-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CcA5k+pkWpEV6RLmuZ4l57BfhjcGHk9nRsWym84Jldqc2OQ2opuZvqKgNd9Ac1nE mdMIKn0ylLvIr4ynI/GEaQ== 0000928816-96-000252.txt : 19960830 0000928816-96-000252.hdr.sgml : 19960830 ACCESSION NUMBER: 0000928816-96-000252 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960829 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM NEW OPPORTUNITIES FUND CENTRAL INDEX KEY: 0000865177 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 043091455 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06128 FILM NUMBER: 96623044 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQUARE CITY: BOSTON STATE: A6 ZIP: 02109 BUSINESS PHONE: 6172921000 N-30D 1 PUTNAM INTERNATIONAL GROWTH FUND Putnam International Growth Fund* ANNUAL REPORT June 30, 1996 *formerly Putnam Overseas Growth Fund [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * For the 12 months ended June 30, 1996, Putnam International Growth Fund's class A, class B, and class M shares ranked 48, 64, and 59, respectively, out of the 296 international funds tracked by Lipper Analytical Services. These rankings placed all three share classes within the top 22% of all international funds considered.* * "[Fund Manager Justin] Scott is very optimistic concerning the European market. He cites the trend over the last four years in which public corporations have become increasingly mindful of acting in their shareholders' best interests." -- The Value Line Mutual Fund Survey, May 28, 1996 CONTENTS 4 Report from Putnam Management 9 Fund performance summary 13 Portfolio holdings 19 Financial statements *Lipper rankings are based on total return performance, vary over time, and do not reflect the effects of sales charges. The fund's class A shares were ranked 16 out of 65 international funds for 5- year performance through 6/30/96. The fund's class B and class M shares were not ranked over longer applicable periods. Past performance is not indicative of future results. From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] (copyright) Karsh, Ottawa Dear Shareholder: Since its introduction in early 1991, Putnam Overseas Growth Fund has compiled a strong performance record, as detailed in the Lipper rankings on page 2 and the performance tables on pages 9 and 10. Putnam Management believes the fund's successful investment strategy and performance record make it a perfect candidate for inclusion in a unified "family" of Putnam international equity funds. To position the fund within that grouping, Putnam Management has proposed and your Trustees have approved a name change and a slight modification of the fund's investment policy. As of August 12, 1996, the fund's name became Putnam International Growth Fund. Before the change, the fund was required to invest at least 65% of its assets outside North America. Under the minor revision, which is being made simply to bring the fund's policy into line with that of other Putnam international equity funds, it will invest at least 65% of its assets outside the United States. We are confident that the fund will continue to play a valued role in your investment program. Respectfully yours, /S/George Putnam George Putnam Chairman of the Trustees August 21, 1996 Report from the Fund Manager Justin M. Scott We are pleased to report that Putnam International Growth Fund achieved index-beating performance for its fiscal year ended June 30, 1996. Your fund's 12-month returns of 20.2% and 13.3% for class A shares at net asset value and public offering price, respectively, surpassed or matched the 13.3% return measured by Morgan Stanley Capital International's Europe, Australia, and Far East Index -- the fund's principal performance benchmark. (Please refer to the tables on pages 9 and 10 for additional performance information.) We attribute the fund's success to several factors: exceptional performance from European companies that have focused primarily on unlocking value for shareholders, substantial exposure to Japan as its stock market responded positively to a recovering economy, and excellent returns from many of its growth and value-oriented holdings. * FUNDAMENTAL SHIFT IN EUROPEAN CORPORATE-MANAGEMENT OBJECTIVES PROVES ADVANTAGEOUS In our opinion, the key to investing successfully in Europe over the past three years has been to realize that European companies are undergoing a fundamental change in management objectives and practices. Well-managed businesses are focusing more intently than ever before on extracting value from their enterprises for the benefit of shareholders. In the past, most European companies were managed for the benefit of several, often competing, constituencies: creditors, employees, management, and stockholders. Management's priorities started to change, however, around the beginning of the decade, when various Swiss corporations began to focus on gaining a competitive edge by managing their businesses for the benefit of their principal owners - -- the stockholders. For example, Swiss Reinsurance, which has doubled in value since being added to your fund's portfolio, began to concentrate in unprecedented fashion on maximizing returns to shareholders. As a result of this changed focus, the company began to shed businesses that were only marginal contributors to its overall results. Other companies have begun to repurchase their own shares, have become more active in mergers and acquisitions, have introduced more liberal dividend policies, and, in general, are seeking to rationalize their operations with increased profitability as their goal. Consequently, against a backdrop of fairly sluggish economies, many of the fund's European investments performed extremely well over the fiscal year as a direct result of this shift in management emphasis. * JAPANESE RECOVERY, IMPROVED PROFITS SET THE STAGE FOR SUPERB STOCK PERFORMANCE Accounting for nearly 27% of net assets, Japan was the fund's largest single-country weighting at the end of the period. The Japanese economic recovery is in full swing with first quarter gross domestic product figures -- released just before the close of the fund's fiscal year -- showing the strongest quarterly growth since 1973. Despite the prospect of rising interest rates, we believe Japan will likely be among the world's fastest-growing economies for all of 1996. Given the renewed strength of Japan's economy, we believe the environment for corporate profits has improved substantially. Earnings for the typical Japanese manufacturing company rose by some 30% in 1995 and we believe a similar rise is likely in 1996. Moreover, for companies that export a significant portion of their products, the persistent weakness of the yen relative to the U.S. dollar has provided a significant boost. Companies such as Bridgestone, a major tire producer, and Sharp, a leading manufacturer of consumer electronic products, have benefited by receiving payment in dollars that are now worth considerably more when converted into yen. [GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY ALLOCATIONS (6/30/96)*] Japan 26.4% France 9.6% United Kingdom 8.6% Netherlands 8.4% Hong Kong 6.0% Germany 6.0% Switzerland 5.3% Footnote reads: Based on net assets. Country weightings will vary over time. The smaller southeast Asian markets -- Thailand, Malaysia, Singapore, and Indonesia -- continued to mirror the rapid growth of that region. Accordingly, the fast-growing companies in those countries continued to be an important contributor to the fund's overall performance. * TARGETING THE BEST OF GROWTH AND VALUE An ongoing