Putnam
International
Growth
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
12-31-98
[LOGO: BOSTON * LONDON * TOKYO]
* Putnam International Growth Fund's class A shares were ranked in the top
5% by Lipper Analytical Services for the 5-year period ended December 31,
1998. The fund ranked 7 out of 149 international funds ranked.*
* Morningstar, an independent rating agency, gave the fund's class A
shares 4 out of 5 stars for overall performance as of December 31, 1998
(based on the fund's average annual returns for the 3- and 5-year
periods). Only 22.5% of the 862 international equity funds rated receive 4
stars.+
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
18 Financial statements
* 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. For the 1-year period ended 12/31/98, the fund ranked 111 out of
527 funds. The fund was not ranked over longer periods. Performance of
other share classes will vary.
+ Morningstar ratings reflect risk-adjusted performance through 12/31/98
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 862 and 407
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.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam International Growth Fund began fiscal 1999 just as the world's
equity investors were hastily shifting assets from stocks to high-quality
bonds in the aftermath of a global financial crisis. By the time the
fund's fiscal year reached its midpoint on December 31, 1998, the mood had
begun to change and investors were edging their way back to stocks.
European equities were among the beneficiaries of this brightening mood.
Your fund's managers are now watching Europe's reactions to the historic
introduction of the euro with interest. In Asia, recently beset by
financial and economic woes, brighter prospects for semiconductor stocks
have led to some additions to the portfolio in this sector. Overall,
technology weightings have been increased, while financial and oil
allocations have been trimmed.
Your fund's managers are generally optimistic about prospects for
international equity markets over the near term. In the following report,
they comment both on first-half performance and the outlook for the
remainder of fiscal '99.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
February 17, 1999
Report from the Fund Managers
Justin M. Scott
Omid Kamshad
The year 1998 will be long remembered for the dramatic highs and lows
investors experienced on a day-to-day basis and for an unusual period of
widespread equity weakness late in the summer of 1998. Although most
international markets ended the year on an upbeat note, many stocks did
not quite return to the high levels they had reached during the summer.
Your fund -- which looks for companies with the combination of solid
earnings growth and attractive valuations -- posted steady gains in the
first half of the year but did not post further growth during the second
half of the year. Consequently, the fund had a modest loss of -0.86% at
net asset value (-6.56% at public offering price) for the six months that
ended December 31, 1998, the first half of the fund's 1999 fiscal year. To
see the fund's competitive ranking over longer time periods, please turn
to page 2. For more information on the fund's performance, including the
performance of other share classes, please turn to page 9.
* EURO ARRIVES IN EUROPE; EMPHASIS ON CONTINENT MAINTAINED
One of the most significant economic events of the post-World War II
period occurred on January 1, 1999, with the commencement of Europe's
Economic and Monetary Union (EMU) in 11 countries. European stocks and
bonds are now denominated in euros, and local currencies will cease to
circulate in 2002. We have spent some time evaluating potential
opportunities for the fund in light of this important change. Overall we
believe EMU will only enhance the strong restructuring and consolidation
trend that has already benefited shareholders in European equities.
Companies will now be forced to compete within global sectors rather than
local markets and the investment attributes of firms will be more
transparent and comparable for investors than they have been in the past.
As for developments during the fund's semiannual period, we continued to
emphasize continental Europe over the United Kingdom. Growth rates in
Europe remained higher than those in the United Kingdom, and European
interest rates were lower than their British counterparts. Britain, which
opted out of EMU at least for now, has been suffering from a slowing
economy and a prohibitively strong currency.
* TELECOMMUNICATIONS CONTINUES AS MAJOR FOCUS
Across Europe and around the world, we have built significant positions in
fixed line and wireless telecommunications companies. From operators to
equipment makers, telecommunications companies have offered some of the
strongest growth rates in the world. Once controlled by national
monopolies, this industry is now dominated by intense competition and
innovation related to improvements in the transmission of voice, data, and
video, whether over land lines or the Internet.
Wireless communications and the increasingly ubiquitous, mobile handsets
offer significant growth potential as the now-established digital
technology moves to broadband communications, which can offer a multitude
of useful features. A Financial Times columnist observed in the January
12, 1999, issue: "Mobile phones will play an increasingly important role
in the mix of telecom technologies. They will soon start to dictate the
economics of the industry."
