N-30D 1 ig.txt PUTNAM INTERNATIONAL GROWTH FUND Putnam International Growth Fund SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 12-31-01 [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Shareholder: During the first half of Putnam International Growth Fund's semiannual period, the stocks in which the fund invests remained under siege in response to spreading global economic slowing. Recognizing that they had been unduly pessimistic, investors eventually began reentering the market. Their enthusiasm, however, was not sufficient to offset the period's earlier losses. Your fund's management team has responded to these developments by realigning the fund's positions, adding stocks they considered unduly undervalued and, more importantly in our view, by continuing to adhere strictly to the fund's stated investment style. Both of these moves should allow the fund to take advantage of the global economic recovery that is widely expected to develop in the year ahead. As you will note in this report, we are now listing the team responsible for the fund's operation instead of naming individual fund managers. The change will not affect the way your fund is managed. Rather, it reflects Putnam's belief that mutual funds are more effectively overseen by teams rather than individuals. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds February 13, 2002 REPORT FROM FUND MANAGEMENT The fund is managed by the Putnam International Core Team In the past six months, international markets followed a v-shaped course, declining for three months before recovering much of those losses in the final three months. As the first half of Putnam International Growth Fund's fiscal year began on July 1, 2001, pessimism increased in international economies as the U.S. economy slipped into recession. Equity prices declined during the summer, then plunged when terrorists struck the United States on September 11. The shock of this event brought markets to a historic low point. However, the low prices of equities reflected an unduly pessimistic outlook for international economies. We recognized this at the time and increased the fund's exposure to undervalued cyclical and telecommunications stocks that participated in the subsequent international market rally of the fourth quarter. For the period as a whole, the fund recorded a loss. However, it did make substantial progress working its way back from the September lows. Furthermore, although in calendar year 2001 international markets recorded their second consecutive year of negative results, your fund's performance over the year was slightly ahead of the Lipper average for international funds at net asset value.* Total return for 6 months ended 12/31/01 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP ----------------------------------------------------------------------- -6.69% -12.07% -7.05% -11.69% -7.04% -7.97% -6.99% -10.23 ----------------------------------------------------------------------- Past performance is not indicative of future results. Performance information for longer periods and explanation of performance calculation methods begin on page 8. *See page 8 for Lipper performance details. [GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY ALLOCATIONS] TOP COUNTRY ALLOCATIONS* United Kingdom 21.5% France 14.8% Japan 13.3% Germany 7.0% Netherlands 5.6% Footnote reads: *Based on net assets as of 12/31/01. Holdings will vary over time. * CONDITIONS ENCOURAGED MORE AGGRESSIVE POSITIONING As the fiscal period opened in July, the portfolio was positioned defensively because international economies were exhibiting the same sluggishness that had come to characterize the United States economy. Although Europe was able to generate consumer demand, the slump in international trade and the burden of high interest rates choked off growth. Japan was sinking into yet another recession, and although the new Prime Minister, Junichiro Koizumi, had inspired optimism by forming a reform- oriented government in the spring, we were among the skeptics who wanted to see evidence of reform before increasing the fund's Japanese exposure. Our standard strategy of targeting undervalued stocks of large companies achieving growth gives us flexibility to handle both positive and negative market conditions. With profit growth scarce last summer, we favored undervalued stocks of companies with strong cash flows. The fund was overweighted in the energy, pharmaceutical, and consumer staples sectors. Our one exception to this positioning was a relatively large position in media stocks. Although these stocks had attractive cash flows, their performance tends to be more sensitive to the economic cycle. As a result their performance was disappointing as economies slowed during the summer, but we held on to the stocks and