------------------------------------------------------- Net asset value, beginning of period $24.68 $27.16 ------------------------------------------------------------------- Investment operations ------------------------------------------------------------------- Net investment loss (a)(b) (.18) (.15) ------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (6.91) (2.33) ------------------------------------------------------------------- Total from investment operations (7.09) (2.48) ------------------------------------------------------------------- Less distributions: ------------------------------------------------------------------- From net realized gain on investments -- -- ------------------------------------------------------------------- In excess of net realized gain -- -- ------------------------------------------------------------------- Total distributions -- -- ------------------------------------------------------------------- Net asset value, end of period $17.59 $24.68 ------------------------------------------------------------------- Total return at net asset value (%)(c) (28.73)* (9.13)* ------------------------------------------------------------------- Ratios and supplemental data ------------------------------------------------------------------- Net assets, end of period (in thousands) $93,008 $136,828 ------------------------------------------------------------------- Ratio of expenses to average net assets (%)(a)(d) .94* .89* ------------------------------------------------------------------- Ratio of net investment loss to average net assets (%)(a) (.81)* (.71)* ------------------------------------------------------------------- Portfolio turnover (%) 128.47* 107.86* ------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period ended June 30, 2000 reflect a reduction of $0.01 per share for class A, class B, class C, and class M shares. Expenses for the period ended ended June 30, 1998, and June 30, 1999 reflect a reduction of $0.08 and $0.06, respectively per share for class A shares (Note 2). (b) Per share net investment loss has been determined on the basis of the weighted average number of shares during the period. (c) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (d) Includes amounts paid through expense offset arrangements (Note 2).
FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) CLASS M ------------------------------------------------------------------- Six months ended For the period Per-share December 31 January 21, 2000+ operating performance (Unaudited) to June 30 ------------------------------------------------------------------- 2000 2000 ------------------------------------------------------------------- Net asset value, beginning of period $24.71 $27.16 ------------------------------------------------------------------- Investment operations ------------------------------------------------------------------- Net investment loss (a)(b) (.15) (.12) ------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (6.93) (2.33) ------------------------------------------------------------------- Total from investment operations (7.08) (2.45) ------------------------------------------------------------------- Less distributions: ------------------------------------------------------------------- From net realized gain on investments -- -- ------------------------------------------------------------------- In excess of net realized gain -- -- ------------------------------------------------------------------- Total distributions -- -- ------------------------------------------------------------------- Net asset value, end of period $17.63 $24.71 ------------------------------------------------------------------- Total return at net asset value (%)(c) (28.65)* (9.02)* ------------------------------------------------------------------- Ratios and supplemental data ------------------------------------------------------------------- Net assets, end of period (in thousands) $26,437 $36,697 ------------------------------------------------------------------- Ratio of expenses to average net assets (%)(a)(d) .82* .78* ------------------------------------------------------------------- Ratio of net investment loss to average net assets (%)(a) (.69)* (.60)* ------------------------------------------------------------------- Portfolio turnover (%) 128.47* 107.86 ------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period ended June 30, 2000 reflect a reduction of $0.01 per share for class A, class B, class C, and class M shares. Expenses for the period ended ended June 30, 1998, and June 30, 1999 reflect a reduction of $0.08 and $0.06, respectively per share for class A shares (Note 2). (b) Per share net investment loss has been determined on the basis of the weighted average number of shares during the period. (c) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (d) Includes amounts paid through expense offset arrangements (Note 2).
FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) CLASS Y ------------------------------------------------- For the period July 3, 2000 Per-share to December 31 operating performance (Unaudited) ------------------------------------------------- 2000 ------------------------------------------------- Net asset value, beginning of period $24.76 ------------------------------------------------- Investment operations ------------------------------------------------- Net investment loss (a)(b) (.08) ------------------------------------------------- Net realized and unrealized gain (loss) on investments (6.95) ------------------------------------------------- Total from investment operations (7.03) ------------------------------------------------- Less distributions: ------------------------------------------------- From net realized gain on investments -- ------------------------------------------------- In excess of net realized gain -- ------------------------------------------------- Total distributions -- ------------------------------------------------- Net