Putnam
Global Growth
and Income
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Lipper Analytical Services, an independent rating agency, ranked Putnam
Global Growth and Income Fund class A shares' total return 18th out of 136
global equity funds for the three years ended September 30, 1998. This
ranking is in the top 14% of the fund's investment category.*
* Morningstar, Inc., an independent rating agency, has recognized the
solid risk-adjusted performance of the fund by awarding its class A shares
4 out of 5 stars for overall performance within Morningstar's
international funds category as of September 30, 1998. Only 22.5% of the
819 international funds rated received 4 stars.+
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
21 Financial statements
* Past performance is not indicative of future results. Lipper Analytical
Services, an independent research organization, ranks funds according to
total return performance. Their rankings vary over time and do not reflect
the effects of sales charges. For the period ended 9/30/98, class A shares
ranked 98 out of 201 for 1-year return. The fund was not ranked over
periods longer than three years. Performance of other share classes will
vary.
+ Past performance is not indicative of future results. Morningstar
ratings reflect risk-adjusted performance through 9/30/98 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 3-year performance, the fund received 4
stars. There were 819 international equity funds rated; 10% of the funds
in an investment category receive 5 stars; the next 22.5% receive 4 stars.
The fund was not rated over longer time periods. Performance of other
share classes will vary.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
There is no question that market volatility such as we have been
experiencing over the past year generates uneasiness among equity
investors. But it is important for investors to remember that it also
creates investment opportunities for those who choose to look beyond the
turmoil.
The managers of Putnam Global Growth and Income Fund believe the pessimism
currently afflicting the world's stock markets masks positive investment
conditions in many of these markets, notably those in the United States
and Europe. Therefore, while maintaining a generally defensive portfolio
strategy, they are using current market volatility to seek out temporarily
depressed stocks of fundamentally sound companies. In this way, the
managers believe the portfolio will be positioned to maximum advantage
when the markets eventually turn around.
This approach should be reassuring to shareholders with long-term
investment horizons, patience, and faith in the future. In the following
report, your fund's managers provide a review of fiscal 1998 performance
as they view fiscal 1999 with optimism.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 18, 1998
Report from the Fund Managers
Deborah F. Kuenstner
Hugh H. Mullin
George W. Stairs
Global markets experienced many ups, downs, and twists during Putnam
Global Growth and Income Fund's fiscal year that ended on September 30,
1998. Because your fund invests in undervalued large-capitalization stocks
primarily from developed markets, we were able to sidestep the most
sensational events -- crises in Southeast Asia, Russia, and Latin America
- -- as well as the ongoing weak performance of other emerging markets.
However, even in the developed markets, Japan's recession, worries of
slower economic growth around the world, and a short-term squeeze on
corporate profits combined to deal a setback to major equity averages,
especially in contrast to their record highs in early summer.
We are pleased to report that in fiscal 1998 the fund earned its first
four-star rating for risk-adjusted performance from Morningstar, an
independent rating agency. We are not happy, however, to report the fund's
first negative return for a fiscal period. For the year ended September
30, 1998, the fund's class A shares returned -5.72% (-11.12% at public
offering price). Despite this recent loss, the fund's return since its
January 3, 1995, inception is 66.26%, well ahead of the 62.81% return of
its benchmark, the MSCI World Index, during the same time period. For the
performance of other share classes, please turn to the performance summary
that begins on page 9 of this report.
* TUMULTUOUS MARKETS ANTICIPATE SLOWER GROWTH
As the fund's fiscal year began, much of Asia, including Japan, the
world's second largest economy, was headed into recession. Investors
wondered whether global corporations, especially those that operate in the
Far East, would be able to meet their profit expectations and whether the
Asian recession would spread to Europe and the Americas. For the first
couple of months of the fiscal year, pessimism mounted and investors moved
money out of stocks. At the beginning of calendar 1998, however, investors
again bid up equity prices, sending U.S. and European stocks into record
territory. The rally came to a halt in July, though, because of worries
about global financial companies in the wake of Russia's debt default and
Japan's stalled banking reforms.
Despite this recent turmoil, we believe that the setting for equities is
still generally positive. Long-term interest rates are now low and
short-term rates are falling. Inflation is also low, and most leading
indicators point to continued growth in the United States and Europe,
albeit at a lower rate than previously foreseen. More and more
corporations around the world are embracing strategies to enhance
shareholder value and are undertaking the sorts of positive changes we
seek, such as cutting costs, introducing new technology, and repurchasing
stock, all of which benefit your fund in particular. After the recent
downdraft in world markets, many of these companies are even more
attractively priced, meeting our criteria for value investing.
