Putnam
International
Growth
Fund
ANNUAL REPORT
June 30, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar, an independent rating agency, gave the fund's class A
shares 4 out of 5 stars for overall performance as of June 30, 1998
(based on the fund's average annual returns for the 3- and 5-year
periods). This rating put the fund among 10% of the 778 international
equity funds rated.*
* Putnam International Growth Fund's class A shares were ranked in the
top 4% by Lipper Analytical Services for the 5-year period ended June
30, 1998. The fund ranked 5 out of 134 international funds ranked.+
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
18 Financial statements
* Past performance is not indicative of future results. Morningstar
ratings reflect risk-adjusted performance through 6/30/98 and are
subject to change every month. Morningstar ratings are calculated from
a fund's 3-, 5-, and 10-year returns (with fee adjustments) in excess
of 90-day Treasury bill returns and a risk factor that reflects
performance below 90-day Treasury bill returns. For both 3- and
5-year performance, the fund received 4 stars. There were 778 and 338
international equity funds rated, respectively, 10% of the funds in an
investment category receive 5 stars; the next 22.5% receive 4 stars.
Performance of other share classes will vary.
+ Past performance is not indicative of future results. Lipper is an
industry research firm whose rankings are based on total return
performance, vary over time, and do not reflect the effects of sales
charges. Performance of other share classes will vary. For the one-year
period ended 6/30/98, the fund ranked 48 out of 480 international funds.
The fund was not ranked over longer periods.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Ongoing difficulties in the Far East and the surging European stock markets
provided a study in contrasts for the managers of Putnam International Growth
Fund during the fiscal year ended June 30, 1998. Deciding on the basic
strategy was straightforward enough: shift the emphasis away from the collapse
of Pacific Rim emerging-markets currencies and Japan's persistent malaise and
direct it more heavily toward Europe, currently basking in the positive market
environment created by anticipation of the arrival of Economic and Monetary
Union and its new euro early next year.
Executing the strategy while maintaining a diversified portfolio provided more
of a challenge. Your fund's management team met the test effectively as the
performance results demonstrate. In the following report, the fund's managers
discuss their strategy in detail and offer their current perspective on
prospects for the fiscal year just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
August 19, 1998
Report from the Fund Managers
Justin M. Scott
Omid Kamshad
David K. Thomas
While the past year has certainly demonstrated the risks that accompany
international investing, it has also provided a good example of the potential
rewards. The devaluation of the Thai baht in July 1997 set off a chain
reaction of economic and financial turmoil in Asia that ultimately raised
serious concerns for equity markets around the world. At the same time,
however, Europe finally began to bask in the rewards of the fiscal hardship
taken on in preparation for Economic and Monetary Union (EMU). Financial
markets on the Continent surged ahead and a tremendous amount of corporate
consolidation brought value to shareholders.
We are happy to report that within this varied and unpredictable environment
Putnam International Growth Fund posted strong returns relative to its peers
(see page 2 of this report) and against its benchmark index. For the fiscal
year ended June 30, 1998, the fund's class A shares had a total return of
20.73% at net asset value (13.81% at public offering price) against the 6.10%
return of the Morgan Stanley Capital International EAFE Index.
* FOCUS ON CONTINENTAL EUROPE INCREASES; UNITED KINGDOM HOLDINGS REDUCED
This past May, eleven European countries were officially selected for
membership in EMU, which is set to begin in January 1999. With "Euroland's"
membership firmly in place, investors contemplated some of the potential
advantages of monetary union. Among them are more competitive companies,
broader and more liquid financial markets, lower interest rates, and stable
exchange rates.
In the past year, merger and acquisition activity in Europe has reached record
levels as some industries began to consolidate and European companies sought
the resources to compete across the Continent and around the world. In fact,
in the first six months of 1998, total announced mergers and acquisitions
involving European targets reached $258.1 billion, a 51% increase from the
year-earlier period, according to Securities Data Company.