asset value, end of period $17.73 ------------------------------------------------- Total return at net asset value (%)(c) (28.39)* ------------------------------------------------- Ratios and supplemental data ------------------------------------------------- Net assets, end of period (in thousands) $10,848 ------------------------------------------------- Ratio of expenses to average net assets (%)(a)(d) .44* ------------------------------------------------- Ratio of net investment loss to average net assets (%)(a) (.32)* ------------------------------------------------- Portfolio turnover (%) 128.47* ------------------------------------------------- + Commencement of operations. * Not annualized. (a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period ended June 30, 2000 reflect a reduction of $0.01 per share for class A, class B, class C, and class M shares. Expenses for the period ended ended June 30, 1998, and June 30, 1999 reflect a reduction of $0.08 and $0.06, respectively per share for class A shares (Note 2). (b) Per share net investment loss has been determined on the basis of the weighted average number of shares during the period. (c) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (d) Includes amounts paid through expense offset arrangements (Note 2).
NOTES TO FINANCIAL STATEMENTS December 31, 2000 (Unaudited) Note 1 Significant accounting policies Putnam New Century Growth 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 objective of the fund is to seek long-term growth of capital by investing primarily in equity securities of companies that Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam Investments, LLC, believes have potential for capital appreciation which is significantly greater than that of the market averages. The fund offers class A, class B, class C, class M and class Y shares. The fund began offering Class Y shares on July 3, 2000. 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. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C and class M shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that invest at least $150 million in a combination of Putnam funds and other accounts managed by affiliates of Putnam Management. 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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in 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 Management. 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. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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) 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. 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 six months ended December 31, 2000, 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. 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. 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. 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: 0.70% of the first $500 million of average net assets, 0.60% of the next $500 million, 0.55% of the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion and 0.43% 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. Under the subcustodian contract between the subcustodian bank and Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, LLC, the subcustodian bank has a lien on the securities of the fund to the extent permitted by the fund's investment restrictions to cover any advances made by the subcustodian bank for the settlement of securities purchased by the fund. At December 31, 2000, the payable to the subcustodian bank represents the amount due for cash advance for the settlement of a security purchased. Custodial functions for the fund's assets are provided by PFTC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. The fund also reduced expenses through brokerage service arrangements. For the year ended December 31, 2000, the fund's expenses were reduced by $144,071 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $100 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 Retail Management, Inc., a wholly-owned subsidiary of Putnam Investments LLC, for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management, Inc. 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, 2000, Putnam Retail Management, Inc., acting as underwriter received net commissions of $354,292 and $14,266 from the sale of class A and class M shares, respectively, and received $733,871 and $63,138 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, 2000, Putnam Retail Management, Inc., acting as underwriter received $30,137 on class A redemptions. Note 3 Purchases and sales of securities During the six months ended December 31, 2000, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $1,075,040,373 and $1,013,232,561, respectively. There were no purchases and sales of U.S. government obligations. Note 4 Capital shares At December 31, 2000, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended December 31, 2000 --------------------------------------------------------------------------- Class A Shares Amount --------------------------------------------------------------------------- Shares sold 6,904,549 $ 155,249,293 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 6,904,549 155,249,293 Shares repurchased (7,473,447) (159,551,150) --------------------------------------------------------------------------- Net decrease (568,898) $ (4,301,857) --------------------------------------------------------------------------- Year ended June 30, 2000 --------------------------------------------------------------------------- Class A Shares Amount --------------------------------------------------------------------------- Shares sold 34,302,386 $ 994,604,839 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 236,506 6,093,100 --------------------------------------------------------------------------- 34,538,892 1,000,697,939 Shares repurchased (2,685,664) (68,042,990) --------------------------------------------------------------------------- Net increase 