* STRATEGY ENCOURAGES DEFENSIVE POSITIONING
In analyzing stocks of large companies in U.S. and international markets,
we look for those that are attractively priced relative to the companies'
earnings, assets, cash flow, or yield. After screening for these
qualities, we focus on those companies undergoing positive fundamental
change. This rigorous selection process reassures us in tumultuous
periods; even after stocks have fallen to what we consider bargain prices,
our method ensures that we target companies that we consider to have the
strongest potential for future growth in value.
[GRAPHIC OMITTED: horizontal bar chart of TOP COUNTRY ALLOCATIONS]
TOP COUNTRY ALLOCATIONS*
United States 51.4%
United Kingdom 8.7%
France 6.8%
Japan 6.6%
Netherlands 4.3%
Footnote reads:
*Based on net assets as of 9/30/98. Holdings will vary over time.
During the past year, we frequently added to existing positions in
beaten-down industries. For example, we increased the fund's technology
and energy positions early in the fiscal year when these industries were
among the first to feel the effects of Asia's recession. We believe our
decisions were ultimately rewarded during the volatility of August and
September, when stocks from both sectors outperformed the market averages.
The French oil company Total, for example, ended the fiscal year
outperforming the overall French market.
Large pharmaceutical companies also offered a safer haven during bouts of
market volatility. An example is Pharmacia & Upjohn, which has appreciated
to become one of the fund's largest holdings. Under new executive
leadership this year, this Swedish-American pharmaceutical company has
executed its restructuring efforts and has many attractive new products in
its development pipeline. Thanks to these internal company qualities, the
stock made relatively steady gains even amid market volatility. Although
these holdings, as well as others mentioned in this report, were viewed
favorably at the end of the reporting period, all portfolio holdings are
subject to review and adjustment in accordance with the fund's investment
strategy and may vary in the future.
* INTERNAL CHANGES PROGRESS IN SPITE OF EXTERNAL CONDITIONS
While our selection strategy gives the fund a conservative or defensive
bias, it is also effective in a volatile market; it helps us identify
companies experiencing internal change that seem likely to make progress
regardless of external economic or market conditions. As already
mentioned, the oil industry has had a tough year because of lower Asian
demand for gasoline and industrial raw materials. The industry nonetheless
benefited from a positive event when British Petroleum agreed to purchase
Amoco, both being fund holdings. The leadership of British Petroleum in
the new combination is especially encouraging because its managers have a
strong track record of raising shareholder value by cutting costs and
repurchasing stock.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
General Electric Co.
United States -- Electronics and electrical equipment
Philips Electronics
Netherlands -- Electronics and electrical equipment
ENI S.P.A.
Italy -- Oil and gas
Elf Aquitaine
France -- Oil and gas
IBM Corp.
United States -- Computer software and services
Vivendi
France -- Conglomerate
Telecom Italia S.P.A.
Italy -- Telephone services
Pharmacia & Upjohn, Inc.
United States -- Pharmaceuticals and biotechnology
Akzo-Nobel N.V.
Netherlands -- Chemicals
Sony Corp.
Japan -- Electronics and electrical equipment
These holdings represent 12.0% of the fund's net assets as of 9/30/98.
Portfolio holdings will vary over time.
Vivendi, one of the fund's largest holdings, is a classic case of
restructuring. Formerly known as Generale des Eaux, this company was a
water utility that owned a variety of smaller companies. Under the
leadership of Jean-Marie Messier, who became chairman in 1996, the company
has shed many of its unrelated and less productive units. It has cut costs
in its core water business while expanding its presence in the growing
telecommunications industry. All of these moves have enhanced shareholder
value and the stock has responded positively.
Among new holdings that have compelling stories of internal change are St.
George Bank, Compaq, and McDonald's. St. George Bank is an Australian
retail bank currently integrating its operations with a merger partner,
Advance Bank. The merger is providing earnings growth through cost
reductions even as the Australian economy remains sluggish. We added
Compaq, the U.S. computer company, early in the year when technology
stocks were down. Compaq's price had dropped because of its high inventory
of PCs and because of its takeover of Digital Equipment Corporation (DEC).
We took an independent view of the situation, believing that the DEC
acquisition was a wise move because it added computer services to complete
Compaq's product line. The stock's solid performance since we purchased it
has rewarded our confidence.
Finally we added McDonald's earlier this year. The stock had
underperformed the market for the past few years and was attractively
valued when its executives announced strategic changes to enhance
profitability. They have cut back on opening new U.S. restaurants and have
focused on more efficient food preparation and providing customers a
better overall experience. Although McDonald's has a long path to
recovery, our investment team believes that management has been taking the
right steps.
* CONTINUED FOCUS ON MANAGING RISK
The volatility in global markets during the past year has had one
beneficial effect: investors seem to be evaluating the risks of
international investing more carefully. We believe that our strategy has
always taken these risks into account. By analyzing industries and
companies on a global level, we are able to find the best combination of
cheapness and positive change in large companies whether in the United
States or international markets. Although the fund's short-term returns
are influenced by external factors such as worries about economic growth
rates, long-term returns are powered by the success of the financially
sound, undervalued companies we own and their success in undertaking
positive changes that reward shareholders.