[GRAPHIC OMITTED: horizontal bar chart COUNTRY ALLOCATIONS]
COUNTRY ALLOCATIONS*
France 15.1%
United Kingdom 14.3%
Switzerland 11.7%
Japan 10.2%
Netherlands 8.4%
Footnote reads:
*Based on net assets as of 12/31/98. Holdings will vary over time.
One mobile phone company held by your fund, Nokia, based in Finland, is a
leader in cellular infrastructure and handset production. During the year,
the company moved ahead of rivals Ericsson and Motorola in the European,
Asian, and North American markets. Additionally just as many
telecommunications companies have benefited from the move from analog to
digital technology, Nokia is well positioned to benefit from the
development of several exciting types of applications related to broadband
technology. While this holding, along with others discussed in this
report, was viewed favorably at the end of the period, all are subject to
review and adjustment in accordance with the fund's investment strategy
and may vary in the future.
* SEMICONDUCTOR REBOUND PROMPTS PURCHASES IN ASIA AND EUROPE
In the past couple of years, semiconductors have endured a slump in prices
based on excess manufacturing capacity and falling demand. Lately this
price cycle has stabilized and made the prospects of memory chip
manufacturers more appealing. Consequently, we have established positions
in several well-known Asian chip makers, including Samsung of South Korea
and Fujitsu of Japan. These companies were selected for the fund not only
because of our optimism about the semiconductor business cycle but also
because of their leadership as relatively shareholder-friendly companies.
Unlike many other companies in Japan and South Korea, these two have taken
steps to address the concerns of their shareholders.
In Europe, we raised the fund's weighting in STMicroelectronics. Based in
France, the company has benefited from the recent rebound in the global
semiconductor market. More importantly, though, STMicroelectronics does
not depend on commodity-type chips such as DRAMs, whose prices suffered
the most during the recent worldwide supply glut. The company produces
some of the more sophisticated products used in digital products and by
the telecommunications and personal computer industries.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Pharmacia & Upjohn, Inc. (Sweden)
Pharmaceuticals
Internationale Nederlanden Groep (Netherlands)
Insurance and finance
Telecom Italia S.p.A. (Italy)
Insurance and finance
Novartis AG ADR (Switzerland)
Pharmaceuticals
Mannesmann AG (Germany)
Business equipment and services
Vivendi (France)
Environmental control
Nestle S.A. (Switzerland)
Food and beverage
Banque National de Paris (France)
Insurance and finance
Oy Nokia AB Class A (Finland)
Telecommunications
Akzo-Nobel N.V. (Netherlands)
Chemicals
Footnote reads:
These holdings represent 22.0% of the fund's net assets as of 12/31/98.
Portfolio holdings will vary over time.
* EXPOSURE TO FINANCE AND OIL COMPANIES REDUCED
The third quarter of 1998 was marked by severe downturns in the financial
markets, with financial firms around the world forced to absorb steep
losses in emerging-markets securities and trading revenues. Obviously
European companies were not alone in feeling the negative effects of the
extreme levels of market volatility. We took the opportunity presented by
the strong rebound in the financial markets in the fourth quarter to
reduce the fund's exposure to certain financial companies that had ceased
to meet our investment criteria.
We also continued to avoid companies sensitive to the historically low
prices found in many types of commodities -- particularly oil. Given our
expectations of generally slower economic growth throughout the world, we
do not anticipate these firms being able to show solid growth rates for
the foreseeable future. As some of the recent large-scale oil mergers
reveal, it is becoming quite difficult for these companies to increase
their earnings.
* OUTLOOK REMAINS OPTIMISTIC DESPITE SLOWER GROWTH PROSPECTS
We remain reasonably optimistic about the current investment environment
in the international markets. Although growth may be somewhat slower in
Europe, we believe continental Europe will continue to offer better growth
relative to the rest of the world as well as the potential for additional
corporate consolidation activity. Additionally, in the United Kingdom, we
have begun to target certain companies that offer value in strong
industries such as media. We will continue to de-emphasize stocks that are
sensitive to commodity price changes as well as companies from troubled
areas such as Latin America.
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 12/31/98, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, such as currency fluctuations, economic
instability, and political developments.
