-----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, C5zr0du9RSo4t5cGL5b2GIR6IHeH4WjwB3X8wcGAWkOBEMobHisCKNKCcKlRvvE4 604ZLzp4gLZlLnptEnbdZg== 0000928816-97-000294.txt : 19970912 0000928816-97-000294.hdr.sgml : 19970912 ACCESSION NUMBER: 0000928816-97-000294 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970909 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM INTERNATIONAL GROWTH FUND /MA/ CENTRAL INDEX KEY: 0000868648 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046661045 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06190 FILM NUMBER: 97677217 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921471 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM OVERSEAS GROWTH FUND DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM INTERNATIONAL GROWTH FUND DATE OF NAME CHANGE: 19901107 N-30D 1 PUTNAM INTERNATIONAL GROWTH FUND Putnam International Growth Fund ANNUAL REPORT June 30, 1997 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * Putnam International Growth Fund has delivered strong returns, as evidenced by rankings of international funds tracked by Lipper Analytical Services. For the five years ended June 30, 1997, the fund's Class A shares ranked in the top 6% of Lipper's international funds category, or 5 out of 91 funds.* * "Putnam has created a formidable international lineup, and this fund is its crown jewel." -- Morningstar, June 20, 1997 CONTENTS 4 Report from Putnam Management 9 Fund performance summary 14 Portfolio holdings 19 Financial statements 31 Results of February 6, 1997 shareholders meeting * Lipper rankings are based on total return performance, vary over time, and do not reflect the effects of sales charges. The fund's class A shares ranked 38 out of 368 (top 11%) for 1-year performance and 19 out of 200 (top 10%) for 3-year performance as of 6/30/97. Performance and rankings of other share classes will differ. Past performance is not indicative of future results. From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: Putnam International Growth Fund successfully blended a well-diversified selection of stocks with consistent growth histories trading at compelling prices from more than two dozen countries outside the United States to deliver a double-digit total return during the fiscal year that ended on June 30, 1997. Following the lead taken by U.S. corporations a number of years ago, companies headquartered elsewhere continue to restructure into leaner, more efficient -- and more profitable -- entities. This ongoing process provides a steady stream of attractive investment opportunities. In the following report, your fund's managers discuss fiscal 1997 results and look at prospects for the year ahead. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees August 20, 1997 Report from the Fund Managers Justin M. Scott Omid Kamshad David K. Thomas During a year that has seen many shifts and changes in international stock markets, Putnam International Growth Fund continued to pursue its distinctive investment style. Your managers seek to add value through a combination of top-down selection of attractive markets and a bottom-up selection of attractive stocks. In particular, we search for the dual attraction of companies with dependable earnings growth whose stock prices are significantly undervalued. We prefer returns to come from a combination of underlying growth and stock price rerating, rather than depending on either one alone. This strategic blend of growth and value aims to provide not only above-average returns but also consistent returns. For the fiscal year ended June 30, 1997, your fund's class A shares had a total return of 25.13% at net asset value and 17.93% at public offering price. This is almost double the results delivered by the Morgan Stanley Capital International EAFE Index, which rose 12.84%. For complete performance information, please turn to page 9. * CONTINENTAL EUROPE OFFERS SOLID INVESTING ENVIRONMENT; UNITED KINGDOM UNDERPERFORMS Despite a Socialist victory in the French elections and continued concern about the feasibility of European Monetary Union (EMU), Continental Europe formed a solid foundation for the fund's portfolio throughout fiscal 1997. In general, European equities benefited from low interest rates, varying levels of economic recovery, and an increasing level of corporate restructuring, Additionally a strong dollar contributed to the profitability of European exporters. For example, telecommunications company LM Ericsson of Sweden, after many years of restructuring, became a global leader in the mobile telecom sector and its share price appreciated. Novartis, a Swiss pharmaceutical company formed from last year's merger of Ciba-Geigy and Sandoz, has reorganized by selling unrelated businesses such as a chemicals unit in order to focus more closely on its core pharmaceutical business. While these holdings, along with others discussed in this report, were viewed favorably at the end of the fiscal period, all are subject to review and adjustment in accordance with the fund's investment strategy and may vary in the future. The United Kingdom offered good returns; however, it lagged relative to Continental Europe. While investors' uncertainties about the policies of new Prime Minister Tony Blair and the Labor majority in Parliament were quickly assuaged when the new government took some positive first steps in monetary policy, the market cooled somewhat as interest rates rose slightly. Although the fund remained underweighted in U.K. securities relative to its benchmark, the current underperformance may translate into some buying opportunities for the fund in the months ahead. * SIGNIFICANT CANADIAN POSITION INTRODUCED Over the past year, the Canadian economy rebounded, its interest rates fell, and the government budget deficit shrank. We tried to take advantage of this opportunity by searching out high-quality, globally oriented companies trading at reasonable valuations. As a result, over the second half of the fiscal year, we raised the fund's position in Canadian companies from 0.6% of net assets on December 31, 1996, to 5.9% of net assets at the end of the period. [GRAPHIC HORIZONTAL BAR CHART OMITTED: COUNTRY ALLOCATIONS] COUNTRY ALLOCATIONS* Japan 16.5% United Kingdom 13.3% France 13.1% Switzerland 10.4% Germany 8.2% The Netherlands 7.9% Footnote reads: * Based on net assets as of 6/30/97. Allocations will vary over time. Several of our purchases were in the banking sector with companies such as the Bank of Nova Scotia. Scotiabank moved to focus on more profitable businesses and further solidified its position as the Canadian bank with the strongest international network with a specialty in Latin America and the Caribbean. Communications technology company Northern Telecom is another Canadian company with worldwide operations. The company is the second largest telecommunications equipment manufacturer in North America behind Lucent. The fund also continued to own Magna International, a leading auto components manufacturer for the U.S. big three as well as for Toyota, Honda, and BMW. * JAPANESE RECOVERY MOVES AHEAD As investors digest the effects of Prime Minister Ryutaro Hashimoto's big bang economic reform policies, the once moribund Japanese economy has shown some signs of life. More importantly, after six years of recession, some Japanese companies are having to break long-standing business customs and make themselves attractive to global investors by raising their profitability. For most of the period, the stock market was led by large, export-oriented companies able to profit from the weak yen. We targeted Japanese companies with improving fundamentals that are considered global leaders in their industries. For example, Sony offered tremendous potential for positive change when it revamped its product line. Sony is also the premier company in digital technology for consumer electronics. * EMERGING MARKETS MIXED: LATIN AMERICA SURGES; ASIA FALTERS Latin American stock markets emerged as leaders in the emerging markets area bolstered by large-scale privatizations, stable growth, and negligible inflation. As markets such as Brazil recorded astounding returns, we shifted the fund's holdings into more undervalued markets such as Mexico. We sought out large-capitalization stocks in Mexico such as FEMSA, a major beverage company, and Cemex, the country's largest cement producer. