Putnam
International
Growth
Fund
SEMIANNUAL REPORT
December 31, 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 5 years ended December 31, 1997, the
fund's class A shares ranked in the top 6% of Lipper's international
funds category, or 6 out of 112 funds.*
*"Putnam International Growth Fund combines all of the performance
traits that one would want in a core international fund. This fund
aims for relative consistency and it hasn't missed a beat yet."
-- Morningstar Mutual Funds, October 24, 1997
CONTENTS
4 Report from Putnam Management
10 Fund performance summary
13 Portfolio holdings
18 Financial statements
*Lipper rankings are based on total return performance, vary over
time, and do not reflect the effects of sales charges. The fund's
class A shares ranked 19 out of 421 (top 5%) for 1-year performance
as of 12/31/97. 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:
With Europe's Economic and Monetary Union and its unified currency,
the euro, about to overshadow the tumultuous -- and, we hope,
transitory -- events in Asia, the world stands on the threshold of a
new economic era. Implementation of this momentous move will not be
accomplished without a fair share of uncertainty and adjustment on the
part of national governments, individuals, corporations, and
investors.
Indeed, a financial program can hardly be considered well diversified
these days without at least a portion of its assets committed to
international investments. Making sound investment choices will become
an even greater challenge during and after the transition, especially
given the volume of corporate restructurings, mergers, and
acquisitions already proceeding or under consideration.
We believe your choice of Putnam International Growth Fund, backed by
the considerable global research and analytical resources of one of
the world's leading investment management organizations, is a sound
one. We look forward to continued participation in your investment
program.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
February 18, 1998
Report from the Fund Managers
Justin M. Scott
Omid Kamshad
David K. Thomas
As the world's attention remained fixed on the unfolding financial
crisis in Asia, Putnam International Growth Fund reached the midpoint
of its fiscal year in a relatively good position. For the semiannual
period ended December 31, 1997, the fund had a total return of 0.63%
at net asset value (-5.14% at public offering price), compared with
the -8.48% performance of the Morgan Stanley Capital International
EAFE Index. For the calendar year, the fund's 17.78% return at NAV
(10.98% at POP) stands in stark contrast to the 1.78% return generated
by the index.
In guiding your fund through this particularly tumultuous time in
international markets, we positioned the portfolio in regions and
companies believed to be relatively unaffected by the situation in
Asia -- such as Europe and Canada -- as well as in companies with the
potential to grow their businesses either through corporate
restructuring or through establishing niche positions in industries
with solid earnings growth potential.
* KEEPING ASIA IN PERSPECTIVE; BEING WARY OF JAPAN
Even before the turmoil began, we were actively reducing the fund's
direct exposure to Southeast Asia as much as possible. For example, in
the midst of the region's financial problems this past fall, the fund
had virtually no exposure to Malaysia, Thailand, or Indonesia.
Additionally, in the later part of 1997, we also reduced the weighting
in Hong Kong-based securities as higher interest rates and speculative
currency attacks on the Hong Kong dollar hurt that market.
As this report was being written, the constant drumbeat of bad news
emanating from Asia made it difficult for investors to assess properly
the long-term effects of the region's problems on the world. Many
market observers believe there will be a global deflationary effect as
a result of the crisis, which would negatively affect corporate
earnings everywhere. We would amend that view to say that while we
realize there has been a drop-off in the prices of commodity goods,
basic materials, chemicals, and commodity technology products -- such
as DRAM (dynamic random access memory) semiconductors, the currency
devaluations in Asia have only affected these particular industries.
On the other hand, the service industries of Europe and North America
- -- financial services, pharmaceuticals, entertainment, and information
technology -- cannot be exported from Asia. Western economies are the
undisputed leaders in these areas and we believe they will remain so.
As for Japan, bad went to worse for the world's second largest economy
as new data -- along with a spate of bank and brokerage closures --
reinforced the widely held belief that Japan would stay mired in its
economic malaise. It is becoming clear that continually low interest
rates and an easy monetary policy are not helping to spur growth.
Additionally the large, export-oriented companies that have benefited
for some time from the weak yen now face the prospect of greater
competition from Southeast Asia. With some of our Japanese holdings
having performed very well, we began to reduce the fund's exposure to
companies such as Hirose Electric Co. and Canon, Inc.
