Putnam
International
Growth
Fund*
ANNUAL REPORT
June 30, 1996
*formerly Putnam Overseas Growth Fund
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* For the 12 months ended June 30, 1996, Putnam International Growth
Fund's class A, class B, and class M shares ranked 48, 64, and 59,
respectively, out of the 296 international funds tracked by Lipper
Analytical Services. These rankings placed all three share classes
within the top 22% of all international funds considered.*
* "[Fund Manager Justin] Scott is very optimistic concerning the
European market. He cites the trend over the last four years in
which public corporations have become increasingly mindful of acting
in their shareholders' best interests."
-- The Value Line Mutual Fund Survey, May 28, 1996
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
19 Financial statements
*Lipper rankings are based on total return performance, vary over
time, and do not reflect the effects of sales charges. The fund's
class A shares were ranked 16 out of 65 international funds for 5-
year performance through 6/30/96. The fund's class B and class M
shares were not ranked over longer applicable periods. Past
performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Since its introduction in early 1991, Putnam Overseas Growth Fund
has compiled a strong performance record, as detailed in the Lipper
rankings on page 2 and the performance tables on pages 9 and 10.
Putnam Management believes the fund's successful investment strategy
and performance record make it a perfect candidate for inclusion in
a unified "family" of Putnam international equity funds.
To position the fund within that grouping, Putnam Management has
proposed and your Trustees have approved a name change and a slight
modification of the fund's investment policy. As of August 12, 1996,
the fund's name became Putnam International Growth Fund. Before the
change, the fund was required to invest at least 65% of its assets
outside North America. Under the minor revision, which is being made
simply to bring the fund's policy into line with that of other
Putnam international equity funds, it will invest at least 65% of
its assets outside the United States.
We are confident that the fund will continue to play a valued role
in your investment program.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
August 21, 1996
Report from the Fund Manager
Justin M. Scott
We are pleased to report that Putnam International Growth Fund
achieved index-beating performance for its fiscal year ended June
30, 1996. Your fund's 12-month returns of 20.2% and 13.3% for class
A shares at net asset value and public offering price, respectively,
surpassed or matched the 13.3% return measured by Morgan Stanley
Capital International's Europe, Australia, and Far East Index -- the
fund's principal performance benchmark. (Please refer to the tables
on pages 9 and 10 for additional performance information.)
We attribute the fund's success to several factors: exceptional
performance from European companies that have focused primarily on
unlocking value for shareholders, substantial exposure to Japan as
its stock market responded positively to a recovering economy, and
excellent returns from many of its growth and value-oriented
holdings.
* FUNDAMENTAL SHIFT IN EUROPEAN CORPORATE-MANAGEMENT OBJECTIVES
PROVES ADVANTAGEOUS
In our opinion, the key to investing successfully in Europe over the
past three years has been to realize that European companies are
undergoing a fundamental change in management objectives and
practices. Well-managed businesses are focusing more intently than
ever before on extracting value from their enterprises for the
benefit of shareholders.
In the past, most European companies were managed for the benefit of
several, often competing, constituencies: creditors, employees,
management, and stockholders. Management's priorities started to
change, however, around the beginning of the decade, when various
Swiss corporations began to focus on gaining a competitive edge by
managing their businesses for the benefit of their principal owners
- -- the stockholders. For example, Swiss Reinsurance, which has
doubled in value since being added to your fund's portfolio, began
to concentrate in unprecedented fashion on maximizing returns to
shareholders. As a result of this changed focus, the company began
to shed businesses that were only marginal contributors to its
overall results.
Other companies have begun to repurchase their own shares, have
become more active in mergers and acquisitions, have introduced more
liberal dividend policies, and, in general, are seeking to
rationalize their operations with increased profitability as their
goal. Consequently, against a backdrop of fairly sluggish economies,
many of the fund's European investments performed extremely well
over the fiscal year as a direct result of this shift in management
emphasis.
* JAPANESE RECOVERY, IMPROVED PROFITS SET THE STAGE FOR SUPERB STOCK
PERFORMANCE
Accounting for nearly 27% of net assets, Japan was the fund's
largest single-country weighting at the end of the period. The
Japanese economic recovery is in full swing with first quarter gross
domestic product figures -- released just before the close of the
fund's fiscal year -- showing the strongest quarterly growth since
1973. Despite the prospect of rising interest rates, we believe
Japan will likely be among the world's fastest-growing economies for
all of 1996.
Given the renewed strength of Japan's economy, we believe the
environment for corporate profits has improved substantially.
Earnings for the typical Japanese manufacturing company rose by some
30% in 1995 and we believe a similar rise is likely in 1996.
Moreover, for companies that export a significant portion of their
products, the persistent weakness of the yen relative to the U.S.
dollar has provided a significant boost. Companies such as
Bridgestone, a major tire producer, and Sharp, a leading
manufacturer of consumer electronic products, have benefited by
receiving payment in dollars that are now worth considerably more
when converted into yen.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY ALLOCATIONS (6/30/96)*]
Japan 26.4%
France 9.6%
United Kingdom 8.6%
Netherlands 8.4%
Hong Kong 6.0%
Germany 6.0%
Switzerland 5.3%
Footnote reads:
Based on net assets. Country weightings will vary over time.
The smaller southeast Asian markets -- Thailand, Malaysia,
Singapore, and Indonesia -- continued to mirror the rapid growth of
that region. Accordingly, the fast-growing companies in those
countries continued to be an important contributor to the fund's
overall performance.