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 12/31/98
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 -0.86% -6.56% -1.22% -6.04% -1.13% -4.60%
- ------------------------------------------------------------------------------
1 year 18.95 12.09 18.09 13.09 18.36 14.23
- ------------------------------------------------------------------------------
5 years 85.73 74.99 78.79 76.79 81.61 75.30
Annual average 13.18 11.84 12.32 12.07 12.68 11.88
- ------------------------------------------------------------------------------
Life of fund 165.01 149.67 148.63 148.63 154.15 145.27
Annual average 13.24 12.38 12.32 12.32 12.63 12.12
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/98
MSCI Consumer
EAFE Index Price Index
- ------------------------------------------------------------------------------
6 months 3.51% 0.74%
- ------------------------------------------------------------------------------
1 year 20.00 1.80
- ------------------------------------------------------------------------------
5 years 55.23 12.62
Annual average 9.19 2.41
- ------------------------------------------------------------------------------
Life of fund 77.30 21.81
Annual average 7.58 2.55
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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 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. Returns do not take into
account any adjustment for taxes payable on reinvested distributions.
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 12/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.211 $0.099 $0.131
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.360 0.360 0.360
- ------------------------------------------------------------------------------
Short-term -- -- --
- ------------------------------------------------------------------------------
Total $0.571 $0.459 $0.491
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
6/30/98 $20.00 $21.22 $19.63 $19.85 $20.57
- ------------------------------------------------------------------------------
12/31/98 19.23 20.40 18.91 19.11 19.80
- ------------------------------------------------------------------------------
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 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B 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
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
list of equity securities from Europe, Australia and the Far East, with
all values expressed in U.S. dollars. 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.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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<TABLE>
<CAPTION>
Portfolio of investments owned
December 31, 1998 (Unaudited)
COMMON STOCKS (97.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Australia (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,353,250 Cable and Wireless Optus 144A $ 4,935,812
2,621,500 Coles Myer Ltd. (NON) 13,706,054
994,155 News Corp. Ltd. ADR 26,282,973
10,000 Woolworth Ltd. 33,975
--------------
44,958,814
Brazil (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,027,700 Companhia Energetica de Minas Gerais ADR 19,783,225
1,162,150 Telesp Celular Participacoes S.A. (NON) 8,562,198
259,200 Telesp Participacoes S.A. (NON) 5,900,662
--------------
34,246,085
Canada (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,101,967 Bank of Nova Scotia 46,351,772
1,661,757 BCE Inc. 62,811,266
690,229 BCE Mobile Communications, Inc. (NON) 18,715,782
26,400 BCE Mobile Communications, Inc. 144A (NON) 715,844
1,644,900 Bombardier, Inc. 23,644,430
76,300 Royal Bank of Canada 3,816,276
--------------
156,055,370
Finland (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
553,114 Huhtamaki I Free 21,054,472
533,301 Oy Nokia AB Class A 64,877,194
438,800 Sampo Insurance Co., Ltd. Class A 16,660,022
--------------
102,591,688
France (15.1%)
- --------------------------------------------------------------------------------------------------------------------------
7,998 AGF (Assurances Generales de France) 477,702