* EUROPE MOVES TOWARD MONETARY UNION; RESTRUCTURING STORIES
PREDOMINATE
The quickening pace of events leading up to Europe's Economic and
Monetary Union (EMU) in 1999 benefited corporate Europe and the
securities markets. Interest rates have begun to converge at lower
levels in anticipation of the singular monetary policy offered by EMU
and businesses are pushing themselves to continue their rapid pace of
cost cutting and restructuring, seeking to meet the demands of a
larger, more competitive domestic -- as well as global -- environment.
[GRAPHIC OMITTED: horizontal bar chart COUNTRY ALLOCATIONS]
COUNTRY ALLOCATIONS*
United Kingdom 19.6%
France 14.8%
Japan 9.7%
Switerland 9.1%
Canada 7.8%
Germany 6.8%
Netherlands 5.5%
Footnote reads:
*Based on net assets as of 12/31/97. Holdings will vary over time.
Since it appears that Europe will author a key chapter of the world's
economic history, we have sought to capture some of the tremendous
opportunities the Continent offers to investors. For example, the fund
has profited from the large amount of consolidation and restructuring
taking place in the banking and financial arena. For years, banking in
Europe was marked by large, inefficient institutions catering mainly
to their own country's market and having no incentive to raise
profitability. Now, in addition to the need to raise global capital,
European banks realize that the single market will foster greater
competition.
In this environment, mergers such as this year's $62 billion merger of
Swiss Bank Corporation and Union Bank of Switzerland have become more
commonplace. In this case, we believe the restructuring potential is
huge in that the merged companies may be able to unlock significant
profitability from the sharing of costs and the elimination of
redundant functions. The fund has already benefited from the SBC/UBS
merger announcement as well as several other important mergers and
acquisitions in the European banking sector. 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.
* TARGETING EUROPEAN GROWTH INDUSTRIES
In addition to EMU, one of our considerations in selecting stocks in
Europe was the potential slowdown in Asian demand for European
exports. Although on an aggregate basis, Europe is considered to be
relatively insulated from the Asian fallout, there are certain
industries (as we have described above) that will be more affected
than others. With this in mind, we positioned the portfolio in areas
that are more reliant on Europe and North America for growth.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Vodafone Group PLC (United Kingdom)
Telecommunications
United Bank of Switzerland (Switzerland)
Insurance and finance
Nestle S.A. (Switzerland)
Food and beverages
Sony Corp. (Japan)
Electronics and electrical equipment
Compagnie Generale des Eaux (France)
Environmental control
Elf Aquitaine S.A. (France)
Oil and gas
B A T Industries PLC (United Kingdom)
Consumer nondurables
SCOR (France)
Insurance and finance
Philips Electronics N.V. (Netherlands)
Electronics and electrical equipment
Internationale Nederlanden Groep (Netherlands)
Insurance and finance
Footnote reads:
These holdings represent 18.5% of the fund's net assets as of
12/31/97. Portfolio holdings will vary over time.
One example is telecommunications, particularly the cellular phone
industry, which has some exposure to Asia but can also look to the
West for future growth. Today Europe and North America are the leading
growth areas for mobile communications service companies, producing
revenues of just under $40 billion, according to a November 1997
review of the telecommunications industry by the Financial Times. For
the future, it appears many countries around the world will shun
relatively expensive fixed lines in favor of cellular operators. Some
examples of leading players in this area that we've targeted include
L.M. Ericsson of Sweden, Vodafone Group PLC of the United Kingdom, and
Compagnie Generale des Eaux of France (which operates in the
environmental control sector but actually owns a leading cellular
business).
Another area is the pharmaceutical industry. Earlier this decade,
pharmaceutical stocks suffered on fears that government health-care
reform and industry competition would bring down drug prices. The
pharmaceutical industry instead has demonstrated how its products can
lower health-care costs and the U.S. and other governments have toned
down their rhetoric. Additionally, many companies have focused
resources on research and development and have developed a new wave of
innovative drugs ready to replace those with expiring patents. Two
leading pharmaceutical companies owned by the fund are Glaxo Wellcome
PLC of the United Kingdom and Novartis AG of Switzerland.
* CANADA HELPS FUND RETURNS; LIGHTENING UP ON LATIN AMERICA
The Canadian economy continued to improve as economic growth was solid
and interest rates fell. We targeted Canadian companies outside the
volatile natural resources area that are considered to be globally
oriented and are trading at reasonable valuations. Some examples
include Northern Telecom Ltd., Bank of Nova Scotia and transportation
equipment manufacturer Bombardier, Inc.
