-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OUS/N40iivqN1oCSQJyAT8UG6p/Wo7CTH2kIPoF0dAJUnoXv9a8nC7M0hK1g+63X sBbr2Qe6Qx+scmvQ6wRhQw== 0000928816-02-000660.txt : 20020816 0000928816-02-000660.hdr.sgml : 20020816 20020816135338 ACCESSION NUMBER: 0000928816-02-000660 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM FUNDS TRUST CENTRAL INDEX KEY: 0001005942 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07513 FILM NUMBER: 02740962 BUSINESS ADDRESS: STREET 1: ONE POST STREET 2: ONE POST OFFICE SQUARE CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921010 MAIL ADDRESS: STREET 1: ONE POST OFFICE SQUARE CITY: BOSTON STATE: MA ZIP: 02109 N-30D 1 pf1.txt PUTNAM FUNDS TRUST Putnam International Growth and Income Fund ANNUAL REPORT ON PERFORMANCE AND OUTLOOK 6-30-02 [GRAPHIC OMITTED: GLOBE] [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Fellow Shareholder: These are unusually challenging times for equity investors and many have sought to cut their losses by getting entirely out of the market. However, for investors who had what they believed was an effective investment program before the markets began their decline and still have several years before they need to make withdrawals, it is our view that this was exactly the wrong thing to do. History has been on the side of investors who have dared to weather even sustained periods of market retreat. We urge you to remain patient as the current market troubles work themselves out. Of course, it is always a good idea to consult your financial advisor for specific counsel. Your fund, Putnam International Growth and Income Fund, struggled this year as world markets followed the U.S. market into retreat, especially in the months after the tragic events of last September 11. However, we find it encouraging that the fund outperformed both its benchmark and the average of its peer group. On the following pages, you will find a full discussion of the year's performance and the team's expectations for the future. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds August 21, 2002 REPORT FROM FUND MANAGEMENT This fund is managed by the Putnam International Value Team During Putnam International Growth and Income Fund's fiscal year, ended June 30, 2002, global markets remained weak, and for much of the period, followed the downward trend of U.S. markets. News of accounting irregularities, anemic profit recovery, and terrorist threats dampened investor confidence, and resulted in declines across a broad array of market indexes. Your fund lost ground during the period as well. While it is always disappointing to report a negative return, we are gratified that by maintaining our focus on low valuations and strong fundamentals, your fund was able to outperform its benchmark, the Salomon Smith Barney World Ex-US Primary Markets Value Index. In addition, it outperformed the average for its peer group, the Lipper International Funds category. For details, see page 7. We believe that our strategies have been effective in limiting losses and positioning the portfolio to benefit from more favorable market trends. Total return for 12 months ended 6/30/02 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP - ----------------------------------------------------------------------- -6.25% -11.62% -6.91% -11.57% -6.94% -7.87% -6.75% -10.01% - ----------------------------------------------------------------------- Past performance does not indicate future results. Performance information for longer periods and explanation of performance calculation methods begin on page 7. * MANAGEMENT TEAM FOCUSED ON INDIVIDUAL STOCK SELECTION As a reminder, we select stocks based on their individual merits, with attractively low valuations being the most important criteria. We also consider the health of a company's balance sheet, the effectiveness of its management, its competitive strategy, its commitment to increasing shareholder value, the company's market share, and the long-term prospects for the company and its industry. To help us separate out those companies whose current valuation and long-term potential compare favorably with the risks they represent, we rely on rigorous fundamental research and analysis. [GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS* Banking 13.1% Insurance 10.0% Oil and gas 9.0% Pharmaceuticals 6.9% Electric utilities 6.3% Footnote reads: *Based on net assets as of 6/30/02. Holdings will vary over time. Lipper Inc., an independent industry-ranking entity, ranked Putnam International Growth and Income Fund's class A shares in the 22nd percentile and the 14th percentile, respectively, for the 1- and 5-year periods ended 6/30/02 for all international funds it tracked during the period. Lipper ranked Putnam International Growth and Income Fund's class A shares 172/784 and 53/381 for the 1- and 5-year periods as of 6/30/02 in the International Funds category. The inception date of the fund is 8/1/96 and rankings for longer periods are not available. Lipper Inc. ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. Your fund's stock-focused strategy differentiates it from many other international equity funds that emphasize country weightings and sector allocations. We do not make strategic sector bets or chase performance among global markets. More often than not, the fund's country and sector weightings are incidental to our investment and our conviction in individual stocks. Explaining the fund's return is generally best accomplished by summarizing the performance of the portfolio's individual holdings. However, it's worth noting that, in an effort to limit risk, we do actively manage the fund's exposure to countries and regions that are experiencing economic, political, or other difficulties. The fund also hedges its positions to limit currency risk. * SAMSUNG, TAIWAN SEMICONDUCTOR, SUNCOR ENERGY CONTINUED TO PERFORM Successful value investing requires a long-term outlook and patience while out-of-favor stocks regain their luster in the marketplace. Months or years may pass before the market recognizes the fair value of a stock. Several holdings whose strong performance was highlighted in prior reports continued to appreciate throughout the fiscal period, and once again produced returns that helped the fund outpace its benchmark and the average for its Lipper peer group. The value of South Korea-based Samsung Electronics Co. had fallen significantly, along with the majority of technology names, after the tech bubble burst in 2000. Yet our valuation research suggested that the stock had the potential to nearly double in value, based on the company's strength in key areas of its business, which includes manufacturing such items as DRAM (dynamic random access memory) chips, flat panel screens, and mobile phones. Throughout the tech sector's downturn, Samsung continued to gain market share, and its stock performed well, eventually meeting our expectations. We took some profits along the way, trimming back our position, although the fund still owns shares, and we believe further appreciation is possible. Taiwan Semiconductor Manufacturing has a similar story. Its stock, too, became undervalued as the technology sector swooned. Yet the company, which manufactures goods for other entities, saw an increase in orders from businesses that preferred to shift capital-intensive manufacturing processes to outside vendors. Strong revenues helped lift the company's stock price, and we trimmed our position to lock in profits during the period. Fund Profile Putnam International Growth and Income Fund invests primarily in undervalued stocks of mid- and large-cap foreign companies. It seeks capital growth, with current income as a secondary objective. It may be appropriate for investors seeking exposure to international equities. Suncor Energy, which has developed a unique method of extracting oil from sand, continued to appreciate over the second half of the fiscal year. The company has achieved a degree of notoriety for its innovative approach, and for the fact that it was able to meet and sustain targeted production levels. During the period, when shares were trading at prices that exceeded our fair valuation estimate for the company, we sold the fund's entire position. * SOME NEW NAMES FIGURED PROMINENTLY IN RETURNS Historically, basic materials stocks have been among the first to benefit as the economy recovers from recession. With the economy improving in recent months, the sector has lived up to its reputation, and the portfolio's position in UPM-Kymmene, the world's second-largest commercial paper manufacturer, based in Scandinavia, proved rewarding. Its paper products, manufactured in Europe, the United States, and China, are widely used for magazines, newspapers, direct mail, labels, envelopes, and a variety of other packaging goods. Although shares of the company have gained in value, we believe they may appreciate further, so we continue to hold them. South African Breweries, as its name implies, is a brewery producing beer and other beverages. It was extremely undervalued and underappreciated because the South African rand had a massive devaluation relative to the British pound and the dollar. This made the company's reported earnings appear weak. In fact, in terms of local currency, the company's earnings have been extremely strong. Its management team, one of the best in the brewing industry, has been successful at expanding sales outside of South Africa. As a result, the company has shed its emerging-markets image and has joined the ranks of mature, global brewers. The stock has appreciated accordingly, and we continue to hold it in the portfolio. While these stocks, as well as others mentioned in this report, were viewed favorably at the end of the reporting period, all are subject to review in accordance with the fund's investment strategy and our opinion of them may change in the future. Shares of British American Tobacco (BAT), Australia's Westpac Banking Corporation, and Vivendi-Universal also helped improve the fund's return. In the case of Vivendi, we took profits and sold the fund's position entirely before the stock suffered severe declines late in the period. Relative to our benchmark, our decision to avoid shares of France Telecom -- which, in our opinion was overpriced -- proved beneficial, as the stock lost ground during the period. * PORTFOLIO HAD SOME NOTABLE DISAPPOINTMENTS Shares of Misys, a U.K.-based software company, failed to meet our expectations during the fiscal year. We believe the company's strong revenue stream and cash flow generation have been misunderstood by the market and that, in time, the true value of the shares will be recognized. We have seen indications that support our thesis, so we continue to hold shares. In contrast, though Fast Retailing's introduction of low-cost casual apparel to Japanese consumers was revolutionary and initially successful, the company had difficulty keeping up with popular styles while maintaining low price points. We are concerned the company could be entering into a protracted decline, and so we have been selling off the position. Shares of German insurer Allianz performed poorly as investors, whose confidence in conglomerates was waning, disapproved of the firm's investment in Dresdner Bank, and questioned its long-term profitability. We did not fully eliminate the fund's position in Allianz, but we trimmed it considerably. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS Novartis AG Switzerland Pharmaceuticals BP PLC United Kingdom Oil and gas Nestle SA Switzerland Food Shell Transport & Trading Co. PLC United Kingdom Oil and gas E.On AG Germany Electric utilities BNP Paribas SA France Banking HSBC Holdings PLC United Kingdom Banking Diageo PLC United Kingdom Beverage Acom Co. Ltd. Japan Consumer finance Barclays PLC United kingdom Banking Footnote reads: These holdings represent 22.8% of the fund's net assets as of 6/30/02. Portfolio holdings will vary over time. * VALUE OPPORTUNITIES BECAME MORE ABUNDANT After months of market declines, stocks of many fine companies are currently attractively priced. In this environment we hope to improve the quality of the portfolio, while positioning it for better performance as global economies gain strength. We anticipate a gradual improvement in corporate profitability and investor confidence in coming months, helped by continued low inflation and stimulative monetary policies, which could spur renewed capital spending. In the months ahead, we will continue to search for the most attractive value opportunities in pursuit of above-average portfolio returns and below-market volatility. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 6/30/02, 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. The fund is managed by the Putnam International Value Team. The members of the team are Colin Moore (Portfolio Leader), Pamela Holding (Portfolio Member), George Stairs (Portfolio Member), and Omid Kamshad. PUTNAM'S POLICY ON CONFIDENTIALITY In order to conduct business with our shareholders, we must obtain certain personal information such as account holders' addresses, telephone numbers, Social Security numbers, and the names of their financial advisors. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial advisor, if you've listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don't hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy. TOTAL RETURN FOR PERIODS ENDED 6/30/02 Class A Class B Class C Class M (inception dates) (8/1/96) (8/1/96) (2/1/99) (8/1/96) NAV POP NAV CDSC NAV CDSC NAV POP - ------------------------------------------------------------------------------ 1 year -6.25% -11.62% -6.91% -11.57% -6.94% -7.87% -6.75% -10.01% - ------------------------------------------------------------------------------ 5 years 17.12 10.35 12.85 11.24 13.01 13.01 14.18 10.18 Annual average 3.21 1.99 2.45 2.15 2.48 2.48 2.69 1.96 - ------------------------------------------------------------------------------ Life of fund 48.42 39.89 41.96 40.96 42.27 42.27 44.07 39.01 Annual average 6.91 5.84 6.11 5.98 6.15 6.15 6.37 5.73 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/02 SSB World Ex-US MSCI World Consumer PMI Value Index Ex-US Index* price index - ------------------------------------------------------------------------------ 1 year -7.12% -9.42% 1.01% - ------------------------------------------------------------------------------ 5 years 4.08 -6.47 12.03 Annual average 0.80 -1.33 2.30 - ------------------------------------------------------------------------------ Life of fund 24.18 9.39 14.31 Annual average 3.73 1.53 2.29 - ------------------------------------------------------------------------------ Past performance does not indicate future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for class A and M shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Performance for class B, C, and M shares before their inception are derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and higher operating expenses for such shares. For a portion of the period, this fund limited expenses, without which returns would have been lower. *The benchmark index for Putnam International Growth and Income Fund has changed to Salomon Smith Barney World Ex-US Primary Markets Value Index. Putnam Investment Management changed the benchmark of this fund to more accurately reflect the investment strategy of the fund. LIPPER INFORMATION: The average annualized return for the 784 funds in the Lipper International Funds category over the 12 months ended 6/30/02 was - -10.17%. Over the 5-year and Life of fund periods ended 6/30/02, annualized returns for the category were -0.71% and 2.55%, respectively. [GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT] GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 8/1/96 Fund's class A SSB World Ex-US MSCI World Consumer price Date shares at POP PMI Value Index Ex-US Index Index 8/1/96 9,425 10,000 10,000 10,000 6/30/97 11,945 11,931 11,695 10,204 6/30/98 14,282 13,034 12,432 10,369 6/30/99 15,928 13,798 13,348 10,573 6/30/00 18,253 15,573 15,856 10,967 6/30/01 14,922 13,370 12,077 11,317 6/30/02 $13,989 $12,418 $10,939 $11,431
Footnote reads: Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund's class B shares would have been valued at $14,196 ($14,096 at CDSC), and class C shares would have been valued at $14,227 and no contingent deferred sales charges would apply; a $10,000 investment in the fund's class M shares would have been valued at $14,407 ($13,901 at public offering price). See first page of performance section for performance calculation method. PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 6/30/02 Class A Class B Class C Class M - ------------------------------------------------------------------------------ Distributions (number) 2 -- 1 2 - ------------------------------------------------------------------------------ Income $0.030 -- $0.001 $0.008 - ------------------------------------------------------------------------------ Capital gains -- -- -- -- - ------------------------------------------------------------------------------ Total $0.030 -- $0.001 $0.008 - ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV NAV POP - ------------------------------------------------------------------------------ 6/30/01 $9.39 $9.96 $9.26 $9.35 $9.36 $9.70 - ------------------------------------------------------------------------------ 6/30/02 8.77 9.31 8.62 8.70 8.72 9.04 - ------------------------------------------------------------------------------ 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. Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. The NAV is calculated by dividing the net value of all the fund's assets by the number of outstanding shares. 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. Class A shares are generally subject to an initial sales charge and no sales charge on redemption (except on certain redemptions of shares bought without 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 (except on certain redemptions of shares bought without an initial sales charge). COMPARATIVE BENCHMARKS The Salomon Smith Barney World Ex-US Primary Markets Value Index* is an unmanaged index of mostly large- and some small- capitalization stocks from developed countries, excluding the U.S., chosen for their value orientation. The Morgan Stanley Capital International (MSCI) World Ex-US Index* is an unmanaged index of developed and emerging markets excluding the U.S. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Lipper Inc. is a third-party industry ranking entity that ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. *Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, preceded by the Report of independent accountants, constitute the fund's financial statements. The fund's portfolio lists all the fund's investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification. Statement of assets and liabilities shows how the fund's net assets and share price 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. This is done by first adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings -- as well as any unrealized gains or losses over the period -- is added to or subtracted from the net investment result to determine the fund's net gain or loss for the fiscal year. 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. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Putnam Funds Trust and Shareholders of Putnam International Growth and Income Fund (a series of Putnam Funds Trust) In our opinion, the accompanying statement of assets and liabilities, including the fund's portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Putnam International Growth and Income Fund (the "fund") at June 30, 2002, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at June 30, 2002 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts August 8, 2002