performance improved late in the year. In the course of the summer, we modified the portfolio primarily by adding exposure to telecommunications. The fund had been underweighted in this sector because we believed many European companies had spent too much to roll out third-generation wireless services. However, by early 2001 the sector had become so cheap that we saw little downside risk in increasing the fund's exposure. During the semiannual period, the fund benefited from positions we built in Telecom Italia, Telefonica of Spain, and Portugal Telecom, companies that operated with little price competition in their home markets. We later took profits on a portion of our holdings in Telecom Italia and Portugal Telecom. Although these holdings, as well as others mentioned in this report, were viewed favorably by fund management at the end of the reporting period, all holdings are subject to review according to the fund's investment strategy and may change. In late September and October, we took more aggressive steps. In the wake of the September 11 tragedies, even international stocks became priced for a significant and sustained recession, which we did not consider likely. We added exposure to wireless telecommunications, technology, media, and some cyclical stocks. Fund performance soon benefited from these moves. Stock prices began to improve in October and surged in November. In Europe, optimism mounted as the European Central Bank moved more quickly than expected to lower interest rates. In Japan, cyclical stocks benefited from an improving outlook for exports to the United States. * NEWER HOLDINGS CONTRIBUTED GAINS One of our top-performing stocks of the past six months was Samsung Electronics of South Korea. Samsung is a large conglomerate that makes everything from semiconductor chips for computers and wireless telephones to a host of household consumer electronics. The stock was, in our opinion, unreasonably undervalued. While semiconductor prices were weak, Samsung's stock valuation had fallen far below that of its competitors, companies like Micron Technology in the United States and Infineon in Germany, although Samsung has a substantial cost advantage over these rivals. The fund's position in Samsung appreciated strongly when semiconductor prices firmed toward the end of 2001. The stock is still undervalued and remains one of the portfolio's largest holdings. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS TotalFinaElf SA Class B France Energy Vodafone Group PLC United Kingdom Communication services AstraZeneca PLC United Kingdom Pharmaceuticals Samsung Electronics Co., Ltd. South Korea Electronics Shell Transport & Trading Co. PLC United Kingdom Energy ING Groep NV Netherlands Insurance Sanofi-Synthelabo SA France Pharmaceuticals GlaxoSmithKline PLC United Kingdom Pharmaceuticals NTT DoCoMo, Inc. Japan Communication services Allianz AG Germany Insurance Footnote reads: These holdings represent 32.7% of the fund's net assets as of 12/31/01. Portfolio holdings will vary over time. In September and October we added exposure to different areas of the telecommunications sector because they were severely undervalued. We added substantially to our position in Ericsson of Sweden, for example, which had been deeply out of favor despite its tremendous franchise in producing equipment for wireless infrastructure such as switching stations. Construction of this infrastructure has been delayed by the economic slowdown, but not abandoned. We believe Ericsson is positioned to profit. We also added to the fund's position in Vodafone of the United Kingdom, the leading wireless operator in Europe. We believe they will prosper as European consumers move up to third-generation wireless services. These stocks performed quite well during the market rally late in the year. However, another of our telecom stocks has underperformed recently. NTT DoCoMo, the leading wireless company in Japan, was disappointing in part because the market worried that the Japanese government, a major shareholder in the company, might sell its stake. Cyclical stocks generally performed well during the period. CRH of Ireland and Rio Tinto PLC of the United Kingdom are two basic materials stocks that have low cost structures and should see improving demand as economies recover. Also, among the few Japanese companies we favored were exporting companies with global marketing savvy. In the auto industry, the fund increased its positions in Toyota and Honda. The stocks declined, but we still like the companies because their car sales have been strong while the weakening yen has made their prices more attractive. In the computer game industry the fund owned Nintendo. * MARKET WEIGHTINGS REMAINED STABLE We modified the fund's sector exposures more than its country exposures