* TARGETING THE BEST OF GROWTH AND VALUE
An ongoing tenet of your fund's investment strategy is to seek out
what we view as the best opportunities in both growth and value-
oriented stocks. By growth we mean stocks of companies that exhibit
above-average earnings growth and high returns on capital. We look
for stocks selling at reasonable prices that meet these criteria.
Noteworthy holdings in this category over the fiscal year included
Getronics Electric, a Netherlands-based software development company
and a long-standing holding; Bulgari, a luxury goods and jewelry
retailer based in Italy; and Adidas, the well-known German
manufacturer of athletic and recreational footwear.
Value stocks, on the other hand, are stocks of well-managed
companies in relatively ordinary industries in which the price we
pay for the value we see in the corporation's assets is, in our
estimation, quite inexpensive. Among the top performers in this
category during the fiscal year were CRH, a cement and building
materials manufacturer with headquarters in Ireland, and Spanish-
based Tabacalera, a tobacco producer.
While these stocks, along with others discussed in this report, were
viewed favorably at the end of the fiscal year, all portfolio
holdings are subject to review and adjustment in accordance with the
fund's investment strategy and may vary in the future.
* EUROPEAN MONETARY UNION, JAPANESE EXPORTS MAY KEEP CURRENCIES WEAK
RELATIVE TO DOLLAR
Japan's trade surplus with the United States has been shrinking of
late. Consequently, we believe Japan's need to maintain its
competitive position with respect to exports may cause the yen to
weaken further relative to the dollar. Although we cannot provide
assurances, we therefore believe the fund's investments in Japanese
companies with strong export operations may continue to benefit from
a relatively weak yen. One caveat to this outlook, however, centers
on the potential for continuing volatility in the U.S. market. This
could lead foreign investors to make an accelerated exit from
dollar-denominated securities, resulting in downward pressure on the
U.S. currency.
[GRAPHIC OMITTED:Top 10 Holdings (6/30/96)*]
ITO-Yokado Co., Ltd. (Japan)
Supermarkets
Vodafone Group PLC (United Kingdom)
Telecommunications
Veba AG (Germany)
Conglomerate
Cheung Kong Holdings Ltd. (Hong Kong)
Real estate development
Sumitomo Trust & Banking (Japan)
Banking
Ciba-Geigy AG (Switzerland)
Pharmaceuticals
CRH PLC (Ireland)
Building materials
Total S.A. (France)
Oil and gas
Bridgestone Corp. (Japan)
Tires
Goodman Fielder Ltd. (Australia)
Food manufacturing and distribution
Footnote reads:
*Top holdings represent 12.5% of the fund's net assets. Portfolio holdings
will vary over time.
Perhaps the key European issue over the coming months will be the
implications of European Monetary Union (EMU) or the movement toward
a single European currency. Given Germany's leading role in the
economies of Europe, it is significant that German Chancellor Helmut
Kohl is deeply committed to EMU.
Because of the stringent budgetary and growth criteria required to
qualify for EMU, countries are under enormous pressure to adapt
their economies to the dictates of the free market and to rely less
on governmental control and regulation. Coupled with the increasing
shareholder orientation of many European companies, we view such a
development as a decided plus for stock investors.
We believe Europe as a whole, and Germany in particular, would like
to see its currencies weaken further against the dollar. As we have
recently seen in Japan, this would likely provide a boost to
European exports and thus to overall economic growth, and could go a
long way toward making EMU a reality. In light of this outlook, we
currently plan to maintain currency hedges on the bulk of our
European and Japanese investments, seeking to lock in attractive
exchange rates between these currencies and the U.S. dollar.
Looking ahead, we currently plan to keep the fund's weighting in
Japan close to its present level. Elevated prices in the Japanese
stock market make values hard to find, but we continue to like the
market's prospects given the improving corporate profit picture. As
for Europe, prospects for the various economies are decidedly mixed,
with some clearly recovering, while others continue to struggle with
a lack of strong domestic demand from consumers and businesses.
Consequently, stock selection will be the key in our quest for
superior performance from the fund's European component in the
months to come.
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 6/30/96, there is no guarantee
the fund will continue to hold these securities in the future.
International investing involves certain risks, including those
related to economic instability, unfavorable political developments,
and currency fluctuations, not present with domestic investments.
Performance summary
Performance should always be considered in light of a fund's
investment strategy. Putnam International Growth Fund is designed
for investors seeking capital appreciation through equity securities
of issuers located outside the United States.
This section provides, at a glance, information about your fund's
performance. 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.