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 9/30/98, 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, not present with domestic
investments.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Global Growth and Income Fund is designed for investors seeking capital
growth through investing primarily in stocks of companies in the United
States and worldwide.
TOTAL RETURN FOR PERIODS ENDED 9/30/98
Class A Class B Class M
(inception date) (1/3/95) (11/3/97) (11/3/97)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year -5.72% -11.12% -6.51% -11.04% -6.38% -9.63%
- ------------------------------------------------------------------------------
Life of fund 66.26 56.68 60.27 57.27 61.79 56.21
Annual average 14.56 12.76 13.44 12.87 13.73 12.67
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/98
S&P MSCI MSCI Consumer
500(R) EAFE WORLD Price
Index Index Index Index
- ------------------------------------------------------------------------------
1 year 9.05% -8.34% 0.14% 1.36%
- ------------------------------------------------------------------------------
Life of fund 139.15 19.37 62.81 9.15
Annual average 26.19 4.84 13.89 2.36
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. 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-year 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. 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. Performance data do not reflect an expense limitation
which is currently in effect. Without the expense limitation, total
returns would have been lower.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
[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
1/3/95
Fund's class A MSCI World Consumer Price S&P 500 MSCI EAFE
Date shares at POP Index Index Index
1/3/95 9,425 10,000 10,000 10,000 10,000
3/31/95 9,368 10,468 10,114 10,974 10,186
9/30/95 10,687 11,524 10,234 12,977 10,688
3/31/96 11,756 12,564 10,401 14,496 11,442
9/30/96 12,413 13,100 10,542 15,615 11,609
3/31/97 13,932 13,739 10,688 17,370 11,609
9/30/97 16,618 16,259 10,768 21,931 13,023
3/31/98 18,416 18,131 10,835 25,708 13,769
9/30/98 $15,668 $16,281 $10,915 $23,915 $11,937
Footnote reads:
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 $16,027 at NAV ($15,727 at CDSC); a $10,000 investment in
the fund's class M shares would have been valued at $16,179 ($15,621 at
public offering price). See first page of performance section for
performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 9/30/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 4 1 2
- ------------------------------------------------------------------------------
Income $0.094 $0.053 $0.060
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.139 0.139 0.139
- ------------------------------------------------------------------------------
Short-term 0.172 0.172 0.172
- ------------------------------------------------------------------------------
Total $0.405 $0.364 $0.371
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
9/30/97 $12.50 $13.26 -- -- --
- ------------------------------------------------------------------------------
11/3/97 -- -- $12.01 $12.01 $12.45
- ------------------------------------------------------------------------------
9/30/98 11.39 12.08 11.34 11.35 11.76
- ------------------------------------------------------------------------------
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
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Standard and Poor's 500(R) Index* is an unmanaged list of common stocks
whose performance assumes reinvestment of all distributions. It is
frequently used as a general measure of stock market performance.
Morgan Stanley Capital International (MSCI) World Index* is an unmanaged
list of global equity securities, with all values expressed in U.S.
dollars.
Europe, Australia, and Far East (EAFE)* component of Morgan Stanley
Capital International (MSCI) World Index is an unmanaged list of
approximately 1,045 equity securities originating in 18 countries listed
on the stock exchanges of Europe, Australia, and the Far East, with all
values expressed in U.S. dollars. Performance figures reflect changes in
market prices and reinvestment of distributions net of withholding taxes.
The MSCI EAFE Index and the Standard & Poor's 500 Index that were included
as comparative benchmarks in previous shareholder reports will no longer
be included because the MSCI World Index, which contains both U.S. and
international securities, is a sufficient comparative benchmark.
*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.