As anticipation of EMU rose, so did the economic fortunes of Europe. After
many years of slow economic growth, Europe finally showed solid progress and
low inflation. Additionally the Continent's stubbornly high unemployment rate
showed some improvement. Finally, in the first quarter of 1998, countries
located outside the core of France and Germany -- such as Ireland, Spain, and
Italy -- saw their interest rates fall in a convergence with the lower rates
of these core euro countries.
This environment created numerous investment opportunities for the fund. One
of the most important of these was the telecommunications industry, in which
strong growth expectations were steadily revised upward during the period.
Deutsche Telekom, which dominates the public telecommunications networks in
Germany, turned in a strong performance in the spring after a slow start to
the year. Mannesmann, also of Germany, benefited as the company moved to
restructure itself from an engineering group into a fixed and mobile telecom
operator.
Emblematic of the wave of corporate restructuring that is benefiting
shareholders, Vivendi (formerly Generale des Eaux) has streamlined itself to
realize an increasing amount of value from its highly regarded fixed and
mobile telecom operations in France. Finally, world-leading telecom equipment
manufacturers Nokia of Finland and Ericsson of Sweden continued to perform
well for the fund. 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.
[GRAPHIC OMITTED: horizontal bar chart of COUNTRY ALLOCATIONS]
COUNTRY ALLOCATIONS*
United Kingdom 15.5%
France 14.6%
Switzerland 10.6%
Germany 8.3%
Japan 8.1%
Netherlands 7.7%
Footnote reads:
* Based on net assets as of 6/30/98. Holdings will vary over time.
Banking and financial companies have benefited for some time from the
favorable interest rate environment in Europe. We were particularly encouraged
by the shift from traditional bank lending activity to profitable fee-based
businesses such as asset management and securities trading. Additionally we
believe the consolidation in European banking already occurring will continue
after the advent of monetary union. Some of the fund's holdings that have
exemplified these trends include Union Bank of Switzerland and ING Groep of
the Netherlands.
While Continental Europe performed well, the United Kingdom proved
disappointing. The pound's strength brought about a slowing of the economy
that has hurt exporters and has forced manufacturers into a technical
recession. Fears of inflation have also resulted in higher interest rates
relative to the rest of Europe. These developments convinced us to reduce the
fund's U.K. exposure in favor of exposure to the Continent; however, some of
the remaining U.K. holdings -- such as telecommunications operator Vodafone --
performed well.
* CANADA OFFERS RENEWED OPPORTUNITY
One of the main areas we targeted outside Europe was Canada. With fiscal
stability and low interest rates, Canada has staged an impressive rebound from
the economic doldrums of the early and mid 1990s. The Canadian market,
however, is heavily weighted in companies involved in natural resources and
commodities, the prices of which have suffered following the Asian crisis.
Therefore, we avoided these companies and instead focused on several solid
opportunities within the growth industries we are favoring elsewhere.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Internationale Nederlanden Groep (Netherlands)
Insurance and finance
UBS AG (Switzerland)
Insurance and finance
Nestle S.A. (Switzerland)
Food and beverage
Compagnie Vivendi (France)
Environmental control
Sony Corporation (Japan)
Electronics and electrical equipment
Oy Nokia AB, Class A (Finland)
Telecommunications
Banque Nationale de Paris (France)
Insurance and finance
Telecom Italia SPA (Italy)
Insurance and finance
BCE Inc. (Canada)
Telecommunications
B A T Industries PLC (United Kingdom)
Consumer nondurables
These holdings represent 21.0 % of the fund's net assets as of 6/30/98.
Portfolio holdings will vary over time.
BCE is the main telecommunications operator in Canada, for example. Its stock
trades at a more attractive valuation than its counterparts in the United
States and BCE enjoys a more favorable regulatory environment. We also
continued to hold transportation equipment manufacturer Bombardier, Inc. The
company has profited from increasing demand for rail cars from transit systems
in Boston, New York City, and Europe. In addition, the company has been able
to surpass its competition in the growing area of smaller, regional jets.