tenet of your fund's investment strategy is to seek out what we view as the best opportunities in both growth and value- oriented stocks. By growth we mean stocks of companies that exhibit above-average earnings growth and high returns on capital. We look for stocks selling at reasonable prices that meet these criteria. Noteworthy holdings in this category over the fiscal year included Getronics Electric, a Netherlands-based software development company and a long-standing holding; Bulgari, a luxury goods and jewelry retailer based in Italy; and Adidas, the well-known German manufacturer of athletic and recreational footwear. Value stocks, on the other hand, are stocks of well-managed companies in relatively ordinary industries in which the price we pay for the value we see in the corporation's assets is, in our estimation, quite inexpensive. Among the top performers in this category during the fiscal year were CRH, a cement and building materials manufacturer with headquarters in Ireland, and Spanish- based Tabacalera, a tobacco producer. While these stocks, along with others discussed in this report, were viewed favorably at the end of the fiscal year, all portfolio holdings are subject to review and adjustment in accordance with the fund's investment strategy and may vary in the future. * EUROPEAN MONETARY UNION, JAPANESE EXPORTS MAY KEEP CURRENCIES WEAK RELATIVE TO DOLLAR Japan's trade surplus with the United States has been shrinking of late. Consequently, we believe Japan's need to maintain its competitive position with respect to exports may cause the yen to weaken further relative to the dollar. Although we cannot provide assurances, we therefore believe the fund's investments in Japanese companies with strong export operations may continue to benefit from a relatively weak yen. One caveat to this outlook, however, centers on the potential for continuing volatility in the U.S. market. This could lead foreign investors to make an accelerated exit from dollar-denominated securities, resulting in downward pressure on the U.S. currency. [GRAPHIC OMITTED:Top 10 Holdings (6/30/96)*] ITO-Yokado Co., Ltd. (Japan) Supermarkets Vodafone Group PLC (United Kingdom) Telecommunications Veba AG (Germany) Conglomerate Cheung Kong Holdings Ltd. (Hong Kong) Real estate development Sumitomo Trust & Banking (Japan) Banking Ciba-Geigy AG (Switzerland) Pharmaceuticals CRH PLC (Ireland) Building materials Total S.A. (France) Oil and gas Bridgestone Corp. (Japan) Tires Goodman Fielder Ltd. (Australia) Food manufacturing and distribution Footnote reads: *Top holdings represent 12.5% of the fund's net assets. Portfolio holdings will vary over time. Perhaps the key European issue over the coming months will be the implications of European Monetary Union (EMU) or the movement toward a single European currency. Given Germany's leading role in the economies of Europe, it is significant that German Chancellor Helmut Kohl is deeply committed to EMU. Because of the stringent budgetary and growth criteria required to qualify for EMU, countries are under enormous pressure to adapt their economies to the dictates of the free market and to rely less on governmental control and regulation. Coupled with the increasing shareholder orientation of many European companies, we view such a development as a decided plus for stock investors. We believe Europe as a whole, and Germany in particular, would like to see its currencies weaken further against the dollar. As we have recently seen in Japan, this would likely provide a boost to European exports and thus to overall economic growth, and could go a long way toward making EMU a reality. In light of this outlook, we currently plan to maintain currency hedges on the bulk of our European and Japanese investments, seeking to lock in attractive exchange rates between these currencies and the U.S. dollar. Looking ahead, we currently plan to keep the fund's weighting in Japan close to its present level. Elevated prices in the Japanese stock market make values hard to find, but we continue to like the market's prospects given the improving corporate profit picture. As for Europe, prospects for the various economies are decidedly mixed, with some clearly recovering, while others continue to struggle with a lack of strong domestic demand from consumers and businesses. Consequently, stock selection will be the key in our quest for superior performance from the fund's European component in the months to come. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 6/30/96, there is no guarantee the fund will continue to hold these securities in the future. International investing involves certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. Performance summary Performance should always be considered in light of a fund's investment strategy. Putnam International Growth Fund is designed for investors seeking capital appreciation through equity securities of issuers located outside the United States. This section provides, at a glance, information about your fund's performance. 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. TOTAL RETURN FOR PERIODS ENDED 6/30/96 Class A Class B Class M (inception date) (2/28/91) (6/1/94) (12/1/94) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------- 1 year 20.21% 13.28% 19.35% 14.35% 19.71% 15.51% - ------------------------------------------------------------------- 5 years 86.66 75.91 -- -- -- -- Annual average 13.30 11.96 -- -- -- -- - ------------------------------------------------------------------- Life of class 76.93 66.69 23.34 20.34 23.70 19.37 Annual average 11.28 10.04 10.61 9.31 14.41 11.86 - ------------------------------------------------------------------- COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/96 MSCI EAFE Consumer Index Price Index - ------------------------------------------------------------------ 1 year 13.28% 2.75% - ------------------------------------------------------------------ 5 years 61.00 15.22 Annual average 9.99 2.87 - ------------------------------------------------------------------ Life of class A 43.08 16.25 Annual average 6.94 2.86 - ------------------------------------------------------------------ Life of class B 16.78 6.24 Annual average 7.73 2.95 - ------------------------------------------------------------------ Life of class M 16.96 4.68 Annual average 10.41 2.94 - ------------------------------------------------------------------ Performance data represent past results, do not reflect future performance, and will differ for each share class. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns and net asset value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. POP assumes 5.75% maximum sales charge for class A shares and 3.50% for class M shares. CDSC for class B shares assumes the applicable sales charge, with the maximum being 5%. [GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT] Caption reads: Cumulative total return of a $10,000 investment since 2/28/91 Starting value (Insert ending Total) $9,425 Fund's class A shares at POP $16,669 $10,000 MSCI EAFE $14,308 $10,000 Consumer Price Index $11,625 (plot points for 10-year total return mountain chart) Date/year Fund at POP MSCI EAFE CPI - ------------------------------------------------------- 2/28/91 9,425 10,000 10,000 6/30/91 8,930 8,887 10,089 6/30/92 9,780 8,829 10,401 6/30/93 10,623 10,619 10,712 6/30/94 13,364 12,425 10,979 6/30/95 13,867 12,630 11,313 6/3096 16,669 14,308 11,625 Past performance is no assurance of future results. A $10,000 investment in the fund's class B shares at inception on 6/1/94 would have been valued at 12,234 on 6/30/96 ($12,034 with a redemption at the end of the period). A $10,000 investment in the fund's class M shares at inception on 12/1/94 would have been valued at $12,370 at net asset value on 6/30/96 ($11,937 at public offering price). PRICE AND DISTRIBUTION INFORMATION 12 months ended 6/30/96 Class A Class B Class M - -------------------------------------------------------------------- Distributions (number): 1 1 1 - -------------------------------------------------------------------- Income $0.260 $0.195 $0.223 - -------------------------------------------------------------------- Capital gains: - -------------------------------------------------------------------- Long-term 0.003 0.003 0.003 - -------------------------------------------------------------------- Short-term 0.002 0.002 0.002 - -------------------------------------------------------------------- Total $0.265 $0.200 $0.228 - -------------------------------------------------------------------- Share value: NAV POP NAV NAV POP - -------------------------------------------------------------------- 6/30/95 $12.10 $12.84 $12.00 $12.09 $12.53 - -------------------------------------------------------------------- 6/30/96 14.25 15.12 14.10 14.22 14.74 - -------------------------------------------------------------------- TERMS AND DEFINITIONS Class A shares are generally subject to an initial sales charge. Class B shares may be subject to a sales charge upon redemption. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the maximum 5.75% sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS The Europe, Australia and the Far East (EAFE) component of the Morgan Stanley Capital International World Index is an unmanaged list of international equity securities, excluding U.S., with all values expressed in U.S. dollars. Performance figures reflect changes in market prices and reinvestment of distributions net of withholding taxes. Securities in the fund do not match those in the index and performance of the fund will differ. It is not possible to invest directly in an index. Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Report of independent accountants For the fiscal year ended June 30, 1996 To the Trustees and Shareholders of Putnam International Growth Fund We have audited the accompanying statement of assets and liabilities of Putnam International Growth Fund (formerly known as the Putnam Overseas Growth Fund), including the portfolio of investments owned, as of June 30, 1996, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam International Growth Fund as of June 30, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts August 14, 1996
Portfolio of investments owned June 30, 1996 COMMON STOCKS (93.4%)* NUMBER OF SHARES VALUE Australia (3.8%) - ---------------------------------------------------------------------------------------------------------------------------- 3,260,000 Goodman Fielder Ltd. ADR $3,306,706 1,835,000 MIM Holdings Ltd. 2,366,291 429,000 QBE Insurance Group Ltd. 2,546,786 696,000 Westpac Banking Corp. 3,081,101 ----------- 11,300,884 Austria (0.7%) - ---------------------------------------------------------------------------------------------------------------------------- 17,510 VA Technologies AG 2,143,415 Belgium (0.5%) - ---------------------------------------------------------------------------------------------------------------------------- 255 N.V. Bekaert S.A. 204,150 2,000 Solvay S.A. 1,226,397 ----------- 1,430,547 Brazil (1.0%) - ---------------------------------------------------------------------------------------------------------------------------- 43,000 Telebras Co. ADR 3,042,250 Canada (0.5%) - ---------------------------------------------------------------------------------------------------------------------------- 34,700 Magna International, Inc. Class A 1,596,200 Croatia (0.1%) - ---------------------------------------------------------------------------------------------------------------------------- 5,000 Pliva D.D. GDR + 197,500 Denmark (1.2%) - ---------------------------------------------------------------------------------------------------------------------------- 43,500 Danisco A/S 2,164,622 53,000 Tele Danmark A/S ADS 1,344,875 ----------- 3,509,497 France (9.6%) - ---------------------------------------------------------------------------------------------------------------------------- 9,400 Cetelem Group 2,112,421 5,070 Chargeurs S.A. 226,592 14,885 Cie Bancaire S.A. 1,676,857 33,000 Credit Locale de France S.A. 2,685,637 90,000 Dassault Systems SA ADR(3 double daggers)+ 2,790,000 43,700 Lafarge Coppee 2,643,984 59,200 Michelin Corp. Class B 2,893,021 5,070 Pathe S.A.+ 1,189,581 12,000 Peugeot Citroen S. A. 1,605,905 79,300 SGS-Thomson Microelectronics ADR+ 2,844,888 3,700 Societe Generale Paris 406,759 31,900 Societe Nationale Elf Aquitaine 2,345,798 31,500 Sommer Allibert+ 800,272 46,200 Total S.A. Class B 3,426,078 3,820 Zodiac S.A. 957,133 ----------- 28,604,926 Germany (6.0%) - ---------------------------------------------------------------------------------------------------------------------------- 60,100 Adidas AG 144A ADS+ 2,509,175 32,340 Bayer AG 1,141,349 3,870 Bayerische Motoren Werke (BMW) AG 2,242,466 1,380 Munich Re + 2,845,174 5,440 Preussag AG 1,375,181 25,000 SGL Carbon AG 2,921,865 38,000 Tarkett AG + 800,919 74,100 Veba (Vereinigte Elektrizitaets Bergwerks) AG 3,934,647 ----------- 17,770,776 Hong Kong (6.0%) - ---------------------------------------------------------------------------------------------------------------------------- 2,005,000 Amoy Properties Ltd. 2,421,998 48,100 Asia Satellite Telecommunications Holdings Ltd. ADR+ 1,430,975 534,000 Cheung Kong Holdings Ltd. 3,846,219 226,600 Guoco Group Ltd. 1,080,274 303,000 Hong Kong Electric Holdings Ltd. 923,852 527,000 Hong Kong Land Holdings Ltd. 1,185,750 220,000 Hutchison Whampoa, Ltd. 1,384,202 1,008,000 Jardine International Motor Holdings Ltd. 1,237,177 217,000 Sun Hung Kai Properities Ltd. 2,193,774 189,000 Swire Pacific Ltd. Class A 1,617,691 180,000 Varitronix International Ltd. 375,572 ----------- 17,697,484 Ireland (3.2%) - ---------------------------------------------------------------------------------------------------------------------------- 418,288 Allied Irish Banks PLC 2,169,388 236,280 Bank of Ireland 1,606,257 364,801 CRH PLC 3,597,684 388,312 Greencore Group PLC 2,013,922 ----------- 9,387,251 Italy (2.2%) - ---------------------------------------------------------------------------------------------------------------------------- 150,000 Bulgari S.P.A. 2,366,361 20,850 Danieli & Co. 139,997 53,000 Danieli & Co. (Savings Shares) 188,298 37,000 Gucci Group + 2,386,500 131,400 Recordati (Savings Shares) 436,858 53,000 SAES Getters S.P.A. ADR + 1,066,625 ----------- 6,584,639 Japan (26.4%) - ---------------------------------------------------------------------------------------------------------------------------- 174,000 Bridgestone Corp. 3,318,067 117,000 Chubu Electric Power, Inc. 2,647,446 210,000 Cosmo Oil Co. Ltd. 1,299,088 160,000 Dai Nippon Printing Co., Ltd. 3,094,891 115,000 Daikin Industries Ltd. 1,259,124 202,000 Daiwa Securities Co., Ltd. 2,598,723 460 East Japan Railway Co. 2,413,322 22,000 Futaba Corp. 993,613 44,000 Glory Ltd. (Glory Kogyo) 1,457,300 22,300 Hirose Electric Co., Ltd. 1,377,473 73,000 Ito-Yokado Co., Ltd. 4,402,647 210,000 KAO Corp. 2,835,767 146,000 Kamigumi Co. Ltd. 1,332,117 36,000 Komori Printing Machinery Co. 919,708 84,000 Kurita Water Industries Ltd. 