We've also begun to reduce the fund's positions in Latin America.
While countries like Mexico have vastly improved their economies
compared with levels just a few years ago, some countries may face a
difficult near-term future. Much like the Southeast Asian countries,
Brazil, which is heavily dependent on a large flow of foreign capital,
has had to raise interest rates to defend its currency in light of a
widening current account deficit. In addition, stocks in many of the
Latin American companies we have favored in the past are no longer
trading at reasonable valuations.
* OUTLOOK: DEALING WITH WORLD OF DIVERGENT MARKETS
It has been a long time since we have seen such a vast divergence
between the performance of European markets and that of the Asian
markets. In this unusual situation, we believe the fund is very well
positioned in the strong markets of Europe as well as being ready to
take advantage of any undervalued opportunities in Asia.
In Europe, we look forward to further fiscal convergence after the
introduction of EMU as corporate Europe forces governments to unify
wage practices and corporate tax rates across the Continent. In Asia,
we anticipate some time will elapse before that region's financial
systems are in a more healthy state. Finally, recent attempts aside,
we believe it will take greater fiscal policy action by the Japanese
government to revive that country's economy.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described
holdings were viewed favorably as of 12/31/97, there is no guarantee
the fund will continue to hold these securities in the future.
International investing involves certain risks including currency
fluctuations, political developments, and economic instability.
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 12/31/97
Class A Class B Class M
(inception date) (2/28/91) (6/1/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------
6 months 0.63% -5.14% 0.26% -4.48% 0.39% -3.11%
- -------------------------------------------------------------------
1 year 17.78 10.98 16.86 11.86 17.14 13.06
- -------------------------------------------------------------------
5 years 124.82 111.98 116.53 114.53 119.84 112.11
Annual average 17.59 16.21 16.71 16.49 17.06 16.23
- -------------------------------------------------------------------
Life of class 122.79 109.90 110.53 110.53 114.72 107.22
Annual average 12.42 11.45 11.50 11.50 11.82 11.24
- -------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/97
MSCI EAFE Consumer
Index Price Index
- -------------------------------------------------------------------
6 months -8.48% 0.62%
- -------------------------------------------------------------------
1 year 1.78 1.70
- -------------------------------------------------------------------
5 years 71.49 13.67
Annual average 11.39 2.60
- -------------------------------------------------------------------
Life of fund 47.75 19.66
Annual average 5.87 2.66
- -------------------------------------------------------------------
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 ten year and life of fund returns 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 12/31/97
Class A Class B Class M
- --------------------------------------------------------------------
Distributions (number) 1 1 1
- --------------------------------------------------------------------
Income $0.249 $0.173 $0.195
- --------------------------------------------------------------------
Capital gains
- --------------------------------------------------------------------
Long-term 0.304 0.304 0.304
- --------------------------------------------------------------------
Short-term 0.487 0.487 0.487
- --------------------------------------------------------------------
Total $1.040 $0.964 $0.986
- --------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- --------------------------------------------------------------------
6/30/97 $17.58 $18.65 $17.32 $17.48 $18.11
- --------------------------------------------------------------------
12/31/97 16.67 17.69 16.42 16.58 17.18
- --------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and principal 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.