during the past six months. We continue to underweight Japan. The Koizumi government has made little progress on reform and the banking sector remains anemic. Corporations are restructuring, but at a trickle rather than a torrent. We have increased our weighting in the emerging markets of Asia. In addition to Samsung, we added to Infosys, a technology company in India, and to UMC, a semiconductor company in Taiwan. Morningstar gave Putnam International Growth Fund's class A shares a 5-star Overall Morningstar Rating as of December 31, 2001, among 1,349 international equity funds. For each fund with at least a 3-year history, Morningstar calculates a Morningstar Rating metric each month by subtracting the return on a 90-day Treasury Bill from the fund's load-adjusted return for the same period, and then adjusting this excess return for risk. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics. The top 10% of funds in each broad asset class receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. Past performance does not indicate future results. Putnam International Growth Fund's class A shares received 4, 5, and 5 stars for the 3-, 5-, and 10-year periods among the 1,349, 897, and 166 international funds rated, respectively. It is possible for a 5-star fund to exhibit low or negative performance within a given period. Market weights in Europe and Canada have been steady. While the well-publicized introduction of the euro currency notes and coins on January 1, 2002 actually had no impact on our investment decisions, we recognize that long-term structural changes have made Europe more homogeneous for investors, with a few exceptions. The national telecommunication companies in southern Europe, for example, are more attractive than their counterparts in northern Europe. In the banking sector, we have favored Scandinavian and French banks because they are cheaper and more profitable than German and Swiss banks. * FUND LESS DEFENSIVE, BUT CAUTIOUS As we begin the second half of the fund's fiscal year, the fund's positions are no longer heavily defensive but our optimism for the global economy remains tempered. We are confident that stock valuations in September were unnecessarily pessimistic, but the ensuing rally was abrupt and expressed optimism rather than fundamental improvement. Europe's economy is still stagnant and Japan is weak. We do not anticipate a quick and easy surge in corporate profits. A return to growth in the United States will help all regions, especially Asia. Reflecting our general caution, the fund's technology exposure is still a bit underweight. We favor communication services, media, and some cyclicals, but still have significant holdings in pharmaceuticals, energy, and financials. We anticipate stocks should enjoy better conditions than in the past couple of years, but a return to robust profits is unlikely in the near term. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 12/31/01, there is no guarantee the fund will continue to hold these securities in the future. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. NEWS FROM THE TRUSTEES In July 2001, we welcomed Charles B. Curtis to Putnam's Board of Trustees. He brings an impressive list of credentials that include several key positions in Washington and directorships in education and energy-related industries. We look forward to the contributions Charles will make to the continued success of the Putnam funds. A NOTE ABOUT DUPLICATE MAILINGS In response to investors' requests, the SEC has modified mailing regulations for proxy statements, semiannual and annual reports and prospectuses. Putnam is now able to send a single copy of these materials to customers who share the same address. This change will automatically apply to all shareholders except those who notify us. If you would prefer to receive your own copy, please call Putnam at 1-800-225-1581. 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 investments primarily through equity securities of issuers outside the United States. TOTAL RETURN FOR PERIODS ENDED 12/31/01 Class A Class B Class C Class M (inception dates) (2/28/91) (6/1/94) (7/26/99) (12/1/94) NAV POP NAV CDSC NAV CDSC NAV POP ------------------------------------------------------------------------------ 6 months -6.69% -12.07% -7.05% -11.69% -7.04% -7.97% -6.99% -10.23% ------------------------------------------------------------------------------ 1 year -19.76 -24.38 -20.35 -24.33 -20.37 -21.16 -20.19 -22.98 ------------------------------------------------------------------------------ 5 years 64.37 54.88 58.35 56.35 58.34 58.34 60.27 54.69 Annual average 10.45 9.14 9.63 9.35 9.63 9.63 9.89 9.12 ------------------------------------------------------------------------------ 10 years 201.90 184.66 179.30 179.30 180.04 180.04 186.95 