31,853,228 $ 932,654,949 --------------------------------------------------------------------------- Six months ended December 31, 2000 --------------------------------------------------------------------------- Class B Shares Amount --------------------------------------------------------------------------- Shares sold 3,588,101 $ 79,536,536 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 3,588,101 79,536,536 Shares repurchased (3,632,135) (75,467,236) --------------------------------------------------------------------------- Net (decrease) increase (44,034) $ 4,069,300 --------------------------------------------------------------------------- For the period January 21, 2000 (commencement of operations) to June 30, 2000 --------------------------------------------------------------------------- Class B Shares Amount --------------------------------------------------------------------------- Shares sold 28,782,760 $840,860,018 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 67,159 1,780,019 --------------------------------------------------------------------------- 28,849,919 842,640,037 Shares repurchased (1,681,825) (40,933,646) --------------------------------------------------------------------------- Net increase 27,168,094 $801,706,391 --------------------------------------------------------------------------- Six months ended December 31, 2000 --------------------------------------------------------------------------- Class C Shares Amount --------------------------------------------------------------------------- Shares sold 1,228,406 $ 27,696,880 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 1,228,406 27,696,880 Shares repurchased (1,485,559) (31,986,666) --------------------------------------------------------------------------- Net decrease (257,153) $ (4,289,786) --------------------------------------------------------------------------- For the period January 21, 2000 (commencement of operations) to June 30, 2000 --------------------------------------------------------------------------- Class C Shares Amount --------------------------------------------------------------------------- Shares sold 6,340,223 $182,295,896 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 22,100 593,748 --------------------------------------------------------------------------- 6,362,323 182,889,644 Shares repurchased (818,242) (19,266,254) --------------------------------------------------------------------------- Net increase 5,544,081 $163,623,390 --------------------------------------------------------------------------- Six months ended December 31, 2000 --------------------------------------------------------------------------- Class M Shares Amount --------------------------------------------------------------------------- Shares sold 256,962 $ 5,816,363 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 256,962 5,816,363 Shares repurchased (242,882) (4,959,557) --------------------------------------------------------------------------- Net increase 14,080 $ 856,806 --------------------------------------------------------------------------- For the period January 21, 2000 (commencement of operations) to June 30, 2000 --------------------------------------------------------------------------- Class M Shares Amount --------------------------------------------------------------------------- Shares sold 1,577,497 $45,700,188 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 3,810 99,895 --------------------------------------------------------------------------- 1,581,307 45,800,083 Shares repurchased (96,176) (2,404,529) --------------------------------------------------------------------------- Net increase 1,485,131 $43,395,554 --------------------------------------------------------------------------- For the period July 3, 2000 (commencement of operations) to December 31, 2000 --------------------------------------------------------------------------- Class Y Shares Amount --------------------------------------------------------------------------- Shares sold 770,166 $17,679,664 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 770,166 17,679,664 Shares repurchased (158,426) (3,086,313) --------------------------------------------------------------------------- Net increase 611,740 $14,593,351 --------------------------------------------------------------------------- Note 5 New accounting pronouncement In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits of Investment Companies, which is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the fund to amortize premium and accrete discount on all fixed-income securities, and classify as interest income gains and losses realized on paydowns on mortgage-backed securities which are presently included in realized gain/loss. Adopting these accounting principles will not affect the fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of operations. The adoption of this principle will not be material to the financial statements. WELCOME TO WWW.PUTNAMINVESTMENTS.COM Now you can use your PC to get up-to-date information about your funds, learn more about investing and retirement planning, and access market news and economic outlooks from Putnam. VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR: * the benefits of investing with Putnam * Putnam's money management philosophy * complete fund information, daily pricing and long-term performance * your current account value, portfolio value and transaction history * the latest on new funds and other Putnam news You can also read Putnam economist Dr. Robert Goodman's commentary and Putnam's Capital Markets outlook, search for a particular fund by name or objective, use our glossary to decode investment terms . . . and much more. The site can be accessed through any of the major online services (America Online, CompuServe, Prodigy) that offer web access. Of course, you can also access it via Netscape or Microsoft Internet Explorer, using an independent Internet service provider. New features will be added to the site regularly. So be sure to bookmark us at http://www.putnaminvestments.com THE PUTNAM FAMILY OF FUNDS The following is a complete list of Putnam's open-end mutual funds. Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund Capital Opportunities Fund Europe Growth Fund Global Equity Fund Global Growth Fund Global Natural Resources Fund Growth Opportunities Fund Health Sciences Trust International Growth Fund International New Opportunities Fund Investors Fund New Century Growth Fund New Opportunities Fund OTC & Emerging Growth Fund Research Fund Tax Smart Equity Fund Technology Fund Vista Fund Voyager Fund Voyager Fund II GROWTH AND INCOME FUNDS Balanced Fund Balanced Retirement Fund Classic Equity Fund * Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston Global Growth and Income Fund The Putnam Fund for Growth and Income International Growth and Income Fund Mid Cap Value Fund New Value Fund Small Cap Value Fund Utilities Growth and Income Fund INCOME FUNDS American Government Income Fund Diversified Income Trust Global Governmental Income Trust High Yield Advantage Fund [DBL. DAGGER] High Yield Trust [DBL. DAGGER] High Yield Trust II Income Fund Intermediate U.S. Government Income Fund Money Market Fund ** Preferred Income Fund Strategic Income Fund U.S. Government Income Trust TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax Exempt Money Market Fund ** Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds [SECTION MARK] Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania State tax-free money market funds [SECTION MARK] ** California, New York ASSET ALLOCATION FUNDS Putnam Asset Allocation Funds--three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio * Formerly Putnam Growth and Income Fund II [DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact Putnam for details. [SECTION MARK] Not available in all states. ** An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve your investment at $1.00 per share, it is possible to lose money by investing in the fund. Check your account balances and current performance at www.putnaminvestments.com. FUND INFORMATION WEB SITE www.putnaminvestments.com INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management, Inc. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES John A. Hill, 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, III 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 Stephen Oristaglio Vice President Daniel L. Miller Vice President Charles H. Swanberg Vice President and Fund Manager Roland W. Gillis Vice President and Fund Manager Richard A. Monaghan Vice President Richard G. Leibovitch Vice President John R. Verani Vice President This report is for the information of shareholders of Putnam New Century Growth. 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 and Putnam's Quarterly Ranking 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.putnaminvestments.com. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 --------------------- PRST STD U.S. POSTAGE PAID PUTNAM INVESTMENTS --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com SA071-68570 2HW 2/01 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] ---------------------------------------------------------------------------- Putnam New Century Growth Fund Supplement to semiannual Report dated 12/31/00 The following information has been prepared to provide class Y shareholders with a performance overview specific to their holdings. Class Y shares are offered exclusively to defined contribution plans investing $150 million or more in one or more of Putnam's funds or private accounts. Performance of class Y shares, which incur neither a front-end load, distribution fee, nor contingent deferred sales charge, will differ from performance of class A, B, C, and M shares, which are discussed more extensively in the annual report. SEMIANNUAL RESULTS AT A GLANCE ---------------------------------------------------------------------------- Total return for periods ended 12/31/00 NAV 6 months -28.39% 1 year -32.56 Life of fund (since class A inception, 2/17/98) 133.99 Annual average 34.47 Share value: NAV 6/30/00 $24.76 12/31/00 $17.73 ---------------------------------------------------------------------------- Distributions: No. Income Capital gains Total -- -- -- -- ---------------------------------------------------------------------------- Please note that past performance is not indicative of future results. More recent returns may be more or less than those shown. Returns shown for class Y shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect the initial sales charge currently applicable to class A shares. These returns have not been adjusted to reflect differences in operating expenses which, for class Y shares, typically are lower than the operating expenses applicable to class A shares. All returns assume reinvestment of distributions at net asset value. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. See full report for information on comparative benchmarks. If you have questions, please consult your fund prospectus or call Putnam toll free at 1-800-752-9894. Putnam Equity Fund 98 SEMIANNUAL REPORT ON PORTFOLIO AND PERFORMANCE 12-31-00 [SCALE LOGO OMITTED] The following report contains a list of your fund's portfolio holdings and complete financial statements for the six months ended 12/31/00. Additional details, including fund strategy, performance, and managers' outlook, will be provided in the annual report, which will cover the 12 months ended 6/30/01. 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.