Portfolio of investments owned
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (91.8%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Australia (1.7%)
- --------------------------------------------------------------------------------------------
2,400,512 Australia & New Zealand Banking Group Ltd. $ 15,846,116
4,023,271 QBE Insurance Group Ltd. 18,090,465
--------------
33,936,581
Austria (0.5%)
- --------------------------------------------------------------------------------------------
62,510 VA Technolgies AG 9,493,560
Brazil (0.4%)
- --------------------------------------------------------------------------------------------
394,700 Petroleo Brasileiro S/A-Petrobras ADR + 9,324,788
Canada (7.8%)
- --------------------------------------------------------------------------------------------
657,907 Bank of Nova Scotia 31,003,384
1,027,300 Bombardier, Inc. 21,132,536
922,163 Cae, Inc. 7,226,578
309,300 Magna International, Inc. Class A 19,427,906
1,558,477 National Bank 25,734,717
344,100 Newbridge Networks Corp. + 12,050,241
304,333 Northern Telecom Ltd. 27,075,250
294,500 Royal Bank of Canada 15,639,904
--------------
159,290,516
China/Hong Kong (1.4%)
- --------------------------------------------------------------------------------------------
2,171,500 Dao Heng Bank Group Ltd. 5,423,985
829,600 Guoco Group Ltd. 2,029,344
3,552,000 Hutchison Whampoa, Ltd. 22,283,679
--------------
29,737,008
France (14.8%)
- --------------------------------------------------------------------------------------------
417,265 Banque Nationale de Paris 22,162,224
267,053 Compagnie Generale des Eaux 37,244,649
140,280 Cie Fin Paribas 12,181,046
320,100 Elf Aquitaine S.A. 37,202,391
376,600 Lafarge Coppee 24,691,905
599,870 Michelin Corp. Class B 30,177,754
710,800 SCOR 33,964,510
428,300 SGS-Thomson Microelectronics ADR 26,153,069
229,640 Societe Generale 31,264,287
111,422 Societe Television Francaise 1 11,377,143
289,827 Total Corp. ADR Class B 31,518,627
--------------
303,435,504
Germany (6.8%)
- --------------------------------------------------------------------------------------------
170,690 Altana AG 11,724,258
565,292 Bayer AG ADR 21,127,710
40,023 Bayerische Motoren Werke (BMW) AG 29,939,341
369,300 Deutsche Bank AG 26,085,150
383,000 Deutsche Telekom AG 7,210,540
478,200 Deutsche Telekom AG ADR + 8,906,475
50,783 Mannesmann AG 25,673,942
132,700 Veba (Vereinigte Elektrizitaets Bergwerks) AG 9,041,018
--------------
139,708,434
Ireland (3.6%)
- --------------------------------------------------------------------------------------------
2,472,451 Allied Irish Banks PLC 23,976,544
1,641,548 Bank of Ireland 25,329,742
2,192,488 CRH PLC 25,701,533
--------------
75,007,819
Italy (1.4%)
- --------------------------------------------------------------------------------------------
5,010,000 Ente Nazionale Idrocarburi SPA 28,413,028
Japan (9.7%)
- --------------------------------------------------------------------------------------------
864,000 Canon, Inc. 20,150,049
214,700 Circle K Japan Co. Ltd. 10,294,395
26,500 Hirose Electric Co. Ltd. 1,356,002
1,302,000 KAO Corp. 18,778,358
333,000 Murata Manufacturing Co. Ltd. 8,379,283
4,228,000 Nikko Securities Co. Ltd. 11,222,765
1,421,000 Nomura Securities Co. Ltd. 18,968,461
289,390 Promise Co., Ltd. 16,073,515
667,000 Ricoh Co. Ltd. 8,289,525
185,000 Rohm Co. Ltd. 18,876,095
523,000 Sankyo Co. Ltd. 11,836,205
433,400 Sony Corp. 38,568,760
500,000 Tokyo Electron Ltd. 16,033,749
--------------
198,827,162
Mexico (0.8%)
- --------------------------------------------------------------------------------------------
3,461,600 Cemex, S.A. de C.V. 15,693,560
Netherlands (5.5%)
- --------------------------------------------------------------------------------------------
809,268 ABN AMRO Holding N.V. 15,777,930
151,900 Akzo-Nobel N.V. 26,211,372
748,922 Internationale Nederlanden Groep 31,568,578
529,228 Philips Electronics N.V. 31,764,129
152,800 Vendex International N.V. 8,439,447
--------------
113,761,456
Philippines (0.1%)
- --------------------------------------------------------------------------------------------
82,190 Philippine Long Distance Telephone Co. 1,808,180
Poland (0.1%)
- --------------------------------------------------------------------------------------------
213,700 Bank Handlowy Warszawie GDR + 2,731,960
Portugal (2.3%)
- --------------------------------------------------------------------------------------------
523,500 Banco Totta & Accores S.A. 10,287,818
1,107,400 Electricidade de Portugal S.A. + 20,985,810