2,046,351 57,000 Kyushu Electric Power Inc. 1,284,581 130,000 Marui Co., Ltd. 2,882,300 120,000 Mitsubishi Bank Ltd. 2,781,023 227,000 Mitsubishi Motors Corp. 1,988,322 296,000 Mitsui Fudoscan Co. Ltd. 2,681,826 72,000 Murata Manufacturing Co. Ltd. 2,726,278 316 Nippon Telegraph and Telephone Corp. 2,341,169 121,000 Nippondenso Co., Ltd. 2,627,555 296,000 Ohbayashi Gumi Corp. 2,676,424 125,000 Omron Tateisi Electronics Corp. 2,657,391 86,000 Onward Kashiyama Co. Ltd. 1,404,562 60,000 Santen Pharmaceutical Co., Ltd. 1,395,986 154,000 Sekisui Chemical Co., Ltd. 1,882,847 170,000 Sharp Corp. 2,978,103 273,000 Sumitomo Trust & Banking 3,736,315 212,000 Tokio Marine & Fire Insurance Co. Ltd. (The) 2,824,088 378,000 Toray Industries Inc. 2,607,373 60,000 Tostem Corp. 1,768,249 88,000 Yamanouchi Pharmaceutical Co. Ltd. 1,910,949 120,000 Yamato Transport Co. Ltd. 1,412,409 ----------- 78,563,387 Malaysia (0.8%) - ---------------------------------------------------------------------------------------------------------------------------- 137,000 Malayan Banking Berhad 1,318,364 112,000 Malaysian Assurance Alliance ++ ++ ++ 592,783 60,000 Sungei Way Holdings Berhad 281,476 ----------- 2,192,623 Mexico (0.2%) - ---------------------------------------------------------------------------------------------------------------------------- 12,900 Panamerican Beverages, Inc. Class A 577,275 Netherlands (8.4%) - ---------------------------------------------------------------------------------------------------------------------------- 58,640 ABN AMRO Holding N.V. 3,144,862 57,235 Aegon N.V. 2,633,882 19,700 Akzo-Nobel N.V. 2,358,694 11,800 Dutch States Mines N.V. 1,171,019 69,796 Getronics Electric N.V. 1,544,666 51,700 IHC Caland N.V. 2,542,623 73,880 K.L.M.-Royal Dutch Airlines 2,361,738 47,000 Koninkijke PPT Nederland N.V. 1,777,635 67,900 Philips Electronics N.V. 2,206,352 55,800 Toolex Alpha NV 1,339,200 13,800 Unilever N.V. 1,995,667 57,100 Vendex International N.V. 1,989,139 ----------- 25,065,477 Norway (0.5%) - ---------------------------------------------------------------------------------------------------------------------------- 117,200 Schibsted A/S 1,514,864 Portugal (0.4%) - ---------------------------------------------------------------------------------------------------------------------------- 58,295 Banco Totta & Accores S.A. 1,141,672 Singapore (2.4%) - ---------------------------------------------------------------------------------------------------------------------------- 90,000 Cycle & Carriage Ltd. 963,488 110,000 Development Bank of Singapore Ltd. 1,372,563 154,000 Far East Levingston Shipbuilding Ltd. 851,613 252,600 Jardine Matheson Holdings Ltd. 1,856,610 113,000 Singapore Airlines Ltd. 1,193,690 50,000 United Overseas Bank Ltd. 478,554 270,000 Venture Manufacturing Ltd. 497,696 67,500 Venture Manufacturing Ltd. (rights) (expiration date 7/22/96) 49,291 ----------- 7,263,505 Spain (1.8%) - ---------------------------------------------------------------------------------------------------------------------------- 11,500 Mapfre Vida Seguros 645,866 33,000 Repsol S.A. 1,146,763 21,900 Repsol S.A. ADR 761,025 54,600 Tabacalera S.A. Series A 2,747,035 ----------- 5,300,689 Sweden (3.8%) - ---------------------------------------------------------------------------------------------------------------------------- 72,700 Astra AB 3,212,836 9,200 Autoliv AB 280,302 40,830 Electrolux AB Series B 2,053,817 46,600 Pharmacia & Upjohn, Inc. 2,038,311 10,420 Sandvik AB Class B 240,462 48,330 Skandia Forsakring AB 1,279,324 113,500 Svenska Cellulosa AB Class B 2,336,765 ----------- 11,441,817 Switzerland (5.3%) - ---------------------------------------------------------------------------------------------------------------------------- 1,570 ABB AG 1,940,097 1,485 Baer Holdings AG 1,600,343 3,010 Ciba-Geigy AG 3,664,285 2,620 Nestle S.A. (3 double daggers) 2,988,728 3,600 Rieter Holding AG 971,342 900 Societe Generale de Surveillance Holdings S.A. 2,151,752 2,380 Swiss Reinsurance Co. 2,441,367 ----------- 15,757,914 United Kingdom (8.6%) - ---------------------------------------------------------------------------------------------------------------------------- 45,000 Anglian Water PLC 414,205 260,635 Argyll Group PLC 1,403,815 257,049 BAT Industries PLC 1,998,947 33,268 Barclays Bank PLC 399,166 139,400 Burmah Oil PLC 2,204,878 219,800 General Electric Co. 1,183,872 231,800 Guinness PLC 1,683,864 174,175 HSBC Holdings PLC 2,632,810 66,000 Molins PLC 999,865 146,148 North West Water Group PLC 1,229,532 101,100 Orange PLC ADR+ 1,769,250 88,500 Pearson PLC 912,135 30,755 Royal Insurance Holdings PLC 189,997 362,300 Scottish Power PLC 1,709,581 425,400 Sears PLC 653,703 283,915 Securicor Group PLC Class A+ 1,152,412 93,120 Tate & Lyle PLC 661,997 1,067,000 Vodafone Group PLC 3,966,585 128,952 Weir Group PLC (The) 502,400 ----------- 25,669,014 - ---------------------------------------------------------------------------------------------------------------------------- Total Common Stocks (cost $259,515,607) $277,753,606 - ---------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS (0.4%)* NUMBER OF SHARES VALUE Brazil (0.4%) - ---------------------------------------------------------------------------------------------------------------------------- 34,860 Banco Bradesco BRC 2.12 pfd. $284,742 8,100 Petroleo Brasileiro S.A. BRC 5 pfd. 996,464 ----------- Total Preferred Stocks (cost $1,313,752) $1,281,206 CONVERTIBLE BONDS AND NOTES (0.1%) * (cost $178,731) PRINCIPAL AMOUNT VALUE Denmark (0.1%) - ---------------------------------------------------------------------------------------------------------------------------- DKK 1,200,000 Danisco A/S Bonds 5s, 2004 $235,685 WARRANTS (-%)*+ Expiration NUMBER OF WARRANTS Date VALUE Italy(-%) - ---------------------------------------------------------------------------------------------------------------------------- 2,237 Danieli & Co. 11/30/99 $1,750 Switzerland(-%) - ---------------------------------------------------------------------------------------------------------------------------- 3,553 Rieter Holding AG 2/28/97 3,545 ----------- Total Warrants(cost $-) $5,295 SHORT-TERM INVESTMENTS (7.8%)*(cost $23,081,334) PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------- $23,071,000 Interest in $434,902,000 joint repurchase agreement dated June 28, 1996, with Goldman Sachs & Co. due July 1, 1996 with respect to various U.S. Treasury obligations-maturity value of $23,081,334 for an effective yield of 5.375% $23,081,334 - ---------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $284,089,424)*** $302,357,126 - ---------------------------------------------------------------------------------------------------------------------------- * Percentages indicated are based on net assets of $297,410,446. *** The aggregate identified cost on a tax basis is $284,383,620, resulting in gross unrealized appreciation and depreciation of $24,062,844 and $6,089,388, respectively, or net unrealized appreciation of $17,973,506. + Non-income-producing security. ++ ++ ++ Forward commitments (See Note 1). 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, ADS or GDR after the name of a foreign holding stands for American Depository Receipts, American Depository Shares or Global Depository Receipts, respectively, representing ownership of foreign securities on deposit with a domestic custodian bank. Forward Currency Contracts to Sell at June 30, 1996 (aggregate face value $67,252,060) Unrealized Market Aggregate Face Delivery Appreciation/ Value Value Date (Depreciation) - --------------------------------------------------------------------------------------- British Pounds $ 5,282,844 $ 5,166,066 11/12/96 $ (116,778) Deutshemarks 4,541,555 4,563,932 11/12/96 22,377 Dutch Guilder 8,967,078 9,037,831 11/12/96 70,753 French Francs 20,614,708 20,505,640 11/12/96 (109,068) Japanese Yen 26,361,613 27,978,591 7/17/96 1,616,978 - --------------------------------------------------------------------------------------- $1,484,262 - --------------------------------------------------------------------------------------- The accompanying notes are an integral part of thes financial statements.