THE FUND'S PORTFOLIO June 30, 2002 COMMON STOCKS (98.7%) (a) NUMBER OF SHARES VALUE Airlines (1.4%) - ------------------------------------------------------------------------------------------------------------------- 189,000 Deutsche Lufthansa AG (Germany) $ 2,649,984 1,574,500 Qantas Airways, Ltd. (Australia) 4,065,328 599,100 Singapore Airlines, Ltd. (Singapore) 4,375,221 ------------- 11,090,533 Automotive (5.7%) - ------------------------------------------------------------------------------------------------------------------- 184,100 Bayerische Motoren Werke (BMW) AG (Germany) 7,589,329 250,800 Denso Corp. (Japan) 3,919,469 138,000 Honda Motor Co., Ltd. (Japan) 5,595,995 1,205,000 Nissan Motor Co., Ltd. (Japan) 8,345,015 183,000 Peugeot SA (France) 9,495,480 367,400 Toyota Motor Corp. (Japan) 9,748,285 ------------- 44,693,573 Banking (13.1%) - ------------------------------------------------------------------------------------------------------------------- 387,100 Abbey National PLC (United Kingdom) 4,554,340 655,220 Allied Irish Banks PLC (Ireland) 8,630,503 1,376,264 Barclays PLC (United Kingdom) 11,577,793 220,900 BNP Paribas SA (France) 12,214,533 393,400 Danske Bank A/S (Denmark) 7,245,273 1,050,800 HSBC Holdings PLC (United Kingdom) 12,082,708 948,600 Lloyds TSB Group PLC (United Kingdom) 9,440,202 380,497 National Bank of Canada (Canada) 7,580,917 525,024 Sanpaolo IMI SpA (Italy) 5,267,032 136,227 Societe Generale (France) 8,971,853 859,700 UniCredito Italiano SpA (Italy) 3,887,814 1,131,600 Westpac Banking Corp. (Australia) 10,315,113 ------------- 101,768,081 Basic Materials (1.1%) - ------------------------------------------------------------------------------------------------------------------- 183,600 Compagnie de Saint Gobain (France) 8,239,478 Beverage (2.7%) - ------------------------------------------------------------------------------------------------------------------- 909,300 Diageo PLC (United Kingdom) 11,806,788 142,200 Interbrew (Belgium) 4,081,669 613,500 South African Breweries PLC (United Kingdom) 4,801,091 ------------- 20,689,548 Broadcasting (0.5%) - ------------------------------------------------------------------------------------------------------------------- 2,489,058 Granada PLC (United Kingdom) 4,229,557 Building Materials (0.8%) - ------------------------------------------------------------------------------------------------------------------- 513,000 Asahi Glass Co., Ltd. (Japan) 3,283,029 465,600 Hanson PLC (United Kingdom) 3,324,356 ------------- 6,607,385 Chemicals (1.7%) - ------------------------------------------------------------------------------------------------------------------- 94,000 Akzo-Nobel NV (Netherlands) 4,092,240 193,800 BASF AG (Germany) 8,984,264 ------------- 13,076,504 Commercial and Consumer Services (0.7%) - ------------------------------------------------------------------------------------------------------------------- 528,800 Toppan Printing Co., Ltd. (Japan) 5,497,579 Communications Equipment (1.0%) - ------------------------------------------------------------------------------------------------------------------- 505,206 Nokia OYJ (Finland) 7,392,815 Conglomerates (0.5%) - ------------------------------------------------------------------------------------------------------------------- 765,100 Brambles Industries Ltd. (Australia) 4,054,014 Construction (1.8%) - ------------------------------------------------------------------------------------------------------------------- 189,615 CRH PLC (Ireland) 3,173,478 16,800 Holcim, Ltd. Class B (Switzerland) 3,856,163 73,900 Lafarge (France) 7,369,855 ------------- 14,399,496 Consumer Cyclicals (1.9%) - ------------------------------------------------------------------------------------------------------------------- 295,500 Cie Financier Richemont AG (Switzerland) 6,723,131 323,500 Matsushita Electric Industrial Co. (Japan) 4,413,204 40,300 Swatch Group AG (The) Class B (Switzerland) 3,589,024 ------------- 14,725,359 Consumer Finance (1.5%) - ------------------------------------------------------------------------------------------------------------------- 169,800 Acom Co., Ltd. (Japan) 11,603,354 Consumer Goods (1.4%) - ------------------------------------------------------------------------------------------------------------------- 463,000 KAO Corp. (Japan) 10,662,328 Consumer Services (0.9%) - ------------------------------------------------------------------------------------------------------------------- 532,900 Deutsche Post AG (Germany) 6,761,483 Electric Utilities (6.3%) - ------------------------------------------------------------------------------------------------------------------- 241,800 Chubu Electric Power, Inc. (Japan) 4,246,884 988,500 CLP Holdings, Ltd. (Hong Kong) 3,928,704 253,846 E.On AG (Germany) 14,788,205 27,300 Electrabel SA (Belgium) 6,307,709 1,266,500 Hong Kong Electric Holdings, Ltd. (Hong Kong) 4,733,199 502,700 Iberdrola SA (Spain) 7,321,398 231,600 Korea Electric Power Corp. (South Korea) 4,242,465 376,623 Scottish and Southern Energy PLC (United Kingdom) 3,725,088 ------------- 49,293,652 Electrical Equipment (1.0%) - ------------------------------------------------------------------------------------------------------------------- 851,200 ABB, Ltd. (Switzerland) (NON) 7,580,589 Electronics (3.6%) - ------------------------------------------------------------------------------------------------------------------- 82,000 Celestica, Inc. (Canada) (NON) 1,845,647 113,000 Fuji Soft ABC, Inc. (Japan) 4,553,942 220,100 Koninklijke (Royal) Philips Electronics NV (Netherlands) 6,143,827 28,000 Samsung Electronics Co., Ltd. (South Korea) 7,670,275 1,611,421 Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan) (NON) 3,284,671 3,731,000 United Microelectronics Corp. (Taiwan) (NON) 4,484,805 ------------- 27,983,167 Engineering & Construction (0.7%) - ------------------------------------------------------------------------------------------------------------------- 807,500 Saipem SpA (Italy) 5,804,530 Financial (1.0%) - ------------------------------------------------------------------------------------------------------------------- 998,900 Sampo OYJ Class A (Finland) 7,791,879 Food (5.1%) - ------------------------------------------------------------------------------------------------------------------- 453,900 Cadbury Schweppes PLC (United Kingdom) 3,399,920 107,039 Nestle SA (Switzerland) 24,964,735 3,071,763 Tesco PLC (United Kingdom) 11,165,060 ------------- 39,529,715 Household Furniture and Appliances (0.6%) - ------------------------------------------------------------------------------------------------------------------- 224,600 Electrolux AB (Sweden) 4,534,978 Insurance (10.0%) - ------------------------------------------------------------------------------------------------------------------- 215,800 ACE, Ltd. (Bermuda) 6,819,280 17,985 Allianz AG (Germany) 3,601,401 81,370 Converium Holding AG (Switzerland) (NON) 4,205,776 316,023 Fortis (Belgium) (NON) 6,733,847 323,048 ING Groep NV (Netherlands) 8,293,417 900 Millea Holdings, Inc. (Japan) (NON) 7,389,237 43,954 Muenchener Rueckversicherungs-Gesellschaft AG (Germany) 10,394,343 117,200 Sun Life Financial Services of Canada, Inc. (Canada) 2,536,970 70,324 Swiss Reinsurance Co. (Switzerland) 6,877,364 19,700 Swiss Reinsurance Co. 144A (Switzerland) 1,926,569 77,500 XL Capital, Ltd. Class A (Bermuda) 6,564,250 629,000 Yasuda Fire & Marine Insurance Company, Ltd. (The) (Japan) 3,852,199 41,900 Zurich Financial Services AG (Switzerland) 8,462,797 ------------- 77,657,450 Investment Banking/Brokerage (2.8%) - ------------------------------------------------------------------------------------------------------------------- 1,314,000 Nomura - Topix ETF (Japan) 11,248,761 128,700 Orix Corp. (Japan) 10,384,055 ------------- 21,632,816 Lodging/Tourism (1.5%) - ------------------------------------------------------------------------------------------------------------------- 86,591 Accor SA (France) 3,511,483 2,338,800 Hilton Group PLC (United Kingdom) 8,135,586 ------------- 11,647,069 Manufacturing (0.5%) - ------------------------------------------------------------------------------------------------------------------- 238,500 ThyssenKrupp AG (Germany) 3,650,171 Metals (3.0%) - ------------------------------------------------------------------------------------------------------------------- 370,300 Arcelor (Luxembourg) (NON) 5,254,164 1,111,800 BHP Billiton PLC (United Kingdom) 6,057,420 115,800 Companhia Vale do Rio Doce (CVRD) ADR (Brazil) (NON) 3,204,186 144,500 Inco, Ltd. (Canada) (NON) 3,244,789 50,000 Pohang Iron & Steel Co., Ltd. (South Korea) 5,557,868 ------------- 23,318,427 Oil & Gas (9.0%) - ------------------------------------------------------------------------------------------------------------------- 3,341,460 BP PLC (United Kingdom) 28,059,042 377,358 ENI SpA (Italy) 5,987,735 256,000 Petroleo Brasileiro SA ADR (Brazil) 4,828,160 2,319,400 Shell Transport & Trading Co. PLC (United Kingdom) 17,497,090 502,400 Statoil ASA (Norway) 4,487,508 38,800 Technip-Coflexip SA (France) 4,083,965 31,630 TotalFinaElf SA Class B (France) 5,134,452 ------------- 70,077,952 Paper & Forest Products (1.7%) - ------------------------------------------------------------------------------------------------------------------- 154,600 Svenska Cellulosa AB SCA Class B (Sweden) 5,502,738 203,279 UPM-Kymmene OYJ (Finland) 8,000,607 ------------- 13,503,345 Pharmaceuticals (6.9%) - ------------------------------------------------------------------------------------------------------------------- 89,854 AstraZeneca PLC (United Kingdom) 3,719,222 66,500 Aventis SA (France) 4,711,256 191,000 Daiichi Pharmaceutical Company, Ltd. (Japan) 3,490,113 745,500 Novartis AG (Switzerland) 32,795,386 67,500 Sanofi-Synthelabo SA (France) 4,105,609 110,000 Takeda Chemical Industries, Ltd. (Japan) 4,827,701 ------------- 53,649,287 Railroads (0.6%) - ------------------------------------------------------------------------------------------------------------------- 83,600 Canadian National Railway Co. (Canada) 4,399,884 110 East Japan Railway Co. (Japan) 514,894 ------------- 4,914,778 Retail (2.0%) - ------------------------------------------------------------------------------------------------------------------- 2,829,300 Dixons Group PLC (United Kingdom) 8,246,419 163,000 Fast Retailing Co., Ltd. (Japan) 3,536,087 277,900 Next PLC (United Kingdom) 3,947,203 ------------- 15,729,709 Software (0.5%) - ------------------------------------------------------------------------------------------------------------------- 1,035,081 Misys PLC (United Kingdom) 3,817,462 Telecommunications (4.1%) - ------------------------------------------------------------------------------------------------------------------- 800,100 BT Group PLC (United Kingdom) 3,072,768 4,013 NTT DoCoMo, Inc. (Japan) 9,877,637 978,200 Portugal Telecom SGPS SA (Portugal) 6,906,004 148,700 TDC A/S (Denmark) 4,112,869 316,300 Telefonica SA (Spain) (NON) 2,654,674 4,073,261 Vodafone Group PLC (United Kingdom) 5,586,885 ------------- 32,210,837 Tobacco (1.1%) - ------------------------------------------------------------------------------------------------------------------- 826,200 BAT Industries PLC (United Kingdom) 8,876,858 ------------- Total Common Stocks (cost $768,824,622) $ 768,695,758 UNITS (0.5%) (a) (NON) (cost $4,262,909) NUMBER OF UNITS VALUE - ------------------------------------------------------------------------------------------------------------------- 100,430 Korea Telecom Corp. Structured Call Warrants (issued by UBS AG) expiration 11/15/02 (South Korea) $ 4,038,942 SHORT-TERM INVESTMENTS (0.9%) (a) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------- $ 5,487,874 Short-term investments held as collateral for loaned securities with yields ranging from 1.78% to 1.98% and due dates ranging from July 1, 2002 to August 26, 2002 (d) $ 5,484,540 1,746,835 Short-term investments held in Putnam commingled cash account with yields ranging from 1.74% to 1.83% and due dates ranging from July 1, 2002 to August 27, 2002 (d) 1,746,835 ------------- Total Short-Term Investments (cost $7,231,375) $ 7,231,375 - ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $780,318,906) (b) $ 779,966,075 - ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $778,914,443. (b) The aggregate identified cost on a tax basis is $792,332,984, resulting in gross unrealized appreciation and depreciation of $38,173,399 and $50,540,308, respectively, or net unrealized depreciation of $12,366,909. (NON) Non-income-producing security. (d) See footnote 1 to the financial statements. 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 custodian bank. DIVERSIFICATION BY COUNTRY Distribution of investments by country of issue at June 30, 2002: (as percentage of Market Value) Australia 2.4% Belgium 2.2 Bermuda 1.7 Brazil 1.0 Canada 2.5 Denmark 1.5 Finland 3.0 France 8.8 Germany 7.6 Hong Kong 1.1 Ireland 1.5 Italy 2.7 Japan 16.4 Netherlands 2.4 South Korea 2.8 Spain 1.3 Sweden 1.3 Switzerland 13.1 Taiwan 1.0 United Kingdom 22.9 Other 2.8 ----- Total 100.0% The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES June 30, 2002 Assets - ------------------------------------------------------------------------------------------- Investments in securities, at value, including $5,215,182 of securities on loan (identified cost $780,318,906) (Note 1) $779,966,075 - ------------------------------------------------------------------------------------------- Cash 2,386,684 - ------------------------------------------------------------------------------------------- Foreign currency (cost $4,291,370) 4,501,096 - ------------------------------------------------------------------------------------------- Dividends and other receivables 2,984,647 - ------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 6,912,757 - ------------------------------------------------------------------------------------------- Total assets 796,751,259 Liabilities - ------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 10,006,766 - ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 1,504,914 - ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 158,167 - ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 53,793 - ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 2,518 - ------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 550,371 - ------------------------------------------------------------------------------------------- Collateral on securities loaned, at value (Note 1) 5,484,540 - ------------------------------------------------------------------------------------------- Other accrued expenses 75,747 - ------------------------------------------------------------------------------------------- Total liabilities 17,836,816 - ------------------------------------------------------------------------------------------- Net assets $778,914,443 Represented by - ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $961,276,910 - ------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 5,506,945 - ------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (187,873,805) - ------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 4,393 - ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $778,914,443 Computation of net asset value and offering price - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($409,601,707 divided by 46,684,540 shares) $8.77 - ------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $8.77)* $9.31 - ------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($310,733,566 divided by 36,066,715 shares)** $8.62 - ------------------------------------------------------------------------------------------- Net asset value and offering price per class C share ($25,717,478 divided by 2,955,187)** $8.70 - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($24,750,628 divided by 2,837,637 shares) $8.72 - ------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $8.72)* $9.04 - ------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($8,111,064 divided by 922,670 shares) $8.79 - ------------------------------------------------------------------------------------------- * 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 Year ended June 30, 2002 Investment income: - ------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $2,051,934) $ 17,246,601 - ------------------------------------------------------------------------------------------- Interest 487,300 - ------------------------------------------------------------------------------------------- Securities lending 45,101 - ------------------------------------------------------------------------------------------- Total investment income 17,779,002 Expenses: - ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 6,045,829 - ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 1,661,642 - ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 30,140 - ------------------------------------------------------------------------------------------- Administrative services (Note 2) 15,090 - ------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 1,043,024 - ------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 3,202,733 - ------------------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 250,411 - ------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 189,520 - ------------------------------------------------------------------------------------------- Amortization of organizational expenses (Note 1) 1,332 - ------------------------------------------------------------------------------------------- Other 847,320 - ------------------------------------------------------------------------------------------- Total expenses 13,287,041 - ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (964,538) - ------------------------------------------------------------------------------------------- Net expenses 12,322,503 - ------------------------------------------------------------------------------------------- Net investment income 5,456,499 - ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (122,281,556) - ------------------------------------------------------------------------------------------- Net realized loss on futures contracts (Note 1) (605,189) - ------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (36,629) - ------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the year 1,633,295 - ------------------------------------------------------------------------------------------- Net unrealized appreciation of investments during the year 59,879,764 - ------------------------------------------------------------------------------------------- Net loss on investments (61,410,315) - ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(55,953,816) - ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Year ended June 30 ------------------------------- 2002 2001 - ------------------------------------------------------------------------------------------------------- Decrease in net assets - ------------------------------------------------------------------------------------------------------- Operations: - ------------------------------------------------------------------------------------------------------- Net investment income $ 5,456,499 $ 6,541,600 - ------------------------------------------------------------------------------------------------------- Net realized loss on investments and foreign currency transactions (122,923,374) (56,955,319) - ------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies 61,513,059 (156,502,580) - ------------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (55,953,816) (206,916,299) - ------------------------------------------------------------------------------------------------------- Distributions to shareholders: (Note 1) - ------------------------------------------------------------------------------------------------------- From net investment income Class A (1,454,170) (6,265,639) - ------------------------------------------------------------------------------------------------------- Class B -- (3,322,008) - ------------------------------------------------------------------------------------------------------- Class C (3,005) (190,234) - ------------------------------------------------------------------------------------------------------- Class M (23,718) (289,431) - ------------------------------------------------------------------------------------------------------- Class Y (15,394) (37,843) - ------------------------------------------------------------------------------------------------------- From net realized short-term gain on investments Class A -- (16,418,692) - ------------------------------------------------------------------------------------------------------- Class B -- (13,447,084) - ------------------------------------------------------------------------------------------------------- Class C -- (764,029) - ------------------------------------------------------------------------------------------------------- Class M -- (1,075,222) - ------------------------------------------------------------------------------------------------------- Class Y -- (90,511) - ------------------------------------------------------------------------------------------------------- From net realized long-term gain on investments Class A -- (29,519,067) - ------------------------------------------------------------------------------------------------------- Class B -- (24,176,432) - ------------------------------------------------------------------------------------------------------- Class C -- (1,373,645) - ------------------------------------------------------------------------------------------------------- Class M -- (1,933,136) - ------------------------------------------------------------------------------------------------------- Class Y -- (162,730) - ------------------------------------------------------------------------------------------------------- From return of capital Class A -- (2,925,341) - ------------------------------------------------------------------------------------------------------- Class B -- (1,605,051) - ------------------------------------------------------------------------------------------------------- Class C -- (91,845) - ------------------------------------------------------------------------------------------------------- Class M -- (138,742) - ------------------------------------------------------------------------------------------------------- Class Y -- (17,570) - ------------------------------------------------------------------------------------------------------- Increase (decrease) from capital share transactions (Note 4) (77,382,741) 89,916,642 - ------------------------------------------------------------------------------------------------------- Total decrease in net assets (134,832,844) (220,843,909) Net assets - ------------------------------------------------------------------------------------------------------- Beginning of year 913,747,287 1,134,591,196 - ------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $5,506,945 and $193,376, respectively) $778,914,443 $913,747,287 - ------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS A - ----------------------------------------------------------------------------------------------------- Per-share operating performance Year ended June 30 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $9.39 $12.80 $12.59 $12.25 $10.76 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment income (a) .09 .11 .13 .11 .23 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.68) (2.33) 1.81 .98 1.78 - ----------------------------------------------------------------------------------------------------- Total from investment operations (.59) (2.22) 1.94 1.09 2.01 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net investment income (.03) (.13) (.37) (.25) (.16) - ----------------------------------------------------------------------------------------------------- From net realized gain on investments -- (1.00) (1.36) (.50) (.36) - ----------------------------------------------------------------------------------------------------- From return of capital -- (.06) -- -- -- - ----------------------------------------------------------------------------------------------------- Total distributions (.03) (1.19) (1.73) (.75) (.52) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $8.77 $9.39 $12.80 $12.59 $12.25 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (6.25) (18.25) 16.33 9.87 19.56 - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $409,602 $483,057 $582,386 $469,726 $409,456 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.34 1.29 1.28 1.30 1.36 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 1.03 .99 1.02 .94 1.98 - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 142.72 113.10 82.07 88.09 53.57 - ----------------------------------------------------------------------------------------------------- (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). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS B - ----------------------------------------------------------------------------------------------------- Per-share operating performance Year ended June 30 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $9.26 $12.65 $12.49 $12.18 $10.72 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment income (a) .02 .03 .03 .02 .14 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.66) (2.29) 1.79 .97 1.78 - ----------------------------------------------------------------------------------------------------- Total from investment operations (.64) (2.26) 1.82 .99 1.92 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net investment income -- (.09) (.30) (.18) (.10) - ----------------------------------------------------------------------------------------------------- From net realized gain on investments -- (1.00) (1.36) (.50) (.36) - ----------------------------------------------------------------------------------------------------- From return of capital -- (.04) -- -- -- - ----------------------------------------------------------------------------------------------------- Total distributions -- (1.13) (1.66) (.68) (.46) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $8.62 $9.26 $12.65 $12.49 $12.18 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (6.91) (18.83) 15.41 9.04 18.68 - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $310,734 $371,489 $488,654 $445,472 $414,609 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 2.09 2.04 2.03 2.05 2.11 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) .28 .23 .25 .19 1.21 - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 142.72 113.10 82.07 88.09 53.57 - ----------------------------------------------------------------------------------------------------- (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). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS C - ---------------------------------------------------------------------------------------- For the period Per-share Feb. 1, 1999+ operating performance Year ended June 30 to June 30 - ---------------------------------------------------------------------------------------- 2002 2001 2000 1999 - ---------------------------------------------------------------------------------------- Net asset value, beginning of period $9.35 $12.75 $12.57 $11.10 - ---------------------------------------------------------------------------------------- Investment operations: - ---------------------------------------------------------------------------------------- Net investment income (a) .03 .03 .04 .07 - ---------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.68) (2.30) 1.80 1.42 - ---------------------------------------------------------------------------------------- Total from investment operations (.65) (2.27) 1.84 1.49 - ---------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------- From net investment income --(d) (.09) (.30) (.02) - ---------------------------------------------------------------------------------------- From net realized gain on investments -- (1.00) (1.36) -- - ---------------------------------------------------------------------------------------- From return of capital -- (.04) -- -- - ---------------------------------------------------------------------------------------- Total distributions -- (1.13) (1.66) (.02) - ---------------------------------------------------------------------------------------- Net asset value, end of period $8.70 $9.35 $12.75 $12.57 - ---------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (6.94) (18.75) 15.50 13.40* - ---------------------------------------------------------------------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $25,717 $26,078 $22,903 $9,163 - ---------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 2.09 2.04 2.03 .84* - ---------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) .31 .29 .34 .58* - ---------------------------------------------------------------------------------------- Portfolio turnover (%) 142.72 113.10 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). (d) Amount represents less than $0.01 per share. The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS M - ----------------------------------------------------------------------------------------------------- Per-share operating performance Year ended June 30 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $9.36 $12.76 $12.55 $12.22 $10.74 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment income (a) .04 .05 .06 .05 .16 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.67) (2.30) 1.82 .97 1.79 - ----------------------------------------------------------------------------------------------------- Total from investment operations (.63) (2.25) 1.88 1.02 1.95 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net investment income (.01) (.10) (.31) (.19) (.11) - ----------------------------------------------------------------------------------------------------- From net realized gain on investments -- (1.00) (1.36) (.50) (.36) - ----------------------------------------------------------------------------------------------------- From return of capital -- (.05) -- -- -- - ----------------------------------------------------------------------------------------------------- Total distributions (.01) (1.15) (1.67) (.69) (.47) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $8.72 $9.36 $12.76 $12.55 $12.22 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (6.75) (18.65) 15.83 9.24 18.95 - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $24,751 $29,681 $40,648 $36,291 $38,832 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.84 1.79 1.78 1.80 1.86 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) .52 .47 .51 .40 1.40 - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 142.72 113.10 82.07 88.09 53.57 - ----------------------------------------------------------------------------------------------------- (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). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS Y - -------------------------------------------------------------- For the period Per-share Year ended Oct. 2, 2000+ operating performance June 30 to June 30 - -------------------------------------------------------------- 2002 2001 - -------------------------------------------------------------- Net asset value, beginning of period $9.39 $11.75 - -------------------------------------------------------------- Investment operations: - -------------------------------------------------------------- Net investment income (a) .11 .12 - -------------------------------------------------------------- Net realized and unrealized gain on investments (.67) (1.28) - -------------------------------------------------------------- Total from investment operations (.56) (1.16) - -------------------------------------------------------------- Less distributions: - -------------------------------------------------------------- From net investment income (.04) (.14) - -------------------------------------------------------------- From net realized gain on investments -- (1.00) - -------------------------------------------------------------- From return of capital -- (.06) - -------------------------------------------------------------- Total distributions (.04) (1.20) - -------------------------------------------------------------- Net asset value, end of period $8.79 $9.39 - -------------------------------------------------------------- Total return at net asset value (%)(b) (5.91) (10.90)* - -------------------------------------------------------------- Ratios and supplemental data - -------------------------------------------------------------- Net assets, end of period (in thousands) $8,111 $3,443 - -------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.09 .77* - -------------------------------------------------------------- Ratio of net investment income to average net assets (%) 1.43 1.06* - -------------------------------------------------------------- Portfolio turnover (%) 142.72 113.10 - -------------------------------------------------------------- + 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). The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS June 30, 2002 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. 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, an indirect wholly-owned subsidiary of Putnam, 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. For foreign investments, if trading or events occurring in other markets after the close of the principle exchange in which the securities are traded are expected to materially affect the value of the investments, then those investments are valued, taking into consideration these events, at their fair value following procedures approved by the Trustees. 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 The fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, 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 issuers of high-grade short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments. 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. The fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as "variation margin." 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) Security lending The fund may lend securities, through its agent Citibank N.A., to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by Citibank N.A., the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At June 30, 2002, the value of securities loaned amounted to $5,215,182. The fund received cash collateral of $5,484,540 which is pooled with collateral of other Putnam funds into 32 issuers of high grade short-term investments. I) 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 maintains an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the year ended June 30, 2002, the fund had no borrowings against the line of credit. J) 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. At June 30, 2002, the fund had a capital loss carryover of approximately $151,774,000 available to the extent allowed by tax law to offset future net capital gain, if any, which will expire on June 30, 2010. K) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and permanent differences of losses on wash sale transactions, foreign currency gains and losses, post-October loss deferrals, organization costs and realized gains and losses on passive foreign investment companies. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended June 30, 2002, the fund reclassified $1,353,357 to increase undistributed net investment income and $1,303 to decrease paid-in-capital, with an increase to accumulated net realized losses of $1,352,054. L) 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. M) 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. The expenses have been fully amortized on a projected net asset basis over a five year period as of June 30, 2002. 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 wholly-owned subsidiary of Putnam, 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 year ended, June 30, 2002 the fund's expenses were reduced by $964,538 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $1,164 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, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management 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 year ended June 30, 2002, Putnam Retail Management, acting as underwriter received net commissions of $98,238 and $3,208 from the sale of class A and class M shares, respectively, and received $498,265 and $2,894 in contingent deferred sales charges from redemptions of class B and class C shares, respectively. A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the year ended June 30, 2002, Putnam Retail Management, acting as underwriter received $85,228 and no monies on class A and class M redemptions, respectively. Note 3 Purchases and sales of securities During the year ended June 30, 2002, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $1,102,975,273 and $1,133,984,953, respectively. There were no purchases and sales of U.S. government obligations. Note 4 Capital shares At June 30, 2002, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Year ended June 30, 2002 - --------------------------------------------------------------------------- Class A Shares Amount - --------------------------------------------------------------------------- Shares sold 74,219,145 $ 635,627,627 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 173,128 1,380,584 - --------------------------------------------------------------------------- 74,392,273 637,008,211 Shares repurchased (79,150,553) (683,383,090) - --------------------------------------------------------------------------- Net decrease (4,758,280) $ (46,374,879) - --------------------------------------------------------------------------- Year ended June 30, 2001 - --------------------------------------------------------------------------- Class A Shares Amount - --------------------------------------------------------------------------- Shares sold 54,450,707 $ 589,974,418 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 4,811,886 50,602,027 - --------------------------------------------------------------------------- 59,262,593 640,576,445 Shares repurchased (53,327,574) (580,556,524) - --------------------------------------------------------------------------- Net increase 5,935,019 $ 60,019,921 - --------------------------------------------------------------------------- Year ended June 30, 2002 - --------------------------------------------------------------------------- Class B Shares Amount - --------------------------------------------------------------------------- Shares sold 7,092,695 $ 60,113,273 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- - --------------------------------------------------------------------------- 7,092,695 60,113,273 Shares repurchased (11,139,473) (94,308,836) - --------------------------------------------------------------------------- Net decrease (4,046,778) $(34,195,563) - --------------------------------------------------------------------------- Year ended June 30, 2001 - --------------------------------------------------------------------------- Class B Shares Amount - --------------------------------------------------------------------------- Shares sold 6,099,687 $ 65,181,926 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 3,719,390 38,681,654 - --------------------------------------------------------------------------- 9,819,077 103,863,580 Shares repurchased (8,324,828) (88,583,325) - --------------------------------------------------------------------------- Net increase 1,494,249 $ 15,280,255 - --------------------------------------------------------------------------- Year ended June 30, 2002 - --------------------------------------------------------------------------- Class C Shares Amount - --------------------------------------------------------------------------- Shares sold 6,080,379 $ 52,109,779 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 292 2,447 - --------------------------------------------------------------------------- 6,080,671 52,112,226 Shares repurchased (5,915,151) (50,936,774) - --------------------------------------------------------------------------- Net increase 165,520 $ 1,175,452 - --------------------------------------------------------------------------- Year ended June 30, 2001 - --------------------------------------------------------------------------- Class C Shares Amount - --------------------------------------------------------------------------- Shares sold 2,327,205 $ 24,658,527 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 196,168 2,059,772 - --------------------------------------------------------------------------- 2,523,373 26,718,299 Shares repurchased (1,529,923) (15,982,315) - --------------------------------------------------------------------------- Net increase 993,450 $ 10,735,984 - --------------------------------------------------------------------------- Year ended June 30, 2002 - --------------------------------------------------------------------------- Class M Shares Amount - --------------------------------------------------------------------------- Shares sold 1,167,762 $ 9,962,884 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,808 22,597 - --------------------------------------------------------------------------- 1,170,570 9,985,481 Shares repurchased (1,504,998) (12,887,539) - --------------------------------------------------------------------------- Net decrease (334,428) $ (2,902,058) - --------------------------------------------------------------------------- Year ended June 30, 2001 - --------------------------------------------------------------------------- Class M Shares Amount - --------------------------------------------------------------------------- Shares sold 2,235,945 $ 24,395,472 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 314,896 3,305,208 - --------------------------------------------------------------------------- 2,550,841 27,700,680 Shares repurchased (2,565,124) (28,002,882) - --------------------------------------------------------------------------- Net decrease (14,283) $ (302,202) - --------------------------------------------------------------------------- Year ended June 30, 2002 - --------------------------------------------------------------------------- Class Y Shares Amount - --------------------------------------------------------------------------- Shares sold 690,912 $ 6,079,119 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,936 15,394 - --------------------------------------------------------------------------- 692,848 6,094,513 Shares repurchased (136,819) (1,180,206) - --------------------------------------------------------------------------- Net increase 556,029 $ 4,914,307 - --------------------------------------------------------------------------- For the period October 2, 2000 (commencement of operations) to June 30, 2001 - --------------------------------------------------------------------------- Class Y Shares Amount - --------------------------------------------------------------------------- Shares sold 598,797 $ 6,758,202 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 29,461 308,654 - --------------------------------------------------------------------------- 628,258 7,066,856 Shares repurchased (261,617) (2,884,172) - --------------------------------------------------------------------------- Net increase 366,641 $ 4,182,684 - --------------------------------------------------------------------------- FEDERAL TAX INFORMATION (Unaudited) For the period, interest and dividends from foreign countries were $19,155,671 or $0.214 per share (for all share classes). Taxes paid to foreign countries were $2,051,934 or $0.023 (for all classes of shares). The Form 1099 you receive in January 2003 will show the tax status of all distributions paid to your account in calendar 2002.