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Report of independent accountants
For the fiscal year ended September 30, 1998
To the Trustees of Putnam Investment Funds and
Shareholders of Putnam Global Growth and Income Fund
(a series of Putnam Investment Funds)
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
Global Growth and Income Fund (the "fund") at September 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 statement presentation. We believe that our audits, which
included confirmation of investments owned at September 30, 1998 by
correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 11, 1998
<TABLE>
<CAPTION>
Portfolio of investments owned
September 30, 1998
COMMON STOCKS (96.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,431 Lockheed Martin Corp. $ 144,263
Airlines (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
18,566 British Airways PLC (United Kingdom) 113,530
1,630 Delta Air Lines, Inc. 158,518
--------------
272,048
Automobiles (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
8,000 Honda Motor Co., Ltd. (Japan) 242,868
4,475 Ford Motor Co. 210,045
6,506 Volvo AB (Sweden) 158,895
--------------
611,808
Banks (12.7%)
- --------------------------------------------------------------------------------------------------------------------------
19,335 Allied Irish Banks PLC (Ireland) 282,993
21,247 Bank of Nova Scotia (Canada) 347,287
2,435 BankAmerica Corp. 146,404
4,176 BankBoston Corp. 137,808
2,245 Bankers Trust New York Corp. (CUS) 132,455
3,543 Chase Manhattan Corp. 153,235
2,177 Citicorp 202,325
113,500 Dao Heng Bank Group Ltd. (Hong Kong) 145,748
72,472 Den Norske Bank A.S.A. (Norway) 227,563
3,496 Deutsche Bank AG (Germany) 180,770
57,900 Development Bank of Singapore Ltd. (Singapore) 233,177
2,680 First Chicago NBD Corp. 183,580
1,560 First Tennessee National Corp. 42,608
3,822 First Union Corp. 195,639
2,536 Fleet Financial Group, Inc. 186,238
5,552 ForeningsSparbanken AB (Sweden) 127,121
17,473 HSBC Holdings PLC (United Kingdom) 320,212
1,800 Huntington Bancshares, Inc. 45,225
111 Julius Baer Holdings AG (Switzerland) 261,413
928 Mercantile Bancorporation, Inc. 44,892
19,223 National Bank of Canada (Canada) 282,784
16,943 National Westminster Bancorp Inc. (United Kingdom) 227,357
3,493 NationsBank Corp. 186,876
3,542 PNC Bank Corp. 159,390
1,876 Societe Generale (France) 207,826
1,450 Summit Bancorp 54,375
4,057 Washington Mutual, Inc. 136,924
42,205 Westpac Banking Corp. (Australia) 232,798
--------------
5,085,023
Broadcasting (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
969 Television Francaise 1 (France) 166,215
Building Products (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
63,589 Cemex, S.A. de C.V. (Mexico) 140,509
30,801 CRH PLC (Ireland) 388,711
133,000 Pioneer International Ltd. (Australia) 248,856
--------------
778,076
Business Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
140,484 Fomento Economico Mexicano, S.A. de C.V. (Mexico) 280,691
Cable Television (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,615 Comcast Corp. Class A 216,617
Chemicals (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
12,642 Akzo-Nobel N.V. (Netherlands) 450,156
9,477 Bayer AG ADR (Germany) (NON) 358,298
6,915 du Pont (E.I.) de Nemours & Co., Ltd. 388,104
2,970 Eastman Chemical Co. 149,799
1,740 Hoechst AG (Germany) 71,935
--------------
1,418,292
Computer Software and Services (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
11,850 Compaq Computer Corp. 374,756
3,608 Computer Associates Intl., Inc. 133,496
3,657 IBM Corp. 468,096
--------------
976,348
Conglomerates (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
162,232 BTR PLC (United Kingdom) 292,790
3,404 Cooper Industries, Inc. 138,713
2,217 Minnesota Mining & Manufacturing Co. 163,365
73,273 Tomkins PLC (United Kingdom) 343,514
990 United Technologies Corp. 75,673
2,332 Vivendi (France) 465,017
--------------
1,479,072
Consumer Products (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,465 Clorox Co. 120,863
2,340 Colgate-Palmolive Co. 160,290
16,000 KAO Corp. (Japan) 255,157
3,505 Kimberly-Clark Corp. 141,953
14,644 Unilever Group (United Kingdom) 125,242
--------------
803,505
Electric Utilities (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,523 Duke Energy Corp. 233,179
740 Electrabel S.A. (Belgium) 292,218
3,595 Entergy Corp. 110,546
2,200 Iberdrola II (Spain) (NON) 36,242
15,964 Iberdola S.A. (Spain) (NON) 266,367
400 Public Service Enterprise Group, Inc. 15,750
20,326 Scottish Power PLC (United Kingdom) 196,797
5,495 Southern Co. 161,759
6,290 Veba (Vereinigte Elektrizitaets Bergwerks) AG (Germany) 327,879
--------------
1,640,737
Electronics and Electrical Equipment (7.3%)
- --------------------------------------------------------------------------------------------------------------------------
118,598 Cookson Group PLC (United Kingdom) 219,581
3,276 Emerson Electric Co. 203,931
7,025 General Electric Co. 558,927
3,838 Motorola, Inc. 163,835
9,817 Philips Electronics N.V. (Netherlands) 529,563
28,000 Ricoh Co., Ltd. (Japan) 258,083
9,418 Seagate Technology, Inc. (NON) 236,039
108,235 Siebe PLC (United Kingdom) 349,311
6,100 Sony Corp. (Japan) 423,475
--------------
2,942,745
Farm Equipment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,679 Deere (John) & Co. 111,290
Financial Services (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
675 Ahmanson (H.F.) & Co. 37,463
2,900 Morgan Stanley, Dean Witter, Discover and Co. 124,881
138,000 Nikko Securities Co. Ltd. (Japan) 295,786
5,806 Norwest Corp. 207,927
8,700 Promise Co., Ltd. (Japan) 391,405
744 Suez Lyonnaise Eaux Finance (France) (NON) 126,823
1,564 UBS AG (Switzerland) 306,000
--------------
1,490,285
Food and Beverages (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,522 Anheuser-Busch Cos., Inc. 244,188
33,036 Bass PLC (United Kingdom) 395,610
7,212 ConAgra, Inc. 194,273
2,666 General Mills, Inc. 186,620
4,459 Heinz (H.J.) Co. 227,966
30,000 Kirin Brewery Co. Ltd. 239,649
2,545 McDonald's Corp. 151,905
96 Nestle S.A. (Switzerland) (NON) 191,583
4,220 Sara Lee Corp. 227,880
--------------
2,059,674
Health Care Services (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,250 Aetna Inc. 156,375