327,000 Portugal Telecom S.A. 15,185,324
--------------
46,458,952
Singapore (3.2%)
- --------------------------------------------------------------------------------------------
5,222,000 DBS Land Ltd. 8,014,729
1,718,000 Development Bank of Singapore Ltd. 14,716,954
1,967,000 Keppel land Ltd. 2,714,717
2,444,000 Overseas Chinese Banking Corp. 14,248,186
3,731,000 Overseas Union Bank Ltd. 14,315,854
2,296,000 United Overseas Bank Ltd. + 12,770,732
--------------
66,781,172
South Korea (0.3%)
- --------------------------------------------------------------------------------------------
712,000 Korea Electric Power Corp. 6,594,921
Sweden (2.7%)
- --------------------------------------------------------------------------------------------
348,083 Astra AB 6,034,270
244,282 Pharmacia & Upjohn, Inc. ADS 8,993,185
33,950 Sandvik AB Class A 967,358
461,460 Sandvik AB Class B 13,206,846
719,721 Telefonaktiebolaget LM Ericsson Class B 27,086,177
--------------
56,287,836
Switzerland (9.1%)
- --------------------------------------------------------------------------------------------
3,222 ABB AG + 4,045,412
9,425 Julius Baer Holdings AG 17,476,394
169,099 CIBA Specialty Chemicals AG + 20,132,211
11,260 Georg Fischer AG 15,408,826
27,065 Nestle S.A. 40,537,314
15,424 Novartis AG ADR 25,011,892
58,230 Publicitas Holding S.A. 12,709,798
32,386 United Bank of Switzerland 46,800,706
9,674 Zurich Versicherungs-Gesellschaft 4,606,982
--------------
186,729,535
United Kingdom (19.6%)
- --------------------------------------------------------------------------------------------
6,371,247 Avis Europe PLC 18,280,764
3,833,343 B A T Industries PLC 35,019,352
1,643,600 Bass PLC 25,598,749
1,765,380 British Petroleum Co. PLC 23,288,893
7,208,422 BTR PLC 21,871,506
964,758 Burmah Castrol PLC 16,863,391
579,400 Cookson Group PLC 1,882,198
938,600 Dixons Group PLC 9,456,761
2,427,900 General Electric Co. PLC 15,794,230
1,240,341 Glaxo Wellcome PLC 29,452,641
693,256 HSBC Holdings PLC 17,092,464
905,400 Molins PLC 4,344,643
774,600 Peninsular and Oriental Steam Navigation Co. + 8,845,409
1,591,600 Rio Tinto PLC 19,657,868
6,202,900 Rolls-Royce PLC 24,037,168
2,001,000 Securicor Group PLC Class A 9,420,498
3,323,900 Shell Transportation & Trading 24,116,889
336,900 Siebe PLC 6,638,800
1,245,932 Smiths Industries PLC 17,422,515
2,216,771 Tomkins PLC 10,637,375
1,755,600 Unilever Group 15,082,869
6,504,042 Vodafone Group PLC 47,083,477
--------------
401,888,460
--------------
Total Common Stocks (cost $1,788,764,011) $1,885,910,432
WARRANTS (--%) (cost $-) + EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------
56,130 Compagnie Generale des Eaux (France) 5/2/01 $ 38,116
SHORT-TERM INVESTMENTS (8.7%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$25,000,000 Corp. Asset Funding Co., Inc., effective yield
of 5.85%, February 3, 1998 $24,865,938
22,600,000 Federal Home Loan Mortgage Corp., effective yield
of 5.59%, March 6, 1998 22,375,406
25,000,000 Federal National Mortgage Association, effective yield
of 5.66%, February 18, 1998 24,811,333
107,378,000 Interest in $509,463,000 joint repurchase agreement
dated December 31, 1997, with S.B.C. Warburg Inc.,
due January 2, 1998, with respect to various
U.S. Treasury obligations -- maturity value of $107,416,775
for an effective yield of 6.50% 107,397,388
--------------
Total Short-Term Investments (cost $179,450,065) $ 179,450,065
- --------------------------------------------------------------------------------------------
Total Investments (cost $1,968,214,076) *** $2,065,398,613
- --------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at December 31, 1997 (Unaudited)
(aggregate face value $125,793,173)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $65,971,520 $66,380,926 6/12/98 $ 409,406
Japanese Yen 58,676,377 59,412,247 6/12/98 735,870
- --------------------------------------------------------------------------------------------
$1,145,276
- --------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,054,858,619
*** The aggregate identified cost on a tax basis is $1,968,898,885 resulting in gross
unrealized appreciation and depreciation of $194,632,463 and $98,132,735, respectively,
or net unrealized appreciation of $96,499,728
+ Non-income-producing security.
ADR, ADS and GDR after the name of a foreign holding stands for American Depository
Receipts, American Depository Shares and Global Depository Receipts, respectively,
representing ownership of foreign securities on deposit with a domestic custodian bank.
