Putnam
International
Growth
Fund
ANNUAL REPORT
June 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Putnam International Growth Fund has delivered strong returns, as
evidenced by rankings of international funds tracked by Lipper
Analytical Services. For the five years ended June 30, 1997, the
fund's Class A shares ranked in the top 6% of Lipper's international
funds category, or 5 out of 91 funds.*
* "Putnam has created a formidable international lineup, and this fund
is its crown jewel."
-- Morningstar, June 20, 1997
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
19 Financial statements
31 Results of February 6, 1997 shareholders meeting
* 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 ranked 38 out of 368 (top 11%) for 1-year performance and 19 out
of 200 (top 10%) for 3-year performance as of 6/30/97. Performance and
rankings of other share classes will differ. Past performance is not
indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam International Growth Fund successfully blended a well-diversified
selection of stocks with consistent growth histories trading at compelling
prices from more than two dozen countries outside the United States to deliver
a double-digit total return during the fiscal year that ended on June 30, 1997.
Following the lead taken by U.S. corporations a number of years ago, companies
headquartered elsewhere continue to restructure into leaner, more efficient --
and more profitable -- entities. This ongoing process provides a steady stream
of attractive investment opportunities.
In the following report, your fund's managers discuss fiscal 1997 results and
look at prospects for the year ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
August 20, 1997
Report from the Fund Managers
Justin M. Scott
Omid Kamshad
David K. Thomas
During a year that has seen many shifts and changes in international stock
markets, Putnam International Growth Fund continued to pursue its distinctive
investment style. Your managers seek to add value through a combination of
top-down selection of attractive markets and a bottom-up selection of
attractive stocks. In particular, we search for the dual attraction of
companies with dependable earnings growth whose stock prices are significantly
undervalued. We prefer returns to come from a combination of underlying growth
and stock price rerating, rather than depending on either one alone. This
strategic blend of growth and value aims to provide not only above-average
returns but also consistent returns. For the fiscal year ended June 30, 1997,
your fund's class A shares had a total return of 25.13% at net asset value and
17.93% at public offering price. This is almost double the results delivered
by the Morgan Stanley Capital International EAFE Index, which rose 12.84%. For
complete performance information, please turn to page 9.
* CONTINENTAL EUROPE OFFERS SOLID INVESTING ENVIRONMENT; UNITED KINGDOM
UNDERPERFORMS
Despite a Socialist victory in the French elections and continued concern
about the feasibility of European Monetary Union (EMU), Continental Europe
formed a solid foundation for the fund's portfolio throughout fiscal 1997. In
general, European equities benefited from low interest rates, varying levels
of economic recovery, and an increasing level of corporate restructuring,
Additionally a strong dollar contributed to the profitability of European
exporters.
For example, telecommunications company LM Ericsson of Sweden, after many
years of restructuring, became a global leader in the mobile telecom sector
and its share price appreciated. Novartis, a Swiss pharmaceutical company
formed from last year's merger of Ciba-Geigy and Sandoz, has reorganized by
selling unrelated businesses such as a chemicals unit in order to focus more
closely on its core pharmaceutical business. While these holdings, along with
others discussed in this report, were viewed favorably at the end of the
fiscal period, all are subject to review and adjustment in accordance with the
fund's investment strategy and may vary in the future.
The United Kingdom offered good returns; however, it lagged relative to
Continental Europe. While investors' uncertainties about the policies of new
Prime Minister Tony Blair and the Labor majority in Parliament were quickly
assuaged when the new government took some positive first steps in monetary
policy, the market cooled somewhat as interest rates rose slightly. Although
the fund remained underweighted in U.K. securities relative to its benchmark,
the current underperformance may translate into some buying opportunities for
the fund in the months ahead.
* SIGNIFICANT CANADIAN POSITION INTRODUCED
Over the past year, the Canadian economy rebounded, its interest rates fell,
and the government budget deficit shrank. We tried to take advantage of this
opportunity by searching out high-quality, globally oriented companies trading
at reasonable valuations. As a result, over the second half of the fiscal
year, we raised the fund's position in Canadian companies from 0.6% of net
assets on December 31, 1996, to 5.9% of net assets at the end of the period.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: COUNTRY ALLOCATIONS]
COUNTRY ALLOCATIONS*
Japan 16.5%
United Kingdom 13.3%
France 13.1%
Switzerland 10.4%
Germany 8.2%
The Netherlands 7.9%
Footnote reads:
* Based on net assets as of 6/30/97. Allocations will vary over time.