3,621 United Healthcare Corp. 126,735
5,893 Tenet Healthcare Corp. (NON) 169,424
--------------
452,534
Insurance and Finance (6.8%)
- --------------------------------------------------------------------------------------------------------------------------
7,934 ABN AMRO Holding N.V. (Netherlands) 135,354
2,542 AGF (Assurances Generales de France) (France) 140,349
24,657 Allied Zurich AG (United Kingdom) (NON) 252,127
3,279 Allstate Corp. 136,693
1,937 American Express Co. 150,360
3,320 American General Corp. 212,065
2,565 AON Corp. 165,443
2,640 CIGNA Corp. 174,570
4,145 Fannie Mae 266,316
300 Hartford Financial Services Group 14,231
7,315 Internationale Nederlanden Groep (Netherlands) 330,061
95,890 Istituto Nazionale delle Assicurazioni (Italy) 244,402
5,075 KeyCorp 146,541
1,782 Morgan (J.P.) & Co., Inc. 150,802
2,373 SCOR (France) 141,194
2,301 Travelers Group, Inc. 86,288
--------------
2,746,796
Metals and Mining (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
7,771 Freeport-McMoRan Copper & Gold Co., Inc. Class A 90,824
2,144 Freeport-McMoRan Copper & Gold Co., Inc. Class B 25,460
16,867 Rio Tinto PLC (Australia) 200,982
--------------
317,266
Networking (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,977 3Com Corp. (NON) 179,684
Office Equipment (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,069 Xerox Corp. 175,348
Oil and Gas (9.4%)
- --------------------------------------------------------------------------------------------------------------------------
750 Amoco Corp. 40,406
3,160 Atlantic Richfield Co. 224,163
24,139 British Petroleum Co. PLC (United Kingdom) 369,023
1,920 Burlington Resources Inc. 71,760
4,085 Elf Aquitaine S.A. (France) (NON) 504,366
86,195 Ente Nazionale Idrocarburi (ENI) SPA (Italy) (NON) 529,352
5,703 Exxon Corp. 400,279
3,049 Mobil Corp. 231,533
5,961 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 283,893
2,305 Schlumberger Ltd. 115,970
4,398 Sonat, Inc. 131,390
6,908 Tosco Corp. 148,522
3,345 Total Corp. ADR Class B, (France) 421,965
11,727 YPF S.A. ADR (Argentina) 304,902
--------------
3,777,524
Paper and Forest Products (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
31,149 Abitibi-Consolidated Inc. (Canada) 272,897
11,064 Svenska Cellulosa AB Class B, (Sweden) 218,142
2,652 Temple Inland, Inc. 126,965
--------------
618,004
Pharmaceuticals and Biotechnology (6.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,285 American Home Products Corp. 329,177
5,450 Baxter International, Inc. 324,275
3,330 Bristol-Myers Squibb Co. 345,904
2,905 Merck & Co., Inc. 376,379
184 Novartis AG ADR (Switzerland) 295,867
9,075 Pharmacia & Upjohn, Inc. 455,452
19,000 Sankyo Co., Ltd. (Japan) 419,750
--------------
2,546,804
Photography (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,000 Canon, Inc. (Japan) 121,580
2,395 Eastman Kodak Co. 185,163
7,000 Fuji Photo Film Co. (Japan) 240,673
--------------
547,416
Publishing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,715 McGraw-Hill, Inc. 135,914
2,920 Times Mirror Co. Class A 155,125
--------------
291,039
Retail (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,311 Dayton Hudson Corp. 189,868
6,060 K mart Corp. (NON) 72,341
3,011 Sears, Roebuck & Co. 133,049
6,597 Toys R Us (NON) 106,789
--------------
502,047
Semiconductors (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
3,965 Intel Corp. 339,999
7,190 STMicroelectronics N.V. ADR (France) (NON) 323,100
2,764 Texas Instruments, Inc. 145,800
--------------
808,899
Steel (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
15,106 SKF AB Class B, (Sweden) 186,387
1,366 Thyssen AG (Germany) 233,178
--------------
419,565
Telephone Services (8.6%)
- --------------------------------------------------------------------------------------------------------------------------
6,448 Ameritech Corp. 305,474
4,649 American Telephone & Telegraph Co. 271,676
4,226 Bell Atlantic Corp. 204,696
3,149 BellSouth Corp. 236,962
11,484 Deutsche Telekom AG (Germany) (NON) 357,112
10,908 Hellenic Telecommunication Organization S.A. (Greece) 262,102
25,200 Mahanager Telephone GDR 144A 299,376
6,147 Portugal Telecom S.A. (Portugal) 223,862
2,699 Sprint Corp. 194,328
50,200 Telecom Corp. of New Zealand Ltd. 89,176
28,500 Telecom Corp. of New Zealand Ltd. (New Zealand) 109,100
66,176 Telecom Italia SPA (Italy) 456,809
3,385 Telfonica de Espana (Spain) 123,707
5,804 U S West, Inc. 304,347
--------------
3,438,727
Tire and Rubber (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,567 Goodyear Tire & Rubber Co. (The) 131,880
6,231 Michelin Corp. Class B, (France) 244,938
--------------
376,818
Tobacco (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
24,057 BAT PLC (United Kingdom) (NON) 179,078
8,432 Philip Morris Cos., Inc. 388,398
5,590 RJR Nabisco Holdings Corp. 140,798
--------------
708,274
Transportation (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,841 Burlington Northern Santa Fe Corp. (NON) 186,912
10,817 Peninsular and Oriental Steam Navigation Co.
(United Kingdom) 102,893
--------------
289,805
--------------
Total Common Stocks (cost $43,089,537) $ 38,673,239
CONVERTIBLE PREFERRED STOCKS (0.5%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
1,408 K mart Financing I $3.875 cv. pfd. $ 70,400
2,900 St George Bank Ltd. 144A $4.50 cv. pfd. (Australia) 138,838
--------------
Total Convertible Preferred Stocks (cost $232,475) $ 209,238
CONVERTIBLE BONDS AND NOTES (0.3%) (a)(cost $115,537)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$100,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 $ 139,250
SHORT-TERM INVESTMENTS (4.5%) (a)(cost $1,791,271)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$1,791,000 Interest in $750,000,000 joint tri-party repurchase agreement
dated September 30, 1998 with Goldman Sachs and Co.
due October 1, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $1,791,271 for an effective
yield of 5.45%. $ 1,791,271
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $45,228,820) (b) $ 40,812,998
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $40,188,698
(b) The aggregate identified cost on a tax basis is $45,398,484, resulting in gross unrealized appreciation and