The fund had the following industry group concentration greater than 10% at December
31, 1997 (as a percentate of net assets):
Insurance and Finance 25.6%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1997 (Unaudited)
<S> <C>
Assets
- --------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,968,214,076) (Note 1) $2,065,398,613
- --------------------------------------------------------------------------------------------
Dividends, interest and other receivables 2,411,209
- --------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 11,200,042
- --------------------------------------------------------------------------------------------
Receivable for securities sold 24,281,816
- --------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,145,276
- --------------------------------------------------------------------------------------------
Total assets 2,104,436,956
Liabilities
- --------------------------------------------------------------------------------------------
Payable to subcustiodian (Note 2) 13,216
- --------------------------------------------------------------------------------------------
Payable for securities purchased 16,687,423
- --------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 19,249,646
- --------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,413,796
- --------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 794,457
- --------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 619
- --------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,367
- --------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,465,764
- --------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 7,629,389
- --------------------------------------------------------------------------------------------
Other accrued expenses 318,660
- --------------------------------------------------------------------------------------------
Total liabilities 49,578,337
- --------------------------------------------------------------------------------------------
Net assets $2,054,858,619
Represented by
- --------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,951,556,287
- --------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (6,963,372)
- --------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 11,963,590
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 98,302,114
- --------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $2,054,858,619
Computation of net asset value and offering price
- --------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,087,431,453 divided by 65,238,784 shares) $16.67
- --------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $16.67)* $17.69
- --------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($774,744,882 divided by 47,179,184 shares)** $16.42
- --------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($91,689,324 divided by 5,529,005 shares) $16.58
- --------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $16.58)* $17.18
- --------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($100,992,960 divided by 6,050,815 shares) $16.69
- --------------------------------------------------------------------------------------------
* 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 charges.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended December 31, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,066,456) $ 7,973,553
- --------------------------------------------------------------------------------------------
Interest 3,731,490
- --------------------------------------------------------------------------------------------
Total investment income 11,705,043
- --------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 6,286,017
- --------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,511,973
- --------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,345
- --------------------------------------------------------------------------------------------
Administrative services (Note 2) 12,719
- --------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,200,228
- --------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,289,884
- --------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 296,765
- --------------------------------------------------------------------------------------------
Reports to shareholders 55,194
- --------------------------------------------------------------------------------------------
Registration fees 246,049
- --------------------------------------------------------------------------------------------
Auditing 25,709
- --------------------------------------------------------------------------------------------
Legal 7,932
- --------------------------------------------------------------------------------------------
Postage 128,765
- --------------------------------------------------------------------------------------------
Other 103,453
- --------------------------------------------------------------------------------------------
Total expenses 15,170,033
- --------------------------------------------------------------------------------------------
Expense reduction (Note 2) (488,800)
- --------------------------------------------------------------------------------------------
Net expenses 14,681,233
- --------------------------------------------------------------------------------------------
Net investment loss (2,976,190)
- --------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 61,524,143
- --------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 3,196,066
- --------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities
in foreign currencies during the period (1,626,830)
- --------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (62,937,244)
- --------------------------------------------------------------------------------------------
Net gain on investments 156,135
- --------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(2,820,055)
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
December 31 June 30
1997* 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- --------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------
Net investment income (loss) $ (2,976,190) $ 4,804,657
- --------------------------------------------------------------------------------------------
Net realized gain on investments 64,720,209 57,568,626
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (64,564,074) 143,110,522
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (2,820,055) 205,483,805
- --------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------
From net investment income
Class A (14,955,356) (2,849,521)
- --------------------------------------------------------------------------------------------
Class B (7,467,011) (1,353,487)
- --------------------------------------------------------------------------------------------
Class M (988,740) (209,806)
- --------------------------------------------------------------------------------------------
Class Y (1,576,368) (724,825)
- --------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (47,508,780) (1,056,776)
- --------------------------------------------------------------------------------------------
Class B (34,141,073) (842,170)
- --------------------------------------------------------------------------------------------
Class M (4,010,737) (100,420)
- --------------------------------------------------------------------------------------------
Class Y (4,501,471) (237,370)
- --------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 816,470,254 860,838,080
- --------------------------------------------------------------------------------------------
Total increase in net assets 698,500,663 1,058,947,510
Net assets
- --------------------------------------------------------------------------------------------
Beginning of period 1,356,357,956 297,410,446