TOTAL RETURN FOR PERIODS ENDED 6/30/96
Class A Class B Class M
(inception date) (2/28/91) (6/1/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------
1 year 20.21% 13.28% 19.35% 14.35% 19.71% 15.51%
- -------------------------------------------------------------------
5 years 86.66 75.91 -- -- -- --
Annual average 13.30 11.96 -- -- -- --
- -------------------------------------------------------------------
Life of class 76.93 66.69 23.34 20.34 23.70 19.37
Annual average 11.28 10.04 10.61 9.31 14.41 11.86
- -------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/96
MSCI EAFE Consumer
Index Price Index
- ------------------------------------------------------------------
1 year 13.28% 2.75%
- ------------------------------------------------------------------
5 years 61.00 15.22
Annual average 9.99 2.87
- ------------------------------------------------------------------
Life of class A 43.08 16.25
Annual average 6.94 2.86
- ------------------------------------------------------------------
Life of class B 16.78 6.24
Annual average 7.73 2.95
- ------------------------------------------------------------------
Life of class M 16.96 4.68
Annual average 10.41 2.94
- ------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take
into account any adjustment for taxes payable on reinvested
distributions. Investment returns and net asset value will fluctuate
so that an investor's shares, when sold, may be worth more or less
than their original cost. POP assumes 5.75% maximum sales charge for
class A shares and 3.50% for class M shares. CDSC for class B shares
assumes the applicable sales charge, with the maximum being 5%.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
Caption reads: Cumulative total return of a $10,000
investment since 2/28/91
Starting value (Insert ending Total)
$9,425 Fund's class A shares at POP $16,669
$10,000 MSCI EAFE $14,308
$10,000 Consumer Price Index $11,625
(plot points for 10-year total return mountain chart)
Date/year Fund at POP MSCI EAFE CPI
- -------------------------------------------------------
2/28/91 9,425 10,000 10,000
6/30/91 8,930 8,887 10,089
6/30/92 9,780 8,829 10,401
6/30/93 10,623 10,619 10,712
6/30/94 13,364 12,425 10,979
6/30/95 13,867 12,630 11,313
6/3096 16,669 14,308 11,625
Past performance is no assurance of future results. A $10,000
investment in the fund's class B shares at inception on 6/1/94
would have been valued at 12,234 on 6/30/96 ($12,034 with a
redemption at the end of the period). A $10,000 investment in
the fund's class M shares at inception on 12/1/94 would have
been valued at $12,370 at net asset value on 6/30/96 ($11,937
at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 6/30/96
Class A Class B Class M
- --------------------------------------------------------------------
Distributions (number): 1 1 1
- --------------------------------------------------------------------
Income $0.260 $0.195 $0.223
- --------------------------------------------------------------------
Capital gains:
- --------------------------------------------------------------------
Long-term 0.003 0.003 0.003
- --------------------------------------------------------------------
Short-term 0.002 0.002 0.002
- --------------------------------------------------------------------
Total $0.265 $0.200 $0.228
- --------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- --------------------------------------------------------------------
6/30/95 $12.10 $12.84 $12.00 $12.09 $12.53
- --------------------------------------------------------------------
6/30/96 14.25 15.12 14.10 14.22 14.74
- --------------------------------------------------------------------
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1
fee than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares, not
including any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus
the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the maximum 5.75% sales charge
for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the
time of the redemption of class B shares and assumes redemption at
the end of the period. Your fund's CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth
year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
The Europe, Australia and the Far East (EAFE) component of the
Morgan Stanley Capital International World Index is an unmanaged
list of international equity securities, excluding U.S., with all
values expressed in U.S. dollars. Performance figures reflect
changes in market prices and reinvestment of distributions net of
withholding taxes. Securities in the fund do not match those in the
index and performance of the fund will differ. It is not possible to
invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation;
it does not represent an investment return.
Report of independent accountants
For the fiscal year ended June 30, 1996
To the Trustees and Shareholders of
Putnam International Growth Fund
We have audited the accompanying statement of assets and liabilities
of Putnam International Growth Fund (formerly known as the Putnam
Overseas Growth Fund), including the portfolio of investments owned,
as of June 30, 1996, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of
the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the fund's management.
Our responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of June
30, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam International Growth Fund as of June 30,
1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
August 14, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
June 30, 1996
<S> <C> <C> <C> <C>
COMMON STOCKS (93.4%)*
NUMBER OF SHARES VALUE
Australia (3.8%)