depreciation of $1,805,676 and $6,391,162, respectively, or net unrealized depreciation of $4,585,486.
(NON) Non-income-producing security.
(CUS) This entity provides subcustodian services to the fund.
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 after the name of a foreign holding stands for American Depository Receipts, respectively, representing
ownership of foreign securities on deposit with a domestic custodian bank.
Diversification by Country
Distribution of investments by country of issue at September 30, 1998, (as percentage of Market Value)
Australia 2.0%
Canada 2.2
France 6.7
Germany 3.8
Ireland 1.7
Italy 3.0
Japan 6.5
Mexico 1.0
Netherlands 4.2
Spain 1.0
Sweden 1.7
Switzerland 2.6
United Kingdom 8.6
United States 50.6
Others 4.4
------
Total 100.0%
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at September 30, 1998
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
British Pounds $ 774,303 $ 768,430 3/22/99 $(5,873)
Japanese Yen 1,538,687 1,571,101 3/15/99 32,414
- -------------------------------------------------------------------------------
$26,541
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $45,228,820) (Note 1) $40,812,998
- -----------------------------------------------------------------------------------------------
Cash 25,114
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $465,483) 474,877
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 153,188
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 59,962
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 448,894
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 32,414
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 12,233
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 4,022
- -----------------------------------------------------------------------------------------------
Total assets 42,023,702
Liabilities
- -----------------------------------------------------------------------------------------------
Distribution payable to shareholders 2,498
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 1,439,345
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 288,831
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 30,435
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,146
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,187
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 31,899
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 6,425
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 5,873
- -----------------------------------------------------------------------------------------------
Other accrued expenses 26,365
- -----------------------------------------------------------------------------------------------
Total liabilities 1,835,004
- -----------------------------------------------------------------------------------------------
Net assets $40,188,698
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $43,551,871
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 129,481
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 897,492
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (4,390,146)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $40,188,698
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($22,090,650 divided by 1,939,845 shares) $11.39
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $11.39)* $12.08
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($16,315,273 divided by 1,438,991 shares)** $11.34
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,782,775 divided by 157,027 shares) $11.35
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $11.35)* $11.76
- -----------------------------------------------------------------------------------------------
* 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 September 30, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $40,823) $ 625,231
- -----------------------------------------------------------------------------------------------
Interest 155,925
- -----------------------------------------------------------------------------------------------
Total investment income 781,156
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 222,110
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 222,467
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,919
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,597
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 38,784
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 108,530
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 8,228
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 771
- -----------------------------------------------------------------------------------------------
Reports to shareholders 20,993
- -----------------------------------------------------------------------------------------------
Registration fees 12,179
- -----------------------------------------------------------------------------------------------
Auditing 19,184
- -----------------------------------------------------------------------------------------------
Legal 3,277
- -----------------------------------------------------------------------------------------------
Postage 3,620
- -----------------------------------------------------------------------------------------------
Other 4,350
- -----------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (115,189)
- -----------------------------------------------------------------------------------------------
Total expenses 558,820
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (15,290)
- -----------------------------------------------------------------------------------------------
Net expenses 543,530
- -----------------------------------------------------------------------------------------------
Net investment income 237,626
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 946,207
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (60,487)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 33,674
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (4,900,511)
- -----------------------------------------------------------------------------------------------