THE FUND'S PORTFOLIO December 31, 2000 (Unaudited) COMMON STOCKS (95.9%) (a) NUMBER OF SHARES VALUE Advertising and Marketing Services (0.7%) ------------------------------------------------------------------------------------------------------------------- 34,000 L90, Inc. (NON) $ 146,625 Aerospace/Defense (3.9%) ------------------------------------------------------------------------------------------------------------------- 13,500 Aeroflex, Inc. (NON) 389,180 2,600 Anaren Microwave, Inc. (NON) 174,687 8,500 Signal Technology Corp. (NON) 85,000 7,500 Teledyne Technologies, Inc. (NON) 177,188 ------------- 826,055 Biotechnology (5.7%) ------------------------------------------------------------------------------------------------------------------- 3,300 Applied Molecular Evolution, Inc. (NON) 56,306 7,862 Cephalon, Inc. (NON) 497,763 5,200 Neurocrine Biosciences, Inc. (NON) 172,250 18,700 Serologicals Corp. (NON) 281,668 2,900 Transkaryotic Therapies, Inc. (NON) 105,669 10,000 Xoma Ltd. (NON) 97,500 ------------- 1,211,156 Broadcasting (4.1%) ------------------------------------------------------------------------------------------------------------------- 14,600 Citadel Communications Corp. (NON) 175,200 9,000 Entravision Communications Corp. (NON) 165,375 31,000 Radio One, Inc. Class D (NON) 341,000 29,600 Regent Communications, Inc. (NON) 175,750 ------------- 857,325 Commercial and Consumer Services (8.7%) ------------------------------------------------------------------------------------------------------------------- 13,500 CoStar Group, Inc. (NON) 318,937 40,000 FTI Consulting, Inc. (NON) 410,000 11,600 Hall, Kinion & Associates, Inc. (NON) 233,450 19,500 Multex.com, Inc. (NON) 258,375 3,800 Professional Detailing, Inc. (NON) 401,909 10,400 SkillSoft Corp. (NON) 195,000 ------------- 1,817,671 Communications Equipment (5.2%) ------------------------------------------------------------------------------------------------------------------- 6,800 Ceragon Networks Ltd. (Israel) (NON) 82,025 33,000 MCK Communications, Inc. (NON) 278,438 10,400 SafeNet, Inc. (NON) 488,800 3,500 SeaChange International, Inc. (NON) 71,093 4,600 Tollgrade Communications, Inc. (NON) 167,900 ------------- 1,088,256 Computers (5.3%) ------------------------------------------------------------------------------------------------------------------- 37,000 Apropos Technology, Inc. (NON) 263,625 7,000 Aspen Technology, Inc. (NON) 232,750 30,000 Healthcare.com Corp. (NON) 45,000 10,100 I-many, Inc. (NON) 125,618 20,300 Lantronix, Inc. (NON) 129,413 3,300 MapInfo Corp. (NON) 155,925 11,200 Universal Electronics, Inc. (NON) 172,900 ------------- 1,125,231 Consumer Goods (1.3%) ------------------------------------------------------------------------------------------------------------------- 25,100 Yankee Candle Company, Inc. (The) (NON) 277,669 Electronics (12.1%) ------------------------------------------------------------------------------------------------------------------- 13,300 Act Manufacturing, Inc. (NON) 209,475 4,700 Alpha Industries, Inc. (NON) 173,900 4,000 American Superconductor Corp. (NON) 114,250 7,500 Aware, Inc. (NON) 133,125 7,700 Centillium Communications, Inc. (NON) 171,325 10,500 DDi Corp. (NON) 286,125 10,700 Exar Corp. (NON) 331,532 8,000 Galileo Technology, Ltd. (Israel) (NON) 108,000 2,300 Keithley Instruments, Inc. 99,044 5,500 Measurement Specialties, Inc. (NON) 107,250 8,700 Metalink, Ltd. (Israel) (NON) 83,737 12,800 Pemstar, Inc. (NON) 112,800 5,000 Silicon Laboratories, Inc. (NON) 71,875 10,200 Sipex Corp. (NON) 244,163 4,000 Trimble Navigation, Ltd. (NON) 96,000 14,600 TTM Technologies, Inc. (NON) 207,138 ------------- 2,549,739 Health Care Services (12.9%) ------------------------------------------------------------------------------------------------------------------- 4,550 Accredo Health, Inc. (NON) 228,352 25,000 AmSurg Corp. (NON) 609,375 5,000 Eclipsys Corp. (NON) 122,500 1,900 Invitrogen Corp. (NON) 164,113 9,400 LifePoint Hospitals, Inc. (NON) 471,175 11,000 Pediatrix Medical Group, Inc. (NON) 264,688 10,150 Province Healthcare Co. (NON) 399,656 2,000 Rightchoice Managed Care, Inc. (NON) 69,625 6,000 Sunrise Assisted Living, Inc. (NON) 150,000 10,400 US Physical Therapy, Inc. (NON) 247,000 ------------- 2,726,484 Manufacturing (0.6%) ------------------------------------------------------------------------------------------------------------------- 3,900 CoorsTek, Inc. (NON) 122,363 Medical Technology (4.7%) ------------------------------------------------------------------------------------------------------------------- 10,000 ArthroCare Corp. (NON) 195,000 7,600 Biosite Diagnostics, Inc. (NON) 307,325 12,600 Cyberonics, Inc. (NON) 292,950 3,000 Molecular Devices Corp. (NON) 205,313 ------------- 1,000,588 Pharmaceuticals (5.9%) ------------------------------------------------------------------------------------------------------------------- 4,500 Cima Labs, Inc. (NON) 292,781 13,500 Discovery Partners International, Inc. (NON) 163,687 6,000 Inspire Pharmaceuticals Inc. (NON) 156,375 7,600 Medicines Co. (NON) 155,800 2,100 Noven Pharmaceuticals, Inc. (NON) 78,488 9,800 Priority Healthcare Corp. Class B (NON) 399,963 ------------- 1,247,094 Publishing (1.2%) ------------------------------------------------------------------------------------------------------------------- 10,600 Information Holdings, Inc. (NON) 248,438 Restaurants (0.4%) ------------------------------------------------------------------------------------------------------------------- 2,480 P.F. Chang's China Bistro, Inc. (NON) 77,965 Retail (6.5%) ------------------------------------------------------------------------------------------------------------------- 10,500 Coach, Inc. (NON) 301,875 11,800 Factory 2-U Stores, Inc. (NON) 390,875 8,900 Gymboree Corp. (The) (NON) 123,488 7,500 Pacific Sunwear of California, Inc. (NON) 192,187 6,200 Too, Inc. (NON) 77,500 13,500 Wet Seal, Inc. (NON) 277,594 ------------- 1,363,519 Schools (2.9%) ------------------------------------------------------------------------------------------------------------------- 7,000 Career Education Corp. (NON) 273,875 11,800 Docent, Inc. (NON) 103,250 4,600 Learning Tree International, Inc. (NON) 227,700 ------------- 604,825 Semiconductor (1.5%) ------------------------------------------------------------------------------------------------------------------- 2,500 Advanced Energy