177.00 Annual average 11.68 11.03 10.82 10.82 10.85 10.85 11.12 10.73 ------------------------------------------------------------------------------ Annual average (life of fund) 11.03 10.42 10.15 10.15 10.20 10.20 10.45 10.09 ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/01 MSCI EAFE Consumer Index price index ------------------------------------------------------------------------------ 6 months -8.00% -0.34% ------------------------------------------------------------------------------ 1 year -21.44 1.60 ------------------------------------------------------------------------------ 5 years 4.55 11.44 Annual average 0.89 2.19 ------------------------------------------------------------------------------ 10 years 54.72 28.57 Annual average 4.46 2.54 ------------------------------------------------------------------------------ Annual average (life of fund) 3.92 2.56 ------------------------------------------------------------------------------ Past performance does not indicate future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for classes A and M shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Performance for class B, C, and M shares before their inception are derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and higher operating expenses for such shares. For a portion of the period, the fund was offered with limited expenses, without which returns would have been lower. Lipper performance: The Lipper international fund category average was -21.71%, 11.70%, and 86.19% for the 1-, 5-, and 10-year periods ended 12/31/01, respectively. Lipper Inc. determines fund category averages without sales charges based on an investment style or objective. PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 12/31/01 Class A Class B Class C Class M ------------------------------------------------------------------------------ Distributions* -- -- -- -- ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV NAV POP ------------------------------------------------------------------------------ 6/30/01 $21.24 $22.54 $20.72 $21.03 $21.04 $21.80 ------------------------------------------------------------------------------ 12/31/01 19.82 21.03 19.26 19.55 19.57 20.28 ------------------------------------------------------------------------------ *The fund did not make any distributions during the period. TERMS AND DEFINITIONS Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Class A shares are generally subject to an initial sales charge and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge). Class B shares may be subject to a sales charge upon redemption. Class C shares are not subject to an initial sales charge and are subject to a contingent deferred sales charge only if the shares are redeemed during the first year. 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 (except on certain redemptions of shares bought without an initial sales charge). Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after purchase. COMPARATIVE BENCHMARKS Morgan Stanley Capital International EAFE Index (MSCI EAFE) is an unmanaged index of international stocks from Europe, Australasia, and the Far East. Indexes assume reinvestment of all distributions and interest payments and do not take account for fees. Securities and performance of a fund and index 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. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, constitute the fund's financial statements. The fund's portfolio lists all the fund's investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification. Statement of assets and liabilities shows how the fund's net assets and share price are determined. All investment and noninvestment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the net assets allocated to remarketed preferred shares.) Statement of operations shows the fund's net investment gain or loss. This is done by first adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings -- as well as any unrealized gains or losses over the period -- is added to or subtracted from the net investment result to determine the fund's net gain or loss for the fiscal period. Statement of changes in net assets shows how the fund's net assets were affected by distributions to shareholders and by changes in the number of the fund's shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Financial highlights provide an overview of the fund's investment results, per-share distributions, expense ratios, net investment income ratios and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period. For open-end funds, a separate table is provided for each share class.