Several of our purchases were in the banking sector with companies such as the
Bank of Nova Scotia. Scotiabank moved to focus on more profitable businesses
and further solidified its position as the Canadian bank with the strongest
international network with a specialty in Latin America and the Caribbean.
Communications technology company Northern Telecom is another Canadian company
with worldwide operations. The company is the second largest telecommunications
equipment manufacturer in North America behind Lucent. The fund also continued
to own Magna International, a leading auto components manufacturer for the U.S.
big three as well as for Toyota, Honda, and BMW.
* JAPANESE RECOVERY MOVES AHEAD
As investors digest the effects of Prime Minister Ryutaro Hashimoto's big bang
economic reform policies, the once moribund Japanese economy has shown some
signs of life. More importantly, after six years of recession, some Japanese
companies are having to break long-standing business customs and make
themselves attractive to global investors by raising their profitability.
For most of the period, the stock market was led by large, export-oriented
companies able to profit from the weak yen. We targeted Japanese companies
with improving fundamentals that are considered global leaders in their
industries. For example, Sony offered tremendous potential for positive change
when it revamped its product line. Sony is also the premier company in digital
technology for consumer electronics.
* EMERGING MARKETS MIXED: LATIN AMERICA SURGES; ASIA FALTERS
Latin American stock markets emerged as leaders in the emerging markets area
bolstered by large-scale privatizations, stable growth, and negligible
inflation. As markets such as Brazil recorded astounding returns, we shifted
the fund's holdings into more undervalued markets such as Mexico. We sought
out large-capitalization stocks in Mexico such as FEMSA, a major beverage
company, and Cemex, the country's largest cement producer.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Sony Corporation (Japan)
Electronics and electrical equipment
Ente Nazionale Idrocarburi (Italy)
Oil and gas
Total Corporation (France)
Oil and gas
Canon, Inc. (Japan)
Photography
Philips Electronics (Netherlands)
Electronics and electrical equipment
SGS-Thomson Microelectronics (France)
Electronics and electrical equipment
Altana (Germany)
Pharmaceuticals and biotechnology
Northern Telecom Ltd. (Canada)
Telecommunications
Societe Generale (France)
Insurance and finance
Internationale Nederlanden Groep (Netherlands)
Insurance and finance
Footnote reads:
These holdings represent 16.9% of the fund's net assets as of 6/30/97.
Portfolio holdings will vary over time.
Meanwhile, in Southeast Asia, the long-anticipated hand over of Hong Kong from
Great Britain to China represented an island of calm as economic crisis and
currency devaluations in Thailand, Malaysia, and the Philippines cast a pall
over Pacific Rim markets. Additionally the region's property markets remain
overheated. Fortunately the fund had only minimal exposure to these countries,
although we retained holdings in more globally diversified companies such as
British registered HSBC Holdings of Hong Kong, the world's largest commercial
banking company, based on market capitalization. With more than half of HSBC's
revenues coming from outside the Pacific Rim, the company represents one of
Hong Kong's truly global offerings. HSBC stands in contrast to many other
companies in Hong Kong that are controlled by Chinese interests as well as the
flows of Chinese capital.
* POSITIVE OUTLOOK SEEN OVER NEAR TERM
Should the rewarding investment environment in Europe persist, we see no
reason for our outlook on the region to change. For Japan, investors may have
to be more patient, since the restructuring process in that country could move
more slowly than in Europe.
Looking ahead, we believe the values of the world's three main currencies --
the U.S. dollar, Japanese yen, and German deutschemark -- is more
representative than it was in the past of those countries' economic
fundamentals. Given this assumption, we expect less currency fluctuation in
the year ahead than we saw in the past year. Therefore, good stock picking
will be even more crucial than ever to the fund's success in the near future.
In this regard, we will continue to search for companies with reliable growth
potential whose stocks are selling at impressive valuations.
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 6/30/97, there is no guarantee the fund will continue to hold
these securities in the future. International investing involves certain
risks, including currency fluctuations and political and economic developments
not present with domestic investments.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
International Growth Fund is designed for investors seeking capital
appreciation through equity securities of issuers located outside the
United States.