* JAPAN'S DOLDRUMS ADD TO ASIAN TROUBLES
Japan's economic situation went from bad to worse during the period, first
because of the Japanese leadership's unwillingness to deal with the country's
impending recession and then as a result of several ineffective fiscal policy
initiatives. Furthermore, the extent of bad loans on the books of Japan's
banks (domestic loans as well as those made to other areas in Asia) only
recently became clear and as of fiscal year's end no policy had been
implemented to improve the banking system. In fact, just after the close of
the fiscal year, the prime minister resigned following his party's significant
election loss in the upper house of the Japanese Diet (parliament). While
financial reform designed to open the Japanese economy began in April and a
few insolvent financial institutions were allowed to fail, it may be some time
before the Japanese economy can turn around.
Although these factors contributed to a difficult investing environment, the
fund retained some strong Japanese companies. Nikko Securities was a
successful investment for the fund. The company is much more transparent in
its reporting procedures than the banks, and given its strong domestic retail
presence, we believe it could benefit from the burgeoning market for financial
services outside of traditional saving vehicles. As an added bonus, in June,
the Travelers Group of the United States acquired a 25% stake in Nikko. The
Travelers purchase is the largest investment ever in a Japanese firm by a
foreign company, according to the Financial Times. Aside from Nikko, the fund
continued to hold large, well-known exporting companies such as Sony that have
been the main beneficiaries of the weak yen.
Renewed fears of a decoupling of the Hong Kong dollar's peg to the U.S.
dollar, falling equity and real estate prices, and the continued economic
malaise of the region served to undermine our holdings in Asia. We've reduced
our holdings in Hong Kong; however, we've retained a small exposure to
Singapore's banks. These banks generally have a relatively higher level of
reserves and a better loan portfolio than others in the region.
* STAYING AWAY FROM CYCLICALS, COMMODITIES
Going forward, we expect to continue to avoid companies that deal in
commodities, oil, and basic technology industries. As the Asian crisis
inflicts a deflationary force on the world, these are the companies that are
likely to suffer the most. Instead, we will look for companies with
established growth rates and reasonable valuations that can retain pricing
power irrespective of any global slowdown.
International investing involves certain risks, including economic
instability, political developments, and currency fluctuations, not present
with U.S. investments. 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 6/30/98, there is no guarantee
the fund will continue to hold these securities in the future.
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 6/30/98
Class A Class B Class M
(inception date) (2/28/91) (6/1/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 20.73% 13.81% 19.87% 14.87% 20.18% 16.00%
- ------------------------------------------------------------------------
5 years 137.07 123.54 128.28 126.28 131.83 123.72
Annual average 18.84 17.45 17.95 17.74 18.31 17.47
- ------------------------------------------------------------------------
Life of fund 167.29 151.83 151.69 151.69 157.07 148.09
Annual average 14.35 13.43 13.42 13.42 13.75 13.20
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/98
MSCI EAFE Consumer
Index Price Index
- ------------------------------------------------------------------------
1 year 6.10% 1.68%
- ------------------------------------------------------------------------
5 years 61.30 12.88
Annual average 10.04 2.45
- ------------------------------------------------------------------------
Life of fund 71.29 20.92
Annual average 7.61 2.62
- ------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect
the applicable contingent deferred sales charge (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 expenses 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 OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of
a $10,000 investment since
2/28/91
Fund's class A MSCI EAFE Consumer Price
Date shares at POP Index Index
2/28/91 9,421 10,000 10,000
6/30/91 8,930 8,887 10,089
6/30/92 9,780 8,829 10,400
6/30/93 10,623 10,619 10,712
6/30/94 13,364 12,425 10,979
6/30/95 13,867 12,630 11,313
6/30/96 16,669 14,307 11,624
6/30/97 20,858 16,144 11,891
6/30/98 $25,183 $17,129 $12,092
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 $25,169 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$25,707 ($24,809 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 6/30/98
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
- ------------------------------------------------------------------------------
6/30/98 20.00 21.22 19.63 19.85 20.57
- ------------------------------------------------------------------------------
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class 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, Australasia 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.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
* Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Report of independent accountants
For the fiscal year ended June 30, 1998
To the Trustees and Shareholders of
Putnam International Growth Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam
International Growth Fund (the "fund") at June 30, 1998, and the results of
its operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statements presentation. We believe that our audits, which included
confirmation of investments owned at June 30, 1998, by correspondence with the
custodian and the application of alternative auditing procedures where
investments purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 17, 1998
Portfolio of investments owned
June 30, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (93.6%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Australia (0.4%)
- -------------------------------------------------------------------------------------------------------------
3,522,984 QBE Insurance Group Ltd. $ 12,410,063
Brazil (0.8%)
- -------------------------------------------------------------------------------------------------------------
500 Telecomunicacoes de Sao Paulo S.A. 15,640,290
3,125 Telecomunicacoes de Sao Paulo S.A. Rights (NON) 49,989
111,200 Telesp Celular S.A. (NON) 9,326,762
--------------
25,017,041
Canada (6.3%)
- -------------------------------------------------------------------------------------------------------------
2,015,285 Bank of Nova Scotia 49,959,416
1,416,986 BCE Inc. (NON) 60,195,597
519,529 BCE Mobile Communications, Inc. (NON) 13,539,541
26,400 BCE Mobile Communications, Inc. 144A (NON) 688,015
1,184,600 Bombardier, Inc. 32,284,527
1,343,677 National Bank 26,320,579
497,776 Northern Telecom Ltd. 28,285,406
--------------
211,273,081
Denmark (0.4%)
- -------------------------------------------------------------------------------------------------------------
139,617 Unidanmark AS 12,538,444
Finland (2.3%)
- -------------------------------------------------------------------------------------------------------------
131,500 Huhtamaki I Free 7,517,159
895,382 Oy Nokia AB Class A 65,773,388
107,900 Sampo Insurance Co., Ltd. Class A 5,107,320
--------------
78,397,867
France (14.6%)
- -------------------------------------------------------------------------------------------------------------
318,424 AGF (Assurances Generales de France) 17,977,201
155,416 Alcatel Alsthom CGE S.A. 31,573,083
778,515 Banque Nationale de Paris 63,468,341
154,618 Bouygues SA 28,017,257
244,918 Credit Commercial de France 20,573,193
227,400 Elf Aquitaine S.A. (NON) 31,898,672
705,584 Michelin Corp. Class B 40,638,472
771,500 SCOR 48,827,503