Statement of assets and liabilities June 30, 1996 Assets Investments in securities, at value (identified cost $284,089,424) (Note 1) $302,357,126 - ----------------------------------------------------------------------------------------------------------------------- Cash 72 - ----------------------------------------------------------------------------------------------------------------------- Dividends, interest and other receivables 820,436 - ----------------------------------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 5,723,198 - ----------------------------------------------------------------------------------------------------------------------- Receivable for securities sold 921,094 - ----------------------------------------------------------------------------------------------------------------------- Receivable for open forward currency contracts 1,740,726 - ----------------------------------------------------------------------------------------------------------------------- Total assets 311,562,652 - ----------------------------------------------------------------------------------------------------------------------- Liabilities - ----------------------------------------------------------------------------------------------------------------------- Payable for securities purchased 11,439,834 - ----------------------------------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 1,345,496 - ----------------------------------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 481,805 - ----------------------------------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 290,784 - ----------------------------------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 2,220 - ----------------------------------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 196,605 - ----------------------------------------------------------------------------------------------------------------------- Payable for open forward currency contracts 256,464 - ----------------------------------------------------------------------------------------------------------------------- Other accrued expenses 138,998 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities 14,152,206 - ----------------------------------------------------------------------------------------------------------------------- Net assets $297,410,446 - ----------------------------------------------------------------------------------------------------------------------- Represented by - ----------------------------------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $273,911,904 - ----------------------------------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 1,791,102 - ----------------------------------------------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions (Note 1) 1,951,774 - ----------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 19,755,666 - ----------------------------------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $297,410,446 - ----------------------------------------------------------------------------------------------------------------------- Computation of net asset value and offering price - ----------------------------------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($151,088,378 divided by 10,600,944 shares) $14.25 - ----------------------------------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of 14.25)* $15.12 - ----------------------------------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($132,012,952 divided by 9,365,256 shares)** $14.10 - ----------------------------------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($14,309,116 divided by 1,006,261 shares) $14.22 - ----------------------------------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of 14.22)* $14.74 - ----------------------------------------------------------------------------------------------------------------------- * 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.
Statement of operations Year ended June 30, 1996 Investment income: - ---------------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $305,219) $3,011,554 - ---------------------------------------------------------------------------------------------------- Interest 661,026 - ---------------------------------------------------------------------------------------------------- Total investment income 3,672,580 Expenses: - ---------------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 1,088,976 - ---------------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 701,824 - ---------------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 8,796 - ---------------------------------------------------------------------------------------------------- Administrative services (Note 2) 7,734 - ---------------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 179,564 - ---------------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 594,107 - ---------------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 40,125 - ---------------------------------------------------------------------------------------------------- Reports to shareholders 44,482 - ---------------------------------------------------------------------------------------------------- Registration fees 93,694 - ---------------------------------------------------------------------------------------------------- Auditing 28,553 - ---------------------------------------------------------------------------------------------------- Legal 5,267 - ---------------------------------------------------------------------------------------------------- Postage 38,952 - ---------------------------------------------------------------------------------------------------- Amortization of organization expenses (Note 1) 1,872 - ---------------------------------------------------------------------------------------------------- Other 6,891 - ---------------------------------------------------------------------------------------------------- Total expenses 2,840,837 - ---------------------------------------------------------------------------------------------------- Expense reduction (Note 2) (101,811) - ---------------------------------------------------------------------------------------------------- Net expenses 2,739,026 - ---------------------------------------------------------------------------------------------------- Net investment income 933,554 - ---------------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 2,725,546 - ---------------------------------------------------------------------------------------------------- Net realized gain on forward currency contracts and foreign currency translation (Note 1) 2,145,877 - ---------------------------------------------------------------------------------------------------- Net unrealized appreciation on forward currency contracts and foreign currency translation during the year 