- --------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income and undistributed net investment
income of $6,963,372 and $21,000,293, respectively) $2,054,858,619 $1,356,357,956
- --------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- --------------------------------------------------------------------------------------------------------------------------
Six Months
ended
Per-share Dec. 31
operating performance (Unaudited) Year ended June 30
- --------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> C> <C> <C>
Net asset value,
beginning of period $17.58 $14.25 $12.10 $11.83 $9.58 $8.82
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) --(c) .15(c) .13(c) .08(d) (.06)(d) .07(d)
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .13 3.39 2.29 .36 2.53 .69
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .13 3.54 2.42 .44 2.47 .76
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.15) (.26) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.79) (.06) (.01) (.11) (.22) --
- --------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.06) -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (1.04) (.21) (.27) (.17) (.22) --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.67 $17.58 $14.25 $12.10 $11.83 $9.58
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 0.63* 25.13 20.21 3.76 25.81 8.62
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,087,431 $728,849 $151,088 $32,856 $8,781 $2,859
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .71* 1.59 1.74 1.61(d) 2.17(d) 1.80(d)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.03)* .98 .99 .97(d) (.17)(d) .81(d)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.92* 86.40 44.14 25.83 96.13 80.92
- --------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0278 $.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
- ------------------------------------------------------------------------------------------------------------------------
Six Months
ended For the period
Per-share Dec. 31 June 1, 1994+
operating performance (Unaudited) Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $17.32 $14.10 $12.00 $11.82 $11.78
- ------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.07)(c) .03(c) .04(c) .01(d) (.01)(c)(d)
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .13 3.34 2.26 .34 .05
- ------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .06 3.37 2.30 .35 .04
- ------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------
From net
investment income (.17) (.09) (.19) -- --
- ------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.79) (.06) (.01) (.11) --
- ------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.06) --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (.96) (.15) (.20) (.17) --
- ------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.42 $17.32 $14.10 $12.00 $11.82
- ------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 0.26* 24.09 19.35 3.00 0.34*
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $774,745 $472,663 $132,013 $25,892 $2,470
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.08* 2.34 2.49 2.41(d) .15(d)*
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.40)* .18 .32 .23(d) (.06)(d) *
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.92* 86.40 44.14 25.83 96.13
- ------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0278 $.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
- --------------------------------------------------------------------------------------------------------------------
Six Months
ended For the period
Per-share Dec. 31 Dec. 1,1994+
operating performance (Unaudited) Year ended June 30 to June 30
- --------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $17.48 $14.22 $12.09 $11.87
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.05)(c) .07(c) .08(c) .03(d)
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .14 3.36 2.28 .36
- --------------------------------------------------------------------------------------------------------------------
Total from
investment operations .09 3.43 2.36 .39
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.11) (.22) --
- --------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.79) (.06) (.01) (.11)
- --------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.06)
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.99) (.17) (.23) (.17)
- --------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.58 $17.48 $14.22 $12.09
- --------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 0.39* 24.40 19.71 3.33*
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $91,689 $58,471 $14,309 $1,777
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .96* 2.09 2.25 1.61(d)*
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.27)* .44 .61 .58(d)*
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.92* 86.40 44.14 25.83
- --------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0278 $.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
- ----------------------------------------------------------------------------------------------------------
Six Months
ended or the period
Per-share Dec. 31 July 12, 1996+
operating performance (Unaudited) to June 30
- ----------------------------------------------------------------------------------------------------------
1997 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $17.60 $13.88
- ----------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------
Net investment income (loss) .02(c) .20(c)
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .14 3.75
- ----------------------------------------------------------------------------------------------------------
Total from
investment operations .16 3.95
- ----------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------
From net
investment income (.28) (.17)
- ----------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.79) (.06)
- ----------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- --
- ----------------------------------------------------------------------------------------------------------
Total distributions (1.07) (.23)
- ----------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.69 $17.60
- ----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) --* 25.44*
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $100,993 $96,375
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .58* 1.30*
- ----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .11* 1.26*
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 38.48* 86.40*
- ----------------------------------------------------------------------------------------------------------
Average commision
rate paid (e) $.0278 $.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
December 31, 1997 (Unaudited)
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
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 gains and losses are
included with the net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent net exchange gains or losses on closed forward
currency contracts, disposition of foreign currencies and the
difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a
decline in value relative to the U.S. dollar of the currencies in
which its portfolio securities are denominated or quoted (or an
increase in the value of a currency in which securities a fund intends
to buy are denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using current forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate
with changes in currency exchange rates. The contract is "marked to
market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records
a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed. The fund could be exposed to risk if the value of the
currency changes unfavorably, if the counterparties to the contracts
are unable to meet the terms of their contracts or if the fund is
unable to enter into a closing position.
G) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes
restrictions that the fund maintain an asset coverage ratio of at
least 300% and borrowings must not exceed prospectus limitations. For
the period ended December 31, 1997, the fund had no borrowings against
the line of credit.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with
the provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Internal Revenue Code of 1986, as amended.
Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
I) Distributions to shareholders Distributions to shareholders from
net investment income are recorded by the fund on the ex-dividend
date. Capital gain distributions, if any, are recorded on the ex-
dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations.
Note 2
Management fee, administrative services
and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.80% of
the first $500 million of average net assets, 0.70% of the next $500
million, 0.65% of the next $500 million, 0.60% of the next $5 billion,
0.575% of the next $5 billion, 0.555% of the next $5 billion, 0.54% of
the next $5 billion and 0.53% thereafter.
As part of the subcustodian contract between the subcustodian bank and
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam
Investments, Inc., 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 December 31,
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 an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by PFTC.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the six months ended December 31, 1997, fund expenses were reduced
by $488,800 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported
in the Statement of operations exclude these credits. The fund could
have invested a portion of the assets utilized in connection with the
expense offset arrangements in an income producing asset if it had not
entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which
$1,550 has been allocated to the fund, 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 "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees
remain in the fund and are invested in certain Putnam funds until
distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit
pension plan (the "Pension Plan") covering all Trustees of the fund
who have served as 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
currently limit payment by the fund to 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 six months ended December 31, 1997, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $925,422 and $60,109
from the sale of class A and class M shares, respectively and received
$348,428 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 six months ended December 31,
1997, Putnam Mutual Funds Corp., acting as underwriter received
$56,748 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended December 31, 1997, purchases and sales of
investment securities other than short-term investments aggregated
$1,256,875,972 and $674,860,415, 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 December 31, 1997, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
December 31, 1997
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 66,934,605 $1,194,795,542
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,480,098 59,091,981
- ----------------------------------------------------
70,414,703 1,253,887,523
Shares
repurchased (46,643,059) (835,497,538)
- ----------------------------------------------------
Net increase 23,771,644 $418,389,985
- ----------------------------------------------------
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
- ----------------------------------------------------
Six months ended
December 31, 1997
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 25,353,162 $447,410,466
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,153,172 36,044,083
- ----------------------------------------------------
27,506,334 483,454,549
Shares
repurchased (7,614,665) (134,132,755)
- ----------------------------------------------------
Net increase 19,891,669 $349,321,794
- ----------------------------------------------------
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
- ----------------------------------------------------
Six months ended
December 31, 1997
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 3,466,972 $61,678,749
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 286,757 4,846,205
- ----------------------------------------------------
3,753,729 66,524,954
Shares
repurchased (1,569,398) (27,962,458)
- ----------------------------------------------------
Net increase 2,184,331 $38,562,496
- ----------------------------------------------------
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
- ----------------------------------------------------
Six months ended
December 31, 1997
- ----------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------
Shares sold 1,109,482 $19,998,887
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 357,521 6,077,851
- ----------------------------------------------------
1,467,003 26,076,738
Shares
repurchased (891,303) (15,880,759)
- ----------------------------------------------------
Net increase 575,700 $10,195,979
- ----------------------------------------------------
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
- ----------------------------------------------------
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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
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 Thomas
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
International Growth Fund. It may also be used as sales literature
when preceded or accompanied by the current prospectus, which gives
details of sales charges, investment objectives, and operating
policies of the fund, and the most recent copy of Putnam's Quarterly
Performance Summary. For more information, or to request a
prospectus, call toll free: 1-800-225-1581. 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
- --------------------
SA009-36891-841/524/891 2/98
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam International Growth Fund
Supplement to Semiannual Report dated December 31, 1997
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 semiannual report.
SEMIANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return: NAV
Six months ended 12/31/97 0.79%
One year ended 12/31/97 17.94
Five years ended 12/31/97 125.73
Annual average 17.68
Life of class (since 7/12/96 ) 123.69
Annual average 12.49
- ----------------------------------------------------------------------------
Share value: NAV
6/30//97 $17.60
12/31/97 16.69
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
Short-Term Long-Term
1 $0.277 $0.487 $0.304 $1.068
- ----------------------------------------------------------------------------
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.