286,642 Societe Generale 59,461,837
191,866 Societe Television Francaise 29,668,858
512,700 STMicroelectronics -- NY shares (NON) 35,824,913
72,170 Total S.A. Class B 9,361,436
337,733 Vivendi 71,955,328
--------------
489,246,094
Germany (8.3%)
- -------------------------------------------------------------------------------------------------------------
436,191 Bayer AG ADR (NON) 22,539,552
30,761 Bayerische Motoren Werke (BMW) AG 31,058,825
10,689 Bayerische Motoren Werke (BMW) Rights AG (NON) 10,644,647
318,540 Bayerische Vereinsbank AG 26,963,552
518,562 Deutsche Bank AG 43,780,117
1,316,690 Deutsche Lufthansa AG 33,108,471
875,430 Deutsche Telekom AG (NON) 23,925,999
514,940 Mannesmann AG 52,847,231
464,600 Veba (Vereinigte Elektrizitaets Bergwerks) AG 31,191,818
--------------
276,060,212
Greece (0.2%)
- -------------------------------------------------------------------------------------------------------------
304,302 Hellenic Telecommunication Organization S.A. 7,792,881
Hong Kong (1.2%)
- -------------------------------------------------------------------------------------------------------------
11,754,000 China Telecom Ltd. (NON) 20,408,094
1,269,500 Dao Heng Bank Group Ltd. 1,802,685
2,853,600 Guoco Group Ltd. 3,002,238
5,413,000 Smartone Telecommunications (NON) 13,206,700
--------------
38,419,717
Ireland (4.2%)
- -------------------------------------------------------------------------------------------------------------
3,317,820 Allied Irish Banks PLC 47,814,232
2,375,695 Bank of Ireland 48,460,990
3,055,188 CRH PLC (NON) 43,263,625
--------------
139,538,847
Italy (1.8%)
- -------------------------------------------------------------------------------------------------------------
11,500 Gucci Group N.V. 609,500
8,312,477 Telecom Italia SPA 61,085,624
--------------
61,695,124
Japan (8.1%)
- -------------------------------------------------------------------------------------------------------------
1,190,000 Canon, Inc. (NON) 26,942,419
15,270 Circle K Japan Co. Ltd. 530,109
448,000 Fuji Photo Film Co. 15,552,643
1,038,000 Fujitsu Ltd. 10,892,543
309,000 Honda Motor Co., Ltd. 10,971,462
236,300 Mabuchi Motor 14,946,017
406,000 Matsushita-Kotobuki Electronics Industries, Ltd. 10,096,741
646,000 Mitsumi Electric Company, Ltd. 11,375,688
11,940,000 Nikko Securities Co. Ltd. 49,345,919
48,340 Nippon Television Network Corp. 13,967,278
392,900 Promise Co., Ltd. 16,124,906
1,423,000 Ricoh Co., Ltd. (NON) 14,942,876
731,000 Shiseido Co., Ltd. (NON) 8,280,426
771,800 Sony Corp. 66,290,569
--------------
270,259,596
Mexico (0.5%)
- -------------------------------------------------------------------------------------------------------------
966,500 Coca-Cola Femsa S.A. ADR 16,792,938
Netherlands (7.7%)
- -------------------------------------------------------------------------------------------------------------
1,410,488 ABN AMRO Holding N.V. 32,943,684
229,300 Akzo-Nobel N.V. 50,878,047
1,347,580 Internationale Nederlanden Groep 88,075,395
690,128 Philips Electronics N.V. 57,905,735
175,396 TNT Post Group N.V. (NON) 4,475,266
338,176 Vedior N.V. (NON) 9,541,276
342,700 Vendex International N.V. 12,863,862
--------------
256,683,265
Poland (0.1%)
- -------------------------------------------------------------------------------------------------------------
213,700 Bank Handlowy 144A (NON) 4,078,361
Portugal (1.0%)
- -------------------------------------------------------------------------------------------------------------
244,900 Cimpor-Cimentos de Portugal, SGPS, S.A. 8,589,504
1,004,802 Electricidade de Portugal S.A. (NON) 23,317,241
--------------
31,906,745
Singapore (1.7%)
- -------------------------------------------------------------------------------------------------------------
2,008,100 Development Bank of Singapore Ltd. 11,142,869
6,027,000 Overseas Chinese Banking Corp. 20,566,914
5,294,000 Overseas Union Bank Ltd. 11,624,807
4,033,000 United Overseas Bank Ltd. 12,565,727