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS Sony Corporation (Japan) Electronics and electrical equipment Ente Nazionale Idrocarburi (Italy) Oil and gas Total Corporation (France) Oil and gas Canon, Inc. (Japan) Photography Philips Electronics (Netherlands) Electronics and electrical equipment SGS-Thomson Microelectronics (France) Electronics and electrical equipment Altana (Germany) Pharmaceuticals and biotechnology Northern Telecom Ltd. (Canada) Telecommunications Societe Generale (France) Insurance and finance Internationale Nederlanden Groep (Netherlands) Insurance and finance Footnote reads: These holdings represent 16.9% of the fund's net assets as of 6/30/97. Portfolio holdings will vary over time. Meanwhile, in Southeast Asia, the long-anticipated hand over of Hong Kong from Great Britain to China represented an island of calm as economic crisis and currency devaluations in Thailand, Malaysia, and the Philippines cast a pall over Pacific Rim markets. Additionally the region's property markets remain overheated. Fortunately the fund had only minimal exposure to these countries, although we retained holdings in more globally diversified companies such as British registered HSBC Holdings of Hong Kong, the world's largest commercial banking company, based on market capitalization. With more than half of HSBC's revenues coming from outside the Pacific Rim, the company represents one of Hong Kong's truly global offerings. HSBC stands in contrast to many other companies in Hong Kong that are controlled by Chinese interests as well as the flows of Chinese capital. * POSITIVE OUTLOOK SEEN OVER NEAR TERM Should the rewarding investment environment in Europe persist, we see no reason for our outlook on the region to change. For Japan, investors may have to be more patient, since the restructuring process in that country could move more slowly than in Europe. Looking ahead, we believe the values of the world's three main currencies -- the U.S. dollar, Japanese yen, and German deutschemark -- is more representative than it was in the past of those countries' economic fundamentals. Given this assumption, we expect less currency fluctuation in the year ahead than we saw in the past year. Therefore, good stock picking will be even more crucial than ever to the fund's success in the near future. In this regard, we will continue to search for companies with reliable growth potential whose stocks are selling at impressive valuations. 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 6/30/97, there is no guarantee the fund will continue to hold these securities in the future. International investing involves certain risks, including currency fluctuations and political and economic 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 International Growth Fund is designed for investors seeking capital appreciation through equity securities of issuers located outside the United States. TOTAL RETURN FOR PERIODS ENDED 6/30/97 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 25.13% 17.93% 24.09% 19.09% 24.40% 20.01% - ------------------------------------------------------------------------------ 5 years 113.28 100.97 105.12 103.12 108.22 101.02 Annual average 16.36 14.98 15.45 15.23 15.80 14.99 - ------------------------------------------------------------------------------ Life of fund 121.39 108.58 109.98 109.98 113.90 106.43 Annual average 13.36 12.29 12.41 12.41 12.74 12.11 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/97 MSCI EAFE Consumer Index Price Index - ------------------------------------------------------------------------------ 1 year 12.84% 2.30% - ------------------------------------------------------------------------------ 5 years 82.86 14.34 Annual average 12.83 2.72 - ------------------------------------------------------------------------------ Life of fund 61.44 18.92 Annual average 7.85 2.77 - ------------------------------------------------------------------------------ Returns for class A and class M shares reflect the current maximum initial sales charges of 5.75% for class A shares and 3.50% for class M shares. One-, five-, and life of fund returns (where available) for class B shares reflect the applicable contingent deferred sales charges (CDSC), which is 5% in the first year, declines each year to 1% in the sixth year, and is eliminated thereafter. Returns shown for class B and class M shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect both the initial sales charge or CDSC, if any, currently applicable to each class and, in the case of class B and class M shares, the higher operating costs applicable to such shares. All returns assume reinvestment of distributions at NAV and represent past performance; they do not guarantee future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. [GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT] GROWTH OF A $10,000 INVESTMENT Cumulative total return of a $10,000 investment since 2/28/91 PLOT POINTS Fund's class A shares MSCI EAFE Consumer Price Date at POP Index Index 2/28/91 9425 10000 10000 6/30/91 8930 8887 10089 6/30/92 9780 8829 10401 6/30/93 10623 10619 10712 6/30/94 13364 12425 10979 6/30/95 13867 12630 11313 6/30/96 16669 14308 11625 6/30/97 20858 16144 11892 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 $20,998 and no contingent deferred sales charge would apply and a $10,000 investment in the fund's class M shares would have been valued at $21,390 ($ 20,643 at public offering price). See first page of performance section for performance calculation method. PRICE AND DISTRIBUTION INFORMATION 12 months ended 6/30/97 Class A Class B Class M - ---------------------------------------------------------------------------- Distributions (number) 1 1 1 - ---------------------------------------------------------------------------- Income $0.151 $0.090 $0.117 - ---------------------------------------------------------------------------- Capital gains - ---------------------------------------------------------------------------- Long-term 0.035 0.035 0.035 - ---------------------------------------------------------------------------- Short-term 0.021 0.021 0.021 - ---------------------------------------------------------------------------- Total $0.207 $0.146 $0.173 - ---------------------------------------------------------------------------- Share value: NAV POP NAV NAV POP - ---------------------------------------------------------------------------- 6/30/96 $14.25 $15.12 $14.10 $14.22 $14.74 - ---------------------------------------------------------------------------- 6/30/97 17.58 18.65 17.32 17.48 18.11 - ---------------------------------------------------------------------------- Performance data represent past results, do not reflect future performance, and will differ for each share class. 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. See first page of performance section for performance calculation method. TERMS AND DEFINITIONS Class A shares are generally subject to an initial sales charge. Class B shares may be subject to a sales charge upon redemption. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the maximum 5.75% sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS Europe, Australia and the Far East (EAFE) component of the Morgan Stanley Capital International World Index is an unmanaged list of international equity securities, excluding U.S., with all values expressed in U.S. dollars. Performance figures reflect changes in market prices and reinvestment of distributions net of withholding taxes. Securities in the fund do not match those in the index and performance of the fund will differ. It is not possible to invest directly in an index. Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. WELCOME TO www.putnaminv.com Now you can get up-to-date information about your funds, learn more about investing and retirement planning, and access market news and an economic outlook from Putnam experts -- with just a few clicks of the mouse! VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT: * the benefits of investing with Putnam * Putnam's money management philosophy * daily fund pricing and long-term fund performance * how to tell if your retirement savings plan is on track * how quickly money can accumulate in a tax-deferred investment You can also read Dr. Robert Goodman's economic commentary and Putnam's Capital Markets Forum outlook, search for a particular Putnam fund by name or objective . . . and much more. The site can be accessed through any of the major online services (America Online, CompuServe, Prodigy) that offer web access. Of course, you can also access it via Netscape and an independent Internet service provider. New features will be added to the site on an ongoing basis. So, visit us at http://www.putnaminv.com -- often! Report of independent accountants For the fiscal year ended June 30, 1997 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, including the portfolio of investments owned, as of June 30, 1997, and the related statement of operations for the year then ended and 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, 1997, 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, 1997, the results of its operations for the year then ended and 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, 1997 Portfolio of investments owned June 30, 1997
COMMON STOCKS (95.6%) * NUMBER OF SHARES VALUE Australia (1.2%) - ------------------------------------------------------------------------------------------------------------ 1,846,550 QBE Insurance Group Ltd. $ 11,131,003 837,000 Westpac Banking Corp. 5,026,516 -------------- 16,157,519 Austria (1.0%) - ------------------------------------------------------------------------------------------------------------ 70,510 VA Technolgies AG 12,908,763 Canada (5.9%) - ------------------------------------------------------------------------------------------------------------ 476,200 Bank of Nova Scotia 20,869,323 826,500 Cae, Inc. 6,585,657 227,900 Magna International, Inc. Class A 13,716,731 1,101,477 National Bank 13,803,370 68,200 Newbridge Networks Corp. + 2,924,621 239,700 Northern Telecom Ltd. 21,608,595 -------------- 79,508,297 France (13.1%) - ------------------------------------------------------------------------------------------------------------ 159,436 Compagnie Generale des Eaux 20,433,207 98,100 Credit Locale de France S.A. 9,550,370 188,200 Elf Aquitaine S.A. 20,307,855 254,500 Lafarge Coppee 15,831,801 283,300 Michelin Corp. Class B 17,015,840 393,400 SCOR 15,841,790 277,300 SGS-Thomson Microelectronics ADR 22,184,000 192,540 Societe Generale 21,497,105 130,850 Societe Television Francaise 1 11,691,984 236,800 Total Corp. ADR Class B 23,939,954 -------------- 178,293,906 Germany (8.2%) - ------------------------------------------------------------------------------------------------------------ 20,500 Altana AG 21,869,802 487,756 Bayer AG ADR 18,749,301 23,700 Bayerische Motoren Werke (BMW) AG 19,615,199 328,400 Deutsche Telekom AG 7,910,984 617,600 Deutsche Telekom AG ADR 14,899,600 266,600 Siemens AG 15,833,914 208,100 Veba (Vereinigte Elektrizitaets Bergwerks) AG 11,697,046 -------------- 110,575,846 Hong Kong (2.7%) - ------------------------------------------------------------------------------------------------------------ 1,310,000 Dao Heng Bank Group Ltd. 7,170,206 8,472,000 First Pacific Co. Ltd. 10,827,187 956,600 Guoco Group Ltd. 5,038,312 1,573,000 Hutchison Whampoa, Ltd. 13,604,983 -------------- 36,640,688 Ireland (3.2%) - ------------------------------------------------------------------------------------------------------------ 1,786,243 Allied Irish Banks PLC 13,705,241 1,163,748 Bank of Ireland 12,762,066 1,614,771 CRH PLC 16,902,118 1 Greencore Group PLC 5 -------------- 43,369,430 Italy (2.7%) - ------------------------------------------------------------------------------------------------------------ 4,361,700 Ente Nazionale Idrocarburi SPA 24,731,223 183,900 Gucci Group 11,838,563 -------------- 36,569,786 Japan (16.5%) - ------------------------------------------------------------------------------------------------------------ 850,000 Canon, Inc. 23,161,560 216,700 Circle K Japan Co. Ltd. 12,453,146 303,000 Fuji Photo Film Co. 12,199,382 86,500 Hirose Electric Co. Ltd. 5,937,901 1,025,000 KAO Corp. 14,233,617 83,100 Keyence Corp 12,337,985 1,074,000 Matsushita Electric Works, Ltd. 12,193,880 1,408,000 NEC Corp. 19,675,099 222,100 Oy Nokia AB Class A 16,596,211 35,000 Promise Co. Ltd. 2,005,239 125,000 Rohm Co. Ltd. 12,882,090 421,000 Sankyo Co. Ltd. 14,155,888 21,000 Santen Pharmaceutical Co. Ltd 423,668 501,000 Shin-Etsu Chemical Co. 13,301,653 289,400 Sony Corp. 25,249,821 265,000 Taisho Pharmaceutical Co. 7,151,525 81,000 TDK Corp. 5,949,429 299,000 Tokyo Electron Ltd. 14,310,215 -------------- 224,218,309 Malaysia (0.3%) - ------------------------------------------------------------------------------------------------------------ 705,000 Malaysian Assurance Alliance 4,105,169 70,500 Malaysian Assurance Alliance Class A 410,517 -------------- 4,515,686 Mexico (1.7%) - ------------------------------------------------------------------------------------------------------------ 158,300 Alfa S.A. de C.V. Class A 1,082,359 2,442,000 Cemex S.A. de C.V. 10,474,076 862,600 Fomento Economico Mexicano, S.A. de C.V. Class B 5,147,090 201,900 Panamerican Beverages, Inc. Class A 6,637,463 -------------- 23,340,988 Netherlands (7.9%) - ------------------------------------------------------------------------------------------------------------ 631,626 ABN AMRO Holding N.V. 11,786,230 111,200 Akzo-Nobel N.V. 15,250,739 462,533 Internationale Nederlanden Groep 21,341,509 435,573 K.L.M.-Royal Dutch Airlines 13,435,386 321,578 Philips Electronics N.V. 23,051,834 58,000 Unilever N.V. 12,218,619 189,200 Vendex International N.V. 10,369,634 -------------- 107,453,951 Poland (0.2%) - ------------------------------------------------------------------------------------------------------------ 213,700 Bank Handlowy Warszawie GDR (NON) 2,276,865 Portugal (1.2%) - ------------------------------------------------------------------------------------------------------------ 119,800 Banco Totta & Accores S.A. 2,003,020 93,900 Electricidade de Portugal S.A. + 1,724,259 323,400 Portugal Telecom S.A. 13,053,671 -------------- 16,780,950 Singapore (0.3%) - ------------------------------------------------------------------------------------------------------------ 368,000 Cycle & Carriage Ltd. 3,810,803 Sweden (4.6%) - ------------------------------------------------------------------------------------------------------------ 33,438 ABB AB Class A 470,347 1,070,000 Astra AB 19,975,367 200,900 Pharmacia & Upjohn, Inc. 6,797,809 46,840 Sandvik AB 1,332,907 427,720 Sandvik AB Class B 12,171,457 78,200 Skandia Forsakrings AB 2,889,350 489,700 Telefonaktiebolaget LM Ericsson Class B 19,331,516 -------------- 62,968,753 Switzerland (10.4%) - ------------------------------------------------------------------------------------------------------------ 7,990 ABB AG 12,087,001 9,025 Julius Baer Holding AG 13,807,157 198,943 CIBA Specialty Chemicals AG + 18,384,082 8,100 Georg Fischer ADR 11,255,391 15,800 Nestle S.A. 20,830,173 11,577 Novartis AG ADR 18,495,940 51,310 Publicitas Holding S.A. 9,763,967 11,880 Swiss Reinsurance Co. 16,792,525 16,721 United Bank of Switzerland 19,114,293 -------------- 140,530,529 United Kingdom (13.3%) - ------------------------------------------------------------------------------------------------------------ 5,011,053 Avis Europe PLC + 11,384,641 1,829,778 B A T Industries PLC 16,369,468 1,096,924 British Petroleum Co. PLC 13,629,002 476,100 Burmah Castrol PLC 8,062,882 2,073,800 General Electric Co. PLC 12,391,361 859,900 Glaxo Wellcome PLC 17,747,098 448,056 HSBC Holdings PLC 13,476,673 275,400 Molins PLC 2,337,716 1,039,100 Norwich Union PLC + 5,517,035 740,700 Rio Tinto PLC 12,901,473 2,085,100 Scottish Power PLC 13,569,422 2,035,800 Shell Transportation & Trading 13,875,439 785,132 Smiths Industries PLC 10,055,624 2,118,771 Tomkins PLC 9,168,854 4,053,900 Vodafone Group PLC 19,735,885 -------------- 180,222,573 United States (1.2%) - ------------------------------------------------------------------------------------------------------------ 411,400 MCI Communications Corp. 15,748,906 -------------- Total Common Stocks (cost $1,136,300,763) $1,295,892,548 PREFERRED STOCKS (0.7 %) (cost $9,038,887) NUMBER OF SHARES VALUE Brazil (0.7%) - ------------------------------------------------------------------------------------------------------------ 273,700 Uniao de Bancos Brasileiros S.A. BRC 1.655 pfd. $ 9,535,256 WARRANTS (--%) (cost $--) * + EXPIRATION NUMBER OF WARRANTS DATE VALUE France (--%) - ------------------------------------------------------------------------------------------------------------ 56,130 Compagnie Generale des Eaux 5/2/01 $33,627 SHORT-TERM INVESTMENTS (4.9%) * PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------ $25,000,000 Federal Home Loan Mortgage Corp. effective yield of 5.44%, July 14, 1997 $ 24,950,889 21,968,000 Interest in $293,634,000 joint repurchase agreement dated June 30, 1997 with UBS Securities due July 1, 1997 with respect to various U.S. Treasury obligations -- maturity value of $21,971,600 for an effective yield of 5.90% 21,971,600 20,000,000 Interest in $750,000,000 joint repurchase agreement dated June 30, 1997 with Goldman, Sachs & Co. due July 1, 1997 with respect to various U.S. Treasury obligations -- maturity value of $20,003,264 for an effective yield of 5.875% 20,003,264 -------------- Total Short-Term Investments (cost $66,925,753) $66,925,753 - ------------------------------------------------------------------------------------------------------------ Total Investments (cost $1,212,265,403) *** $1,372,387,184 - ------------------------------------------------------------------------------------------------------------ * Percentages indicated are based on net assets of $1,356,357,956. *** The aggregate identified cost on a tax basis is $1,212,950,212, resulting in gross unrealized appreciation and depreciation of $172,249,112 and $12,812,140, respectively, or net unrealized appreciation of $159,436,972. + Non-income-producing security. ADR and GDR after the name of a foreign holding stands for American Depository Receipt and Global Depository Receipt, respectively, representing ownership of foreign securities on deposit with a domestic custodian bank. The fund had the following industry group concentrations greater than 10% at June 30, 1997 (as a percentage of net assets): Insurance and Finance 19.3% Electronics and Electrical Equipnment 14.5
- ---------------------------------------------------------------------------------------- Forward Currency Contracts to Sell at June 30, 1997 (aggregate face value $149,196,457) Market Aggregate Face Delivery Unrealized Value Value Date Appreciation - ---------------------------------------------------------------------------------------- Deutschemarks $35,064,061 $35,693,388 7/30/97 $ 629,327 French Franc 88,188,796 90,041,600 8/31/97 1,852,804 Japanese Yen 23,191,896 23,461,469 11/20/97 269,573 - ---------------------------------------------------------------------------------------- $2,751,704 - ---------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities June 30, 1997 Assets - --------------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $1,212,265,403) (Note 1) $ 1,372,387,184 - --------------------------------------------------------------------------------------------------- Dividends, interest and other receivable 3,559,780 - --------------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 27,817,169 - --------------------------------------------------------------------------------------------------- Receivable for securities sold 17,063,542 - --------------------------------------------------------------------------------------------------- Receivable for open forward currency contracts 2,751,704 - --------------------------------------------------------------------------------------------------- Total assets 1,423,579,379 Liabilities - --------------------------------------------------------------------------------------------------- Payable to subcustodian (Note 2) 18,138 - --------------------------------------------------------------------------------------------------- Payable for securities purchased 32,047,600 - --------------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 28,423,135 - --------------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 2,070,934 - --------------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 789,352 - --------------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 8,261 - --------------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 3,294 - --------------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 833,423 - --------------------------------------------------------------------------------------------------- Payable for closed forward currency contracts 2,729,659 - --------------------------------------------------------------------------------------------------- Other accrued expenses 297,627 - --------------------------------------------------------------------------------------------------- Total liabilities 67,221,423 - --------------------------------------------------------------------------------------------------- Net assets $1,356,357,956 Represented by - --------------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $1,135,086,033 - --------------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 21,000,293 - --------------------------------------------------------------------------------------------------- Accumulated net realized gain on investments (Note 1) 37,405,442 - --------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 162,866,188 - --------------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $1,356,357,956 Computation of net asset value and offering price - --------------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($728,848,710 divided by 41,467,140 shares) $17.58 - --------------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $17.58)* $18.65 - --------------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($472,662,792 divided by 27,287,515 shares)** $17.32 - --------------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($58,471,413 divided by 3,344,674 shares) $17.48 - --------------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $17.48)* $18.11 - --------------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($96,375,041 divided by 5,475,115 shares) $17.60 - --------------------------------------------------------------------------------------------------- * 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, 1997 Investment income: - -------------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $1,622,992) $ 15,741,537 - -------------------------------------------------------------------------------------------------- Interest 1,538,085 - -------------------------------------------------------------------------------------------------- Total investment income 17,279,622 - -------------------------------------------------------------------------------------------------- Expenses: Compensation of Manager (Note 2) 5,327,442 - -------------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 3,417,367 - -------------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 27,686 - -------------------------------------------------------------------------------------------------- Administrative services (Note 2) 11,882 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 914,106 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 2,533,256 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 232,520 - -------------------------------------------------------------------------------------------------- Reports to shareholders 57,462 - -------------------------------------------------------------------------------------------------- Registration fees 243,060 - -------------------------------------------------------------------------------------------------- Auditing 40,230 - -------------------------------------------------------------------------------------------------- Legal 16,433 - -------------------------------------------------------------------------------------------------- Postage 79,851 - -------------------------------------------------------------------------------------------------- Other 112,123 - -------------------------------------------------------------------------------------------------- Total expenses 13,013,418 - -------------------------------------------------------------------------------------------------- Expense reduction (Note 2) (538,453) - -------------------------------------------------------------------------------------------------- Net expenses 12,474,965 - -------------------------------------------------------------------------------------------------- Net investment income 4,804,657 - -------------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 37,772,156 - -------------------------------------------------------------------------------------------------- Net realized gain on foreign currency transactions (Note 1) 19,796,470 - -------------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the year 1,256,443 - -------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments during the year 141,854,079 - -------------------------------------------------------------------------------------------------- Net gain on investments 200,679,148 - -------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $205,483,805 - -------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Year ended June 30 -------------------------------- 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- Increase in net assets - ---------------------------------------------------------------------------------------------------------------------- Operations: - ---------------------------------------------------------------------------------------------------------------------- Net investment income $ 4,804,657 $ 933,554 - ---------------------------------------------------------------------------------------------------------------------- Net realized gain on investments 57,568,626 4,871,423 - ---------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments 143,110,522 17,321,399 - ---------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 205,483,805 23,126,376 - ---------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - ---------------------------------------------------------------------------------------------------------------------- From net investment income Class A (2,849,521) (1,052,356) - ---------------------------------------------------------------------------------------------------------------------- Class B (1,353,487) (570,446) - ---------------------------------------------------------------------------------------------------------------------- Class M (209,806) (60,867) - ---------------------------------------------------------------------------------------------------------------------- Class Y (724,825) -- - ---------------------------------------------------------------------------------------------------------------------- From net realized gain on investments Class A (1,056,776) (31,357) - ---------------------------------------------------------------------------------------------------------------------- Class B (842,170) (14,842) - ---------------------------------------------------------------------------------------------------------------------- Class M (100,420) (1,361) - ---------------------------------------------------------------------------------------------------------------------- Class Y (237,370) -- - ---------------------------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 860,838,080 215,489,871 - ---------------------------------------------------------------------------------------------------------------------- Total increase in net assets 1,058,947,510 236,885,018 Net assets - ---------------------------------------------------------------------------------------------------------------------- Beginning of year 297,410,446 60,525,428 - ---------------------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $21,000,293 and $1,791,102, respectively) $1,356,357,956 $297,410,446 - ---------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) CLASS A - ---------------------------------------------------------------------------------------------------------------------------------- Per-share operating performance Year ended June 30 - ---------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $14.25 $12.10 $11.83 $9.58 $8.82 - ---------------------------------------------------------------------------------------------------------------------------------- Investment operations - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) .15 (c) .13 (c) .08 (d) (.06)(d) .07 (d) - ---------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 3.39 2.29 .36 2.53 .69 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 3.54 2.42 .44 2.47 .76 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------------------------------------------------- From net investment income (.15) (.26) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (.06) (.01) (.11) (.22) -- - ---------------------------------------------------------------------------------------------------------------------------------- In excess of net realized gain on investments -- -- (.06) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.21) (.27) (.17) (.22) -- - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $17.58 $14.25 $12.10 $11.83 $9.58 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 25.13 20.21 3.76 25.81 8.62 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $728,849 $151,088 $32,856 $8,781 $2,859 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 1.59 1.74 1.61 (d) 2.17 (d) 1.80 (d) - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) .98 .99 .97 (d) (.17)(d) .81 (d) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 86.40 44.14 25.83 96.13 80.92 - ---------------------------------------------------------------------------------------------------------------------------------- Average commission rate paid (e) $.0352 - ---------------------------------------------------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the period ended June 30, 1996 and thereafter includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts (Note 2). (c) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding for the period. (d) Reflects an expense limitation in effect during the year. As a result of such limitation, expenses for class A shares of the fund for the periods ended June 30, 1994 and June 30, 1993 reflect per share reductions of approximately $0.03 and $0.05, respectively. Expenses for class B shares of the fund for the period ended June 30, 1994 reflect a reduction of less than $0.01 per share. Expenses for class A, B and M shares for the period ended June 30, 1995 reflect a reduction of less than $0.01 per share. (e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