TOTAL RETURN FOR PERIODS ENDED 6/30/97
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 25.13% 17.93% 24.09% 19.09% 24.40% 20.01%
- ------------------------------------------------------------------------------
5 years 113.28 100.97 105.12 103.12 108.22 101.02
Annual average 16.36 14.98 15.45 15.23 15.80 14.99
- ------------------------------------------------------------------------------
Life of fund 121.39 108.58 109.98 109.98 113.90 106.43
Annual average 13.36 12.29 12.41 12.41 12.74 12.11
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/97
MSCI EAFE Consumer
Index Price Index
- ------------------------------------------------------------------------------
1 year 12.84% 2.30%
- ------------------------------------------------------------------------------
5 years 82.86 14.34
Annual average 12.83 2.72
- ------------------------------------------------------------------------------
Life of fund 61.44 18.92
Annual average 7.85 2.77
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% for class A shares and 3.50% for class M shares.
One-, five-, and life of fund returns (where available) for class B shares
reflect the applicable contingent deferred sales charges (CDSC), which is
5% in the first year, declines each year to 1% in the sixth year, and is
eliminated thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating costs applicable
to such shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 2/28/91
PLOT POINTS
Fund's class
A shares MSCI EAFE Consumer Price
Date at POP Index Index
2/28/91 9425 10000 10000
6/30/91 8930 8887 10089
6/30/92 9780 8829 10401
6/30/93 10623 10619 10712
6/30/94 13364 12425 10979
6/30/95 13867 12630 11313
6/30/96 16669 14308 11625
6/30/97 20858 16144 11892
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $20,998 and no contingent deferred sales charge would apply and a
$10,000 investment in the fund's class M shares would have been valued at
$21,390 ($ 20,643 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 6/30/97
Class A Class B Class M
- ----------------------------------------------------------------------------
Distributions (number) 1 1 1
- ----------------------------------------------------------------------------
Income $0.151 $0.090 $0.117
- ----------------------------------------------------------------------------
Capital gains
- ----------------------------------------------------------------------------
Long-term 0.035 0.035 0.035
- ----------------------------------------------------------------------------
Short-term 0.021 0.021 0.021
- ----------------------------------------------------------------------------
Total $0.207 $0.146 $0.173
- ----------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ----------------------------------------------------------------------------
6/30/96 $14.25 $15.12 $14.10 $14.22 $14.74
- ----------------------------------------------------------------------------
6/30/97 17.58 18.65 17.32 17.48 18.11
- ----------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. 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. See first page of
performance section for performance calculation method.
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
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.
WELCOME TO
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VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
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New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
Report of independent accountants
For the fiscal year ended June 30, 1997
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, including the portfolio of investments owned, as of
June 30, 1997, and the related statement of operations for the year then ended
and 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, 1997, 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, 1997, the results of its
operations for the year then ended and 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, 1997
Portfolio of investments owned
June 30, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (95.6%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
Australia (1.2%)
- ------------------------------------------------------------------------------------------------------------
1,846,550 QBE Insurance Group Ltd. $ 11,131,003
837,000 Westpac Banking Corp. 5,026,516