- ----------------------------------------------------------------------------------------------------------------------------
3,260,000 Goodman Fielder Ltd. ADR $3,306,706
1,835,000 MIM Holdings Ltd. 2,366,291
429,000 QBE Insurance Group Ltd. 2,546,786
696,000 Westpac Banking Corp. 3,081,101
-----------
11,300,884
Austria (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
17,510 VA Technologies AG 2,143,415
Belgium (0.5%)
- ----------------------------------------------------------------------------------------------------------------------------
255 N.V. Bekaert S.A. 204,150
2,000 Solvay S.A. 1,226,397
-----------
1,430,547
Brazil (1.0%)
- ----------------------------------------------------------------------------------------------------------------------------
43,000 Telebras Co. ADR 3,042,250
Canada (0.5%)
- ----------------------------------------------------------------------------------------------------------------------------
34,700 Magna International, Inc. Class A 1,596,200
Croatia (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
5,000 Pliva D.D. GDR + 197,500
Denmark (1.2%)
- ----------------------------------------------------------------------------------------------------------------------------
43,500 Danisco A/S 2,164,622
53,000 Tele Danmark A/S ADS 1,344,875
-----------
3,509,497
France (9.6%)
- ----------------------------------------------------------------------------------------------------------------------------
9,400 Cetelem Group 2,112,421
5,070 Chargeurs S.A. 226,592
14,885 Cie Bancaire S.A. 1,676,857
33,000 Credit Locale de France S.A. 2,685,637
90,000 Dassault Systems SA ADR(3 double daggers)+ 2,790,000
43,700 Lafarge Coppee 2,643,984
59,200 Michelin Corp. Class B 2,893,021
5,070 Pathe S.A.+ 1,189,581
12,000 Peugeot Citroen S. A. 1,605,905
79,300 SGS-Thomson Microelectronics ADR+ 2,844,888
3,700 Societe Generale Paris 406,759
31,900 Societe Nationale Elf Aquitaine 2,345,798
31,500 Sommer Allibert+ 800,272
46,200 Total S.A. Class B 3,426,078
3,820 Zodiac S.A. 957,133
-----------
28,604,926
Germany (6.0%)
- ----------------------------------------------------------------------------------------------------------------------------
60,100 Adidas AG 144A ADS+ 2,509,175
32,340 Bayer AG 1,141,349
3,870 Bayerische Motoren Werke (BMW) AG 2,242,466
1,380 Munich Re + 2,845,174
5,440 Preussag AG 1,375,181
25,000 SGL Carbon AG 2,921,865
38,000 Tarkett AG + 800,919
74,100 Veba (Vereinigte Elektrizitaets Bergwerks) AG 3,934,647
-----------
17,770,776
Hong Kong (6.0%)
- ----------------------------------------------------------------------------------------------------------------------------
2,005,000 Amoy Properties Ltd. 2,421,998
48,100 Asia Satellite Telecommunications Holdings Ltd. ADR+ 1,430,975
534,000 Cheung Kong Holdings Ltd. 3,846,219
226,600 Guoco Group Ltd. 1,080,274
303,000 Hong Kong Electric Holdings Ltd. 923,852
527,000 Hong Kong Land Holdings Ltd. 1,185,750
220,000 Hutchison Whampoa, Ltd. 1,384,202
1,008,000 Jardine International Motor Holdings Ltd. 1,237,177
217,000 Sun Hung Kai Properities Ltd. 2,193,774
189,000 Swire Pacific Ltd. Class A 1,617,691
180,000 Varitronix International Ltd. 375,572
-----------
17,697,484
Ireland (3.2%)
- ----------------------------------------------------------------------------------------------------------------------------
418,288 Allied Irish Banks PLC 2,169,388
236,280 Bank of Ireland 1,606,257
364,801 CRH PLC 3,597,684
388,312 Greencore Group PLC 2,013,922
-----------
9,387,251
Italy (2.2%)
- ----------------------------------------------------------------------------------------------------------------------------
150,000 Bulgari S.P.A. 2,366,361
20,850 Danieli & Co. 139,997
53,000 Danieli & Co. (Savings Shares) 188,298
37,000 Gucci Group + 2,386,500
131,400 Recordati (Savings Shares) 436,858
53,000 SAES Getters S.P.A. ADR + 1,066,625
-----------
6,584,639
Japan (26.4%)
- ----------------------------------------------------------------------------------------------------------------------------
174,000 Bridgestone Corp. 3,318,067
117,000 Chubu Electric Power, Inc. 2,647,446
210,000 Cosmo Oil Co. Ltd. 1,299,088
160,000 Dai Nippon Printing Co., Ltd. 3,094,891
115,000 Daikin Industries Ltd. 1,259,124
202,000 Daiwa Securities Co., Ltd. 2,598,723
460 East Japan Railway Co. 2,413,322
22,000 Futaba Corp. 993,613
44,000 Glory Ltd. (Glory Kogyo) 1,457,300
22,300 Hirose Electric Co., Ltd. 1,377,473
73,000 Ito-Yokado Co., Ltd. 4,402,647
210,000 KAO Corp. 2,835,767
146,000 Kamigumi Co. Ltd. 1,332,117
36,000 Komori Printing Machinery Co. 919,708
84,000 Kurita Water Industries Ltd. 2,046,351
57,000 Kyushu Electric Power Inc. 1,284,581
130,000 Marui Co., Ltd. 2,882,300
120,000 Mitsubishi Bank Ltd. 2,781,023
227,000 Mitsubishi Motors Corp. 1,988,322
296,000 Mitsui Fudoscan Co. Ltd. 2,681,826
72,000 Murata Manufacturing Co. Ltd. 2,726,278
316 Nippon Telegraph and Telephone Corp. 2,341,169
121,000 Nippondenso Co., Ltd. 2,627,555
296,000 Ohbayashi Gumi Corp. 2,676,424
125,000 Omron Tateisi Electronics Corp. 2,657,391
86,000 Onward Kashiyama Co. Ltd. 1,404,562
60,000 Santen Pharmaceutical Co., Ltd. 1,395,986
154,000 Sekisui Chemical Co., Ltd. 1,882,847
170,000 Sharp Corp. 2,978,103
273,000 Sumitomo Trust & Banking 3,736,315
212,000 Tokio Marine & Fire Insurance Co. Ltd. (The) 2,824,088
378,000 Toray Industries Inc. 2,607,373
60,000 Tostem Corp. 1,768,249
88,000 Yamanouchi Pharmaceutical Co. Ltd. 1,910,949
120,000 Yamato Transport Co. Ltd. 1,412,409
-----------
78,563,387
Malaysia (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
137,000 Malayan Banking Berhad 1,318,364
112,000 Malaysian Assurance Alliance ++ ++ ++ 592,783
60,000 Sungei Way Holdings Berhad 281,476
-----------
2,192,623