TRUSTEES Name, Address, 1 Date of Birth, Position(s) Held with Fund and Length of Service Principal Occupation(s) as a Putnam Fund Trustee 2 During Past 5 Years Other Directorships Held by Trustee - ------------------------------------------------------------------------------------------------------- Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc., Trustee since 1994 Associates, Inc. Banta Corporation (a printing and (a management digital imaging firm), Intermatic consulting and private Corporation (manufacturer of energy investments firm) control products), Ryerson Tull, Inc. (a steel service corporation), Advocate Health Care, and the National Center for Nonprofit Boards. Chairman Emeritus of the Board of Trustees, Mount Holyoke College. Also held various positions in investment banking and corporate finance, including Vice President and principal of the Regency Group and consultant to First Boston Corp. Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign Trustee since 2001 Operating Officer, Relations, the Electric Power Nuclear Threat Research Institute Advisory Council, Initiative (a private the Board of Directors of the Gas foundation dedicated Technology Institute, the University to reducing the threat of Chicago Board of Governors for of weapons of mass Argonne National Laboratory, the destruction), also serves Board of Directors of the as Senior Advisor to the Environment and Natural Resources United Nations Program Steering Committee, Foundation John F. Kennedy School of Government, Harvard University. Prior to 2002, Mr. Curtis was a member of the Board of Directors of the Gas Technology Institute. Until 2001, Mr. Curtis was a Member of the Department of Defense's Policy Board and Director of EG&G Technical Services, Inc. (fossil energy research and development support) and prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy Trustee since 1985 and Managing Director, Corporation (formerly known as Chairman since 2000 First Reserve Snyder Oil Corporation), Corporation TransMontaigne Oil Company, (a registered investment Continuum Health Partners of advisor investing in New York, Sarah Lawrence College, companies in the and various private companies owned world-wide energy by First Reserve Corporation. industry on behalf of Trustee of TH Lee, Putnam institutional investors) Investment Trust (a closed-end investment company). Prior to acquiring First Reserve in 1983, Mr. Hill held executive positions with several advisory firms and various positions with the federal government, including Associate Director of the Office of Manage ment and Budget and Deputy Director of the Federal Energy Administration. Ronald J. Jackson Private investor Former Chairman, President, and (12/17/43), Chief Executive Officer of Fisher- Trustee since 1996 Price, Inc. (a toy manufacturer). Previously served as President and Chief Executive Officer of Stride- Rite, Inc. and Kenner Parker Toys. Also held financial and marketing positions with General Mills, Parker Brothers, and Talbots. President of the Kathleen and Ronald J. Jackson Foundation (charitable trust). Member of the Board of Overseers of WGBH (public television and radio). Member of the Board of Overseers of the Peabody Essex Museum. Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Group Trustee since 1997 Killian Professor of (a UK-based holding company Economics and with interests in electric power, Management and natural gas distribution, and Director of the Center telecommunications networks), and for Energy and the Whitehead Institute for Environmental Policy Biomedical Research (a non-profit Research, Massachusetts research institution). President of the Institute of Technology Yale University Council. Prior to February 2002, March 2000, and September 1998, Dr. Joskow was a Director of State Farm Indemnity Company (an automobile insurance company), Director of New England Electric System (a public utility holding company) and a consultant to National Economic Research Associates, respectively. Elizabeth T. Kennan Chairman, Cambus- Director, Northeast Utilities, and (2/25/38), Kenneth Bloodstock (a Talbots (a distributor of women's Trustee since 1992 limited liability company apparel). Trustee of Centre College. involved in thoroughbred Prior to 2001, Dr. Kennan was a horse breeding and member of the Oversight Committee farming), President of Folger Shakespeare Library. Emeritus of Mount Prior to September 2000, June 2000, Holyoke College and November 1999, Dr. Kennan was a Director of Chastain Real Estate, Bell Atlantic, and Kentucky Home Life Insurance, respectively. Prior to 1995, Dr. Kennan was a Trustee of Notre Dame University. For 12 years, she was on the faculty of Catholic University. John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc., (6/15/41), of Ridgeway Farm Sonoco Products, Inc. (a packaging Trustee since 1997 (a limited liability company), The Liberty Corporation company engaged in (a company engaged in the timber and farming) broadcasting industry), and Progress Energy, Inc. (a utility company, formerly known as Carolina Power & Light). Trustee Emeritus of Washington & Lee University. Prior to October 1997, January 1998, and May 2001, Mr. Mullin was a Director of Dillon, Read and Co. Inc., The Ryland Group, Inc., and Graphic Packaging International Corp., respectively. Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes (3/15/45), Properties, LLP and Center, Trustee of SEA Education Trustee since 1984 Chairman of Cabot Association, and Director of Properties, Inc. Brandywine Trust Company (a trust company). Prior to February 1998, Mr. Patterson was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership. Prior to December 2001, Mr. Patterson was President and Trustee of Cabot Industrial Trust (publicly traded real estate investment trust). Prior to 1990, Mr. Patterson was Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, the predecessor of Cabot Partners, and prior to that was Senior Vice President of the Beal Companies. W. Thomas Stephens Corporate Director Director of Qwest Communications (9/2/42), (communications company), Xcel Trustee since 1997 Energy Incorporated (public utility company), TransCanada Pipelines, Norske Canada, Inc. (paper manufacturer) and Mail-Well (printing and envelope company). Prior to July 2001 and October 1999, Mr. Stephens was Chairman of Mail- Well and MacMillan-Bloedel (forest products company). Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of Johns Manville. W. Nicholas Thorndike Director of various Trustee of Northeastern University and (3/28/33), corporations and Honorary Trustee of Massachusetts Trustee since 1992 charitable General Hospital. Prior to organizations, September 2000, April 2000, and including Courier December 2001, Mr. Thorndike was Corporation (a book a Director of Bradley Real Estate, manufacturer) and Inc., a Trustee of Eastern Utilities Providence Journal Co. Associates, and a Trustee of Cabot (a newspaper publisher) Industrial Trust, respectively. Previously served as Chairman of the Board and managing partner of Wellington Management/Thorndike Doran Paine & Lewis, and Chairman and Director of Ivest Fund. Lawrence J. Lasser* President and Chief Director of Marsh & McLennan (11/1/42), Executive Officer Companies, Inc. and the United Way Trustee since 1992 of Putnam of Massachusetts Bay. Member of the Vice President since 1981 Investments, LLC, Board of Governors of the Investment and Putnam Investment Company Institute, Trustee of the Management, LLC Museum of Fine Arts, Boston, a Trustee and Member of the Finance and Executive Committees of Beth Israel Deaconess Medical Center, Boston, and a Member of the CareGroup Board of Managers Investment Committee, the Council on Foreign Relations, and the Commercial Club of Boston. George Putnam, III* President, New Director of The Boston Family (8/10/51), Generation Research, Office, L.L.C. (registered investment Trustee since 1984 and Inc. (a publisher of advisor), Trustee of the SEA President since 2000 financial advisory and Education Association, Trustee of other research services St. Mark's School, and Trustee of relating to bankrupt and Shore Country Day School. distressed companies) Previously, Mr. Putnam was an and New Generation attorney with the firm of Dechert Advisers, Inc. Price & Rhoads. (a registered investment adviser) A.J.C. Smith (4/13/34),* Director of Marsh & Director of Trident Corp. (a limited Trustee since 1986 McLennan partnership with over 30 institutional Companies, Inc. investors). Trustee of the Carnegie Hall Society, the Educational Broadcasting Corporation and the National Museums of Scotland. Chairman of the Central Park Conservancy. Member of the Board of Overseers of the Joan and Sanford I. Weill Graduate School of Medical Sciences of Cornell University. Fellow of the Faculty of Actuaries in Edinburgh, the Canadian Institute of Actuaries, and the Conference of Actuaries. Associate of the Society of Actuaries. Member of the American Actuaries, the International Actuarial Association and the International Association of Consulting Actuaries. Prior to May 2000 and November 1999, Mr. Smith was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc. - -------------------------------------------------------------------------------------------------------- 1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of June 30, 2002, there were 113 Putnam Funds. 2 Each Trustee serves for an indefinite term, until his or her resignation, death, or removal. * Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act of 1940) of the fund, Putnam Management or Putnam Retail Management. Messrs. Putnam, III, Lasser, and Smith are deemed "interested persons" by virtue of their positions as officers or shareholders of the fund, or officers of Putnam Management, Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent company of Putnam Management and Putnam Retail Management. George Putnam, III, is the President of your Fund and each of the other Putnam Funds. Lawrence J. Lasser has been the President, Chief Executive Officer, and a Director of Putnam Investments, LLC, and Putnam Management since 1985, having begun his career there in 1969. Mr. Lasser currently also serves as a Director of Marsh & McLennan Companies, Inc., the parent company of Putnam Management. A.J.C. Smith is a Director of Marsh & McLennan Companies, Inc.
OFFICERS Name, Address, 1 Date of Birth, Inception of Service Position(s) Held with Fund with the Putnam Funds Principal Occupation(s) During Past 5 Years - --------------------------------------------------------------------------------------------------------------- Charles E. Porter (7/26/38), Since 1989 Managing Director, Putnam Investments, Executive Vice President, LLC and Putnam Management Treasurer & Principal Financial Officer Patricia C. Flaherty Since 1993 Senior Vice President, Putnam (12/1/46), Investments, LLC and Putnam Management Senior Vice President Michael T. Healy (1/24/58), Since 2000 Managing Director, Putnam Assistant Treasurer and Investments, LLC Principal Accounting Officer Gordon H. Silver (7/3/47), Since 1990 Senior Managing Director, Putnam Vice President Investments, LLC and Putnam Management Brett C. Browchuk Since 1994 Managing Director, Putnam Investments, (2/27/63), Vice President LLC and Putnam Management Ian C. Ferguson (7/3/57), Since 1997 Senior Managing Director, Putnam Vice President Investments, LLC and Putnam Management Richard G. Leibovitch Since 1999 Managing Director of Putnam Investments, (10/31/63), Vice President LLC and Putnam Management. Prior to February 1999, Managing Director at J.P. Morgan. Richard A. Monaghan Since 1998 Managing Director, Putnam Investments, (8/25/54), LLC, Putnam Management and Putnam Vice President Retail Management John R. Verani Since 1988 Senior Vice President, Putnam (6/11/39), Investments, LLC and Putnam Management Vice President Deborah F. Kuenster Since 2000 Managing Director of Putnam Management. (7/9/58), Prior to March 1977, Senior Portfolio Vice President Manager, Dupont Pension Fund Investment. Colin Moore Since 2000 Managing Director of Putnam Management. (6/9/58), Prior to June 2000, Chief Investment Vice President Officer, Rockefeller & Co., Inc. - --------------------------------------------------------------------------------------------------------------- 1 The address of each Officer is One Post Office Square, Boston, MA 02109.