--------------
16,157,519
Austria (1.0%)
- ------------------------------------------------------------------------------------------------------------
70,510 VA Technolgies AG 12,908,763
Canada (5.9%)
- ------------------------------------------------------------------------------------------------------------
476,200 Bank of Nova Scotia 20,869,323
826,500 Cae, Inc. 6,585,657
227,900 Magna International, Inc. Class A 13,716,731
1,101,477 National Bank 13,803,370
68,200 Newbridge Networks Corp. + 2,924,621
239,700 Northern Telecom Ltd. 21,608,595
--------------
79,508,297
France (13.1%)
- ------------------------------------------------------------------------------------------------------------
159,436 Compagnie Generale des Eaux 20,433,207
98,100 Credit Locale de France S.A. 9,550,370
188,200 Elf Aquitaine S.A. 20,307,855
254,500 Lafarge Coppee 15,831,801
283,300 Michelin Corp. Class B 17,015,840
393,400 SCOR 15,841,790
277,300 SGS-Thomson Microelectronics ADR 22,184,000
192,540 Societe Generale 21,497,105
130,850 Societe Television Francaise 1 11,691,984
236,800 Total Corp. ADR Class B 23,939,954
--------------
178,293,906
Germany (8.2%)
- ------------------------------------------------------------------------------------------------------------
20,500 Altana AG 21,869,802
487,756 Bayer AG ADR 18,749,301
23,700 Bayerische Motoren Werke (BMW) AG 19,615,199
328,400 Deutsche Telekom AG 7,910,984
617,600 Deutsche Telekom AG ADR 14,899,600
266,600 Siemens AG 15,833,914
208,100 Veba (Vereinigte Elektrizitaets Bergwerks) AG 11,697,046
--------------
110,575,846
Hong Kong (2.7%)
- ------------------------------------------------------------------------------------------------------------
1,310,000 Dao Heng Bank Group Ltd. 7,170,206
8,472,000 First Pacific Co. Ltd. 10,827,187
956,600 Guoco Group Ltd. 5,038,312
1,573,000 Hutchison Whampoa, Ltd. 13,604,983
--------------
36,640,688
Ireland (3.2%)
- ------------------------------------------------------------------------------------------------------------
1,786,243 Allied Irish Banks PLC 13,705,241
1,163,748 Bank of Ireland 12,762,066
1,614,771 CRH PLC 16,902,118
1 Greencore Group PLC 5
--------------
43,369,430
Italy (2.7%)
- ------------------------------------------------------------------------------------------------------------
4,361,700 Ente Nazionale Idrocarburi SPA 24,731,223
183,900 Gucci Group 11,838,563
--------------
36,569,786
Japan (16.5%)
- ------------------------------------------------------------------------------------------------------------
850,000 Canon, Inc. 23,161,560
216,700 Circle K Japan Co. Ltd. 12,453,146
303,000 Fuji Photo Film Co. 12,199,382
86,500 Hirose Electric Co. Ltd. 5,937,901
1,025,000 KAO Corp. 14,233,617
83,100 Keyence Corp 12,337,985
1,074,000 Matsushita Electric Works, Ltd. 12,193,880
1,408,000 NEC Corp. 19,675,099
222,100 Oy Nokia AB Class A 16,596,211
35,000 Promise Co. Ltd. 2,005,239
125,000 Rohm Co. Ltd. 12,882,090
421,000 Sankyo Co. Ltd. 14,155,888
21,000 Santen Pharmaceutical Co. Ltd 423,668
501,000 Shin-Etsu Chemical Co. 13,301,653
289,400 Sony Corp. 25,249,821
265,000 Taisho Pharmaceutical Co. 7,151,525
81,000 TDK Corp. 5,949,429
299,000 Tokyo Electron Ltd. 14,310,215
--------------
224,218,309
Malaysia (0.3%)
- ------------------------------------------------------------------------------------------------------------
705,000 Malaysian Assurance Alliance 4,105,169
70,500 Malaysian Assurance Alliance Class A 410,517
--------------
4,515,686
Mexico (1.7%)
- ------------------------------------------------------------------------------------------------------------
158,300 Alfa S.A. de C.V. Class A 1,082,359
2,442,000 Cemex S.A. de C.V. 10,474,076
862,600 Fomento Economico Mexicano, S.A. de C.V. Class B 5,147,090
201,900 Panamerican Beverages, Inc. Class A 6,637,463
--------------
23,340,988
Netherlands (7.9%)
- ------------------------------------------------------------------------------------------------------------
631,626 ABN AMRO Holding N.V. 11,786,230
111,200 Akzo-Nobel N.V. 15,250,739
462,533 Internationale Nederlanden Groep 21,341,509
435,573 K.L.M.-Royal Dutch Airlines 13,435,386
321,578 Philips Electronics N.V. 23,051,834
58,000 Unilever N.V. 12,218,619
189,200 Vendex International N.V. 10,369,634
--------------
107,453,951
Poland (0.2%)