Net loss on investments (3,981,117)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(3,743,491)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
-------------------------------
1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 237,626 $ 29,367
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 885,720 358,837
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies (4,866,837) 327,464
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (3,743,491) 715,668
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (98,477) (44,540)
- ---------------------------------------------------------------------------------------------------------------
Class B (18,908) --
- ---------------------------------------------------------------------------------------------------------------
Class M (2,182) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (229,559) (252,586)
- ---------------------------------------------------------------------------------------------------------------
Class B (110,952) --
- ---------------------------------------------------------------------------------------------------------------
Class M (10,348) --
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 41,517,210 389,976
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 37,303,293 808,518
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 2,885,405 2,076,887
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $129,481 and $59,193, respectively) $40,188,698 $2,885,405
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Jan. 3, 1995+
operating performance Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $12.50 $10.77 $9.64 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .16(d) .14 .21 .27
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.87) 3.13 1.30 .87
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.71) 3.27 1.51 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.23) (.36) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.31) (1.31) (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.40) (1.54) (.38) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.39 $12.50 $10.77 $9.64
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) (5.72) 33.88 16.14 13.41*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $22,091 $2,885 $2,077 $1,771
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a)(c) 1.70 1.48 1.27 .49*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(a) 1.14 1.19 2.03 3.04*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 62.96 103.92 222.89 21.68*
- ------------------------------------------------------------------------------------------------------------------------------------
Effective December 28, 1995, the fund expanded its investment flexibility to include securities outside
of the utilities sector. Information in the table prior to December 28, 1995 may not reflect those
that could have been achieved under the fund's current investment policies.
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation during the period (Note 2). As a result of such limitation, expenses of the
fund for the period ended September 30, 1998 reflect a reduction of $.05 per share for class A, class
B and class M. Expenses for the periods ended September 30, 1997, September 30, 1996 and September
30, 1995, reflect a reduction of approximately $.07, $.09 and $.20 per share for class A, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets includes amounts paid through expense offset
and brokerage service arrangements. (Note 2).
(d) Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Nov. 3, 1997+
operating performance to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $12.01
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .04(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.31)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.31)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.34
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) (2.62)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $16,315
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a) (c) 2.24*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (a) .39*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 62.96
- ------------------------------------------------------------------------------------------------------------------------------------
Effective December 28, 1995, the fund expanded its investment flexibility to include securities outside
of the utilities sector. Information in the table prior to December 28, 1995 may not reflect those
that could have been achieved under the fund's current investment policies.
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation during the period (Note 2). As a result of such limitation, expenses of the
fund for the period ended September 30, 1998 reflect a reduction of $.05 per share for class A, class
B and class M. Expenses for the periods ended September 30, 1997, September 30, 1996 and September
30, 1995, reflect a reduction of approximately $.07, $.09 and $.20 per share for class A, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets includes amounts paid through expense offset
and brokerage service arrangements. (Note 2).
(d) Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Nov. 3, 1997+
operating performance to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $12.01
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .07(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.06)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.31)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) (2.48)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,783
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a) (c) 2.02*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (a) .62*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 62.96
- ------------------------------------------------------------------------------------------------------------------------------------
Effective December 28, 1995, the fund expanded its investment flexibility to include securities outside
of the utilities sector. Information in the table prior to December 28, 1995 may not reflect those
that could have been achieved under the fund's current investment policies.