Mexico (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
12,900 Panamerican Beverages, Inc. Class A 577,275
Netherlands (8.4%)
- ----------------------------------------------------------------------------------------------------------------------------
58,640 ABN AMRO Holding N.V. 3,144,862
57,235 Aegon N.V. 2,633,882
19,700 Akzo-Nobel N.V. 2,358,694
11,800 Dutch States Mines N.V. 1,171,019
69,796 Getronics Electric N.V. 1,544,666
51,700 IHC Caland N.V. 2,542,623
73,880 K.L.M.-Royal Dutch Airlines 2,361,738
47,000 Koninkijke PPT Nederland N.V. 1,777,635
67,900 Philips Electronics N.V. 2,206,352
55,800 Toolex Alpha NV 1,339,200
13,800 Unilever N.V. 1,995,667
57,100 Vendex International N.V. 1,989,139
-----------
25,065,477
Norway (0.5%)
- ----------------------------------------------------------------------------------------------------------------------------
117,200 Schibsted A/S 1,514,864
Portugal (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
58,295 Banco Totta & Accores S.A. 1,141,672
Singapore (2.4%)
- ----------------------------------------------------------------------------------------------------------------------------
90,000 Cycle & Carriage Ltd. 963,488
110,000 Development Bank of Singapore Ltd. 1,372,563
154,000 Far East Levingston Shipbuilding Ltd. 851,613
252,600 Jardine Matheson Holdings Ltd. 1,856,610
113,000 Singapore Airlines Ltd. 1,193,690
50,000 United Overseas Bank Ltd. 478,554
270,000 Venture Manufacturing Ltd. 497,696
67,500 Venture Manufacturing Ltd. (rights) (expiration date 7/22/96) 49,291
-----------
7,263,505
Spain (1.8%)
- ----------------------------------------------------------------------------------------------------------------------------
11,500 Mapfre Vida Seguros 645,866
33,000 Repsol S.A. 1,146,763
21,900 Repsol S.A. ADR 761,025
54,600 Tabacalera S.A. Series A 2,747,035
-----------
5,300,689
Sweden (3.8%)
- ----------------------------------------------------------------------------------------------------------------------------
72,700 Astra AB 3,212,836
9,200 Autoliv AB 280,302
40,830 Electrolux AB Series B 2,053,817
46,600 Pharmacia & Upjohn, Inc. 2,038,311
10,420 Sandvik AB Class B 240,462
48,330 Skandia Forsakring AB 1,279,324
113,500 Svenska Cellulosa AB Class B 2,336,765
-----------
11,441,817
Switzerland (5.3%)
- ----------------------------------------------------------------------------------------------------------------------------
1,570 ABB AG 1,940,097
1,485 Baer Holdings AG 1,600,343
3,010 Ciba-Geigy AG 3,664,285
2,620 Nestle S.A. (3 double daggers) 2,988,728
3,600 Rieter Holding AG 971,342
900 Societe Generale de Surveillance Holdings S.A. 2,151,752
2,380 Swiss Reinsurance Co. 2,441,367
-----------
15,757,914
United Kingdom (8.6%)
- ----------------------------------------------------------------------------------------------------------------------------
45,000 Anglian Water PLC 414,205
260,635 Argyll Group PLC 1,403,815
257,049 BAT Industries PLC 1,998,947
33,268 Barclays Bank PLC 399,166
139,400 Burmah Oil PLC 2,204,878
219,800 General Electric Co. 1,183,872
231,800 Guinness PLC 1,683,864
174,175 HSBC Holdings PLC 2,632,810
66,000 Molins PLC 999,865
146,148 North West Water Group PLC 1,229,532
101,100 Orange PLC ADR+ 1,769,250
88,500 Pearson PLC 912,135
30,755 Royal Insurance Holdings PLC 189,997
362,300 Scottish Power PLC 1,709,581
425,400 Sears PLC 653,703
283,915 Securicor Group PLC Class A+ 1,152,412
93,120 Tate & Lyle PLC 661,997
1,067,000 Vodafone Group PLC 3,966,585
128,952 Weir Group PLC (The) 502,400
-----------
25,669,014
- ----------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost $259,515,607) $277,753,606
- ----------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (0.4%)*
NUMBER OF SHARES VALUE
Brazil (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
34,860 Banco Bradesco BRC 2.12 pfd. $284,742
8,100 Petroleo Brasileiro S.A. BRC 5 pfd. 996,464
-----------
Total Preferred Stocks (cost $1,313,752) $1,281,206
CONVERTIBLE BONDS AND NOTES (0.1%) * (cost $178,731)
PRINCIPAL AMOUNT VALUE
Denmark (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
DKK 1,200,000 Danisco A/S Bonds 5s, 2004 $235,685
WARRANTS (-%)*+ Expiration
NUMBER OF WARRANTS Date VALUE
Italy(-%)
- ----------------------------------------------------------------------------------------------------------------------------
2,237 Danieli & Co. 11/30/99 $1,750
Switzerland(-%)
- ----------------------------------------------------------------------------------------------------------------------------
3,553 Rieter Holding AG 2/28/97 3,545
-----------
Total Warrants(cost $-) $5,295
SHORT-TERM INVESTMENTS (7.8%)*(cost $23,081,334)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$23,071,000 Interest in $434,902,000 joint repurchase agreement dated June 28, 1996, with
Goldman Sachs & Co. due July 1, 1996 with respect to various U.S. Treasury
obligations-maturity value of $23,081,334 for an effective yield of 5.375% $23,081,334
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $284,089,424)*** $302,357,126
- ----------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $297,410,446.
*** The aggregate identified cost on a tax basis is $284,383,620, resulting
in gross unrealized appreciation and depreciation of $24,062,844 and
$6,089,388, respectively, or net unrealized appreciation of $17,973,506.
+ Non-income-producing security.
++ ++ ++ Forward commitments (See Note 1).
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, ADS or GDR after the name of a foreign holding
stands for American Depository Receipts, American
Depository Shares or Global Depository Receipts,
respectively, representing ownership of foreign
securities on deposit with a domestic custodian bank.