366,330 AXA S.A. (NON) 53,094,155
802,182 Banque National de Paris 66,055,462
209,564 Bouygues SA 43,197,475
149,115 Credit Commercial de France 13,847,708
64,317 Groupe Danone 18,413,441
215,104 Elf Aquitaine S.A. (NON) 24,863,955
172,300 France Telecom S.A. 13,688,550
13,600 ISIS Holdings 970,959
388,750 Lafarge Coppee 36,936,363
687,783 Michelin Corp. Class B 27,505,413
680,350 SCOR 44,981,718
236,434 Societe Generale (NON) 38,286,680
216,956 Societe Television Francaise 1 38,626,375
806,273 STMicroelectronics N.V. ADR (NON) 62,939,686
1,033,916 Telfonica S.A. (NON) 918,000
202,399 Total S.A. Class B 20,498,118
338,557 Vivendi 87,839,328
--------------
593,141,088
Germany (6.8%)
- --------------------------------------------------------------------------------------------------------------------------
24,178 Bayerische Motoren Werke (BMW) AG 18,772,686
9,720 Bayerische Motoren Werke-New 7,208,431
874,300 Deutsche Telekom AG (NON) 28,770,576
1,300,038 Hoechst AG (NON) 53,943,809
766,570 Mannesmann AG 87,921,017
513,808 Veba (Vereinigte Elektrizitaets Bergwerks) AG 30,761,219
498,237 Volkswagon AG 39,791,942
--------------
267,169,680
Greece (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
736,733 Hellenic Telecommunication Organization S.A. 19,591,865
346,281 Hellenic Telecommunication Organization SA ADR (NON) 4,588,223
--------------
24,180,088
Hong Kong (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,216,000 China Telecom Ltd. (NON) 2,103,426
5,858,000 Hong Kong and China Gas Co., Ltd. 7,448,597
3,125,000 Smartone Telecommunications 8,673,160
1,265,000 Smartone Telecommunications 144A (NON) 3,510,895
--------------
21,736,078
Ireland (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,372,420 Allied Irish Banks PLC (NON) 42,439,296
2,563,126 Bank of Ireland 56,979,953
3,410,095 CRH PLC 58,821,411
--------------
158,240,660
Italy (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
347,300 Banca Popolare Di Brescia 8,475,393
11,880,448 Telecom Italia S.p.A. 101,438,295
10,478,200 Unione Immobiliare S.p.A. (NON) 5,469,425
--------------
115,383,113
Japan (10.2%)
- --------------------------------------------------------------------------------------------------------------------------
258,000 Canon, Inc. 5,505,125
509,100 Chubu Electric Power, Inc. 10,255,766
70 Circle K Japan Co. Ltd. 3,074
354,000 Eisai Co. Ltd. 6,881,074
2,534,000 Fujitsu Ltd. 33,695,618
445,000 Honda Motor Co., Ltd. 14,586,941
22,200 Kita Kyushu Coca-Cola Bottling 694,363
256,100 Mabuchi Motor 19,572,937
743,000 Matsushita-Kotobuki Electronics Industries, Ltd. 16,018,024
901,400 Mitsumi Electric Company, Ltd. 19,034,688
77,000 Murata Manufacturing Co. Ltd. 3,190,758
12,776,000 Nikko Securities Co. Ltd. 35,557,872
5,224 Nippon Telegraph and Telephone Corp. (NON) 40,248,524
62,950 Nippon Television Network Corp. 18,521,249
339,300 Promise Co., Ltd. 17,627,531
1,186,000 Ricoh Co., Ltd. 10,918,996
29,000 Rohm Co. Ltd. (NON) 2,636,597
1,671,000 Sankyo Co., Ltd. (NON) 36,467,309
160,000 Shin-Etsu Chemical Co. (NON) 3,845,202
570,000 Shiseido Co., Ltd. (NON) 7,312,599
295,000 Sony Corp. 21,451,228
177,000 TDK Corp. 16,154,886
550,600 Tokyo Electric Power Co. 13,572,840
1,415,000 Yamanouchi Pharmaceutical Co., Ltd. 45,508,040
--------------
399,261,241
Mexico (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,292,100 Coca-Cola Femsa S.A. ADR 17,120,325
8,075,400 Fomento Economico Mexicano, S.A. de C.V. 22,023,818
573,900 Grupo Televisa S.A.GDR (NON) 14,168,156
602,525 Telefonos de Mexico S.A. ADR Class L 29,335,436
--------------
82,647,735
Netherlands (8.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,425,569 Akzo-Nobel N.V. 64,850,306
199,800 ASM Lithography Holding N.V. (NON) 6,093,900
37,230 Benckiser N.V. 2,436,441
93,230 Equant N.V. (NON) 6,487,582
303,088 Gucci Group N.V. 14,737,654
1,744,562 Internationale Nederlanden Groep 106,279,515
1,539,182 Koninklijke Ahold N.V. 56,833,855
282,015 Laurus N.V. (NON) 7,112,260
332,817 Philips Electronics N.V. 22,311,754