THE FUND'S PORTFOLIO December 31, 2001 (Unaudited) COMMON STOCKS (97.1%) (a) NUMBER OF SHARES VALUE Australia (2.2%) ------------------------------------------------------------------------------------------------------------------- 11,563,205 BHP Billiton, Ltd. $ 62,139,507 4,684,545 News Corp., Ltd. (The) ADR 149,015,376 2,036,951 Rio Tinto, Ltd. 38,787,684 -------------- 249,942,567 Belgium (0.6%) ------------------------------------------------------------------------------------------------------------------- 5,074,786 Dexia 73,184,707 Brazil (1.0%) ------------------------------------------------------------------------------------------------------------------- 1,666,500 Companhia de Bebidas das Americas (AmBev) ADR 33,813,285 2,160,564 Petroleo Brasileiro SA ADR 50,341,141 1,121,080 Unibanco-Uniao de Bancos Brasileiros SA GDR 25,000,084 ------------- 109,154,510 Canada (2.2%) ------------------------------------------------------------------------------------------------------------------- 234,492 Alcan Aluminum, Ltd. 8,396,753 1,186,835 Royal Bank of Canada 38,542,392 3,954,301 Sun Life Financial Services of Canada, Inc. 84,115,613 1,974,721 Suncor Energy, Inc. 64,834,198 2,189,113 Toronto-Dominion Bank 56,346,342 ------------- 252,235,298 Denmark (1.0%) ------------------------------------------------------------------------------------------------------------------- 5,209,742 Danske Bank A/S 83,625,471 996,481 TDC A/S 35,511,871 ------------- 119,137,342 Finland (1.0%) ------------------------------------------------------------------------------------------------------------------- 5,560,974 Stora Enso OYJ Class R 71,186,451 882,764 TietoEnator OYJ 23,378,636 609,400 TietoEnator OYJ 144A 16,139,014 ------------- 110,704,101 France (14.8%) ------------------------------------------------------------------------------------------------------------------- 1,567,988 Accor SA 56,991,450 979,829 Aventis SA 69,561,441 1,239,497 BNP Paribas SA 110,891,723 3,554,228 Bouygues SA 116,434,235 804,715 Groupe Danone 98,140,949 4,385,339 Havas Advertising SA 31,738,128 1,067,560 Lafarge Coppee 99,690,867 3,500,610 Orange SA (NON) 31,723,354 1,246,951 Publicis SA 33,023,564 4,824,606 Sanofi-Synthelabo SA 359,909,625 2,031,126 Societe Generale 113,639,611 2,270,294 Societe Television Francaise I 57,376,636 3,561,003 TotalFinaElf SA Class B 508,468,781 ------------- 1,687,590,364 Germany (7.0%) ------------------------------------------------------------------------------------------------------------------- 1,123,440 Allianz AG 265,522,909 1,562,400 BASF AG 58,207,009 3,918,130 Bayerische Motoren Werke (BMW) AG 137,947,209 2,492,907 Deutsche Post AG 34,397,380 798,400 Deutsche Post AG 144A 11,016,403 1,503,816 Metro AG 52,878,532 846,454 Muenchener Rueckversicherungs-Gesellschaft AG 229,821,572 30,600 Muenchener Rueckversicherungs-Gesellschaft AG 144A 8,308,237 1,183,915 ProSiebenSat.1 Media AG 5,849,262 ------------- 803,948,513 Hong Kong (2.4%) ------------------------------------------------------------------------------------------------------------------- 15,899,000 Cheung Kong Holdings, Ltd. 165,153,699 5,118,900 China Mobile, Ltd. (NON) 18,019,904 2,284,300 Hang Seng Bank, Ltd. 25,120,064 16,223,600 Hong Kong and China Gas Co., Ltd. 19,869,369 13,338,000 Hong Kong Electric Holdings, Ltd. 49,604,627 ------------- 277,767,663 India (0.1%) ------------------------------------------------------------------------------------------------------------------- 135,100 Infosys Technologies, Ltd. 11,425,023 Ireland (3.0%) ------------------------------------------------------------------------------------------------------------------- 5,103,365 Allied Irish Banks PLC 59,059,202 9,247,664 CRH PLC 163,245,924 2,286,230 Elan Corp. PLC (NON) 105,830,501 264,300 Elan Corp. PLC ADR (NON) 11,909,358 ------------- 340,044,985 Italy (2.1%) ------------------------------------------------------------------------------------------------------------------- 7,941,738 Sanpaolo IMI SpA 85,190,309 15,529,665 Telecom Italia Mobile SpA 86,679,664 12,688,800 Telecom Italia SpA 67,773,419 ------------- 239,643,392 Japan (13.3%) ------------------------------------------------------------------------------------------------------------------- 370,000 Acom Co., Ltd. 26,966,078 312,200 Acom Co., Ltd. 144A 22,753,539 309,050 Aiful Corp. 20,000,336 725,200 Asatsu-DK, Inc. 14,168,062 2,636,000 Canon, Inc. 90,726,600 302,600 Fast Retailing Co., Ltd. 26,926,516 1,167,000 Fuji Photo Film Co., Ltd. 41,680,162 5,720 Fuji Television Network, Inc. 23,092,151 3,284,300 Honda Motor Co., Ltd. 131,086,267 653 Japan Telecom Co., Ltd. 1,958,477 170,000 KAO Corp. 3,535,315 3,940,000 Matsushita Electric Works, Ltd. 32,443,698 526,000 NEC Corp. 5,366,978 21,234,000 Nikko Securities Co., Ltd. 94,798,260 446,300 Nintendo Co., Ltd. 78,166,787 9,042 Nippon Telegraph and Telephone Corp. (NTT) 29,464,906 208,010 Nippon Television Network Corp. 44,305,408 23,842 