<CAPTION>
Forward Currency Contracts to Sell at June 30, 1996
(aggregate face value $67,252,060)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pounds $ 5,282,844 $ 5,166,066 11/12/96 $ (116,778)
Deutshemarks 4,541,555 4,563,932 11/12/96 22,377
Dutch Guilder 8,967,078 9,037,831 11/12/96 70,753
French Francs 20,614,708 20,505,640 11/12/96 (109,068)
Japanese Yen 26,361,613 27,978,591 7/17/96 1,616,978
- ---------------------------------------------------------------------------------------
$1,484,262
- ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of thes financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
June 30, 1996
Assets
<S> <C>
Investments in securities, at value (identified cost $284,089,424) (Note 1) $302,357,126
- -----------------------------------------------------------------------------------------------------------------------
Cash 72
- -----------------------------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 820,436
- -----------------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,723,198
- -----------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 921,094
- -----------------------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,740,726
- -----------------------------------------------------------------------------------------------------------------------
Total assets 311,562,652
- -----------------------------------------------------------------------------------------------------------------------
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 11,439,834
- -----------------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,345,496
- -----------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 481,805
- -----------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 290,784
- -----------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,220
- -----------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 196,605
- -----------------------------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 256,464
- -----------------------------------------------------------------------------------------------------------------------
Other accrued expenses 138,998
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 14,152,206
- -----------------------------------------------------------------------------------------------------------------------
Net assets $297,410,446
- -----------------------------------------------------------------------------------------------------------------------
Represented by
- -----------------------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $273,911,904
- -----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,791,102
- -----------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions (Note 1) 1,951,774
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in foreign currencies 19,755,666
- -----------------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $297,410,446
- -----------------------------------------------------------------------------------------------------------------------
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share ($151,088,378 divided by 10,600,944 shares) $14.25
- -----------------------------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of 14.25)* $15.12
- -----------------------------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share ($132,012,952 divided by 9,365,256 shares)** $14.10
- -----------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($14,309,116 divided by 1,006,261 shares) $14.22
- -----------------------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of 14.22)* $14.74
- -----------------------------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended June 30, 1996
<S> <C>
Investment income:
- ----------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $305,219) $3,011,554
- ----------------------------------------------------------------------------------------------------
Interest 661,026
- ----------------------------------------------------------------------------------------------------
Total investment income 3,672,580
Expenses:
- ----------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,088,976
- ----------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 701,824
- ----------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,796
- ----------------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,734
- ----------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 179,564
- ----------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 594,107
- ----------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 40,125
- ----------------------------------------------------------------------------------------------------
Reports to shareholders 44,482
- ----------------------------------------------------------------------------------------------------
Registration fees 93,694
- ----------------------------------------------------------------------------------------------------
Auditing 28,553
- ----------------------------------------------------------------------------------------------------
Legal 5,267
- ----------------------------------------------------------------------------------------------------
Postage 38,952
- ----------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,872
- ----------------------------------------------------------------------------------------------------
Other 6,891
- ----------------------------------------------------------------------------------------------------
Total expenses 2,840,837
- ----------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (101,811)
- ----------------------------------------------------------------------------------------------------
Net expenses 2,739,026
- ----------------------------------------------------------------------------------------------------
Net investment income 933,554
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,725,546
- ----------------------------------------------------------------------------------------------------
Net realized gain on forward currency contracts and foreign
currency translation (Note 1) 2,145,877
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and foreign
currency translation during the year 2,765,813
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 14,555,586
- ----------------------------------------------------------------------------------------------------
Net gain on investments 22,192,822
- ----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $23,126,376
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended June 30
----------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income $933,554 $252,913
- ------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions 4,871,423 (738,996)
- ------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 17,321,399 1,745,082
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 23,126,376 1,258,999
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (1,052,356) --
- ------------------------------------------------------------------------------------------------------------------
Class B (570,446) --
- ------------------------------------------------------------------------------------------------------------------
Class M (60,867) --
- ------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (31,357) (199,229)
- ------------------------------------------------------------------------------------------------------------------
Class B (14,842) (141,301)
- ------------------------------------------------------------------------------------------------------------------
Class M (1,361) (460)
- ------------------------------------------------------------------------------------------------------------------
In excess of net realized gains
- ------------------------------------------------------------------------------------------------------------------
Class A -- (117,199)
- ------------------------------------------------------------------------------------------------------------------
Class B -- (83,122)
- ------------------------------------------------------------------------------------------------------------------
Class M -- (271)
- ------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 215,489,871 48,556,735
- ------------------------------------------------------------------------------------------------------------------
Total increase in net assets 236,885,018 49,274,152
- ------------------------------------------------------------------------------------------------------------------
Net assets
- ------------------------------------------------------------------------------------------------------------------
Beginning of year 60,525,428 11,251,276
- ------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income and
distributions in excess of net investment income of $1,791,102
and $108,932, respectively) $297,410,446 $60,525,428
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
(For a share outstanding throughout the period)
For the period
December 1, 1994
(commencement
Year ended of operations) to Year ended
June 30 June 30 June 30
------------------------------------------------------
1996 1995 1996
------------------------------------------------------
Class M
------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.09 $11.87 $12.00
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .08(c) .03(d) .04(c)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 2.28 .36 2.26
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.36 .39 2.30
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.22) -- (.19)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.01) (.11) (.01)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- (.06) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.17) (.20)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.22 $12.09 $14.10