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 Balanced Fund * Growth Opportunities Fund Health Sciences Trust International New Opportunities Fund New Century Growth Fund * New Opportunities Fund OTC & Emerging Growth Fund Small Cap Growth Fund Technology Fund * Vista Fund Voyager Fund Voyager Fund II BLEND FUNDS Asia Pacific Growth Fund * Capital Appreciation Fund Capital Opportunities Fund Emerging Markets Fund * Europe Growth Fund Global Equity Fund Global Growth Fund Global Natural Resources Fund International Growth Fund International Voyager Fund Investors Fund Research Fund Tax Smart Equity Fund Utilities Growth and Income Fund VALUE FUNDS 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 + INCOME FUNDS American Government Income Fund Diversified Income Trust Global Income Trust High Yield Advantage Fund + High Yield Trust Income Fund Intermediate U.S. Government Income Fund Money Market Fund [SECTION MARK] U.S. Government Income Trust TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax Exempt Money Market Fund [SECTION MARK] Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds 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 * In anticipation of mergers expected later this year, these funds are closed to new investors. + Closed to new investors. [SECTION MARK] 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 ABOUT PUTNAM INVESTMENTS One of the largest mutual fund families in the United States, Putnam Investments has a heritage of investment leadership dating back to Judge Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and practice since 1830. Founded 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We presently manage over 100 mutual funds in growth, value, blend, fixed income, and international. INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis 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 and Treasurer Patricia C. Flaherty Senior Vice President Michael T. Healy Assistant Treasurer and Principal Accounting Officer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen M. Oristaglio Vice President Deborah F. Kuenstner Vice President Colin Moore Vice President Richard G. Leibovitch Vice President Richard A. Monaghan Vice President John R. Verani Vice President This report is for the information of shareholders of Putnam International Growth and Income Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary and Putnam's Quarterly Ranking Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. The fund's Statement of Additional Information contains additional information about the fund's Trustees and is available without charge upon request by calling 1-800-225-1581. Visit www.putnaminvestments.com or call a representative at 1-800-225-1581. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - --------------------- PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com AN024-79333 2CE/2CG/2CH 8/02 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] - ---------------------------------------------------------------------------- Putnam International Growth and Income Fund Supplement to Annual Report dated 6/30/02 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 clients that meet the eligibility requirements specified in the fund's prospectus for such shares. 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. ANNUAL RESULTS AT A GLANCE - ---------------------------------------------------------------------------- Total return for periods ended 6/30/02 NAV 1 year -5.91% 5 years 17.76 Annual average 3.32 Life of fund (since class A inception, 8/1/96) 49.23 Annual average 7.01 Share value: NAV 6/30/01 $9.39 6/30/02 $8.79 - ---------------------------------------------------------------------------- Distributions: No. Income Capital gains Total 2 $0.041 -- $0.041 - ---------------------------------------------------------------------------- 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, and are not 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 Small Cap Growth Fund ANNUAL REPORT ON PERFORMANCE AND OUTLOOK 6-30-02 [GRAPHIC OMITTED: ZEPHYR CAR] [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Fellow Shareholder: These are unusually challenging times for equity investors and many have sought to cut their losses by getting entirely out of the market. However, for investors who had what they believed was an effective investment program before the markets began their decline and still have several years before they need to make withdrawals, it is our view that this was exactly the wrong thing to do. History has been on the side of investors who have dared to weather even sustained periods of market retreat. We urge you to remain patient as the current market troubles work themselves out. Of course, it is always a good idea to consult your financial advisor for specific counsel. Investors' persistent disaffection with stocks while ignoring a continuing stream of positive economic news is certainly reflected in the results for your fund, Putnam Small Cap Growth Fund, during the fiscal year ended June 30, 2002. Despite posting a loss during the period, the fund's total return since its inception on the last day of 1997 remains firmly in the black. On the following pages, you will find a full discussion of the reasons behind the fund's decline during the fiscal year just ended, as well as Putnam management's view of prospects for the months ahead. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds August 21, 2002 REPORT FROM FUND MANAGEMENT This fund is managed by the Putnam Specialty Growth Team On April 15, 2002, Putnam Small Cap Growth Fund made its national debut. The fund, which seeks to take advantage of the growth potential of small companies, was first made available to a group of investors within Putnam on December 31, 1997. Since that time, it has established a solid track record, although recently, like most other growth funds, it has been pressured by difficult market conditions. We are pleased to provide shareholders with this annual report, which covers the 12-month period ended June 30, 2002. For the fiscal year, the fund outperformed its benchmarks, the Russell 2000 Growth Index and the Russell 2500 Growth Index, at net asset value but lagged the average return for its Lipper peer group. This was due in part to sharp declines in the communications services sector and weakness in some pharmaceutical holdings. Despite disappointing results for the one-year period, it is important to note the fund's performance over longer time periods. For example, since its inception on December 31, 1997, the average annual return for the fund's class A shares was 20.27% at net asset value, outperforming both the Russell 2000 Growth Index and the Russell 2500 Growth Index. For complete performance information, please see page 7. Total return for 12 months ended 6/30/02 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP - ----------------------------------------------------------------------- -23.12% -27.55% -23.67% -27.49% -23.67% -24.43% -23.50% -26.19% - ----------------------------------------------------------------------- Past performance does not indicate future results. Performance information for longer periods and explanation of performance calculation methods begin on page 7. [GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS* Medical technology 10.4% Retail 10.0% Electronics 9.8% Health care services 8.4% Biotechnology 7.9% Footnote reads: *Based on net assets as of 6/30/02. Holdings will vary over time. * FUND SEEKS TO CAPITALIZE ON GROWING SMALL COMPANIES Your fund's name reflects its strategy -- it seeks to take advantage of small-cap companies with above-average growth potential. Small companies offer many potential advantages for investors. They tend to be flexible and innovative, and often are able to expand their earnings at faster rates than midsize or large companies. Since small-cap stocks tend to be followed by fewer analysts in the financial industry, they may present opportunities to invest in tomorrow's leaders. We look for companies that we believe offer sound business models, strong management, and the potential to become market leaders in the future. A key component of this approach is bottom-up stock selection, which focuses on the merits of individual companies, with less emphasis on broad economic trends. The vast small-cap universe contains many profitable companies that are too small to capture Wall Street's attention. With the support of Putnam's global research organization, we strive to find those overlooked companies before they gain wider recognition. * A DIFFICULT YEAR FOR GROWTH STOCKS The fiscal year ended June 30, 2002, represented one of the most difficult periods the U.S. financial markets have encountered in decades. When the fiscal year began, the U.S. stock market was struggling with a severe economic slowdown that had become a recession in March 2001. The speed and magnitude of the slowdown had a negative impact on business spending, consumer behavior, and investor sentiment, and led to sharp declines for growth stocks across most industries. Just as some signs of improvement were emerging in late summer 2001, the terrorist attacks of September 11 sent markets to new lows. The attacks forced the U.S. equity markets to close for four consecutive days -- the longest hiatus since the Great Depression -- and in their wake the Dow Jones Industrial Average posted its worst quarterly loss in 14 years. The final three months of 2001 provided one of the few bright spots in an otherwise dismal year for growth investors. The market environment improved as investors reacted enthusiastically to government efforts to stimulate the economy and positive military reports from Afghanistan. As 2001 came to a close, growth stocks surged. In 2002, however, that rally came to an end, even as the economic picture brightened considerably. Evidence began to emerge that a recovery was underway, but by the midpoint of 2002, the close of your fund's fiscal year, stocks continued to struggle. Investors generally ignored improving economic fundamentals and were overwhelmed with concerns about weak corporate profits, the threat of terrorism, geopolitical instability, and accounting scandals. Fund Profile Putnam Small Cap Growth Fund invests mainly in small companies believed to have the potential for strong growth. The fund targets stocks across a range of industry sectors. It may be appropriate for investors who are seeking long-term capital appreciation potential from stocks of small companies. * COMMUNICATIONS SERVICES, PHARMACEUTICALS DAMPEN RETURNS During the period, declines in the pharmaceutical and communications services sectors had a negative impact on fund performance. During the fiscal year, communications services stocks -- from the newest wireless and broadband firms to the larger, more established telephone companies - -- continued to struggle. In many cases, companies in this sector overestimated consumer demand for their products and services. Many companies spent too much capital, building up inventory just before demand plummeted with the economic slowdown and recession. One of your fund's holdings, Leap Wireless International, Inc., which offers digital wireless phone service under the brand name Cricket, declined sharply during the period. The company has gained fewer customers than it had expected, and has been pressured by competition from other wireless companies that were offering more aggressive pricing promotions. This holding has since been sold from the portfolio. Fund holdings Centillium Communications, Inc., a broadband equipment company, and SBA Communications Corporation, which owns and operates wireless communications towers and has since been sold from the portfolio, also dampened performance during the period. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS Career Education Corp. Schools FTI Consulting, Inc. Consumer services Icon PLC ADR (Ireland) Health care services CSK Auto Corp. Automotive Serologicals Corp. Medical technology Too, Inc. Retail The Yankee Candle Company, Inc Consumer goods Respironics, Inc. Medical technology Waste Connections, Inc. Waste management Benchmark Electronics, Inc. Electronics Footnote reads: These holdings represent 15.3% of the fund's net assets as of 6/30/02. Portfolio holdings will vary over time. Stocks of specialty pharmaceutical companies, which discover and develop innovative drugs and treatments, suffered declines during the fiscal year. The Food and Drug Administration (FDA) has been much more stringent in its drug-approval process, which has hurt these companies because they rely on successful clinical trials to gain investor confidence. During the period, some highly publicized court cases and problems with clinical trials led to negative investor sentiment toward the entire biotechnology sector. Two fund holdings affected by this trend were Inspire Pharmaceuticals, Inc. and Noven Pharmaceuticals, Inc. As of the close of the fiscal year, these holdings were no longer part of the portfolio. * RETAIL STOCKS DELIVERED STRENGTH Despite the market turbulence, a number of stocks in your fund's portfolio held their own. Although investors were nervous about the corporate profit outlook, people continued spending at a healthy rate throughout the first half of calendar 2002. Among the fund's strongest retail holdings were Restoration Hardware, Inc., The Yankee Candle Company, Inc., and The Wet Seal, Inc., a clothing retailer. Outside the retail sector, positive contributions came from FTI Consulting, Inc., a business consulting company, and Career Education Corp., which offers career-oriented degree programs on 42 campuses. While these holdings, and others discussed in this report, were viewed favorably at the end of the fiscal period, all are subject to review in accordance with the fund's investment strategy and may vary in the future. * LONG-TERM PERSPECTIVE REMAINS ESSENTIAL Although fiscal 2002 has been a challenging year for growth stocks, we believe that recent market conditions may present attractive opportunities for small-cap growth investing over the long term. According to Mutual Funds magazine (February 2002), in the nine recessions since World War II, small-cap stocks have returned an average of more than 45% for the one-year period starting three months before the end of each recession. Of course, this historical pattern is no guarantee of future small-cap stock performance. In addition, the continued low-interest-rate environment may be beneficial for small companies, which often need to borrow money in order to expand. Although more volatility appears likely, we believe that investors with patience and a long-term perspective will be rewarded when we return to a more favorable environment for growth stocks. In the meantime, we will continue to seek promising small-cap companies that we believe have solid long-term growth prospects. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 6/30/02, 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 to midsize companies. Such investments increase the risk of greater price fluctuations. The fund is managed by the Putnam Specialty Growth Team. The members of the team are Anthony Sellitto (Portfolio Leader), Roland Gillis (Portfolio Member), Daniel Miller (Portfolio Member), Richard Weed (Portfolio Member), Dana Clark, Kenneth Doerr, Michael Mufson, Margery Parker, and Eric Wetlaufer. PUTNAM'S POLICY ON CONFIDENTIALITY In order to conduct business with our shareholders, we must obtain certain personal information such as account holders' addresses, telephone numbers, Social Security numbers, and the names of their financial advisors. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial advisor, if you've listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don't hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy. TOTAL RETURN FOR PERIODS ENDED 6/30/02 Class A Class B Class C Class M (inception dates) (12/31/97) (3/18/02) (3/18/02) (3/18/02) NAV POP NAV CDSC NAV CDSC NAV POP - ------------------------------------------------------------------------------ 1 year -23.12% -27.55% -23.67% -27.49% -23.67% -24.43% -23.50% -26.19% - ------------------------------------------------------------------------------ Life of fund 129.43 116.20 121.88 119.88 121.88 121.88 124.36 116.63 Annual average 20.27 18.69 19.38 19.14 19.38 19.38 19.67 18.74 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/02 Russell 2000 Russell 2500 Consumer Growth Index Growth Index price index - ------------------------------------------------------------------------------ 1 year -25.00% -25.72% 1.01% - ------------------------------------------------------------------------------ Life of fund -14.62 -1.84 11.06 Annual average -3.45 -0.41 2.36 - ------------------------------------------------------------------------------ Past performance does not indicate future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for class A and M shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Performance for class B, C, and M shares before their inception are derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and higher operating expenses for such shares. For a portion of this period this fund was sold on a limited basis with limited assets and expenses were limited. Had expenses not been limited, returns would have been lower.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT] GROWTH OF A $10,000 INVESTMENT Cumulative total return of a $10,000 investment since 12/31/97 Fund's class A Russell 2000 Russell 2500 Consumer price Date shares at POP Growth Index Growth Index index 12/31/97 9,425 10,000 10,000 10,000 6/30/98 11,663 10,681 10,695 10,074 12/31/98 12,612 10,253 10,429 10,161 6/30/99 16,634 11,567 12,054 10,272 12/31/99 32,255 14,671 16,216 10,433 6/30/00 33,604 14,851 17,382 10,655 12/30/00 26,938 11,380 13,607 10,785 6/30/01 28,123 11,385 13,214 10,995 12/31/01 26,736 10,330 12,133 10,958 6/30/02 $21,620 $8,538 $9,816 $11,106 Footnote reads: Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund's class B shares would have been valued at $22,188 ($21,988 with the contingent deferred sales charge); a $10,000 investment in the fund's class C shares would have been valued at $22,188 and no contingent deferred sales charges would apply; a $10,000 investment in the fund's class M shares would have been valued at $22,436 ($21,663 at public offering price). See first page of performance section for performance calculation method.