Financial highlights (For a share outstanding throughout the period) CLASS B - ------------------------------------------------------------------------------------------------------------------------------------ For the period Per-share June 1, 1994+ operating performance Year ended June 30 to June 30 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $14.10 $12.00 $11.82 $11.78 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income (loss) .03 (c) .04 (c) .01 (d) (.01)(c)(d) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments 3.34 2.26 .34 .05 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 3.37 2.30 .35 .04 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.09) (.19) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (.06) (.01) (.11) -- - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net realized gain on investments -- -- (.06) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.15) (.20) (.17) -- - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $17.32 $14.10 $12.00 $11.82 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) 24.09 19.35 3.00 0.34 * - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $472,663 $132,013 $25,892 $2,470 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) 2.34 2.49 2.41 (d) .15 (d) * - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) .18 .32 .23 (d) (.06)(d) * - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 86.40 44.14 25.83 96.13 - ------------------------------------------------------------------------------------------------------------------------------------ Average commission rate paid (e) $.0352 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the period ended June 30, 1996 and thereafter includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts (Note 2). (c) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding for the period. (d) Reflects an expense limitation in effect during the year. As a result of such limitation, expenses for class A shares of the fund for the periods ended June 30, 1994 and June 30, 1993 reflect per share reductions of approximately $0.03 and $0.05, respectively. Expenses for class B shares of the fund for the period ended June 30, 1994 reflect a reduction of less than $0.01 per share. Expenses for class A, B and M shares for the period ended June 30, 1995 reflect a reduction of less than $0.01 per share. (e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
Financial highlights (For a share outstanding throughout the period) CLASS M - ---------------------------------------------------------------------------------------------------------------------------------- For the period Dec. 1,1994+ Per-share to Year ended operating performance Year ended June 30 June 30 - ---------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $14.22 $12.09 $11.87 - ---------------------------------------------------------------------------------------------------------------------------------- Investment operations - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) .07 (c) .08 (c) .03 (d) - ---------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 3.36 2.28 .36 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 3.43 2.36 .39 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------------------------------------------------- From net investment income (.11) (.22) -- - ---------------------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (.06) (.01) (.11) - ---------------------------------------------------------------------------------------------------------------------------------- In excess of net realized gain on investments -- -- (.06) - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.23) (.17) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $17.48 $14.22 $12.09 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 24.40 19.71 3.33 * - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $58,471 $14,309 $1,777 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 2.09 2.25 1.61 (d) - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) .44 .61 .58 (d) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 86.40 44.14 25.83 - ---------------------------------------------------------------------------------------------------------------------------------- Average commission rate paid (e) $.0352 - ---------------------------------------------------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the period ended June 30, 1996 and thereafter includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts (Note 2). (c) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding for the period. (d) Reflects an expense limitation in effect during the year. As a result of such limitation, expenses for class A shares of the fund for the periods ended June 30, 1994 and June 30, 1993 reflect per share reductions of approximately $0.03 and $0.05, respectively. Expenses for class B shares of the fund for the period ended June 30, 1994 reflect a reduction of less than $0.01 per share. Expenses for class A, B and M shares for the period ended June 30, 1995 reflect a reduction of less than $0.01 per share. (e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
Financial highlights (For a share outstanding throughout the period) CLASS Y - ---------------------------------------------------------------------------------------------------------------------------------- For the period Per-share July 12, 1996+ operating performance to June 30 - ---------------------------------------------------------------------------------------------------------------------------------- 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $13.88 - ---------------------------------------------------------------------------------------------------------------------------------- Investment operations - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) .20 (c) - ---------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 3.75 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 3.95 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------------------------------------------------- From net investment income (.17) - ---------------------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (.06) - ---------------------------------------------------------------------------------------------------------------------------------- In excess of net realized gain on investments -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.23) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $17.60 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 25.44 * - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $96,375 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 1.30 * - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 1.26 * - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 86.40 * - ---------------------------------------------------------------------------------------------------------------------------------- Average commision rate paid (e) $.0352 - ---------------------------------------------------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the period ended June 30, 1996 and thereafter includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts (Note 2). (c) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding for the period. (d) Reflects an expense limitation in effect during the year. As a result of such limitation, expenses for class A shares of the fund for the periods ended June 30, 1994 and June 30, 1993 reflect per share reductions of approximately $0.03 and $0.05, respectively. Expenses for class B shares of the fund for the period ended June 30, 1994 reflect a reduction of less than $0.01 per share. Expenses for class A, B and M shares for the period ended June 30, 1995 reflect a reduction of less than $0.01 per share. (e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