- ------------------------------------------------------------------------------------------------------------
213,700 Bank Handlowy Warszawie GDR (NON) 2,276,865
Portugal (1.2%)
- ------------------------------------------------------------------------------------------------------------
119,800 Banco Totta & Accores S.A. 2,003,020
93,900 Electricidade de Portugal S.A. + 1,724,259
323,400 Portugal Telecom S.A. 13,053,671
--------------
16,780,950
Singapore (0.3%)
- ------------------------------------------------------------------------------------------------------------
368,000 Cycle & Carriage Ltd. 3,810,803
Sweden (4.6%)
- ------------------------------------------------------------------------------------------------------------
33,438 ABB AB Class A 470,347
1,070,000 Astra AB 19,975,367
200,900 Pharmacia & Upjohn, Inc. 6,797,809
46,840 Sandvik AB 1,332,907
427,720 Sandvik AB Class B 12,171,457
78,200 Skandia Forsakrings AB 2,889,350
489,700 Telefonaktiebolaget LM Ericsson Class B 19,331,516
--------------
62,968,753
Switzerland (10.4%)
- ------------------------------------------------------------------------------------------------------------
7,990 ABB AG 12,087,001
9,025 Julius Baer Holding AG 13,807,157
198,943 CIBA Specialty Chemicals AG + 18,384,082
8,100 Georg Fischer ADR 11,255,391
15,800 Nestle S.A. 20,830,173
11,577 Novartis AG ADR 18,495,940
51,310 Publicitas Holding S.A. 9,763,967
11,880 Swiss Reinsurance Co. 16,792,525
16,721 United Bank of Switzerland 19,114,293
--------------
140,530,529
United Kingdom (13.3%)
- ------------------------------------------------------------------------------------------------------------
5,011,053 Avis Europe PLC + 11,384,641
1,829,778 B A T Industries PLC 16,369,468
1,096,924 British Petroleum Co. PLC 13,629,002
476,100 Burmah Castrol PLC 8,062,882
2,073,800 General Electric Co. PLC 12,391,361
859,900 Glaxo Wellcome PLC 17,747,098
448,056 HSBC Holdings PLC 13,476,673
275,400 Molins PLC 2,337,716
1,039,100 Norwich Union PLC + 5,517,035
740,700 Rio Tinto PLC 12,901,473
2,085,100 Scottish Power PLC 13,569,422
2,035,800 Shell Transportation & Trading 13,875,439
785,132 Smiths Industries PLC 10,055,624
2,118,771 Tomkins PLC 9,168,854
4,053,900 Vodafone Group PLC 19,735,885
--------------
180,222,573
United States (1.2%)
- ------------------------------------------------------------------------------------------------------------
411,400 MCI Communications Corp. 15,748,906
--------------
Total Common Stocks (cost $1,136,300,763) $1,295,892,548
PREFERRED STOCKS (0.7 %) (cost $9,038,887)
NUMBER OF SHARES VALUE
Brazil (0.7%)
- ------------------------------------------------------------------------------------------------------------
273,700 Uniao de Bancos Brasileiros S.A.
BRC 1.655 pfd. $ 9,535,256
WARRANTS (--%) (cost $--) * + EXPIRATION
NUMBER OF WARRANTS DATE VALUE
France (--%)
- ------------------------------------------------------------------------------------------------------------
56,130 Compagnie Generale des Eaux 5/2/01 $33,627
SHORT-TERM INVESTMENTS (4.9%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$25,000,000 Federal Home Loan Mortgage Corp. effective yield
of 5.44%, July 14, 1997 $ 24,950,889
21,968,000 Interest in $293,634,000 joint repurchase agreement
dated June 30, 1997 with UBS Securities
due July 1, 1997 with respect to various U.S. Treasury
obligations -- maturity value of $21,971,600
for an effective yield of 5.90% 21,971,600
20,000,000 Interest in $750,000,000 joint repurchase agreement
dated June 30, 1997 with Goldman, Sachs & Co.
due July 1, 1997 with respect to various U.S. Treasury
obligations -- maturity value of $20,003,264 for an
effective yield of 5.875% 20,003,264
--------------
Total Short-Term Investments (cost $66,925,753) $66,925,753
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,212,265,403) *** $1,372,387,184
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,356,357,956.
*** The aggregate identified cost on a tax basis is $1,212,950,212, resulting in gross unrealized
appreciation and depreciation of $172,249,112 and $12,812,140, respectively, or net unrealized
appreciation of $159,436,972.
+ Non-income-producing security.
ADR and GDR after the name of a foreign holding stands for American Depository Receipt and Global
Depository Receipt, respectively, representing ownership of foreign securities on deposit with a
domestic custodian bank.