621,995 TNT Post Group N.V. (NON) 20,021,653
531,006 Vedior NV (NON) 10,453,430
483,968 Vendex International N.V. (NON) 11,741,921
--------------
329,360,271
Poland (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
213,700 Bank Handlowy 144A (NON) 2,640,003
Portugal (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
294,700 Cimpor-Cimentos de Portugal, SGPS, S.A. 9,393,035
1,157,019 Electricidade de Portugal S.A. 25,435,607
551,915 Portugal Telecom S.A. (NON) 25,266,920
--------------
60,095,562
Singapore (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,339,000 Oversea Chinese Banking Corp. 36,251,470
2,971,000 United Overseas Bank Ltd. 19,092,210
--------------
55,343,680
South Korea (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,849,129 Korea Electric Power Corp. 45,919,853
461,500 Pohang Iron & Steel Company, Ltd. ADR 7,787,813
457,580 Samsung Electronics Co. 30,772,255
--------------
84,479,921
Spain (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,033,916 Telfonica de Espana 45,972,870
Sweden (5.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,587,824 Ericsson Class B (NON) 37,740,152
563,713 ForeningsSparbanken AB 14,578,784
1,779,837 Nordbanken Holding AG 11,397,971
1,915,221 Pharmacia & Upjohn, Inc. (NON) 107,082,553
206,100 Sandvik AB Class B (NON) 3,553,448
555,350 SKF AB Class B 6,463,125
336,477 Svenska Handelsbanken 14,171,815
644,347 Volvo AB 14,759,673
--------------
209,747,521
Switzerland (11.7%)
- --------------------------------------------------------------------------------------------------------------------------
20,894 Cie Finance Richemont 29,542,154
23,859 Edipresse S.A. 6,861,525
47,054 Georg Fischer AG (NON) 15,913,056
16,321 Julius Baer Holdings AG 54,244,896
2,797 Kuoni Reisen AG (NON) 11,098,398
35,842 Nestle S.A. 78,025,177
51,241 Novartis AG ADR 100,728,381
62,230 Publicitas Holding S.A. 19,029,195
63,250 Swisscom AG (NON) 26,478,886
197,778 UBS AG (NON) 60,766,157
3,756,352 Zurich Allied PLC (NON) 55,820,833
--------------
458,508,658
United Kingdom (14.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,493,003 Avis Europe PLC 144A ADR 6,211,752
2,159,288 Bass PLC 31,318,312
4,017,889 British Airways PLC (NON) 26,989,864
4,975,700 Cable and Wireless PLC 60,950,653
2,630,389 Dixons Group PLC (NON) 36,864,923
2,544,900 EMI Group PLC (NON) 16,958,073
3,073,900 Granada Group PLC (NON) 54,137,527
3,792,900 Marks & Spencer PLC 25,918,615
2,431,906 National Westminster Bancorp Inc. (NON) 46,720,766
2,999,169 Orange PLC ADR (NON) 34,725,386
692,686 Royal PTT 34,643,514
39,700 Scottish Power PLC 406,357
7,032,600 Securicor Group PLC (NON) 58,752,478
10,922,572 Siebe PLC (NON) 42,909,455
2,477,500 Smithkline Beecham PLC ADR 34,496,314
2,150,232 Smiths Industries PLC 30,563,226
1,185,008 Vodafone Group PLC 19,171,268
--------------
561,738,483
United States (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
693,058 AFLAC Inc. 30,494,552
--------------
Total Common Stocks (cost $3,173,411,521) $3,837,993,161
SHORT-TERM INVESTMENTS (3.2%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$25,000,000 Corporate Receivables Corp., for an effective yield
of 5.12%, March 12, 1999 $ 24,751,100
13,000,000 Federal National Mortgage for an effective yield
of 5.04%, February 19,1999 12,910,820
25,000,000 National Australia Funding for an effective yield
of 5.17%, February 2,1999 24,885,110
40,000,000 National Rural Utilities for an effective yield
of 5.02%, March 26,1999 39,531,480
25,000,000 Windmill Funding for an effective yield of 5.33%,
January 29,1999 24,896,360
--------------
Total Short-Term Investments (cost $126,974,870) $ 126,974,870
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,300,386,391) (b) $3,964,968,031
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,927,251,548.
(b) The aggregate identified cost on a tax basis is $3,319,500,149, resulting in gross unrealized appreciation and
depreciation of $742,854,924 and $97,387,042, respectively, or net unrealized appreciation of $645,467,882.