2,765,813 - ---------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments during the year 14,555,586 - ---------------------------------------------------------------------------------------------------- Net gain on investments 22,192,822 - ---------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $23,126,376 - ---------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Year ended June 30 ---------------------------- 1996 1995 - ------------------------------------------------------------------------------------------------------------------ Increase in net assets - ------------------------------------------------------------------------------------------------------------------ Operations: - ------------------------------------------------------------------------------------------------------------------ Net investment income $933,554 $252,913 - ------------------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investments and foreign currency transactions 4,871,423 (738,996) - ------------------------------------------------------------------------------------------------------------------ Net unrealized appreciation of investments and assets and liabilities in foreign currencies 17,321,399 1,745,082 - ------------------------------------------------------------------------------------------------------------------ Net increase in net assets resulting from operations 23,126,376 1,258,999 - ------------------------------------------------------------------------------------------------------------------ Distributions to shareholders: - ------------------------------------------------------------------------------------------------------------------ From net investment income Class A (1,052,356) -- - ------------------------------------------------------------------------------------------------------------------ Class B (570,446) -- - ------------------------------------------------------------------------------------------------------------------ Class M (60,867) -- - ------------------------------------------------------------------------------------------------------------------ From net realized gain on investments Class A (31,357) (199,229) - ------------------------------------------------------------------------------------------------------------------ Class B (14,842) (141,301) - ------------------------------------------------------------------------------------------------------------------ Class M (1,361) (460) - ------------------------------------------------------------------------------------------------------------------ In excess of net realized gains - ------------------------------------------------------------------------------------------------------------------ Class A -- (117,199) - ------------------------------------------------------------------------------------------------------------------ Class B -- (83,122) - ------------------------------------------------------------------------------------------------------------------ Class M -- (271) - ------------------------------------------------------------------------------------------------------------------ Increase from capital share transactions (Note 4) 215,489,871 48,556,735 - ------------------------------------------------------------------------------------------------------------------ Total increase in net assets 236,885,018 49,274,152 - ------------------------------------------------------------------------------------------------------------------ Net assets - ------------------------------------------------------------------------------------------------------------------ Beginning of year 60,525,428 11,251,276 - ------------------------------------------------------------------------------------------------------------------ End of year (including undistributed net investment income and distributions in excess of net investment income of $1,791,102 and $108,932, respectively) $297,410,446 $60,525,428 - ------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements.
Financial Highlights (For a share outstanding throughout the period) For the period December 1, 1994 (commencement Year ended of operations) to Year ended June 30 June 30 June 30 ------------------------------------------------------ 1996 1995 1996 ------------------------------------------------------ Class M ------------------------------------------------------ Net asset value, beginning of period $12.09 $11.87 $12.00 - --------------------------------------------------------------------------------------------------------------------------- Investment operations - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) .08(c) .03(d) .04(c) - --------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 2.28 .36 2.26 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.36 .39 2.30 - --------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - --------------------------------------------------------------------------------------------------------------------------- From net investment income (.22) -- (.19) - --------------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (.01) (.11) (.01) - --------------------------------------------------------------------------------------------------------------------------- In excess of net realized gain on investments -- (.06) -- - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.23) (.17) (.20) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $14.22 $12.09 $14.10 - --------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 19.71 3.33(e) 19.35 - --------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $14,309 $1,777 $132,013 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 2.25 1.61(d)(e) 2.49 - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) .61 .58(d)(e) .32 - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 44.14 25.83 44.14 - --------------------------------------------------------------------------------------------------------------------------- Financial Highlights (continued) (For a share outstanding throughout the period) For the period June 1, 1994 (commencement Year ended of operations) to Year ended June 30 June 30 June 30 ----------------------------------------------------- 1995 1994 1996 ----------------------------------------------------- Class B ----------------------------------------------------- Net asset value, beginning of period $11.82 $11.78 $12.10 - --------------------------------------------------------------------------------------------------------------------------- Investment operations - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) .01(d) (.01)(c)(d) .13(c) - --------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments .34 .05 2.29 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .35 .04 2.42 - --------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - --------------------------------------------------------------------------------------------------------------------------- From net investment income -- -- (.26) - --------------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (.11) -- (.01) - --------------------------------------------------------------------------------------------------------------------------- In excess of net realized gain on investments (.06) -- -- - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) -- (.27) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $12.00 $11.82 $14.25 - --------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 3.00 0.34(e) 20.21 - --------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $25,892 $2,470 $151,088 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 2.41(d) .15(d)(e) 1.74 - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) .23(d) (.06)(c)(d) (.99) - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 25.83 96.13 44.14 - --------------------------------------------------------------------------------------------------------------------------- Financial Highlights (continued) (For a share outstanding throughout the period) Year ended June 30 -------------------------------------------------------- 1995 1994 1993 -------------------------------------------------------- Class A -------------------------------------------------------- Net asset value, beginning of period $11.83 $9.58 $8.82 - --------------------------------------------------------------------------------------------------------------------------- Investment operations - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) .08(d) (.06)(d) .07(d) - --------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments .36 2.53 .69 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .44 2.47 .76 - --------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - --------------------------------------------------------------------------------------------------------------------------- From net investment income -- -- -- - --------------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (.11) (.22) -- - --------------------------------------------------------------------------------------------------------------------------- In excess of net realized gain on investments (.06) -- -- - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.22) -- - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $12.10 $11.83 $9.58 - --------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 3.76 25.81 8.62 - --------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $32,856 $8,781 $2,859 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 1.61(d) 2.17(d) 1.80(d) - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) .97(d) (.17)(d) .81(d) - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 25.83 96.13 80.92 - --------------------------------------------------------------------------------------------------------------------------- Financial Highlights (continued) (For a share outstanding throughout the period) Year ended June 30 -------- 1992 -------- Net asset value, beginning of period $8.18 - --------------------------------------------------------------------------------- Investment operations - --------------------------------------------------------------------------------- Net investment income (loss) .06 - --------------------------------------------------------------------------------- Net realized and unrealized gain on investments .71 - --------------------------------------------------------------------------------- Total from investment operations .77 - --------------------------------------------------------------------------------- Distributions to shareholders: - --------------------------------------------------------------------------------- From net investment income (.13) - --------------------------------------------------------------------------------- From net realized gain on investments -- - --------------------------------------------------------------------------------- In excess of net realized gain on investments -- - --------------------------------------------------------------------------------- Total distributions (.13) - --------------------------------------------------------------------------------- Net asset value, end of period $8.82 - --------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 9.52 - --------------------------------------------------------------------------------- Net assets, end of period (in thousands) $2,502 - --------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 1.98 - --------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) .76 - --------------------------------------------------------------------------------- Portfolio turnover (%) 82.45 - --------------------------------------------------------------------------------- (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 year ended June 30, 1996 includes amounts paid through expense and brokerage service offset 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 applicable during the year. As a result of such limitation, expenses for class A shares of the fund for the periods ended June 30, 1994 and June 30, 1993 reflect per share reductions of approximately $0.03 and $0.05, respectively. Expenses for class B shares of the fund for the period ended June 30, 1994 reflect a reduction of less than $0.01 per share. Expenses for class A, B and M shares for the period ended June 30, 1995 reflect a reduction of less than $0.01 per share. (e) Not annualized.
Notes to financial statements June 30, 1996 Note 1 Significant accounting policies The fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks capital appreciation by investing primarily in equity securities of companies located outside the United States. Prior to August 12, 1996, the fund's objective was to invest in equity securities of companies located outside North America. The fund offers class A, class B and class M 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 lower than class B shares and higher than class A shares. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price on the principal market in which the securities are traded, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price, except that certain U.S. government obligations are stated at the mean between the last reported bid and asked prices. 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 managed by Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc. and certain other accounts. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Securities purchased or sold on a forward commitment or delay delivery basis may be settled a month or more after the trade date; interest income is not accrued until settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such fluctuations are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized gains and losses on foreign currency transactions arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. F) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date, to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held and for excise tax on income and capital gains. H) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Capital gain distributions, if any, are recorded on the ex- dividend date and paid annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include treatment of losses on wash sale transactions, unrealized gains and losses on forward currency contracts and unrealized gains and losses on passive foreign companies. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended June 30, 1996, the fund reclassified $2,650,149 to increase undistributed net investment income and $355,803 to decrease paid- in-capital, with a decrease to accumulated net realized gains on investments of $2,294,346. The calculation of net investment income per share in the financial highlights table excludes these adjustments. I) 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 $14,123. The expenses have been fully amortized over a five year period as of June 30, 1996. 