--------------
55,900,317
South Korea (1.0%)
- -------------------------------------------------------------------------------------------------------------
3,224,200 Korea Electric Power Corp. 34,477,900
Spain (1.2%)
- -------------------------------------------------------------------------------------------------------------
870,056 Telfonica de Espana 40,202,694
Sweden (5.2%)
- -------------------------------------------------------------------------------------------------------------
48,957 Fastighetspartner NF AB 486,997
666,753 ForeningsSparbanken AB 20,022,613
2,921,833 Nordbanken Holding AG 21,387,292
1,292,330 Pharmacia & Upjohn, Inc. ADS 59,344,986
510,977 Svenska Handelsbanken 23,656,344
1,176,954 Telefonaktiebolaget LM Ericsson Class B 34,313,100
548,592 Volvo AB 16,302,628
--------------
175,513,960
Switzerland (10.6%)
- -------------------------------------------------------------------------------------------------------------
23,859 Edipresse S.A. 6,549,837
54,904 Georg Fischer AG 21,325,451
15,126 Julius Baer Holdings AG 47,250,079
12,585 Liechtenstein Global Trust AG 13,753,193
36,996 Nestle S.A. 79,057,944
28,147 Novartis AG ADR 46,769,604
62,230 Publicitas Holding S.A. 19,254,839
23,410 Sairgroup (NON) 7,690,316
235,245 UBS AG (NON) 87,345,741
41,813 Zurich Versicherungs-Gesellschaft 26,645,809
--------------
355,642,813
United Kingdom (15.5%)
- -------------------------------------------------------------------------------------------------------------
3,708,003 Avis Europe PLC 144A ADR (NON) 16,770,731
5,957,504 B A T Industries PLC (NON) 59,583,381
1,891,400 Bass PLC 35,405,659
3,115,187 British Airways PLC 33,674,693
669,600 British Petroleum Co. PLC 9,755,206
1,731,600 Dixons Group PLC 13,797,011
869,759 Glaxo Wellcome PLC 26,081,925
1,759,000 Granada Group PLC 32,311,490
21,943 HSBC Holdings PLC 536,784
834,200 Molins PLC 3,031,351
2,133,006 National Westminster Bancorp Inc. 38,079,487
2,324,100 Orange PLC ADR (NON) 24,600,169
240,300 Premier Farnell PLC 1,217,690
1,654,983 Rio Tinto PLC 18,621,165
175,396 Royal PTT 6,738,718
5,554,900 Securicor Group PLC (NON) 45,186,179
1,554,295 Siebe PLC 31,012,526
3,782,100 Smithkline Beecham PLC ADR 46,116,558
2,312,232 Smiths Industries PLC 31,990,354
1,225,471 Tomkins PLC 6,644,004
3,032,908 Vodafone Group PLC 38,447,491
--------------
519,602,572
United States (0.5%)
- -------------------------------------------------------------------------------------------------------------
201,500 AFLAC Inc. 6,107,969
354,700 DSC Communications Corp. (NON) 10,641,000
--------------
16,748,969
--------------
Total Common Stocks (cost $2,653,831,230) $3,130,199,501
SHORT-TERM INVESTMENTS (6.8%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$13,000,000 Corporate Receivables Co. effective yield of 5.54%,
August 12, 1998 $ 12,915,977
10,098,000 Delaware Funding Corp. effective yield of 5.53%,
August 4, 1998 10,045,260
25,000,000 Eureka Securitization effective yield of 5.56%,
July 15, 1998 24,945,944
25,000,000 Federal Home Loan Mortgage Corp. effective yield
of 5.44%, August 27, 1998 24,784,668
25,000,000 Federal National Mortgage Association effective yield
of 5.425%, September 23, 1998 24,683,542
25,000,000 Scotiabanc Inc. effective yield of 5.51%, August 3, 1998 24,873,728
105,761,000 Interest in $750,000,000 joint repurchase agreement
dated June 30, 1998 with Goldman Sachs & Co.
due July 1, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $105,778,039 for
an effective yield of 5.8% 105,778,039
--------------
Total Short-Term Investments (cost $228,027,158) $ 228,027,158
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,881,858,388) (b) $3,358,226,659
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,345,589,030.
(b) The aggregate identified cost on a tax basis is $2,900,972,146, resulting in gross unrealized appreciation
and depreciation of $553,217,216 and $95,962,703, respectively, or net unrealized appreciation of
$457,254,513.