NTT DoCoMo, Inc. 280,205,136 4,034 NTT DoCoMo, Inc. 144A 47,409,929 561,500 Orix Corp. 50,307,246 13,000 Orix Corp. 144A 1,164,727 475,000 Rohm Co., Ltd. 61,661,007 2,239,000 Sankyo Co., Ltd. 38,360,400 1,990,000 Shionogi & Co., Ltd. 34,018,392 521,000 Shiseido Co., Ltd. 4,814,981 1,769,200 Sony Corp. 80,875,400 10,487,000 Tokyo Gas Co., Ltd. 28,091,250 8,082,300 Toyota Motor Corp. 204,779,151 ------------- 1,519,127,159 Mexico (1.4%) ------------------------------------------------------------------------------------------------------------------- 26,348,702 Grupo Financiero Bancomer SA de CV (NON) 24,016,119 1,205,789 Grupo Televisa SA ADR (NON) 52,065,969 2,367,286 Telefonos de Mexico SA de CV (Telmex) ADR Ser. L 82,902,356 ------------- 158,984,444 Netherlands (5.6%) ------------------------------------------------------------------------------------------------------------------- 693,186 ABN AMRO Holdings NV 11,162,872 2,235,883 Akzo-Nobel NV 99,817,710 978,570 Gucci Group NV 83,080,593 14,584,201 ING Groep NV 371,828,988 253,280 Koninklijke (Royal) Philips Electronics NV 7,526,184 1,419,100 TNT Post Group NV 30,697,773 1,116,969 VNU NV 34,314,183 ------------- 638,428,303 New Zealand (--%) ------------------------------------------------------------------------------------------------------------------- 1,975,667 Telecom Corp. of New Zealand, Ltd. 4,112,351 Portugal (0.2%) ------------------------------------------------------------------------------------------------------------------- 2,749,026 Portugal Telecom SGPS SA (NON) 21,412,851 Singapore (1.0%) ------------------------------------------------------------------------------------------------------------------- 4,677,648 DBS Group Holdings, Ltd. 34,968,333 5,784,185 Overseas-Chinese Banking Corp. 34,466,975 394,000 Singapore Airlines, Ltd. 2,347,779 3,298,000 Singapore Press Holdings, Ltd. 38,947,129 146,000 United Overseas Bank, Ltd. 1,004,442 636,000 Venture Manufacturing, Ltd. 4,582,232 ------------- 116,316,890 South Korea (5.6%) ------------------------------------------------------------------------------------------------------------------- 3,693,750 Korea Electric Power Corp. 61,028,152 4,233,488 Korea Telecom Corp. ADR 86,066,811 998,300 Korea Tobacco & Ginseng Corp. 144A GDR (NON) 7,736,825 36,320 Pohang Iron & Steel Company, Ltd. 3,373,717 1,605,982 Pohang Iron & Steel Company, Ltd. ADR 36,937,586 1,897,359 Samsung Electronics Co., Ltd. 403,047,937 39,360 SK Telecom Co., Ltd. 8,031,430 1,275,400 SK Telecom Co., Ltd. ADR 27,574,148 ------------- 633,796,606 Spain (1.2%) ------------------------------------------------------------------------------------------------------------------- 1,047,864 Altadis SA 17,816,643 823,903 Banco Popular Espanol 27,049,210 6,660,063 Telefonica SA (NON) 89,109,685 ------------- 133,975,538 Sweden (4.0%) ------------------------------------------------------------------------------------------------------------------- 13,906,228 Investor AB Class B 151,859,601 8,344,750 Nordea AB 44,170,645 2,621,257 Sandvik AB 56,124,615 631,260 Securitas AB Class B 11,980,881 3,341,658 Svenska Handelsbanken AB Class A 49,080,632 26,333,401 Telefonaktiebolaget LM Ericsson AB Class B 143,155,893 ------------- 456,372,267 Switzerland (5.5%) ------------------------------------------------------------------------------------------------------------------- 1,069,120 Ciba Specialty Chemicals AG 66,852,218 4,278,000 Cie Finance Richemont AG 79,542,128 188,360 Julius Baer Holdings, Ltd. AG Class B 63,573,770 793,602 Nestle SA 169,319,617 3,540,372 Novartis AG 128,026,953 948,570 Swatch Group AG (The) 18,809,036 424,250 Swatch Group AG (The) Class B 38,162,556 281,700 Swiss Reinsurance Co. 144A 28,353,363 32,687 Synthes-Stratec, Inc. 22,773,730 176,340 UBS AG 8,906,275 ------------- 624,319,646 Taiwan (0.4%) ------------------------------------------------------------------------------------------------------------------- 31,568,000 United Microelectronics Corp. (NON) 46,025,386 United Kingdom (21.5%) ------------------------------------------------------------------------------------------------------------------- 3,021,000 Abbey National PLC 43,082,360 9,725,060 AstraZeneca PLC 438,426,089 7,921,119 BAE Systems PLC 35,675,484 8,989,833 BHP Billiton PLC 45,656,197 5,515,994 BOC Group PLC 85,084,869 6,429,000 Cadbury Schweppes PLC 40,977,006 10,946,785 Compass Group PLC 82,038,272 2,694,600 Diageo PLC 30,781,278 11,181,827 GlaxoSmithKline PLC 280,363,022 4,330,863 Hays PLC 13,108,725 3,066,741 HSBC Holdings PLC 35,969,535 911,000 Kingfisher Leisure PLC 5,316,006 8,418,495 Misys PLC 39,814,430 1,689,886 Rio Tinto PLC 32,362,047 15,674,713 Scottish Power PLC 86,677,401 56,003,233 Shell Transport & Trading Co. PLC 384,660,670 4,042,239 Smiths Group PLC 39,822,942 