The fund had the following industry group concentrations greater than 10% at June 30, 1997 (as a
percentage of net assets):
Insurance and Finance 19.3%
Electronics and Electrical Equipnment 14.5
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at June 30, 1997
(aggregate face value $149,196,457)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Deutschemarks $35,064,061 $35,693,388 7/30/97 $ 629,327
French Franc 88,188,796 90,041,600 8/31/97 1,852,804
Japanese Yen 23,191,896 23,461,469 11/20/97 269,573
- ----------------------------------------------------------------------------------------
$2,751,704
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
June 30, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,212,265,403) (Note 1) $ 1,372,387,184
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivable 3,559,780
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 27,817,169
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 17,063,542
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 2,751,704
- ---------------------------------------------------------------------------------------------------
Total assets 1,423,579,379
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 18,138
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 32,047,600
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 28,423,135
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,070,934
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 789,352
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 8,261
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,294
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 833,423
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 2,729,659
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 297,627
- ---------------------------------------------------------------------------------------------------
Total liabilities 67,221,423
- ---------------------------------------------------------------------------------------------------
Net assets $1,356,357,956
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,135,086,033
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 21,000,293
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 37,405,442
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 162,866,188
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,356,357,956
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($728,848,710 divided by 41,467,140 shares) $17.58
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $17.58)* $18.65
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($472,662,792 divided by 27,287,515 shares)** $17.32
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($58,471,413 divided by 3,344,674 shares) $17.48
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $17.48)* $18.11
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($96,375,041 divided by 5,475,115 shares) $17.60
- ---------------------------------------------------------------------------------------------------
* 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, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,622,992) $ 15,741,537
- --------------------------------------------------------------------------------------------------
Interest 1,538,085
- --------------------------------------------------------------------------------------------------
Total investment income 17,279,622
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 5,327,442
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,417,367
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 27,686
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,882
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 914,106
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,533,256
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 232,520
- --------------------------------------------------------------------------------------------------
Reports to shareholders 57,462
- --------------------------------------------------------------------------------------------------
Registration fees 243,060
- --------------------------------------------------------------------------------------------------
Auditing 40,230
- --------------------------------------------------------------------------------------------------
Legal 16,433
- --------------------------------------------------------------------------------------------------
Postage 79,851
- --------------------------------------------------------------------------------------------------
Other 112,123
- --------------------------------------------------------------------------------------------------
Total expenses 13,013,418
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (538,453)
- --------------------------------------------------------------------------------------------------
Net expenses 12,474,965
- --------------------------------------------------------------------------------------------------
Net investment income 4,804,657
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 37,772,156
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 19,796,470
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 1,256,443
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 141,854,079
- --------------------------------------------------------------------------------------------------
Net gain on investments 200,679,148
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $205,483,805
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended June 30
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 4,804,657 $ 933,554
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 57,568,626 4,871,423
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 143,110,522 17,321,399
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 205,483,805 23,126,376
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (2,849,521) (1,052,356)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,353,487) (570,446)
- ----------------------------------------------------------------------------------------------------------------------
Class M (209,806) (60,867)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (724,825) --
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (1,056,776) (31,357)
- ----------------------------------------------------------------------------------------------------------------------
Class B (842,170) (14,842)
- ----------------------------------------------------------------------------------------------------------------------
Class M (100,420) (1,361)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (237,370) --
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 860,838,080 215,489,871
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,058,947,510 236,885,018
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 297,410,446 60,525,428
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $21,000,293 and $1,791,102, respectively) $1,356,357,956 $297,410,446
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended June 30
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.25 $12.10 $11.83 $9.58 $8.82
- ----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .15 (c) .13 (c) .08 (d) (.06)(d) .07 (d)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.39 2.29 .36 2.53 .69
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.54 2.42 .44 2.47 .76
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.15) (.26) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.06) (.01) (.11) (.22) --
- ----------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- (.06) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.27) (.17) (.22) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.58 $14.25 $12.10 $11.83 $9.58
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 25.13 20.21 3.76 25.81 8.62
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $728,849 $151,088 $32,856 $8,781 $2,859
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.59 1.74 1.61 (d) 2.17 (d) 1.80 (d)
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .98 .99 .97 (d) (.17)(d) .81 (d)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 86.40 44.14 25.83 96.13 80.92
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0352
- ----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized
(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 period ended June 30, 1996 and thereafter includes
amounts paid through expense offset and brokerage service 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 in effect 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) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share June 1, 1994+
operating performance Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $14.10 $12.00 $11.82 $11.78
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .03 (c) .04 (c) .01 (d) (.01)(c)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.34 2.26 .34 .05
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.37 2.30 .35 .04
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.19) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.06) (.01) (.11) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- (.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.20) (.17) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.32 $14.10 $12.00 $11.82