PRICE AND DISTRIBUTION* INFORMATION 12 MONTHS ENDED 6/30/02 Class A Class B Class C Class M - ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV NAV POP - ------------------------------------------------------------------------------ 6/30/01 $19.46 $20.65 -- -- -- -- - ------------------------------------------------------------------------------ 3/18/02 -- -- $17.78 $17.78 $17.78 $18.42 - ------------------------------------------------------------------------------ 6/30/02 14.96 15.87 14.93 14.93 14.94 15.48 - ------------------------------------------------------------------------------ *The fund made no 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. Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. The NAV is calculated by dividing the net value of all the fund's assets by the number of outstanding shares. 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. Class A shares are generally subject to an initial sales charge and no sales charge on redemption (except on certain redemptions of shares bought without 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 (except on certain redemptions of shares bought without an initial sales charge). COMPARATIVE BENCHMARKS Russell 2000 Growth Index is an unmanaged index of common stocks that generally measure performance of small to midsize companies within the Russell 3000 Index. Russell 2500 Growth Index is an unmanaged index of the smallest 2500 companies in the Russell 3000 Index chosen for their growth orientation. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Lipper Inc. is a third-party industry ranking entity that ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, preceded by the Report of independent accountants, constitute the fund's financial statements. The fund's portfolio lists all the fund's investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification. Statement of assets and liabilities shows how the fund's net assets and share price 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. This is done by first adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings -- as well as any unrealized gains or losses over the period -- is added to or subtracted from the net investment result to determine the fund's net gain or loss for the fiscal year. 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. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Putnam Funds Trust and Shareholders of Putnam Small Cap Growth Fund (a series of Putnam Funds Trust) In our opinion, the accompanying statement of assets and liabilities, including the fund's portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Putnam Small Cap Growth Fund (the "fund") June 30, 2002, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at June 30, 2002 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts August 9, 2002
THE FUND'S PORTFOLIO June 30, 2002 COMMON STOCKS (98.3%) (a) NUMBER OF SHARES VALUE Aerospace and Defense (1.9%) - ------------------------------------------------------------------------------------------------------------------- 452 Alliant Techsystems, Inc. (NON) $ 28,806 6,300 Anaren Microwave, Inc. (NON) 54,432 7,300 DRS Technologies, Inc. (NON) 312,075 4,800 Engineered Support Systems, Inc. 251,040 3,100 MTC Technologies, Inc. (NON) 58,900 ------------- 705,253 Airlines (0.5%) - ------------------------------------------------------------------------------------------------------------------- 22,500 Mesa Air Group, Inc. (NON) 207,000 Automotive (1.9%) - ------------------------------------------------------------------------------------------------------------------- 7,600 Asbury Automotive Group, Inc. (NON) 103,360 157 Carlisle Companies, Inc. 7,062 39,500 CSK Auto Corp. (NON) 550,630 204 Group 1 Automotive, Inc. (NON) 7,783 633 Sonic Automotive, Inc. (NON) 16,300 63 SPX Corp. (NON) 7,403 ------------- 692,538 Banking (1.2%) - ------------------------------------------------------------------------------------------------------------------- 14,700 Boston Private Financial Holdings, Inc. 363,678 2,000 Brookline Bancorp, Inc. 50,600 1,295 New York Community Bancorp, Inc. 34,551 ------------- 448,829 Beverage (0.1%) - ------------------------------------------------------------------------------------------------------------------- 800 Constellation Brands, Inc. Class A (NON) 25,600 Biotechnology (7.9%) - ------------------------------------------------------------------------------------------------------------------- 5,800 Alexion Pharmaceuticals, Inc. (NON) 87,870 11,400 Amylin Pharmaceuticals, Inc. (NON) 124,716 11,000 BioMarin Pharmaceuticals, Inc. (NON) 57,409 1,100 Celgene Corp. (NON) 16,830 27,200 Connetics Corp. (NON) 351,397 5,700 Cryolife, Inc. (NON) 91,542 55,000 Discovery Laboratories, Inc. (NON) 96,250 26,600 ILEX Oncology, Inc. (NON) 374,794 15,800 InterMune, Inc. (NON) 333,380 1,205 Invitrogen Corp. (NON) 38,572 25,742 Ligand Pharmaceuticals, Inc. Class B (NON) 373,259 3,808 Nabi Biopharmaceuticals (NON) 18,012 10,800 NPS Pharmaceuticals, Inc. (NON) 165,456 38,800 OraPharma, Inc. (NON) 178,480 21,500 Progenics Pharmaceuticals, Inc. (NON) 264,235 11,100 Scios, Inc. (NON) 339,771 1,100 SICOR, Inc. (NON) 20,394 9,500 Triangle Pharmaceuticals, Inc. (NON) 25,745 ------------- 2,958,112 Broadcasting (3.0%) - ------------------------------------------------------------------------------------------------------------------- 157 Cox Radio, Inc. Class A (NON) 3,784 14,900 Cumulus Media, Inc. Class A (NON) 205,322 5,100 Lin TV Corp. Class A (NON) 137,904 21,000 Radio One, Inc. Class D (NON) 312,270 32,600 Regent Communications, Inc. (NON) 230,123 10,000 Salem Communications Corp. Class A (NON) 248,700 ------------- 1,138,103 Commercial and Consumer Services (2.9%) - ------------------------------------------------------------------------------------------------------------------- 14,600 CoStar Group, Inc. (NON) 299,738 11,300 Gaiam, Inc. (NON) 165,432 666 John H. Harland Co. 18,781 1,863 Right Managment Consultants (NON) 48,995 6,500 Strayer Education, Inc. 413,400 15,614 Sykes Enterprises, Inc. (NON) 125,849 687 Viad Corp. 17,862 ------------- 1,090,057 Communications Equipment (0.4%) - ------------------------------------------------------------------------------------------------------------------- 4,500 Arris Group, Inc. (NON) 20,160 1,800 Inter-Tel, Inc. 30,528 46,100 Sonus Networks, Inc. (NON) 93,122 ------------- 143,810 Computers (4.2%) - ------------------------------------------------------------------------------------------------------------------- 6,300 Acclaim Entertainment, Inc. (NON) 22,239 11,400 Avocent Corp. (NON) 181,488 1,100 Bel Fuse, Inc. Class B 29,755 2,000 Checkpoint Systems, Inc. (NON) 23,400 6,263 Emulex Corp. (NON) 140,980 15,800 Insight Enterprises, Inc. (NON) 398,002 21,120 Magma Design Automation, Inc. (NON) 354,816 28,200 McDATA Corp. Class A (NON) 248,442 10,300 Synaptics, Inc. (NON) 77,662 1,490 Take-Two Interactive Software, Inc. (NON) 30,679 4,000 Universal Electronics, Inc. (NON) 59,840 ------------- 1,567,303 Consumer Finance (--%) - ------------------------------------------------------------------------------------------------------------------- 2,200 World Acceptance Corp. (NON) 18,480 Consumer Goods (1.5%) - ------------------------------------------------------------------------------------------------------------------- 1,200 Blyth Industries, Inc. 37,464 19,500 Yankee Candle Company, Inc. (The) (NON) 528,255 ------------- 565,719 Consumer Services (2.1%) - ------------------------------------------------------------------------------------------------------------------- 19,450 FTI Consulting, Inc. (NON) 680,945 517 Hotels.com Class A (NON) 21,833 2,400 SRA Intl., Inc. Class A (NON) 64,752 ------------- 767,530 Electrical Equipment (1.5%) - ------------------------------------------------------------------------------------------------------------------- 14,900 Electro Scientific Industries, Inc. (NON) 362,070 8,900 Powell Industries, Inc. (NON) 215,825 ------------- 577,895 Electronics (9.8%) - ------------------------------------------------------------------------------------------------------------------- 17,786 Benchmark Electronics, Inc. (NON) 515,794 4,600 Brooks-PRI Automation, Inc. (NON) 117,576 45,100 Centillium Communications, Inc. (NON) 393,272 1,480 Cypress Semiconductor Corp. (NON) 22,466 21,000 Exar Corp. (NON) 414,120 2,575 Integrated Circuit Systems, Inc. (NON) 51,989 23,400 Integrated Silicon Solutions, Inc. (NON) 208,728 633 Itron, Inc. (NON) 16,604 5,000 Marvell Technology Group, Ltd. (Bermuda) (NON) 99,450 2,400 Microchip Technology, Inc. (NON) 65,832 27,000 Monolithic System Technology, Inc. (NON) 297,270 6,220 Nu Horizons Electronics Corp. (NON) 51,564 3,700 Oak Technology, Inc. (NON) 16,761 20,500 Power Integrations, Inc. (NON) 371,460 32,600 Silicon Image, Inc. (NON) 199,512 9,500 Silicon Laboratories, Inc. (NON) 265,905 37,300 Skyworks Solutions, Inc. (NON) 207,015 392 Storage Technology Corp. (NON) 6,260 1,800 Trimble Navigation, Ltd. (NON) 27,900 41,100 Valence Technology, Inc. (NON) 56,718 1,456 Varian Semiconductor Equipment (NON) 49,402 30,900 Vital Images, Inc. (NON) 200,850 ------------- 3,656,448 Energy (0.9%) - ------------------------------------------------------------------------------------------------------------------- 68,400 Grey Wolf, Inc. (NON) 279,756 1,633 Key Energy Services, Inc. (NON) 17,147 1,266 Unit Corp. (NON) 21,965 1,400 Veritas DGC, Inc. (NON) 17,640 ------------- 336,508 Energy (Oil Field) (0.1%) - ------------------------------------------------------------------------------------------------------------------- 1,200 Holly Corp. 20,100 Financial (1.3%) - ------------------------------------------------------------------------------------------------------------------- 2,240 eSpeed, Inc. Class A (NON) 24,438 4,900 Federal Agriculture Mortgage Corp. Class C (NON) 130,830 11,000 Intercept Group, Inc. (NON) 227,908 2,076 New Century Financial Corp. 72,598 1,200 WFS Financial, Inc. (NON) 32,892 ------------- 488,666 Food (0.8%) - ------------------------------------------------------------------------------------------------------------------- 3,800 International Multifoods Corp. 98,800 10,300 Peet's Coffee & Tea, Inc. (NON) 189,623 ------------- 288,423 Gaming & Lottery (0.7%) - ------------------------------------------------------------------------------------------------------------------- 1,543 Ameristar Casinos, Inc. (NON) 44,840 1,492 GTECH Holdings Corp. (NON) 38,106 9,400 Shuffle Master, Inc. (NON) 172,678 ------------- 255,624 Health Care Services (8.4%) - ------------------------------------------------------------------------------------------------------------------- 1,714 aaiPharma, Inc. (NON) 38,531 6,525 Accredo Health, Inc. (NON) 301,064 641 AmerisourceBergen Corp. 48,716 8,300 AmSurg Corp. (NON) 217,958 1,067 Apria Healthcare Group, Inc. (NON) 23,901 1,336 Caremark Rx, Inc. (NON) 22,044 14,200 Centene Corp. (NON) 439,916 6,200 Cross Country, Inc. (NON) 234,360 787 DaVita, Inc. (NON) 18,731 1,100 Express Scripts, Inc. Class A (NON) 55,121 667 Fisher Scientific International, Inc. (NON) 18,676 704 Henry Schein, Inc. (NON) 31,328 2,659 Hooper Holmes, Inc. 21,272 19,700 Icon PLC ADR (Ireland) (NON) 561,450 16,850 Magellan Health Services, Inc. (NON) 16,850 703 Mid Atlantic Medical Services, Inc. (NON) 22,039 3,900 Odyssey Healthcare, Inc. (NON) 141,375 862 Oxford Health Plans, Inc. (NON) 40,049 18,100 Pediatrix Medical Group, Inc. (NON) 452,500 1,837 Select Medical Corp. (NON) 28,767 632 Syncor International Corp. (NON) 19,908 19,250 US Physical Therapy, Inc. (NON) 390,968 ------------- 3,145,524 Homebuilding (0.1%) - ------------------------------------------------------------------------------------------------------------------- 147 NVR, Inc. (NON) 47,481 Household Furniture and Appliances (0.2%) - ------------------------------------------------------------------------------------------------------------------- 504 Genlyte Group, Inc. (The) (NON) 20,478 1,189 Maytag Corp. 50,711 ------------- 71,189 Insurance (0.2%) - ------------------------------------------------------------------------------------------------------------------- 800 Brown & Brown, Inc. 25,200 1,400 Hilb, Rogal & Hamilton Co. 63,350 ------------- 88,550 Lodging/Tourism (--%) - ------------------------------------------------------------------------------------------------------------------- 675 Choice Hotels International, Inc. (NON) 13,507 Machinery (0.9%) - ------------------------------------------------------------------------------------------------------------------- 1,541 AGCO Corp. (NON) 30,050 7,400 FLIR Systems, Inc. (NON) 310,578 ------------- 340,628 Manufacturing (0.1%) - ------------------------------------------------------------------------------------------------------------------- 153 Nordson Corp. 3,773 1,568 Shaw Group, Inc. (NON) 48,138 ------------- 51,911 Medical Technology (10.4%) - ------------------------------------------------------------------------------------------------------------------- 17,800 American Medical Systems Holdings, Inc. (NON) 357,068 385 Beckman Coulter, Inc. 19,212 1,027 Bio-Rad Laboratories, Inc. Class A (NON) 46,739 10,300 Biosite Diagnostics, Inc. (NON) 289,945 5,750 Cantel Medical Corp. (NON) 105,800 3,500 Charles River Laboratories International, Inc. (NON) 122,675 12,000 Conceptus, Inc. (NON) 197,880 19,100 Epix Medical, Inc. (NON) 201,505 12,500 Igen, Inc. (NON) 393,750 23,700 Intermagnetics General Corp. (NON) 478,740 5,300 Kyphon, Inc. (NON) 77,274 16,300 Merit Medical Systems, Inc. (NON) 336,269 224 Millipore Corp. 7,164 15,500 Respironics, Inc. (NON) 527,775 29,900 Serologicals Corp. (NON) 546,871 6,200 SurModics, Inc. (NON) 161,138 294 Varian Medical Systems, Inc. (NON) 11,922 ------------- 3,881,727 Metals (0.1%) - ------------------------------------------------------------------------------------------------------------------- 1,600 Century Aluminum Co. 23,824 Office Equipment & Supplies (0.5%) - ------------------------------------------------------------------------------------------------------------------- 8,350 Quixote Corp. 141,533 500 Scansource, Inc. (NON) 30,705 ------------- 172,238 Oil & Gas (0.8%) - ------------------------------------------------------------------------------------------------------------------- 2,241 Chesapeake Energy Corp. (NON) 16,135 800 Frontier Oil Corp. 14,080 500 Houston Exploration Co. (NON) 14,500 1,633 Oil States International, Inc. (NON) 19,433 625 Patina Oil & Gas Corp. 17,144 1,905 Universal Compression Holdings, Inc. (NON) 45,701 5,700 W-H Energy Services, Inc. (NON) 126,312 1,500 XTO Energy, Inc. 30,900 ------------- 284,205 Pharmaceuticals (1.0%) - ------------------------------------------------------------------------------------------------------------------- 281 Barr Laboratories, Inc. (NON) 17,852 7,300 First Horizon Pharmaceutical Corp. (NON) 151,037 80 Medicis Pharmaceutical Corp. Class A (NON) 3,421 1,899 Pharmaceutical Resources, Inc. (NON) 52,754 9,100 Salix Pharmaceuticals, Ltd. (NON) 138,866 ------------- 363,930 Publishing (0.1%) - ------------------------------------------------------------------------------------------------------------------- 560 Lee Enterprises, Inc. 19,600 Real Estate (0.1%) - ------------------------------------------------------------------------------------------------------------------- 1,000 Meritage Corp. (NON) 45,650 Restaurants (0.9%) - ------------------------------------------------------------------------------------------------------------------- 10,500 California Pizza Kitchen, Inc. (NON) 260,400 1,092 Darden Restaurants, Inc. 26,972 904 Papa John's International, Inc. (NON) 30,185 ------------- 317,557 Retail (10.0%) - ------------------------------------------------------------------------------------------------------------------- 17,000 99 Cents Only Stores (NON) 436,050 3,700 Ashworth, Inc. (NON) 33,337 3,600 Bebe Stores, Inc. (NON) 73,044 8,600 Big 5 Sporting Goods Corp. (NON) 122,894 1,900 Big Lots, Inc. 37,392 1,621 Blockbuster, Inc. Class A 43,605 10,500 Charlotte Russe Holding, Inc. (NON) 234,465 8,350 Chico's FAS, Inc. (NON) 303,272 1,317 DEB Shops, Inc. 44,487 7,200 Gart Sports Co. (NON) 205,128 10,400 Guitar Center, Inc. (NON) 192,920 13,600 Hancock Fabrics, Inc. 252,688 16,000 Men's Wearhouse, Inc. (The) (NON) 408,000 2,567 NBTY, Inc. (NON) 39,737 931 PETsMART, Inc. (NON) 14,849 2,805 Pier 1 Imports, Inc. 58,905 276 Rent-A-Center, Inc. (NON) 16,011 32,800 Restoration Hardware, Inc. (NON) 290,280 17,500 Too, Inc. (NON) 539,000 4,500 Tweeter Home Entertainment Group, Inc. (NON) 73,530 10,625 Wet Seal, Inc. (The) (NON) 258,188 1,482 Williams-Sonoma, Inc. (NON) 45,438 ------------- 3,723,220 Schools (2.1%) - ------------------------------------------------------------------------------------------------------------------- 16,200 Career Education Corp. (NON) 729,000 1,900 ITT Educational Services, Inc. (NON) 41,420 ------------- 770,420 Semiconductor (4.6%) - ------------------------------------------------------------------------------------------------------------------- 13,000 Advanced Energy Industries, Inc. (NON) 288,340 14,700 ASM International NV (Netherlands) (NON) 253,722 3,800 ChipPAC, Inc. (NON) 23,484 4,200 Helix Technology Corp. 86,520 661 LAM Research Corp. (NON) 11,885 13,700 Mykrolis Corp. (NON) 161,797 17,800 Nanometrics, Inc. (NON) 282,646 12,500 Photon Dynamics, Inc. (NON) 375,000 13,200 Photronics, Inc. (NON) 250,008 ------------- 1,733,402 Shipping (2.8%) - ------------------------------------------------------------------------------------------------------------------- 17,799 Heartland Express, Inc. (NON) 425,930 19,550 Knight Transportation, Inc. (NON) 453,365 4,800 USFreightways Corp. 181,776 ------------- 1,061,071 Software (4.2%) - ------------------------------------------------------------------------------------------------------------------- 481 Activision, Inc. (NON) 13,978 828 Autodesk, Inc. 10,971 21,500 Chordiant Software, Inc. (NON) 41,925 21,000 Concord Communications, Inc. (NON) 346,080 7,400 Documentum, Inc. (NON) 88,800 10,900 Embarcadero Technologies, Inc. (NON) 67,362 253 FileNET Corp. (NON) 3,669 190 Hyperion Solutions Corp. (NON) 3,465 64,200 I-many, Inc. (NON) 176,486 2,133 Inet Technologies, Inc. (NON) 14,398 7,200 Manhattan Associates, Inc. (NON) 231,552 53,100 Matrixone, Inc. (NON) 323,910 1,375 Network Associates, Inc. (NON) 26,496 2,100 Roxio, Inc. (NON) 15,120 1,988 Sybase, Inc. (NON) 20,973 2,900 Systems & Computer Technology Corp. (NON) 39,179 6,400 Verisity, Ltd. (NON) 110,976 303 Verity, Inc. (NON) 3,360 4,200 webMethods, Inc. (NON) 41,580 ------------- 1,580,280 Technology Services (2.2%) - ------------------------------------------------------------------------------------------------------------------- 1,600 Checkfree Corp. (NON) 25,024 21,900 Inforte Corp. (NON) 217,248 72,727 InteliData Technologies Corp. (acquired 11/27/01, cost $199,999) (RES) (NON) 96,727 6,500 Management Network Group, Inc. (The) (NON) 15,080 111,300 Online Resources Corp. (NON) 356,160 1,863 Overture Services, Inc. (NON) 45,457 11,700 Plumtree Software, Inc. (NON) 58,266 ------------- 813,962 Telecommunications (2.3%) - ------------------------------------------------------------------------------------------------------------------- 50,406 Boston Communications Group (NON) 405,264 16,200 Intrado, Inc. (NON) 313,632 2,639 Price Communications Corp. (NON) 42,224 44,300 Sirenza Microdevices, Inc. (NON) 89,486 ------------- 850,606 Textiles (1.1%) - ------------------------------------------------------------------------------------------------------------------- 24,300 Wolverine World Wide, Inc. 424,035 Toys (0.1%) - ------------------------------------------------------------------------------------------------------------------- 980 Action Performance Companies, Inc. (NON) 30,968 Transaction Processing (0.1%) - ------------------------------------------------------------------------------------------------------------------- 2,400 eFunds Corp. (NON) 22,774 Transportation (0.9%) - ------------------------------------------------------------------------------------------------------------------- 17,800 UTI Worldwide, Inc. 351,906 Waste Management (1.4%) - ------------------------------------------------------------------------------------------------------------------- 16,600 Waste Connections, Inc. (NON) 518,584 ------------- Total Common Stocks (cost $39,186,985) $ 36,700,747 WARRANTS (--%) (a) (NON) (cost $--) EXPIRATION NUMBER OF WARRANTS DATE VALUE - ------------------------------------------------------------------------------------------------------------------- 1 InteliData Technologies Corp. (acquired 11/27/01, cost $--) (RES) 11/28/03 $ 1 SHORT-TERM INVESTMENTS (6.6%) (a) (cost $2,453,791) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------- $ 2,453,791 Short-term investments held in Putnam commingled cash account with yields ranging from 1.74% to 1.83% and due dates ranging from July 1, 2002 to August 27, 2002 (d) $ 2,453,791 - ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $41,640,776) (b) $ 39,154,539 - ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $37,336,394. (b) The aggregate identified cost on a tax basis is $41,930,636, resulting in gross unrealized appreciation and depreciation of $2,483,628 and $5,259,725, respectively, or net unrealized depreciation of $2,776,097. (NON) Non-income-producing security. (RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at June 30, 2002 was $96,728 or 0.3% of net assets. (d) See footnote 1 to the