Industries, Inc. (NON) 56,250 6,000 Photon Dynamics, Inc. (NON) 135,000 4,100 Rudolph Technologies, Inc. (NON) 123,769 ------------- 315,019 Shipping (0.7%) ------------------------------------------------------------------------------------------------------------------- 5,800 EGL, Inc. (NON) 138,838 Software (3.0%) ------------------------------------------------------------------------------------------------------------------- 8,200 Click Commerce, Inc. (NON) 171,175 4,200 Manugistics Group, Inc. (NON) 239,400 13,000 Metasolv Software, Inc. (NON) 118,625 4,900 Support.com, Inc. (NON) 99,225 ------------- 628,425 Technology (0.3%) ------------------------------------------------------------------------------------------------------------------- 5,000 Lightpath Technologies, Inc. Class A (NON) 69,375 Technology Services (3.6%) ------------------------------------------------------------------------------------------------------------------- 10,700 Carreker Corp. (NON) 371,825 24,800 Management Network Group, Inc. (The) (NON) 294,500 3,200 WatchGuard Technologies, Inc. (NON) 101,200 ------------- 767,525 Telecommunications (3.6%) ------------------------------------------------------------------------------------------------------------------- 12,000 Boston Communications Group (NON) 334,500 3,300 Choice One Communications, Inc. (NON) 30,730 7,200 Price Communications Corp (NON) 121,050 6,400 SBA Communications Corp. (NON) 262,800 ------------- 749,080 Transportation (0.5%) ------------------------------------------------------------------------------------------------------------------- 5,300 UTI Worldwide, Inc. (NON) 106,663 Waste Management (0.6%) ------------------------------------------------------------------------------------------------------------------- 4,000 Waste Connections, Inc. (NON) 132,250 ------------- Total Common Stocks (cost $18,992,738) $ 20,198,178 SHORT-TERM INVESTMENTS (4.2%) (a) (cost $880,000) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 880,000 Interest in $900,000,000 joint repurchase agreement dated December 29, 2000 with S.B.C. Warburg Inc. due January 2, 2001 with respect to various U.S. Government obligations -- maturity value of $880,626 for an effective yield of 6.40% $ 880,000 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $19,872,738) (b) $ 21,078,178 ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $21,070,262. (b) The aggregate identified cost on a tax basis is $19,903,898, resulting in gross unrealized appreciation and depreciation of $4,946,396 and $3,772,116, respectively, or net unrealized appreciation of $1,174,280. (NON) Non-income-producing security. The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES December 31, 2000 (Unaudited) Assets ------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $19,872,738) (Note 1) $21,078,178 ------------------------------------------------------------------------------------------- Cash 55,753 ------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 5,452 ------------------------------------------------------------------------------------------- Receivable for securities sold 151,412 ------------------------------------------------------------------------------------------- Total assets 21,290,795 Liabilities ------------------------------------------------------------------------------------------- Payable for securities purchased 94,149 ------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 33,984 ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 53,068 ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 20,460 ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 1,643 ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 741 ------------------------------------------------------------------------------------------- Other accrued expenses 16,488 ------------------------------------------------------------------------------------------- Total liabilities 220,533 ------------------------------------------------------------------------------------------- Net assets $21,070,262 Represented by ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $19,855,168 ------------------------------------------------------------------------------------------- Accumulated net investment loss (Note 1) (131,901) ------------------------------------------------------------------------------------------- Accumulated net realized gain on investments (Note 1) 141,555 ------------------------------------------------------------------------------------------- Net unrealized appreciation of investments 1,205,440 ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $21,070,262 Computation of net asset value and offering price ------------------------------------------------------------------------------------------- Net asset value and redemption price per share ($21,070,262 divided by 1,130,577 shares) $18.64 ------------------------------------------------------------------------------------------- Offering price per share (100/94.25 of $18.64)* $19.78 ------------------------------------------------------------------------------------------- * On single retail sales of less than $50,000. On sales of $50,000 more and on group sales, the offering price is reduced. The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS Six months ended December 31, 2000 (Unaudited) Investment income: ------------------------------------------------------------------------------------------- Interest $ 37,844 ------------------------------------------------------------------------------------------- Dividends 1,314 ------------------------------------------------------------------------------------------- Total investment income 39,158 Expenses: ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 133,451 ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 27,519 ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 958 ------------------------------------------------------------------------------------------- Administrative services (Note 2) 723 ------------------------------------------------------------------------------------------- Auditing 13,162 ------------------------------------------------------------------------------------------- Other 5,848 ------------------------------------------------------------------------------------------- Fees waived and reimbursed by Manager (Note 2) (8,174) ------------------------------------------------------------------------------------------- Total expenses 173,487 ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (2,428) ------------------------------------------------------------------------------------------- Net expenses 171,059 ------------------------------------------------------------------------------------------- Net investment loss (131,901) ------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 316,927 ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments during the period (6,182,459) ------------------------------------------------------------------------------------------- Net loss on investments (5,865,532) ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(5,997,433) ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Six months ended Year ended December 31 June 30 2000* 2000 -------------------------------------------------------------------------------------------------- Increase (decrease) in net assets -------------------------------------------------------------------------------------------------- Operations: -------------------------------------------------------------------------------------------------- Net investment loss $ (131,901) $ (205,535) -------------------------------------------------------------------------------------------------- Net realized gain on investments 316,927 4,535,861 -------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments (6,182,459) 4,504,617 -------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (5,997,433) 8,834,943 -------------------------------------------------------------------------------------------------- Distributions to shareholders: -------------------------------------------------------------------------------------------------- From net realized gain on investments (2,825,289) (1,967,266) -------------------------------------------------------------------------------------------------- Increase (decrease) from capital share transactions (Note 4) (31,411) 13,864,439 -------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (8,854,133) 20,732,116 Net assets -------------------------------------------------------------------------------------------------- Beginning of period 29,924,395 9,192,279 -------------------------------------------------------------------------------------------------- End of period (including accumulated net investment loss of $131,901 and $--, respectively) $21,070,262 $29,924,395 -------------------------------------------------------------------------------------------------- *Unaudited
FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) ---------------------------------------------------------------------------------------- Six months ended For the period Per-share December 31 Dec. 31, 1997+ operating performance (Unaudited) Year ended June 30 to June 30 ---------------------------------------------------------------------------------------- 2000 2000 1999 1998 ---------------------------------------------------------------------------------------- Net asset value, beginning of period $26.90 $14.85 $10.52 $8.50 ---------------------------------------------------------------------------------------- Investment operations ---------------------------------------------------------------------------------------- Net investment loss (a)(b) (.12) (.24) (.11) (.04) ---------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (5.28) 14.98 4.55 2.06 ---------------------------------------------------------------------------------------- Total from investment operations (5.40) 14.74 4.44 2.02 ---------------------------------------------------------------------------------------- Less distributions: ---------------------------------------------------------------------------------------- From net realized gain on investments (2.86) (2.69) (.11) -- ---------------------------------------------------------------------------------------- Net asset value, end of period $18.64 $26.90 $14.85 $10.52 ---------------------------------------------------------------------------------------- Total return at net asset value (%)(c) (19.84)* 102.02 42.62 23.77* ---------------------------------------------------------------------------------------- Ratios and supplemental data ---------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $21,070 $29,924 $9,192 $5,205 ---------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(a)(d) .65* 1.30 1.30 .65* ---------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%)(a) (.50)* (1.05) (1.04) (.37)* ---------------------------------------------------------------------------------------- Portfolio turnover (%) 60.12* 152.49 184.61 85.45* ---------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect a reduction of $0.01, $0.06, $0.04 and $0.06 per share for the periods ended December 31, 2000, June 30, 2000, June 30, 1999 and June 30, 1998, respectively (Note 2). (b) Per share net investment loss has been determined on the basis of the weighted average number of shares outstanding during the period. (c) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (d) Includes amounts paid through expense offset arrangements (Note 2).