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 24.09 19.35 3.00 0.34 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $472,663 $132,013 $25,892 $2,470
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.34 2.49 2.41 (d) .15 (d) *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .18 .32 .23 (d) (.06)(d) *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 86.40 44.14 25.83 96.13
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0352
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized
(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 period ended June 30, 1996 and thereafter includes amounts paid
through expense offset and brokerage service 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 in effect 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) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ----------------------------------------------------------------------------------------------------------------------------------
For the period
Dec. 1,1994+
Per-share to Year ended
operating performance Year ended June 30 June 30
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $14.22 $12.09 $11.87
- ----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .07 (c) .08 (c) .03 (d)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.36 2.28 .36
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.43 2.36 .39
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.11) (.22) --
- ----------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.06) (.01) (.11)
- ----------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- (.06)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.23) (.17)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.48 $14.22 $12.09
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 24.40 19.71 3.33 *
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $58,471 $14,309 $1,777
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.09 2.25 1.61 (d)
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .44 .61 .58 (d)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 86.40 44.14 25.83
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0352
- ----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized
(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 period ended June 30, 1996 and thereafter includes amounts paid
through expense offset and brokerage service 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 in effect 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) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ----------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 12, 1996+
operating performance to June 30
- ----------------------------------------------------------------------------------------------------------------------------------
1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $13.88
- ----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .20 (c)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.75
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.95
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.17)
- ----------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.06)
- ----------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.60
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 25.44 *
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $96,375
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.30 *
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.26 *
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 86.40 *
- ----------------------------------------------------------------------------------------------------------------------------------
Average commision
rate paid (e) $.0352
- ----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized
(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 period ended June 30, 1996 and thereafter includes amounts paid
through expense offset and brokerage service 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 in effect 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) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
</TABLE>
Notes to financial statements
June 30, 1997
Note 1
Significant accounting policies
Putnam International Growth Fund ("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.
The fund offers class A, class B, 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 may be 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 higher than class A shares but lower than class B shares. Class Y
shares, which are sold at net asset value, are generally subject to the same
expenses as class A shares, class B and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans that
initially invest at least $250 million in a combination of Putnam Funds.
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. 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 and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such 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, 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.
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 at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences include treatment
of realized gains and losses on forward foreign currency contracts 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, 1997, the fund
reclassified $19,542,173 to increase undistributed net investment income and
$336,049 to increase paid-in-capital, with a decrease to accumulated net
realized gain on investments of $19,878,222. The calculation of net investment
income per share in the financial highlights table excludes these adjustments.
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% of any excess
thereafter. Prior to October 21, 1996 any amount over $1.5 billion was based
on 0.60%.
As part of the custodian contract between the subcustodian bank and PFTC, the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the funds investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At June 30, 1997, the payable to the subcustodian bank represents the amount
due for cash advance for the settlement of a security purchased.
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, 1997, fund expenses were reduced by $538,453 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 $1,300 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "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 an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00%, 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 0.25%, 1.00%,
and 0.75% of the average net assets attributable to class A, class B, and
class M shares respectively.
For the year ended June 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $774,548 and $42,217 from the sale of
class A and class M shares, respectively and received $274,629 in contingent
deferred sales charges from redemptions of class B. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the year
ended June 30, 1997, Putnam Mutual Funds Corp., acting as underwriter received
$10,375 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended June 30, 1997, purchases and sales of investment
securities other than short-term investments aggregated $1,431,240,390 and
$584,674,248, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
June 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 60,834,772 $950,877,485
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 249,993 3,619,895
- ------------------------------------------------------------
61,084,765 954,497,380
Shares
repurchased (30,218,569) (482,442,248)
- ------------------------------------------------------------
Net increase 30,866,196 $472,055,132
- ------------------------------------------------------------
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, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 28,247,200 $431,211,646
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 133,547 1,913,736
- ------------------------------------------------------------
28,380,747 433,125,382
Shares
repurchased (10,458,488) (161,084,240)
- ------------------------------------------------------------
Net increase 17,922,259 $272,041,142
- ------------------------------------------------------------
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, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 4,009,824 $ 62,137,457
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 20,175 291,322
- ------------------------------------------------------------
4,029,999 62,428,779
Shares
repurchased (1,691,586) (26,931,634)
- ------------------------------------------------------------
Net increase 2,338,413 $ 35,497,145
- ------------------------------------------------------------
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 July 12, 1996
(commencement of operations)
to June 30, 1997
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 6,376,026 $ 95,236,557
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 66,468 962,195
- ------------------------------------------------------------
6,442,494 96,198,752
Shares
repurchased (967,379) (14,954,091)
- ------------------------------------------------------------
Net increase 5,475,115 $ 81,244,661
- ------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $.035 per share (or if different, the amount
necessary to offset net capital gain earned by the Fund) (for all
classes of shares) as capital gain dividends for its taxable year ended
June 30, 1997.