(NON) 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, 1998 (as a percentage
of net assets):
Insurance and Finance 28.2%
Telecommunications 12.4
Electronics and Electrical Equipment 11.0
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at June 30, 1998
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $236,079,455 $230,568,087 9/14/98 $(5,511,368)
- ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
June 30, 1998
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $2,881,858,388) (Note 1) $ 3,358,226,659
- ---------------------------------------------------------------------------------------------------
Cash 15,604
- ---------------------------------------------------------------------------------------------------
Foreign currency (cost $12,813,105) 12,655,136
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivable 11,812,911
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 22,710,241
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 77,630,320
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,503,393
- ---------------------------------------------------------------------------------------------------
Total assets 3,484,554,264
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 110,047,775
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 15,079,432
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,101,096
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 342,107
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 16,072
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 8,065
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,283,001
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 5,511,368
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 576,318
- ---------------------------------------------------------------------------------------------------
Total liabilities 138,965,234
- ---------------------------------------------------------------------------------------------------
Net assets $3,345,589,030
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,785,069,016
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 23,677,636
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 66,091,770
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 470,750,608
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $3,345,589,030
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,827,331,049 divided by 91,374,038 shares) $20.00
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $20.00)* $21.22
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,226,916,826 divided by 62,505,510 shares)** $19.63
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($140,202,051 divided by 7,063,956 shares) $19.85
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $19.85)* $20.57
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($151,139,104 divided by 7,537,829 shares) $20.05
- ---------------------------------------------------------------------------------------------------
* 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, 1998
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $2,306,241) $ 45,742,560
- --------------------------------------------------------------------------------------------------
Interest 8,137,805
- --------------------------------------------------------------------------------------------------
Total investment income 53,880,365
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 15,329,230
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 8,477,557
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 43,896
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 28,761
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 3,056,605
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 8,254,308
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 737,396
- --------------------------------------------------------------------------------------------------
Reports to shareholders 143,217
- --------------------------------------------------------------------------------------------------
Registration fees 488,454
- --------------------------------------------------------------------------------------------------
Auditing 55,594
- --------------------------------------------------------------------------------------------------
Legal 20,514
- --------------------------------------------------------------------------------------------------
Postage 260,666
- --------------------------------------------------------------------------------------------------
Other 231,574
- --------------------------------------------------------------------------------------------------
Total expenses 37,127,772
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (773,375)
- --------------------------------------------------------------------------------------------------
Net expenses 36,354,397
- --------------------------------------------------------------------------------------------------
Net investment income 17,525,968
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 118,482,637
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 10,524,356
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (8,362,070)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 316,246,490
- --------------------------------------------------------------------------------------------------
Net gain on investments 436,891,413
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $454,417,381
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended June 30
--------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 17,525,968 $ 4,804,657
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 129,006,993 57,568,626
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 307,884,420 143,110,522
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 454,417,381 205,483,805
- ----------------------------------------------------------------------------------------------------------------------
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 (988,741) (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 (4,501,470) (237,370)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 1,649,963,229 860,838,080
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,989,231,074 1,058,947,510
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 1,356,357,956 297,410,446
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $23,677,636 and $21,000,293, respectively) $3,345,589,030 $1,356,357,956
- ----------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $17.58 $14.25 $12.10 $11.83 $9.58
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .20(c) .15(c) .13(c) .08(d) (.06)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.26 3.39 2.29 .36 2.53
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.46 3.54 2.42 .44 2.47
- ------------------------------------------------------------------------------------------------------------------------------------
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 $20.00 $17.58 $14.25 $12.10 $11.83
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 20.73 25.13 20.21 3.76 25.81
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,827,331 $728,849 $151,088 $32,856 $8,781
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.36 1.59 1.74 1.61 (d) 2.17(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) 1.07 .98 .99 .97 (d) (.17)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 93.53 86.40 44.14 25.83 96.13
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0274 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 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) .06(c) .03(c) .04(c) .01(d) (.01)(c)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.21 3.34 2.26 .34 .05
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.27 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 $19.63 $17.32 $14.10 $12.00 $11.82
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 19.87 24.09 19.35 3.00 0.34*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,226,917 $472,663 $132,013 $25,892 $2,470
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.11 2.34 2.49 2.41 (d) .15(d)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .31 .18 .32 .23 (d) (.06)(d)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 93.53 86.40 44.14 25.83 96.13
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0274 $.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