Notes to financial statements June 30, 1997 Note 1 Significant accounting policies Putnam International Growth Fund ("the fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks capital appreciation by investing primarily in equity securities of companies located outside the United States. The fund offers class A, class B, class M and class Y shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge but pay a higher ongoing distribution fee than class A shares, and may be subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class M shares are sold with a maximum front end sales charge of 3.50% and pay an ongoing distribution fee that is higher than class A shares but lower than class B shares. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A shares, class B and class M shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that initially invest at least $250 million in a combination of Putnam Funds. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price on the principal market in which the securities are traded, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments are stated at fair value following procedures approved by the Trustees. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such 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, 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. 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 at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include treatment of realized gains and losses on forward foreign currency contracts and realized gains and losses on passive foreign investment companies. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended June 30, 1997, the fund reclassified $19,542,173 to increase undistributed net investment income and $336,049 to increase paid-in-capital, with a decrease to accumulated net realized gain on investments of $19,878,222. The calculation of net investment income per share in the financial highlights table excludes these adjustments. Note 2 Management fee, administrative services and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.80% of the first $500 million of average net assets, 0.70% of the next $500 million, 0.65% of the next $500 million, 0.60% of the next $5 billion, 0.575% of the next $5 billion, 0.555% of the next $5 billion, 0.54% of the next $5 billion, and 0.53% of any excess thereafter. Prior to October 21, 1996 any amount over $1.5 billion was based on 0.60%. As part of the custodian contract between the subcustodian bank and PFTC, the subcustodian bank has a lien on the securities of the fund to the extent permitted by the funds investment restrictions to cover any advances made by the subcustodian bank for the settlement of securities purchased by the fund. At June 30, 1997, the payable to the subcustodian bank represents the amount due for cash advance for the settlement of a security purchased. The fund reimburses Putnam Management 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, 1997, fund expenses were reduced by $538,453 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 $1,300 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 "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 an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00%, and 1.00% of the average net assets attributable to class A, class B, and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, and 0.75% of the average net assets attributable to class A, class B, and class M shares respectively. For the year ended June 30, 1997, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $774,548 and $42,217 from the sale of class A and class M shares, respectively and received $274,629 in contingent deferred sales charges from redemptions of class B. A deferred sales charge of up to 1% is assessed on certain redemptions of class A shares. For the year ended June 30, 1997, Putnam Mutual Funds Corp., acting as underwriter received $10,375 on class A redemptions. Note 3 Purchase and sales of securities During the year ended June 30, 1997, purchases and sales of investment securities other than short-term investments aggregated $1,431,240,390 and $584,674,248, 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, 1997, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Year ended June 30, 1997 - ------------------------------------------------------------ Class A Shares Amount - ------------------------------------------------------------ Shares sold 60,834,772 $950,877,485 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 249,993 3,619,895 - ------------------------------------------------------------ 61,084,765 954,497,380 Shares repurchased (30,218,569) (482,442,248) - ------------------------------------------------------------ Net increase 30,866,196 $472,055,132 - ------------------------------------------------------------ Year ended June 30, 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, 1997 - ------------------------------------------------------------ Class B Shares Amount - ------------------------------------------------------------ Shares sold 28,247,200 $431,211,646 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 133,547 1,913,736 - ------------------------------------------------------------ 28,380,747 433,125,382 Shares repurchased (10,458,488) (161,084,240) - ------------------------------------------------------------ Net increase 17,922,259 $272,041,142 - ------------------------------------------------------------ Year ended June 30, 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, 1997 - ------------------------------------------------------------ Class M Shares Amount - ------------------------------------------------------------ Shares sold 4,009,824 $ 62,137,457 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 20,175 291,322 - ------------------------------------------------------------ 4,029,999 62,428,779 Shares repurchased (1,691,586) (26,931,634) - ------------------------------------------------------------ Net increase 2,338,413 $ 35,497,145 - ------------------------------------------------------------ Year ended June 30, 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 July 12, 1996 (commencement of operations) to June 30, 1997 - ------------------------------------------------------------ Class Y Shares Amount - ------------------------------------------------------------ Shares sold 6,376,026 $ 95,236,557 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 66,468 962,195 - ------------------------------------------------------------ 6,442,494 96,198,752 Shares repurchased (967,379) (14,954,091) - ------------------------------------------------------------ Net increase 5,475,115 $ 81,244,661 - ------------------------------------------------------------ Federal tax information (Unaudited) Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund hereby designates $.035 per share (or if different, the