financial statements. ADR after the name of a foreign holding stands for American Depositary Receipts, representing ownership of foreign securities on deposit with a custodian bank. The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES June 30, 2002 Assets - ------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $41,640,776) (Note 1) $39,154,539 - ------------------------------------------------------------------------------------------- Dividends, interest and other receivables 5,490 - ------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 482,061 - ------------------------------------------------------------------------------------------- Receivable for securities sold 413,347 - ------------------------------------------------------------------------------------------- Total assets 40,055,437 Liabilities - ------------------------------------------------------------------------------------------- Payable for securities purchased 2,524,906 - ------------------------------------------------------------------------------------------- Payable for shares of fund repurchased 103,560 - ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 24,109 - ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 31,437 - ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 2,453 - ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 788 - ------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 19,952 - ------------------------------------------------------------------------------------------- Other accrued expenses 11,838 - ------------------------------------------------------------------------------------------- Total liabilities 2,719,043 - ------------------------------------------------------------------------------------------- Net assets $37,336,394 Represented by - ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $42,088,741 - ------------------------------------------------------------------------------------------- Accumulated net realized loss on investments (Note 1) (2,266,110) - ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (2,486,237) - ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $37,336,394 Computation of net asset value and offering price - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($27,016,923 divided by 1,805,961 shares) $14.96 - ------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $14.96)* $15.87 - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class B share ($8,794,187 divided by 588,960 shares)** $14.93 - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class C share ($1,155,462 divided by 77,374 shares)** $14.93 - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($369,822 divided by 24,749 shares) $14.94 - ------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $14.94)* $15.48 - ------------------------------------------------------------------------------------------- * On single retail sales of less than $50,000. On sales of $50,000 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 Year ended June 30, 2002 Investment income: - ------------------------------------------------------------------------------------------- Interest $ 24,543 - ------------------------------------------------------------------------------------------- Dividends 10,096 - ------------------------------------------------------------------------------------------- Total investment income 34,639 - ------------------------------------------------------------------------------------------- Expenses: - ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 200,894 - ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 93,180 - ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 2,012 - ------------------------------------------------------------------------------------------- Administrative services (Note 2) 1,256 - ------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 14,105 - ------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 11,640 - ------------------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 1,607 - ------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 542 - ------------------------------------------------------------------------------------------- Auditing 26,817 - ------------------------------------------------------------------------------------------- Other 23,910 - ------------------------------------------------------------------------------------------- Fees waived and reimbursed by Manager (Note 2) (86,908) - ------------------------------------------------------------------------------------------- Total expenses 289,055 - ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (4,608) - ------------------------------------------------------------------------------------------- Net expenses 284,447 - ------------------------------------------------------------------------------------------- Net investment loss (249,808) - ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (1,755,141) - ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments during the year (5,545,533) - ------------------------------------------------------------------------------------------- Net loss on investments (7,300,674) - ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(7,550,482) - ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Year ended June 30 ------------------------------------------ 2002 2001 - ------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets - ------------------------------------------------------------------------------------------------------- Operations: - ------------------------------------------------------------------------------------------------------- Net investment loss $ (249,808) $ (232,914) - ------------------------------------------------------------------------------------------------------- Net realized loss on investments (1,755,141) (340,978) - ------------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (5,545,533) (4,328,603) - ------------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (7,550,482) (4,902,495) - ------------------------------------------------------------------------------------------------------- Distributions to shareholders: (Note 1) - ------------------------------------------------------------------------------------------------------- From net realized short-term gain on investments -- (1,675,915) - ------------------------------------------------------------------------------------------------------- From net realized long-term gain on investments -- (1,143,993) - ------------------------------------------------------------------------------------------------------- From return of capital -- (5,381) - ------------------------------------------------------------------------------------------------------- Increase (decrease) from capital share transactions (Note 4) 23,278,264 (587,999) - ------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 15,727,782 (8,315,783) Net assets - ------------------------------------------------------------------------------------------------------- Beginning of year 21,608,612 29,924,395 - ------------------------------------------------------------------------------------------------------- End of year $37,336,394 $21,608,612 - ------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS A - ----------------------------------------------------------------------------------------------------- For the period Per-share Dec. 31, 1997+ operating performance Year ended June 30 to June 30 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $19.46 $26.90 $14.85 $10.52 $8.50 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment loss (a)(b) (.19) (.21) (.24) (.11) (.04) - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (4.31) (4.37) 14.98 4.55 2.06 - ----------------------------------------------------------------------------------------------------- Total from investment operations (4.50) (4.58) 14.74 4.44 2.02 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net realized gain on investments -- (2.85) (2.69) (.11) -- - ----------------------------------------------------------------------------------------------------- From return of capital -- (.01) -- -- -- - ----------------------------------------------------------------------------------------------------- Total distributions -- (2.86) (2.69) (.11) -- - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $14.96 $19.46 $26.90 $14.85 $10.52 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(c) (23.12) (16.31) 102.02 42.62 23.77* - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $27,017 $21,609 $29,924 $9,192 $5,205 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(a)(d) 1.38 1.30 1.30 1.30 .65* - ----------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%)(a) (1.19) (1.02) (1.05) (1.04) (.37)* - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 134.73 114.08 152.49 184.61 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 based on average net assets of 0.40%, 0.10%, 0.25%, 0.37% and 0.62% for the periods ended June 30, 2002, June 30, 2001, 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 and brokerage service arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS B - ------------------------------------------------- For the period Per-share Mar. 18, 2002+ operating performance to June 30 - ------------------------------------------------- 2002 - ------------------------------------------------- Net asset value, beginning of period $17.78 - ------------------------------------------------- Investment operations: - ------------------------------------------------- Net investment loss (a)(b) (.07) - ------------------------------------------------- Net realized and unrealized loss on investments (2.78) - ------------------------------------------------- Total from investment operations (2.85) - ------------------------------------------------- Net asset value, end of period $14.93 - ------------------------------------------------- Total return at net asset value (%)(c) (16.03)* - ------------------------------------------------- Ratios and supplemental data - ------------------------------------------------- Net assets, end of period (in thousands) $8,794 - ------------------------------------------------- Ratio of expenses to average net assets (%)(a)(d) .66* - ------------------------------------------------- Ratio of net investment loss to average net assets (%)(a) (.58)* - ------------------------------------------------- Portfolio turnover (%) 134.73 - ------------------------------------------------- + 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 based on average net assets of 0.24%, for the period ended June 30, 2002 (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 and brokerage service arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS C - ------------------------------------------------- For the period Per-share Mar. 18, 2002+ operating performance to June 30 - ------------------------------------------------- 2002 - ------------------------------------------------- Net asset value, beginning of period $17.78 - ------------------------------------------------- Investment operations: - ------------------------------------------------- Net investment loss (a)(b) (.07) - ------------------------------------------------- Net realized and unrealized loss on investments (2.78) - ------------------------------------------------- Total from investment operations (2.85) - ------------------------------------------------- Net asset value, end of period $14.93 - ------------------------------------------------- Total return at net asset value (%)(c) (16.03)* - ------------------------------------------------- Ratios and supplemental data - ------------------------------------------------- Net assets, end of period (in thousands) $1,155 - ------------------------------------------------- Ratio of expenses to average net assets (%)(a)(d) .66* - ------------------------------------------------- Ratio of net investment loss to average net assets (%)(a) (.58)* - ------------------------------------------------- Portfolio turnover (%) 134.73 - ------------------------------------------------- + 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 based on average net assets of 0.24%, for the period ended June 30, 2002 (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 and brokerage service arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS M - ------------------------------------------------- For the period Per-share Mar. 18, 2002+ operating performance to June 30 - ------------------------------------------------- 2002 - ------------------------------------------------- Net asset value, beginning of period $17.78 - ------------------------------------------------- Investment operations: - ------------------------------------------------- Net investment loss (a)(b) (.06) - ------------------------------------------------- Net realized and unrealized loss on investments (2.78) - ------------------------------------------------- Total from investment operations (2.84) - ------------------------------------------------- Net asset value, end of period $14.94 - ------------------------------------------------- Total return at net asset value (%)(c) (15.97)* - ------------------------------------------------- Ratios and supplemental data - ------------------------------------------------- Net assets, end of period (in thousands) $370 - ------------------------------------------------- Ratio of expenses to average net assets (%)(a)(d) .59* - ------------------------------------------------- Ratio of net investment loss to average net assets (%)(a) (.51)* - ------------------------------------------------- Portfolio turnover (%) 134.73 - ------------------------------------------------- + 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 based on average net assets of 0.24%, for the period ended June 30, 2002 (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 and brokerage service arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS June 30, 2002 Note 1 Significant accounting policies Putnam Small Cap Growth Fund (formerly Putnam Equity Fund 98), 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 seeks 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, an indirect wholly-owned subsidiary of Putnam, LLC believes have the potential for capital appreciation. The fund offers class A, class B, class C and class M shares. The fund began offering class B, class C and class M shares on March 18, 2002. Class A, class B, class C and class M shares were open to public investment on April 15, 2002. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares are subject to the same fees and expenses as class B shares, except that class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class M shares are sold with a maximum front end sales charge of 3.50% and pay an ongoing distribution fee that is higher than class A shares but lower than class B and class C shares. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if that fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with 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. For foreign investments, if trading or events occurring in other markets after the close of the principal exchange in which the securities are traded are expected to materially affect the value of the investments, then those investments are valued, taking into consideration these events, at their fair value following procedures approved by the Trustees. 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. B) Joint trading account The fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, 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 issuers of high-grade short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments. 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 maintains an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the year ended June 30, 2002, 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. At June 30, 2002 the fund had a capital loss carryover of approximately $1,951,000 available to the extent allowed by tax law to offset future net capital gain, if any, which will expire on June 30, 2010. G) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and permanent differences of losses on wash sale transactions, post-October loss deferrals, and net operating loss. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended June 30, 2002, the fund reclassified $249,808 to decrease accumulated net investment loss and $249,808 to decrease paid-in-capital. The calculation of net investment income per share in the financial highlights tables excludes these adjustments. 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, 2003, to the extent that expenses of the fund (exclusive of brokerage commissions, interest, taxes, deferred extraordinary expense, credits from Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam, 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 year ended June 30, 2001, the fund's expenses were reduced by $4,608 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, a wholly-owned subsidiary of Putnam, LLC, and Putnam Retail Management GP, Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management 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 year ended June 30, 2002, Putnam Retail Management, acting as underwriter received net commissions of $15,827 and $123 from the sale of class A and class M shares, respectively, and received $427 and no monies in contingent deferred sales charges from redemptions of class B and class C shares, respectively. A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the year ended June 30, 2002, Putnam Retail Management, acting as underwriter received no monies on class A and class M redemptions. Note 3 Purchases and sales of securities During the year ended June 30, 2002 cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $49,957,037 and $27,076,482, respectively. There were no purchases and sales of U.S. government obligations. Note 4 Capital shares At June 30, 2002, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Year ended June 30, 2002 - --------------------------------------------------------------------------- Class A Shares Amount - --------------------------------------------------------------------------- Shares sold 1,326,903 $ 22,475,747 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- - --------------------------------------------------------------------------- 1,326,903 22,475,747 Shares repurchased (631,539) (10,723,728) - --------------------------------------------------------------------------- Net increase 695,364 $ 11,752,019 - --------------------------------------------------------------------------- Year ended June 30, 2001 - --------------------------------------------------------------------------- Class A Shares Amount - --------------------------------------------------------------------------- Shares sold 178,878 $ 3,299,417 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 154,707 2,820,313 - --------------------------------------------------------------------------- 333,585 6,119,730 Shares repurchased (335,550) (6,707,729) - --------------------------------------------------------------------------- Net decrease (1,965) $ (587,999) - --------------------------------------------------------------------------- For the period March 18, 2002 (commencement of operations) to June 30, 2002 - --------------------------------------------------------------------------- Class B Shares Amount - --------------------------------------------------------------------------- Shares sold 617,672 $10,264,283 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- - --------------------------------------------------------------------------- 617,672 10,264,283 Shares repurchased (28,712) (468,049) - --------------------------------------------------------------------------- Net increase 588,960 $9,796,234 - --------------------------------------------------------------------------- For the period March 18, 2002 (commencement of operations) to June 30, 2002 - --------------------------------------------------------------------------- Class C Shares Amount - --------------------------------------------------------------------------- Shares sold 83,015 $1,387,215 Shares issued in connection with reinvestment of distributions -- -- - --------------------------------------------------------------------------- 83,015 1,387,215 Shares repurchased (5,641) (93,045) - --------------------------------------------------------------------------- Net increase 77,374 $1,294,170 - --------------------------------------------------------------------------- For the period March 18, 2002 (commencement of operations) to June 30, 2002 - --------------------------------------------------------------------------- Class M Shares Amount - --------------------------------------------------------------------------- Shares sold 39,779 $ 684,211 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- - --------------------------------------------------------------------------- 39,779 684,211 Shares repurchased (15,030) (248,370) - --------------------------------------------------------------------------- Net increase 24,749 $ 435,841 - --------------------------------------------------------------------------- At June 30, 2002, Putnam Investments, LLC owned 451,038 class A shares of the fund (25.0% of class A shares outstanding), valued at $6,747,528. FEDERAL TAX INFORMATION (Unaudited) The Form 1099 you receive in January 2003 will show the tax status of all distributions paid to your account in calendar 2002.