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 19.71 3.33(e) 19.35
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $14,309 $1,777 $132,013
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 2.25 1.61(d)(e) 2.49
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) .61 .58(d)(e) .32
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.14 25.83 44.14
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
For the period
June 1, 1994
(commencement
Year ended of operations) to Year ended
June 30 June 30 June 30
-----------------------------------------------------
1995 1994 1996
-----------------------------------------------------
Class B
-----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $11.82 $11.78 $12.10
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .01(d) (.01)(c)(d) .13(c)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments .34 .05 2.29
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .35 .04 2.42
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income -- -- (.26)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.11) -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments (.06) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) -- (.27)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.00 $11.82 $14.25
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 3.00 0.34(e) 20.21
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $25,892 $2,470 $151,088
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 2.41(d) .15(d)(e) 1.74
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) .23(d) (.06)(c)(d) (.99)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 25.83 96.13 44.14
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
Year ended June 30
--------------------------------------------------------
1995 1994 1993
--------------------------------------------------------
Class A
--------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $11.83 $9.58 $8.82
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .08(d) (.06)(d) .07(d)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments .36 2.53 .69
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .44 2.47 .76
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.11) (.22) --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments (.06) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.22) --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.10 $11.83 $9.58
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 3.76 25.81 8.62
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $32,856 $8,781 $2,859
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.61(d) 2.17(d) 1.80(d)
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) .97(d) (.17)(d) .81(d)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 25.83 96.13 80.92
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
Year ended
June 30
--------
1992
--------
<S> <C>
Net asset value, beginning of period $8.18
- ---------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------
Net investment income (loss) .06
- ---------------------------------------------------------------------------------
Net realized and unrealized gain on investments .71
- ---------------------------------------------------------------------------------
Total from investment operations .77
- ---------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------
From net investment income (.13)
- ---------------------------------------------------------------------------------
From net realized gain on investments --
- ---------------------------------------------------------------------------------
In excess of net realized gain on investments --
- ---------------------------------------------------------------------------------
Total distributions (.13)
- ---------------------------------------------------------------------------------
Net asset value, end of period $8.82
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 9.52
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,502
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.98
- ---------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) .76
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 82.45
- ---------------------------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended June 30, 1996
includes amounts paid through expense and brokerage service offset arrangements.
Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income (loss) has been determined on the basis of the
weighted average number of shares outstanding for the period.
(d) Reflects an expense limitation applicable during the year. As a
result of such limitation, expenses for class A shares of the fund
for the periods ended June 30, 1994 and June 30, 1993
reflect per share reductions of approximately $0.03 and $0.05,
respectively. Expenses for class B shares of the fund
for the period ended June 30, 1994 reflect a reduction of less than
$0.01 per share. Expenses for class A, B and M shares for the
period ended June 30, 1995 reflect a reduction of less
than $0.01 per share.
(e) Not annualized.
</TABLE>
Notes to financial statements
June 30, 1996
Note 1
Significant accounting policies
The fund 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 equity
securities of companies located outside the United States. Prior to
August 12, 1996, the fund's objective was to invest in equity
securities of companies located outside North America.
The fund offers class A, class B and class M shares. Class A shares
are sold with a maximum front-end sales charge of 5.75%. Class B
shares, which convert to class A shares after approximately eight
years, do not pay a front-end sales charge, but pay a higher ongoing
distribution fee than class A shares, and are subject to a
contingent deferred sales charge, if those shares are redeemed
within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.50% and pay an ongoing distribution fee
that is lower than class B shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class
of shares, except that each class bears expenses unique to that
class (including the distribution fees applicable to such class).
Each class votes as a class only with respect to its own
distribution plan or other matters on which a class vote is required
by law or determined by the Trustees. Shares of each class would
receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate
dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its
financial statements. The preparation of financial statements is in
conformity with generally accepted accounting principles and
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined
using the last reported sale price on the principal market in which
the securities are traded, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported
bid price, except that certain U.S. government obligations are
stated at the mean between the last reported bid and asked prices.
Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost, which approximates market value,
and other investments are stated at fair value following procedures
approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the fund may transfer
uninvested cash balances into a joint trading account along with the
cash of other registered investment companies managed by Putnam
Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. and
certain other accounts. These balances may be invested in one or
more repurchase agreements and/or short-term money market
instruments.
C) Repurchase agreements The fund, or any joint trading account,
through its custodian, receives delivery of the underlying
securities, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price,
including accrued interest. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued
interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date except
that certain dividends from foreign securities are recorded as soon
as the fund is informed of the ex-dividend date.
Securities purchased or sold on a forward commitment or delay
delivery basis may be settled a month or more after the trade date;
interest income is not accrued until settlement date. Losses may
arise due to changes in the market value of the underlying
securities or if the counterparty does not perform under the
contract.
E) Foreign currency translation The accounting records of the fund
are maintained in U.S. dollars. The market value of foreign
securities, currency holdings, other assets and liabilities are
recorded in the books and records of the fund after translation to
U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income
and withholding taxes are translated at prevailing exchange rates
when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the
foreign exchange rate on investments from fluctuations arising from
changes in the market prices of the securities. Such fluctuations
are included with the net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent net exchange gains or losses on closed
forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized gains
and losses on foreign currency transactions arise from changes in
the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward
currency contracts, which are agreements between two parties to buy
and sell currencies at a set price on a future date, to protect
against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or
quoted (or an increase in the value of a currency in which
securities a fund intends to buy are denominated, when a fund holds
cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using 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) 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.
Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held and for
excise tax on income and capital gains.