For the period, interest and dividends from foreign countries were
$17,365,000 or $.224 per share (for all share classes). Taxes paid to
foreign countries were $1,623,000 or $.021 per share (for all classes of
shares).
The Form 1099 you receive in January 1998 will show the tax status of
all distributions paid to your account in calendar 1997.
Results of February 6, 1997 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on February 6, 1997.
At the meeting, each of the nominees for Trustees was elected, as follows:
Votes for Votes
withheld
Jameson Adkins Baxter 17,987,858 293,078
Hans H. Estin 17,975,442 305,494
John A. Hill 17,434,763 846,173
R.J. Jackson 17,986,804 294,132
Elizabeth T. Kennan 17,413,404 867,532
Lawrence J. Lasser 17,437,794 843,142
Robert E. Patterson 17,991,949 288,987
Donald S. Perkins 17,988,781 292,155
William F. Pounds 17,427,876 853,060
George Putnam 17,994,057 286,879
George Putnam, III 17,413,871 864,065
Eli Shapiro 17,373,414 907,522
A.J.C. Smith 17,991,024 289,912
W. Nicholas Thorndike 17,979,442 301,494
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors
for the fund was approved as follows: 17,458,642 votes for, and 173,401
votes against, with 648,893 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification was approved as follows: 15,692,132 votes for,
and 827,734 votes against, with 1,761,070 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 14,769,033 votes for, and 1,494,519 votes against, with
2,017,384 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans was approved as follows: 14,296,777 votes for,
and 2,053,935 votes against, with 1,930,224 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities was approved as follows: 14,627,650
votes for, and 1,785,696 votes against, with 1,867,590 abstentions and
broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in senior securities was approved as follows:
15,069,601 votes for, and 1,231,955 votes against, with 1,979,380
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in securities of issuers in which management of the
fund or Putnam Investment Management, Inc. owns securities was approved as
follows: 14,438,110 votes for, and 1,913,142 votes against, with 1,929,684
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to margin transactions was approved as follows: 14,182,421 votes
for, and 2,164,351 votes against, with 1,934,164 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to short sales was approved as follows: 14,213,707 votes for, and
2,094,203 votes against, with 1,973,026 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to pledging assets was approved as follows: 14,140,757 votes for,
and 2,181,711 votes against, with 1,958,468 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in certain oil, gas and mineral interests was
approved as follows: 14,528,204 votes for, and 1,764,987 votes against, with
1,987,745 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investing to gain control of a company's management was approved
as follows: 14,643,999 votes for, and 1,719,244 votes against, with 1,917,693
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in other investment companies was approved as follows:
15,019,769 votes for, and 1,203,710 votes against, with 2,057,457 abstentions
and broker non-votes.
All tabulations are rounded to nearest whole number.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM 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
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor guaranteed
by the U.S. government. These funds are managed to maintain a price of
$1.00 per share, although there is no assurance that this price will
be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured
up to certain limits by federal/state agencies. Savings
accounts may also be insured up to certain limits.
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.
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
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
Tim Ferguson
Vice President
Brett C. Browchuk
Vice President
Justin M. Scott
Vice President and Fund Manager
Omid Kamshad
Vice President and Fund Manager
David K. Thomas
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 Europe 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. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
35072--841/524/891 8/97
PUTNAM INVESTMENTS [SCALE LOGO]
- ------------------------------------------------------------------------
Putnam International Growth Fund
Supplement to Annual Report dated 6/30/97
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $250 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A, B,
and M shares, which are discussed more extensively in the annual report.
ANNUAL RESULTS AT A GLANCE
- ------------------------------------------------------------------------
Total return: NAV
One year ended 6/30/97 25.44%
5 years 113.81
Annual average 16.41
Life of class (since ) 121.95
Annual average 13.40
- ------------------------------------------------------------------------
Share value: NAV
6/30/96 $14.25
6/30/97 17.60
- ------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 $0.1710 $0.05600 $0.2270
- ------------------------------------------------------------------------
Please note that past performance does not indicate future results.
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.