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation during the period (Note 2). As a result of such limitation, expenses of the
fund for the period ended September 30, 1998 reflect a reduction of $.05 per share for class A, class
B and class M. Expenses for the periods ended September 30, 1997, September 30, 1996 and September
30, 1995, reflect a reduction of approximately $.07, $.09 and $.20 per share for class A, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets includes amounts paid through expense offset
and brokerage service arrangements. (Note 2).
(d) Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding during the period.
</TABLE>
Notes to financial statements
September 30, 1998
Note 1
Significant accounting policies
Putnam Global Growth and Income Fund (the "fund") is a series of Putnam
Investment Funds (the "trust") which is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The objective of the fund is to seek capital growth.
Current income as a secondary objective, the fund invests primarily in
common stocks in a number of foreign countries and the United States.
The fund offers class A, class B and class M shares. The fund began
offering class B and M on November 3, 1997. Class A shares are sold with a
maximum front-end sales charge of 5.75%. Class B shares, which convert to
class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A
shares, and are subject to a contingent deferred sales charge, if those
shares are redeemed within six years of purchase. Class M shares are sold
with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares.
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 its principle exchange, or if no sales are reported
- -- as is 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. All other investments are stated at fair market value following
procedures approved by the Trustees. Securities quoted in foreign
currencies are translated into U.S. dollars at the current exchange rate.
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. 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). 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 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 year ended
September 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. These differences include temporary and
permanent differences of losses on wash sale transactions, foreign
currency gains and losses, organization costs, realized gains and losses
on passive foreign investment companies 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 September 30, 1998, the fund reclassified
$47,771 to decrease undistributed net investment income and $1,702 to
decrease paid-in-capital, with an increase to accumulated net realized
gain on investments of $49,473. The calculation of net investment income
per share in the financial highlights table excludes these adjustments.
J) Expenses of the Trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
K) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $6,425. These expenses are being amortized on
projected net asset levels over a five-year period. The fund will
reimburse Putnam Management for the payment of these expenses.
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.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through December 31, 1998, to the extent
that expenses of the fund (exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expense, credits from
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments,
Inc. and payments under the Trust's distribution plan) would exceed an
annual rate of 1.45% of the fund's average net assets.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended September 30, 1998, fund expenses were reduced by
$15,290 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 $670 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 payment by the fund
to Putnam Mutual Funds Corp. at an annual rate of up to .35%, 1.00% and
1.00% of the average net assets attributable to class A, class B and class
M shares, respectively. The Trustees have approved payment by the fund 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 September 30, 1998, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $124,845 and $9,022 from the
sale of class A and class M shares, respectively and $12,910 in contingent
deferred sales charges from redemption of class B shares. A deferred sales
charges of up to 1% is assessed on certain redemption of class A shares.
For the year ended September 30, 1998, Putnam Mutual Funds Corp. acting as
underwriter received no monies from the redemption of class A shares.
Note 3
Purchases and sales
During the year ended September 30, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$56,808,040 and $16,215,185, 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 September 30, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended
September 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,196,349 $27,443,419
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 27,329 321,431
- -----------------------------------------------------------------------------
2,223,678 27,764,850
Shares
repurchased (514,685) (6,378,953)
- -----------------------------------------------------------------------------
Net increase 1,708,993 $21,385,897
- -----------------------------------------------------------------------------
Year ended
September 30, 1997
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 16,348 $177,118
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 29,497 296,547
- -----------------------------------------------------------------------------
45,845 473,665
Shares
repurchased (7,804) (83,689)
- -----------------------------------------------------------------------------
Net increase 38,041 $389,976
- -----------------------------------------------------------------------------
For the period
November 3, 1997
(commencement of
operations) to
September 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,704,469 $21,409,230
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,707 124,308
- -----------------------------------------------------------------------------
1,715,176 21,533,538
Shares
repurchased (276,185) (3,413,968)
- -----------------------------------------------------------------------------
Net increase 1,438,991 $18,119,570
- -----------------------------------------------------------------------------
For the period
November 3, 1997
(commencement of
operations) to
September 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 182,828 $2,338,570
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,071 12,478
- -----------------------------------------------------------------------------
183,899 2,351,048
Shares
repurchased (26,872) (339,305)
- -----------------------------------------------------------------------------
Net increase 157,027 $2,011,743
- -----------------------------------------------------------------------------
At September 30, 1998, Putnam Investment, Inc. owned 218,957 of class A
shares (11.29% of class A shares outstanding) valued at $2,493,920.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the fund
hereby designates $361,697 as capital gain, for its taxable year ended
September 30, 1998.
The fund has designated 20.69% 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.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund +
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
*Formerly Putnam Diversified Income Trust II
+Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
**An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
PricewaterhouseCoopers LLP
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
Deborah F. Kuenstner
Vice President and Fund Manager
Hugh H. Mullin
Vice President and Fund Manager
George W. Stairs
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 Global Growth
and Income 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
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AN063 47008 11/98