H) Distributions to shareholders Distributions to shareholders from
net investment income are recorded by the fund on the ex-dividend
date. Capital gain distributions, if any, are recorded on the ex-
dividend date and paid annually. The amount and character of income
and gains to be distributed are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles. These differences include treatment of losses on wash
sale transactions, unrealized gains and losses on forward currency
contracts and unrealized gains and losses on passive foreign
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, 1996, the fund reclassified $2,650,149 to increase
undistributed net investment income and $355,803 to decrease paid-
in-capital, with a decrease to accumulated net realized gains on
investments of $2,294,346. The calculation of net investment income
per share in the financial highlights table excludes these
adjustments.
I) 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 $14,123. The expenses
have been fully amortized over a five year period as of June 30,
1996.
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, 0.70% of the next $500 million, 0.65% of
the next $500 million, and 0.60% of any amount over $1.5 billion
subject, under current law, to reduction in any year by the amount
of certain brokerage commissions and fees (less expenses) received
by affiliates of Putnam Management on the fund's portfolio
transactions.
The fund reimburses Putnam Management 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
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended June 30, 1996, fund expenses were reduced by
$101,811 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported
in the Statement of operations exclude these credits. The fund could
have invested a portion of the assets utilized in connection with
the expense offset arrangements in an income producing asset if it
had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $690 and an
additional fee for each Trustee's meeting attended. Trustees who are
not interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which
allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees
remain in the fund and invested in the fund or in other Putnam funds
until distribution in accordance with the Plan.
The fund has adopted distribution plans (the "Plans") with respect
to its class A, class B and class M shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans
is to compensate Putnam Mutual Funds Corp., a wholly-owned
subsidiary of Putnam Investments, Inc., for services provided and
expenses incurred by it in distributing shares of the fund. The
Plans provide for payments by the fund to Putnam Mutual Funds Corp.
at an annual rate up to .35%, 1.00% and 1.00% of the average net
assets attributable to class A, class B and class M shares,
respectively. The Trustees have approved payment by the fund at an
annual rate of .25%, 1.00% and .75% of the average net assets
attributable to class A, class B and class M shares, respectively.
For the year ended June 30, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $296,443 and $18,112 from
the sale of class A and class M shares, respectively and $56,441 in
contingent deferred sales charges from redemptions of class B
shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For the year ended June 30, 1996,
Putnam Mutual Funds Corp., acting as underwriter received $1,039 on
class A redemptions.
Note 3
Purchase and sales of securities
During the year ended June 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$248,181,633 and $41,170,970, respectively. There were no purchases
and sales of U.S. government obligations. In determining the net
gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 4
Capital shares
At June 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were
as follows:
Year ended
June 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 11,085,467 $150,078,344
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 80,088 1,025,963
- ----------------------------------------------------
11,165,555 151,104,307
Shares
repurchased (3,279,126) (44,273,218)
- ----------------------------------------------------
Net increase 7,886,429 $106,831,089
- ----------------------------------------------------
Year ended
June 30, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 3,343,986 $39,677,281
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 27,348 317,828
- ----------------------------------------------------
3,371,334 39,995,109
Shares
repurchased (1,399,240) (16,448,723)
- ----------------------------------------------------
Net increase 1,972,094 $23,546,386
- ----------------------------------------------------
Year ended
June 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 11,269,808 $150,716,247
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 41,968 534,228
- ----------------------------------------------------
11,311,776 151,250,475
Shares
repurchased (4,104,000) (54,296,586)
- ----------------------------------------------------
Net increase 7,207,776 $96,953,889
- ----------------------------------------------------
Year ended
June 30, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 2,667,962 $31,655,329
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,223 210,475
- ----------------------------------------------------
2,686,185 31,865,804
Shares
repurchased (737,746) (8,555,102)
- ----------------------------------------------------
Net increase 1,948,439 $23,310,702
- ----------------------------------------------------
Year ended
June 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 979,590 $13,313,633
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,674 59,873
- ----------------------------------------------------
984,264 13,373,506
Shares
repurchased (125,026) (1,668,613)
- ----------------------------------------------------
Net increase 859,238 $11,704,893
- ----------------------------------------------------
For the period
December 1, 1994
(commencement
of operations) to
June 30, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 153,859 $1,779,068
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 63 731
- ----------------------------------------------------
153,922 1,779,799
Shares
repurchased (6,899) (80,152)
- ----------------------------------------------------
Net increase 147,023 $1,699,647
- ----------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, the fund
hereby designates $.003 per share (for all classes of shares) as
capital gain dividends for its taxable year ended June 30, 1996.
For the period, interest and dividends from foreign countries were
$3,317,000 or $.158 per share. Taxes paid to foreign countries were
$305,000 or $.015 per share.
The Form 1099 you receive in January 1997 will show the tax status
of all distributions paid to your account in calendar 1996.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service
Seal for the past six years. In 1995, over 146,000 tests of 56
shareholder service components demonstrated that Putnam outperformed
the industry standard in every category.
* HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a
month from a Putnam money market fund or from your checking or
savings account.*
* SWITCH FUNDS EASILY
You can move money from one account to another with the same class
of shares without a service charge. (This privilege is subject to
change or termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day
at the then-current net asset value, which may be more or less than
the original cost of the shares.
For details about any of these or other services, contact your
financial advisor or call the toll-free number shown below and speak
with a helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number: 1-800-
225-1581.
* Regular investing of course, does not guarantee a profit or
protect against a loss in a declining market.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Anthony W. Regan
Vice President
Justin M. Scott
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
International 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. For more information, or to request a
prospectus, call toll free: 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or
guaranteed or endorsed by, any financial institution, are not
insured by the Federal Deposit Insurance Corporation (FDIC), the
Federal Reserve Board or any other agency, and involve risk,
including the possible loss of principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
26301-841/524/891 8/96