TRUSTEES Name, Address, 1 Date of Birth, Position(s) Held with Fund and Length of Service Principal Occupation(s) as a Putnam Fund Trustee 2 During Past 5 Years Other Directorships Held by Trustee - ------------------------------------------------------------------------------------------------------- Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc., Trustee since 1994 Associates, Inc. Banta Corporation (a printing and (a management digital imaging firm), Intermatic consulting and private Corporation (manufacturer of energy investments firm) control products), Ryerson Tull, Inc. (a steel service corporation), Advocate Health Care, and the National Center for Nonprofit Boards. Chairman Emeritus of the Board of Trustees, Mount Holyoke College. Also held various positions in investment banking and corporate finance, including Vice President and principal of the Regency Group and consultant to First Boston Corp. Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign Trustee since 2001 Operating Officer, Relations, the Electric Power Nuclear Threat Research Institute Advisory Council, Initiative (a private the Board of Directors of the Gas foundation dedicated Technology Institute, the University to reducing the threat of Chicago Board of Governors for of weapons of mass Argonne National Laboratory, the destruction), also serves Board of Directors of the as Senior Advisor to the Environment and Natural Resources United Nations Program Steering Committee, Foundation John F. Kennedy School of Government, Harvard University. Prior to 2002, Mr. Curtis was a member of the Board of Directors of the Gas Technology Institute. Until 2001, Mr. Curtis was a Member of the Department of Defense's Policy Board and Director of EG&G Technical Services, Inc. (fossil energy research and development support) and prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy Trustee since 1985 and Managing Director, Corporation (formerly known as Chairman since 2000 First Reserve Snyder Oil Corporation), Corporation TransMontaigne Oil Company, (a registered investment Continuum Health Partners of advisor investing in New York, Sarah Lawrence College, companies in the and various private companies owned world-wide energy by First Reserve Corporation. industry on behalf of Trustee of TH Lee, Putnam institutional investors) Investment Trust (a closed-end investment company). Prior to acquiring First Reserve in 1983, Mr. Hill held executive positions with several advisory firms and various positions with the federal government, including Associate Director of the Office of Manage ment and Budget and Deputy Director of the Federal Energy Administration. Ronald J. Jackson Private investor Former Chairman, President, and (12/17/43), Chief Executive Officer of Fisher- Trustee since 1996 Price, Inc. (a toy manufacturer). Previously served as President and Chief Executive Officer of Stride- Rite, Inc. and Kenner Parker Toys. Also held financial and marketing positions with General Mills, Parker Brothers, and Talbots. President of the Kathleen and Ronald J. Jackson Foundation (charitable trust). Member of the Board of Overseers of WGBH (public television and radio). Member of the Board of Overseers of the Peabody Essex Museum. Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Group Trustee since 1997 Killian Professor of (a UK-based holding company Economics and with interests in electric power, Management and natural gas distribution, and Director of the Center telecommunications networks), and for Energy and the Whitehead Institute for Environmental Policy Biomedical Research (a non-profit Research, Massachusetts research institution). President of the Institute of Technology Yale University Council. Prior to February 2002, March 2000, and September 1998, Dr. Joskow was a Director of State Farm Indemnity Company (an automobile insurance company), Director of New England Electric System (a public utility holding company) and a consultant to National Economic Research Associates, respectively. Elizabeth T. Kennan Chairman, Cambus- Director, Northeast Utilities, and (2/25/38), Kenneth Bloodstock (a Talbots (a distributor of women's Trustee since 1992 limited liability company apparel). Trustee of Centre College. involved in thoroughbred Prior to 2001, Dr. Kennan was a horse breeding and member of the Oversight Committee farming), President of Folger Shakespeare Library. Emeritus of Mount Prior to September 2000, June 2000, Holyoke College and November 1999, Dr. Kennan was a Director of Chastain Real Estate, Bell Atlantic, and Kentucky Home Life Insurance, respectively. Prior to 1995, Dr. Kennan was a Trustee of Notre Dame University. For 12 years, she was on the faculty of Catholic University. John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc., (6/15/41), of Ridgeway Farm Sonoco Products, Inc. (a packaging Trustee since 1997 (a limited liability company), The Liberty Corporation company engaged in (a company engaged in the timber and farming) broadcasting industry), and Progress Energy, Inc. (a utility company, formerly known as Carolina Power & Light). Trustee Emeritus of Washington & Lee University. Prior to October 1997, January 1998, and May 2001, Mr. Mullin was a Director of Dillon, Read and Co. Inc., The Ryland Group, Inc., and Graphic Packaging International Corp., respectively. Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes (3/15/45), Properties, LLP and Center, Trustee of SEA Education Trustee since 1984 Chairman of Cabot Association, and Director of Properties, Inc. Brandywine Trust Company (a trust company). Prior to February 1998, Mr. Patterson was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership. Prior to December 2001, Mr. Patterson was President and Trustee of Cabot Industrial Trust (publicly traded real estate investment trust). Prior to 1990, Mr. Patterson was Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, the predecessor of Cabot Partners, and prior to that was Senior Vice President of the Beal Companies. W. Thomas Stephens Corporate Director Director of Qwest Communications (9/2/42), (communications company), Xcel Trustee since 1997 Energy Incorporated (public utility company), TransCanada Pipelines, Norske Canada, Inc. (paper manufacturer) and Mail-Well (printing and envelope company). Prior to July 2001 and October 1999, Mr. Stephens was Chairman of Mail- Well and MacMillan-Bloedel (forest products company). Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of Johns Manville. W. Nicholas Thorndike Director of various Trustee of Northeastern University and (3/28/33), corporations and Honorary Trustee of Massachusetts Trustee since 1992 charitable General Hospital. Prior to organizations, September 2000, April 2000, and including Courier December 2001, Mr. Thorndike was Corporation (a book a Director of Bradley Real Estate, manufacturer) and Inc., a Trustee of Eastern Utilities Providence Journal Co. Associates, and a Trustee of Cabot (a newspaper publisher) Industrial Trust, respectively. Previously served as Chairman of the Board and managing partner of Wellington Management/Thorndike Doran Paine & Lewis, and Chairman and Director of Ivest Fund. Lawrence J. Lasser* President and Chief Director of Marsh & McLennan (11/1/42), Executive Officer Companies, Inc. and the United Way Trustee since 1992 of Putnam of Massachusetts Bay. Member of the Vice President since 1981 Investments, LLC, Board of Governors of the Investment and Putnam Investment Company Institute, Trustee of the Management, LLC Museum of Fine Arts, Boston, a Trustee and Member of the Finance and Executive Committees of Beth Israel Deaconess Medical Center, Boston, and a Member of the CareGroup Board of Managers Investment Committee, the Council on Foreign Relations, and the Commercial Club of Boston. George Putnam, III* President, New Director of The Boston Family (8/10/51), Generation Research, Office, L.L.C. (registered investment Trustee since 1984 and Inc. (a publisher of advisor), Trustee of the SEA President since 2000 financial advisory and Education Association, Trustee of other research services St. Mark's School, and Trustee of relating to bankrupt and Shore Country Day School. distressed companies) Previously, Mr. Putnam was an and New Generation attorney with the firm of Dechert Advisers, Inc. Price & Rhoads. (a registered investment adviser) A.J.C. Smith (4/13/34),* Director of Marsh & Director of Trident Corp. (a limited Trustee since 1986 McLennan partnership with over 30 institutional Companies, Inc. investors). Trustee of the Carnegie Hall Society, the Educational Broadcasting Corporation and the National Museums of Scotland. Chairman of the Central Park Conservancy. Member of the Board of Overseers of the Joan and Sanford I. Weill Graduate School of Medical Sciences of Cornell University. Fellow of the Faculty of Actuaries in Edinburgh, the Canadian Institute of Actuaries, and the Conference of Actuaries. Associate of the Society of Actuaries. Member of the American Actuaries, the International Actuarial Association and the International Association of Consulting Actuaries. Prior to May 2000 and November 1999, Mr. Smith was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc. - -------------------------------------------------------------------------------------------------------- 1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of June 30, 2002, there were 113 Putnam Funds. 2 Each Trustee serves for an indefinite term, until his or her resignation, death, or removal. *Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act of 1940) of the fund, Putnam Management or Putnam Retail Management. Messrs. Putnam, III, Lasser, and Smith are deemed "interested persons" by virtue of their positions as officers or shareholders of the fund, or officers of Putnam Management, Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent company of Putnam Management and Putnam Retail Management. George Putnam, III, is the President of your Fund and each of the other Putnam Funds. Lawrence J. Lasser has been the President, Chief Executive Officer, and a Director of Putnam Investments, LLC, and Putnam Management since 1985, having begun his career there in 1969. Mr. Lasser currently also serves as a Director of Marsh & McLennan Companies, Inc., the parent company of Putnam Management. A.J.C. Smith is a Director of Marsh & McLennan Companies, Inc.
OFFICERS Name, Address, 1 Date of Birth, Inception of Service Position(s) Held with Fund with the Putnam Funds Principal Occupation(s) During Past 5 Years - --------------------------------------------------------------------------------------------------------------- Charles E. Porter (7/26/38), Since 1989 Managing Director, Putnam Investments, Executive Vice President, LLC and Putnam Management Treasurer & Principal Financial Officer Patricia C. Flaherty Since 1993 Senior Vice President, Putnam (12/1/46), Investments, LLC and Putnam Management Senior Vice President Michael T. Healy (1/24/58), Since 2000 Managing Director, Putnam Assistant Treasurer and Investments, LLC Principal Accounting Officer Gordon H. Silver (7/3/47), Since 1990 Senior Managing Director, Putnam Vice President Investments, LLC and Putnam Management Brett C. Browchuk Since 1994 Managing Director, Putnam Investments, (2/27/63), Vice President LLC and Putnam Management Ian C. Ferguson (7/3/57), Since 1997 Senior Managing Director, Putnam Vice President Investments, LLC and Putnam Management Richard G. Leibovitch Since 1999 Managing Director of Putnam Investments, (10/31/63), Vice President LLC and Putnam Management. Prior to February 1999, Managing Director at J.P. Morgan. Richard A. Monaghan Since 1998 Managing Director, Putnam Investments, (8/25/54), LLC, Putnam Management and Putnam Vice President Retail Management John R. Verani Since 1988 Senior Vice President, Putnam (6/11/39), Investments, LLC and Putnam Management Vice President Stephen M. Oristaglio Since 2000 Senior Managing Director of Putnam (8/21/55), Management (since July 1998). Prior to Vice President July 1998, Mr. Oristaglio was a Managing Director at Swiss Bank Corp. Daniel L. Miller Since 2000 Managing Director of Putnam Management (8/17/57), Vice President Eric M. Wetlaufer Since 2001 Managing Director of Putnam Management (4/13/62), (since November 1997). Prior to Vice President November 1997, Mr. Wetlaufer was a Managing Director and Portfolio Manager at Cadence Capital Management. - --------------------------------------------------------------------------------------------------------------- 1 The address of each Officer is One Post Office Square, Boston, MA 02109.
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 Balanced Fund * Growth Opportunities Fund Health Sciences Trust International New Opportunities Fund New Century Growth Fund * New Opportunities Fund OTC & Emerging Growth Fund Small Cap Growth Fund Technology Fund * Vista Fund Voyager Fund Voyager Fund II BLEND FUNDS Asia Pacific Growth Fund * Capital Appreciation Fund Capital Opportunities Fund Emerging Markets Fund * Europe Growth Fund Global Equity Fund Global Growth Fund Global Natural Resources Fund International Growth Fund International Voyager Fund Investors Fund Research Fund Tax Smart Equity Fund Utilities Growth and Income Fund VALUE FUNDS 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 + INCOME FUNDS American Government Income Fund Diversified Income Trust Global Income Trust High Yield Advantage Fund + High Yield Trust Income Fund Intermediate U.S. Government Income Fund Money Market Fund [SECTION MARK] U.S. Government Income Trust TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax Exempt Money Market Fund [SECTION MARK] Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds 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 * In anticipation of mergers expected later this year, these funds are closed to new investors. + Closed to new investors. [SECTION MARK] 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 ABOUT PUTNAM INVESTMENTS One of the largest mutual fund families in the United States, Putnam Investments has a heritage of investment leadership dating back to Judge Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and practice since 1830. Founded 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We presently manage over 100 mutual funds in growth, value, blend, fixed income, and international. INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis 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 and Treasurer Patricia C. Flaherty Senior Vice President Michael T. Healy Assistant Treasurer and Principal Accounting Officer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen M. Oristaglio Vice President Daniel Miller Vice President Eric Wetlaufer Vice President Richard G. Leibovitch Vice President Richard A. Monaghan Vice President John R. Verani Vice President This report is for the information of shareholders of Putnam Small Cap Growth 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. The fund's Statement of Additional Information contains additional information about the fund's Trustees and is available without charge upon request by calling 1-800-225-1581. Visit www.putnaminvestments.com or call a representative at 1-800-225-1581. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - --------------------- PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com AN076-79329 2HF 8/02 -----END PRIVACY-ENHANCED MESSAGE-----