amount necessary to offset net capital gain earned by the Fund) (for all classes of shares) as capital gain dividends for its taxable year ended June 30, 1997. For the period, interest and dividends from foreign countries were $17,365,000 or $.224 per share (for all share classes). Taxes paid to foreign countries were $1,623,000 or $.021 per share (for all classes of shares). The Form 1099 you receive in January 1998 will show the tax status of all distributions paid to your account in calendar 1997. Results of February 6, 1997 shareholder meeting (Unaudited) An annual meeting of shareholders of the fund was held on February 6, 1997. At the meeting, each of the nominees for Trustees was elected, as follows: Votes for Votes withheld Jameson Adkins Baxter 17,987,858 293,078 Hans H. Estin 17,975,442 305,494 John A. Hill 17,434,763 846,173 R.J. Jackson 17,986,804 294,132 Elizabeth T. Kennan 17,413,404 867,532 Lawrence J. Lasser 17,437,794 843,142 Robert E. Patterson 17,991,949 288,987 Donald S. Perkins 17,988,781 292,155 William F. Pounds 17,427,876 853,060 George Putnam 17,994,057 286,879 George Putnam, III 17,413,871 864,065 Eli Shapiro 17,373,414 907,522 A.J.C. Smith 17,991,024 289,912 W. Nicholas Thorndike 17,979,442 301,494 A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors for the fund was approved as follows: 17,458,642 votes for, and 173,401 votes against, with 648,893 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to diversification was approved as follows: 15,692,132 votes for, and 827,734 votes against, with 1,761,070 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to investments in the securities of a single issuer was approved as follows: 14,769,033 votes for, and 1,494,519 votes against, with 2,017,384 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to making loans was approved as follows: 14,296,777 votes for, and 2,053,935 votes against, with 1,930,224 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to investments in commodities was approved as follows: 14,627,650 votes for, and 1,785,696 votes against, with 1,867,590 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to investments in senior securities was approved as follows: 15,069,601 votes for, and 1,231,955 votes against, with 1,979,380 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to investments in securities of issuers in which management of the fund or Putnam Investment Management, Inc. owns securities was approved as follows: 14,438,110 votes for, and 1,913,142 votes against, with 1,929,684 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to margin transactions was approved as follows: 14,182,421 votes for, and 2,164,351 votes against, with 1,934,164 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to short sales was approved as follows: 14,213,707 votes for, and 2,094,203 votes against, with 1,973,026 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to pledging assets was approved as follows: 14,140,757 votes for, and 2,181,711 votes against, with 1,958,468 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to investments in certain oil, gas and mineral interests was approved as follows: 14,528,204 votes for, and 1,764,987 votes against, with 1,987,745 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to investing to gain control of a company's management was approved as follows: 14,643,999 votes for, and 1,719,244 votes against, with 1,917,693 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to investments in other investment companies was approved as follows: 15,019,769 votes for, and 1,203,710 votes against, with 2,057,457 abstentions and broker non-votes. All tabulations are rounded to nearest whole number. PUTNAM GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund Diversified Equity Trust Europe Growth Fund Global Growth Fund Global Natural Resources Fund * Health Sciences Trust International Growth Fund + International New Opportunities Fund Investors Fund New Opportunities Fund OTC & Emerging Growth Fund [DBL. DAGGER] 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 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 Diversified Income Trust II Federal Income Trust Global Governmental Income Trust High Yield Advantage Fund High Yield Trust Income Fund Intermediate U.S. Government Income Fund Preferred Income Fund U.S. Government Income Trust PUTNAM TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income 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 LIFESTAGESM 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 MOST CONSERVATIVE INVESTMENTS ** Putnam money market funds: ++ California Tax Exempt Money Market Fund Money Market Fund New York Tax Exempt Money Market Fund Tax Exempt Money Market Fund CDs and savings accounts [2 DBL. DAGGERS] * Formerly Natural Resources Fund + Formerly Overseas Growth Fund [DBL. DAGGER] Formerly OTC Emerging Growth Fund [SECTION MARK] Not available in all states. ** Relative to above. ++ 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. [2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of deposit offer a fixed rate of return and may be insured up to certain limits by federal/state agencies. Savings accounts may also be insured up to certain limits. 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 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 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 Tim Ferguson Vice President Brett C. Browchuk Vice President Justin M. Scott Vice President and Fund Manager Omid Kamshad Vice President and Fund Manager David K. Thomas 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 Europe Growth Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information, or to request a prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam Investments' website: http://www.putnaminv.com. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution, are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency, and involve risk, including the possible loss of principal amount invested. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - -------------------- Bulk Rate U.S. Postage PAID Putnam Investments - -------------------- 35072--841/524/891 8/97 PUTNAM INVESTMENTS [SCALE LOGO] - ------------------------------------------------------------------------ Putnam International Growth Fund Supplement to Annual Report dated 6/30/97 The following information has been prepared to provide class Y shareholders with a performance overview specific to their holdings. Class Y shares are offered exclusively to defined contribution plans investing $250 million or more in one or more of Putnam's funds or private accounts. Performance of class Y shares, which incur neither a front-end load, distribution fee, nor contingent deferred sales charge, will differ from performance of class A, B, and M shares, which are discussed more extensively in the annual report. ANNUAL RESULTS AT A GLANCE - ------------------------------------------------------------------------ Total return: NAV One year ended 6/30/97 25.44% 5 years 113.81 Annual average 16.41 Life of class (since ) 121.95 Annual average 13.40 - ------------------------------------------------------------------------ Share value: NAV 6/30/96 $14.25 6/30/97 17.60 - ------------------------------------------------------------------------ Distributions: No. Income Capital gains Total 1 $0.1710 $0.05600 $0.2270 - ------------------------------------------------------------------------ Please note that past performance does not indicate future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. See full report for information on comparative benchmarks. If you have questions, please consult your fund prospectus or call Putnam toll free at 1-800-752-9894. -----END PRIVACY-ENHANCED MESSAGE-----