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, 0.70% of the next $500 million, 0.65% of the next $500 million, and 0.60% of any amount over $1.5 billion subject, under current law, to reduction in any year by the amount of certain brokerage commissions and fees (less expenses) received by affiliates of Putnam Management on the fund's portfolio transactions. The fund reimburses Putnam Management for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the year ended June 30, 1996, fund expenses were reduced by $101,811 under expense offset arrangements with PFTC and brokerage service arrangements. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Trustees of the fund receive an annual Trustees fee of $690 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 adopted a Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and invested in the fund or in other Putnam funds until distribution in accordance with the Plan. The fund has adopted 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 .35%, 1.00% and 1.00% of the average net assets attributable to class A, class B and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of .25%, 1.00% and .75% of the average net assets attributable to class A, class B and class M shares, respectively. For the year ended June 30, 1996, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $296,443 and $18,112 from the sale of class A and class M shares, respectively and $56,441 in contingent deferred sales charges from redemptions of class B shares. A deferred sales charge of up to 1% is assessed on certain redemptions of class A shares. For the year ended June 30, 1996, Putnam Mutual Funds Corp., acting as underwriter received $1,039 on class A redemptions. Note 3 Purchase and sales of securities During the year ended June 30, 1996, purchases and sales of investment securities other than short-term investments aggregated $248,181,633 and $41,170,970, respectively. There were no purchases and sales of U.S. government obligations. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 4 Capital shares At June 30, 1996, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Year ended June 30, 1996 - ---------------------------------------------------- Class A Shares Amount - ---------------------------------------------------- Shares sold 11,085,467 $150,078,344 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 80,088 1,025,963 - ---------------------------------------------------- 11,165,555 151,104,307 Shares repurchased (3,279,126) (44,273,218) - ---------------------------------------------------- Net increase 7,886,429 $106,831,089 - ---------------------------------------------------- Year ended June 30, 1995 - ---------------------------------------------------- Class A Shares Amount - ---------------------------------------------------- Shares sold 3,343,986 $39,677,281 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 27,348 317,828 - ---------------------------------------------------- 3,371,334 39,995,109 Shares repurchased (1,399,240) (16,448,723) - ---------------------------------------------------- Net increase 1,972,094 $23,546,386 - ---------------------------------------------------- Year ended June 30, 1996 - ---------------------------------------------------- Class B Shares Amount - ---------------------------------------------------- Shares sold 11,269,808 $150,716,247 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 41,968 534,228 - ---------------------------------------------------- 11,311,776 151,250,475 Shares repurchased (4,104,000) (54,296,586) - ---------------------------------------------------- Net increase 7,207,776 $96,953,889 - ---------------------------------------------------- Year ended June 30, 1995 - ---------------------------------------------------- Class B Shares Amount - ---------------------------------------------------- Shares sold 2,667,962 $31,655,329 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 18,223 210,475 - ---------------------------------------------------- 2,686,185 31,865,804 Shares repurchased (737,746) (8,555,102) - ---------------------------------------------------- Net increase 1,948,439 $23,310,702 - ---------------------------------------------------- Year ended June 30, 1996 - ---------------------------------------------------- Class M Shares Amount - ---------------------------------------------------- Shares sold 979,590 $13,313,633 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 4,674 59,873 - ---------------------------------------------------- 984,264 13,373,506 Shares repurchased (125,026) (1,668,613) - ---------------------------------------------------- Net increase 859,238 $11,704,893 - ---------------------------------------------------- For the period December 1, 1994 (commencement of operations) to June 30, 1995 - ---------------------------------------------------- Class M Shares Amount - ---------------------------------------------------- Shares sold 153,859 $1,779,068 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 63 731 - ---------------------------------------------------- 153,922 1,779,799 Shares repurchased (6,899) (80,152) - ---------------------------------------------------- Net increase 147,023 $1,699,647 - ---------------------------------------------------- Federal tax information (Unaudited) Pursuant to Section 852 of the Internal Revenue Code, the fund hereby designates $.003 per share (for all classes of shares) as capital gain dividends for its taxable year ended June 30, 1996. For the period, interest and dividends from foreign countries were $3,317,000 or $.158 per share. Taxes paid to foreign countries were $305,000 or $.015 per share. The Form 1099 you receive in January 1997 will show the tax status of all distributions paid to your account in calendar 1996. Our commitment to quality service * CHOOSE AWARD-WINNING SERVICE Putnam Investor Services has won the DALBAR Quality Tested Service Seal for the past six years. In 1995, over 146,000 tests of 56 shareholder service components demonstrated that Putnam outperformed the industry standard in every category. * HELP YOUR INVESTMENT GROW Set up a systematic program for investing with as little as $25 a month from a Putnam money market fund or from your checking or savings account.* * SWITCH FUNDS EASILY You can move money from one account to another with the same class of shares without a service charge. (This privilege is subject to change or termination.) * ACCESS YOUR MONEY QUICKLY You can get checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than the original cost of the shares. For details about any of these or other services, contact your financial advisor or call the toll-free number shown below and speak with a helpful Putnam representative. To make an additional investment in this or any other Putnam fund, contact your financial advisor or call our toll-free number: 1-800- 225-1581. * Regular investing of course, does not guarantee a profit or protect against a loss in a declining market. Fund information INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Ronald J. Jackson Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III Eli Shapiro A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Peter Carman Vice President Brett C. Browchuk Vice President Anthony W. Regan Vice President Justin M. Scott Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam 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. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution, are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency, and involve risk, including the possible loss of principal amount invested. PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 Bulk Rate U.S. Postage PAID Putnam Investments 26301-841/524/891 8/96 -----END PRIVACY-ENHANCED MESSAGE-----