(NON) Non-income-producing security.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
ADR and GDR after the name of a foreign holding stands for American Depository Receipts and Global Depository
Receipts, 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 December 31, 1998 (as a
percentage of net assets):
Insurance and Finance 15.6%
Telecommunications 13.3
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,300,386,391) (Note 1) $3,964,968,031
- -----------------------------------------------------------------------------------------------
Cash 422,348
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivable 6,561,277
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 24,407,778
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 7,985,294
- -----------------------------------------------------------------------------------------------
Total assets 4,004,344,728
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 84,404
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 34,797,639
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 8,463,407
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,344,769
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,155,729
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 22,225
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 8,273
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,669,905
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 23,319,369
- -----------------------------------------------------------------------------------------------
Other accrued expenses 1,227,460
- -----------------------------------------------------------------------------------------------
Total liabilities 77,093,180
- -----------------------------------------------------------------------------------------------
Net assets $3,927,251,548
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,470,517,892
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (19,405,736)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (188,469,629)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 664,609,021
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,927,251,548
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,169,422,139 divided by 112,805,084 shares) $19.23
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $19.23)* $20.40
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,446,045,310 divided by 76,470,548 shares)** $18.91
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($159,613,731 divided by 8,351,045 shares) $19.11
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $19.11)* $19.80
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($152,170,368 divided by 7,891,689 shares) $19.28
- -----------------------------------------------------------------------------------------------
* 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
Six months ended December 31, 1998 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $2,157,600) $11,432,155
- -----------------------------------------------------------------------------------------------
Interest 5,332,315
- -----------------------------------------------------------------------------------------------
Total investment income 16,764,470
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 10,955,094
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 6,254,252
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 30,881
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 16,698
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,406,997
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,395,675
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 537,068
- -----------------------------------------------------------------------------------------------
Reports to shareholders 76,755
- -----------------------------------------------------------------------------------------------
Registration fees 206,636
- -----------------------------------------------------------------------------------------------
Auditing 39,452
- -----------------------------------------------------------------------------------------------
Legal 8,872
- -----------------------------------------------------------------------------------------------
Postage 395,371
- -----------------------------------------------------------------------------------------------
Other 393,350
- -----------------------------------------------------------------------------------------------
Total expenses 27,717,101
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (677,879)
- -----------------------------------------------------------------------------------------------
Net expenses 27,039,222
- -----------------------------------------------------------------------------------------------
Net investment loss (10,274,752)
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (152,691,617)
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (31,225,454)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 5,645,044
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 188,213,369
- -----------------------------------------------------------------------------------------------
Net gain on investments 9,941,342
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(333,410)
- -----------------------------------------------------------------------------------------------
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
1998* 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (10,274,752) $ 17,525,968
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions (183,917,071) 129,006,993
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 193,858,413 307,884,420
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (333,410) 454,417,381
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (22,568,753) (14,955,356)
- ---------------------------------------------------------------------------------------------------------------
Class B (7,287,243) (7,467,011)
- ---------------------------------------------------------------------------------------------------------------
Class M (1,060,969) (988,741)
- ---------------------------------------------------------------------------------------------------------------
Class Y (1,891,655) (1,576,368)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (38,505,930) (47,508,780)
- ---------------------------------------------------------------------------------------------------------------
Class B (26,499,065) (34,141,073)
- ---------------------------------------------------------------------------------------------------------------
Class M (2,915,639) (4,010,737)
- ---------------------------------------------------------------------------------------------------------------
Class Y (2,723,694) (4,501,470)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 685,448,876 1,649,963,229
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 581,662,518 1,989,231,074
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 3,345,589,030 1,356,357,956
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income and undistributed net investment
income of $19,405,736 and $23,677,636, respectively) $3,927,251,548 $3,345,589,030
- ---------------------------------------------------------------------------------------------------------------
* 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 December 31
operating performance (Unaudited) Year ended June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $20.00 $17.58 $14.25 $12.10 $11.83 $9.58
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.03)(c) .20(c) .15(c) .13(c) .08(d) (.06)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.17) 3.26 3.39 2.29 .36 2.53
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.20) 3.46 3.54 2.42 .44 2.47
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.25) (.15) (.26) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) (.79) (.06) (.01) (.11) (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.57) (1.04) (.21) (.27) (.17) (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.23 $20.00 $17.58 $14.25 $12.10 $11.83
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (0.86)* 20.73 25.13 20.21 3.76 25.81
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,169,422 $1,827,331 $728,849 $151,088 $32,856 $8,781