NOTES TO FINANCIAL STATEMENTS December 31, 2000 (Unaudited) Note 1 Significant accounting policies Putnam Equity Fund 98 (the "fund") is a series of Putnam Fund Trust (the "trust") which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The objective of the fund is to seek capital appreciation by investing primarily in the equity securities of small, rapidly growing companies that Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam Investments, LLC believes have the potential for capital appreciation. 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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in 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. 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 Management. 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. Non-cash dividends, if any, are recorded at the fair market value of the securities received. E) Line of credit The fund has entered into a committed line of credit with certain banks. This line of credit agreement includes restrictions that the fund maintain an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the six months ended December 31, 2000 the fund had no borrowings against the line of credit. F) 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. G) 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. H) 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. 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: 1.00% of the first $500 million of the fund's average net asset value, 0.90% of the next $500 million, 0.85% of the next $500 million, 0.80% of the next $5 billion, 0.775% of the next $5 billion, 0.755% of the next $5 billion, 0.74% of the next $5 billion, and 0.73% of any excess thereafter. Putnam Management has agreed to limit its compensation (and, to the extent necessary, bear other expenses) through June 30, 2001, to the extent that expenses of the fund (exclusive of brokerage commissions, interest, taxes, deferred organizational and extraordinary expense, credits from Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, LLC and payments under the Trust's distribution plan) would exceed an annual rate of 1.30% of the fund's average net assets. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by PFTC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. For the six months ended December 31, 2000, the fund's expenses were reduced by $2,428 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $100 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 a distribution plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plan is to compensate Putnam Retail Management, Inc., a wholly-owned subsidiary of Putnam Investments, LLC, for services provided and expenses incurred by it in distributing shares of the fund. The Plan provides for payment by the fund to Putnam Retail Management, Inc. at an annual rate of up to 0.35% of the fund's average net assets. The Trustees currently not approved any payments pursuant to the plan. For the six months ended December 31, 2000, Putnam Retail Management, Inc., acting as underwriter received no net commissions from the sale of shares. A deferred sales charge of up to 1% is assessed on certain redemptions of shares. For the six months ended December 31, 2000, Putnam Retail Management, Inc., acting as underwriter received no monies on redemptions. Note 3 Purchases and sales of securities During the six months ended December 31, 2000, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $14,312,956 and $17,184,265, respectively. There were no purchases and sales of U.S. government obligations. Note 4 Capital shares At December 31, 2000, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended December 31, 2000 --------------------------------------------------------------------------- Shares Amount --------------------------------------------------------------------------- Shares sold 55,977 $ 1,382,789 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 154,707 2,820,313 --------------------------------------------------------------------------- 210,684 4,203,102 Shares repurchased (192,669) (4,234,513) --------------------------------------------------------------------------- Net increase (decrease) 18,015 $ (31,411) --------------------------------------------------------------------------- Year ended June 30, 2000 --------------------------------------------------------------------------- Shares Amount --------------------------------------------------------------------------- Shares sold 576,823 $15,911,036 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 84,191 1,964,171 --------------------------------------------------------------------------- 661,014 17,875,207 Shares repurchased (167,432) (4,010,768) --------------------------------------------------------------------------- Net increase 493,582 $13,864,439 --------------------------------------------------------------------------- At December 31, 2000, Putnam Investments, LLC owned 230,040 shares of the fund (20.4% of shares outstanding) valued at $4,287,946. Note 5 New accounting pronouncement In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits of Investment Companies, which is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the fund to amortize premium and accrete discount on all fixed-income securities, and classify as interest income gains and losses realized on paydowns on mortgage-backed securities which are presently included in realized gain/loss. Adopting these accounting principles will not affect the fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of operations. The adoption of this principle will not be material to the financial statements. FUND INFORMATION WEB SITE www.putnaminvestments.com INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management, Inc. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES John A. Hill, 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, III 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 Stephen Oristaglio Vice President Richard M. Frucci Vice President and Fund Manager Roland W. Gillis Vice President and Fund Manager Craig S. Lewis Vice President and Fund Manager Richard A. Monaghan Vice President Richard G. Leibovitch Vice President John R. Verani Vice President This report is for the information of shareholders of Putnam Equity Fund 98. 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.putnaminvestments.com. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE 68401 2HF 2/01