Per-share Dec. 1,1994+
operating performance Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 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) .10(c) .07(c) .08(c) .03(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.26 3.36 2.28 .36
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.36 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 $19.85 $17.48 $14.22 $12.09
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 20.18 24.40 19.71 3.33*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $140,202 $58,471 $14,309 $1,777
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.86 2.09 2.25 1.61(d)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .54 .44 .61 .58(d)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 93.53 86.40 44.14 25.83
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0274 $.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 Year ended July 12, 1996+
operating performance June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $17.60 $13.88
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .22(c) .20(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.30 3.75
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.52 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 $20.05 $17.60
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 21.08 25.44*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $151,139 $96,375
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.11 1.30*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) 1.22 1.26*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 93.53 86.40*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commision
rate paid (e) $.0274 $.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, 1998
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 are subject to a contingent deferred sales charge, if those shares
are redeemed within six years of purchase. Class M shares are sold with a
maximum front end sales charge of 3.50% and pay an ongoing distribution fee
that is 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
invest at least $250 million in a combination of Putnam Funds and other
accounts managed by affiliates of Putnam Management.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if
that fund were liquidated. In addition, the Trustees declare separate
dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with 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, and other assets and liabilities are recorded in the books and
records of the fund after translation to U.S. dollars based on the exchange
rates on that day. The cost of each security is determined using historical
exchange rates. Income and withholding taxes are translated at prevailing
exchange rates when accrued or incurred. The fund does not isolate that
portion of realized or unrealized gains or losses resulting from changes in
the foreign exchange rate on investments from fluctuations arising from
changes in the market prices of the securities. Such gains and losses are
included with the net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains or losses oncontracts, 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 year ended June 30, 1998, 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. These temporary and permanent
differences include losses on wash sale transactions, treatment of of realized
gains and losses on forward foreign currency contracts, foreign taxes, and
realized and unrealized 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, 1998,
the fund reclassified $10,138,851 to increase undistributed net investment
income and $19,754 to increase paid-in-capital, with a decrease to accumulated
net realized gain on investments of $10,158,605. 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% thereafter.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended June 30, 1998, fund expenses were reduced by $773,375 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 $2,030 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 year ended June 30, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $1,806,198 and $127,201 from the sale
of class A and class M shares, respectively and received $994,981 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of class
A shares. For the year ended June 30, 1998, Putnam Mutual Funds Corp., acting
as underwriter received $93,193 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended June 30, 1998, purchases and sales of investment
securities other than short-term investments aggregated $3,383,201,065 and
$1,993,192,122, 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, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
June 30, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 123,266,783 $2,252,767,517
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,480,561 59,099,849
- ------------------------------------------------------------
126,747,344 2,311,867,366
Shares
repurchased (76,840,446) (1,405,944,518)
- ------------------------------------------------------------
Net increase 49,906,898 $ 905,922,848
- ------------------------------------------------------------
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, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 46,843,691 $ 847,319,199
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,153,109 36,043,044
- ------------------------------------------------------------
48,966,800 883,362,243
Shares
repurchased (13,778,805) (245,963,625)
- ------------------------------------------------------------
Net increase 35,217,995 $ 637,398,618
- ------------------------------------------------------------
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, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 5,937,401 $ 108,032,817
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 286,746 4,846,002
- ------------------------------------------------------------
6,224,147 112,878,819
Shares
repurchased (2,504,865) (45,375,018)
- ------------------------------------------------------------
Net increase 3,719,282 $ 67,503,801
- ------------------------------------------------------------
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, 1998
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 3,562,355 $ 66,835,897
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 357,524 6,077,838
- ------------------------------------------------------------
3,919,879 72,913,735
Shares
repurchased (1,857,165) (33,775,773)
- ------------------------------------------------------------
Net increase 2,062,714 $ 39,137,962
- ------------------------------------------------------------
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 $105,268,552 as capital gain, which includes $17,917,717
as 20% capital gain, for its taxable year ended June 30, 1998.
For the period, interest and dividends from foreign countries were $47,780,872
or $.284 per share (for all share classes). Taxes paid to foreign countries
were $2,093,350 or $.012 per share (for all classes of shares).
The fund has designated .12% of the distributions from net investment income
as qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
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
PricewaterhouseCoopers LLP
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
Ian C. 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
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 the 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
- --------------------
AN009-44643 841/524/891/2BA 8/98
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- --------------------------------------------------------------------------
Putnam International Growth Fund
Supplement to Annual Report dated 6/30/98
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.
ANNUAL RESULTS AT A GLANCE
- --------------------------------------------------------------------------
Total return: NAV
Six months ended 6/30/98 20.13%
One year ended 6/30/98 21.08
Life of class (since 7/12/96) 55.93
Annual average 25.36
- --------------------------------------------------------------------------
Share value: NAV
6/30/97 $17.60
6/30/98 20.05
- --------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 $0.2770 $0.7910 $1.0680
- --------------------------------------------------------------------------
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.