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .66* 1.36 1.59 1.74 1.61(d) 2.17(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.15)* 1.07 .98 .99 .97(d) (.17)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 45.56* 93.53 86.40 44.14 25.83 96.13
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
ended For the period
Per-share December 31 June 1, 1994+
operating performance (Unaudited) Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.63 $17.32 $14.10 $12.00 $11.82 $11.78
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.10)(c) .06(c) .03(c) .04(c) .01(d) (.01)(c)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.16) 3.21 3.34 2.26 .34 .05
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.26) 3.27 3.37 2.30 .35 .04
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.17) (.09) (.19) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) (.79) (.06) (.01) (.11) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.46) (.96) (.15) (.20) (.17) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.91 $19.63 $17.32 $14.10 $12.00 $11.82
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (1.22)* 19.87 24.09 19.35 3.00 0.34*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,446,045 $1,226,917 $472,663 $132,013 $25,892 $2,470
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.03* 2.11 2.34 2.49 2.41(d) .15(d) *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.53)* .31 .18 .32 .23(d) (.06)(d) *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 45.56* 93.53 86.40 44.14 25.83 96.13
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
ended For the period
Per-share December 31 Dec. 1, 1994
operating performance (Unaudited) Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.85 $17.48 $14.22 $12.09 $11.87
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.07)(c) .10(c) .07(c) .08(c) .03(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.18) 3.26 3.36 2.28 .36
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.25) 3.36 3.43 2.36 .39
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.13) (.20) (.11) (.22) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) (.79) (.06) (.01) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.06)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.49) (.99) (.17) (.23) (.17)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.11 $19.85 $17.48 $14.22 $12.09
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (1.13)* 20.18 24.40 19.71 3.33*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $159,614 $140,202 $58,471 $14,309 $1,777
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .91* 1.86 2.09 2.25 1.61(d)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.40)* .54 .44 .61 .58(d) *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 45.56* 93.53 86.40 44.14 25.83
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
ended For the period
Per-share December 31 Year ended July 12, 1996+
operating performance (Unaudited) June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $20.05 $17.60 $13.88
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) --(c) .22(c) .20(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.17) 3.30 3.75
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.17) 3.52 3.95
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.28) (.17)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) (.79) (.06)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.60) (1.07) (.23)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.28 $20.05 $17.60
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (0.73)* 21.08 25.44*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $152,170 $151,139 $96,375
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .53* 1.11 1.30*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.03)* 1.22 1.26*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 45.56* 93.53 86.40
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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.
</TABLE>
Notes to financial statements
December 31, 1998 (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 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 Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.
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 Management. 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). 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 realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
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 six months
ended December 31, 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.
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 by
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 fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At December 31, 1998, 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, a
subsidiary of Putnam Investments, Inc. Investor servicing agent functions
are provided by Putnam Investor Services, a division of PFTC.
For the six months ended December 31, 1998, fund expenses were reduced by
$677,879 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 $2,760
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, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $746,455 and $71,936
from the sale of class A and class M shares, respectively and received
$917,299 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 six months ended December 31, 1998,
Putnam Mutual Funds Corp., acting as underwriter received $88,240 on class
A redemptions.
Note 3
Purchase and sales of securities
During the six months ended December 31, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$2,180,087,118 and $1,507,803,283, 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, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 87,094,073 $1,602,662,837
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,117,216 57,169,538
- -----------------------------------------------------------------------------
90,211,289 1,659,832,375
Shares
repurchased (68,780,243) (1,265,887,572)
- -----------------------------------------------------------------------------
Net increase 21,431,046 $ 393,944,803
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 20,840,947 $381,959,273
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,608,382 29,015,072
- -----------------------------------------------------------------------------
22,449,329 410,974,345
Shares
repurchased (8,484,291) (150,468,165)
- -----------------------------------------------------------------------------
Net increase 13,965,038 $260,506,180
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,689,285 $49,371,325
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 207,986 3,791,747
- -----------------------------------------------------------------------------
2,897,271 53,163,072
Shares
repurchased (1,610,182) (29,096,582)
- -----------------------------------------------------------------------------
Net increase 1,287,089 $24,066,490
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,485,178 $27,298,629
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 245,463 4,615,349
- -----------------------------------------------------------------------------
1,730,641 31,913,978
Shares
repurchased (1,376,781) (24,982,575)
- -----------------------------------------------------------------------------
Net increase 353,860 $ 6,931,403
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
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
www.putnaminv.com
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
SA009-49325 841/524/891/2BA 2/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- --------------------------------------------------------------------------
Putnam International Growth Fund
Supplement to Semiannual Report dated 12/31/98
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.
SEMIANNUAL RESULTS AT A GLANCE
- --------------------------------------------------------------------------
Total return: NAV
Six months ended 12/31/98 -0.73%
One year ended 12/31/98 19.26
Life of class (since 7/12/96) 61.22
Annual average 20.60
- --------------------------------------------------------------------------
Share value: NAV
6/30/98 $20.05
12/31/98 19.28
- --------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 $ 0.025 $ 0.360 $ 0.385
- --------------------------------------------------------------------------
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.