2,557,700 South African Breweries, Ltd. 144A 17,418,796 26,749,618 Tesco PLC 96,925,850 5,366,574 United Business Media PLC 37,485,305 169,639,826 Vodafone Group PLC 443,730,625 12,854,235 WPP Group PLC 142,161,669 --------------- 2,457,538,578 --------------- Total Common Stocks (cost $11,261,560,329) $11,085,188,484 UNITS (0.2%) (a) NUMBER OF UNITS VALUE ------------------------------------------------------------------------------------------------------------------- 162,400 Infosys Technologies, Ltd. 144A Structured Call Warrants (Issued by UBS AG) 7/16/02 (India) $ 13,758,992 77,500 Korea Telecom Corp. Warrants (Issued by Merrill Lynch International & Co., C.V.), 1/31/02 (South Korea) 2,947,407 49,100 Nippon Television Network Corp. Structured Call Warrants (Issued by Lehman Brothers Finance S.A.), 8/6/02 (Japan) 10,512,462 --------------- Total Units (cost $29,332,842) $ 27,218,861 WARRANTS (--%) (a) (NON) (cost $0) EXPIRATION NUMBER OF WARRANTS DATE VALUE ------------------------------------------------------------------------------------------------------------------- 116,703 Publicis SA 3/7/02 $ 379,195 SHORT-TERM INVESTMENTS (4.7%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 50,000,000 Falcon Asset Secur. Corp. effective yield of 1.82%, March 15, 2002 $ 49,815,450 25,000,000 Federal National Mortgage Association effective yield of 1.755%, March 28, 2002 24,896,094 25,000,000 General Electric Capital Corp. effective yield of 1.80%, March 25, 2002 24,896,450 50,000,000 Park Avenue Receivables effective yield of 2.15%, January 8, 2002 49,979,097 42,500,000 Preferred Receivables effective yield of 1.79%, January 29, 2002 42,438,847 25,000,000 Sheffield Receivables Corp. effective yield of 1.85%, January 22, 2002 24,972,292 50,000,000 Morgan Stanley Dean Witter & Co effective yield of 1.83%, February 15, 2002 49,885,625 172,465,967 Short-term investments held as collateral for loaned securities with yields ranging from 1.78% to 2.625% and due dates ranging from January 2, 2002 to February 28, 2002 (d) 172,243,524 40,009,000 Interest in $600,0100,000 joint tri-party repurchase agreement dated December 31, 2001 with Goldman Sachs & Co. due January 2, 2002 with respect to various U.S. Government obligations -- maturity value of $40,012,979 for an effective yield of 1.79% 40,009,000 61,142,000 Interest in $221,765,000 joint repurchase agreement dated December 31, 2001 with Lehman Brothers, Inc. due January 2, 2002 with respect to various U.S. Government obligations -- maturity value of $61,148,012 for an effective yield of 1.77% 61,142,000 --------------- Total Short-Term Investments (cost $540,278,379 $ 540,278,379 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $11,831,171,550) (b) $11,653,064,919 ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $11,419,144,315. (b) The aggregate identified cost on a tax basis is $12,041,345,289, resulting in gross unrealized appreciation and depreciation of $880,197,541 and $1,268,477,911, respectively, or net unrealized depreciation of $388,280,370. (NON) Non-income-producing security. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR or GDR after the name of a foreign holding stands for American Depositary Receipts or Global Depositary Receipts, respectively, representing ownership of foreign securities on deposit with a custodian bank. The fund had the following industry group concentrations greater than 10% at December 31, 2001 (as a percentage of net assets): Pharmaceuticals 12.8% Telecommunications 12.0 The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 (Unaudited) Assets ------------------------------------------------------------------------------------------- Investments in securities, at value, including $165,352,866 of securities on loan (identified cost $11,831,171,550) (Note 1) $ 11,653,064,919 ------------------------------------------------------------------------------------------- Cash 75,835 ------------------------------------------------------------------------------------------- Foreign cash (cost $2,892,625) 2,688,557 ------------------------------------------------------------------------------------------- Dividends, interest and other receivables 18,373,307 ------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 49,559,321 ------------------------------------------------------------------------------------------- Receivable for securities sold 24,069,339 ------------------------------------------------------------------------------------------- Total assets 11,747,831,278 Liabilities ------------------------------------------------------------------------------------------- Payable for securities purchased 28,839,992 ------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 96,484,605 ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 16,842,191 ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 6,979,641 ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 166,929 ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 14,830 ------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 6,817,004 ------------------------------------------------------------------------------------------- Collateral on securities loaned, at value (Note 1) 172,243,524 ------------------------------------------------------------------------------------------- Other accrued expenses 298,247 ------------------------------------------------------------------------------------------- Total liabilities 328,686,963 ------------------------------------------------------------------------------------------- Net assets $11,419,144,315 Represented by ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $13,028,586,631 ------------------------------------------------------------------------------------------- Accumulated net investment loss (Note 1) (78,110,364) ------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (1,351,931,406) ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (179,400,546) ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $11,419,144,315 Computation of net asset value and offering price ------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($6,518,858,595 divided by 328,830,506 shares) $19.82 ------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $19.82)* $21.03 ------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($2,580,279,804 divided by 133,965,608 shares)** $19.26 ------------------------------------------------------------------------------------------- Net asset value and offering price per class C share ($588,480,559 divided by 30,093,653 shares)** $19.55 ------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($268,143,782 divided by 13,698,494, shares) $19.57 ------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $19.57)* $20.28 ------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($1,463,381,575 divided by 73,348,782 shares) $19.95 ------------------------------------------------------------------------------------------- * 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 Six months ended December 31, 2001 (Unaudited) Investment income: ------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $7,915,178) $ 63,708,374 ------------------------------------------------------------------------------------------- Interest 10,223,511 ------------------------------------------------------------------------------------------- Securities lending 985,189 ------------------------------------------------------------------------------------------- Total investment income 74,917,074 Expenses: ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 34,219,087 ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 13,058,193 ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 38,996 ------------------------------------------------------------------------------------------- Administrative services (Note 2) 29,422 ------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 8,089,146 ------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 13,356,897 ------------------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 2,960,492 ------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 1,026,527 ------------------------------------------------------------------------------------------- Other 2,921,673 ------------------------------------------------------------------------------------------- Total expenses 75,700,433 ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (2,175,901) ------------------------------------------------------------------------------------------- Net expenses 73,524,532 ------------------------------------------------------------------------------------------- Net investment income 1,392,542 ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (526,459,894) ------------------------------------------------------------------------------------------- Net realized gain on written options (Notes 1 and 3) 103,756 ------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (163,080) ------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 372,098 ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments during the period (280,226,185) ------------------------------------------------------------------------------------------- Net loss on investments (806,373,305) ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(804,980,763) ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Six months ended Year ended December 31 June 30 2001* 2001 -------------------------------------------------------------------------------------------------- Decrease in net assets -------------------------------------------------------------------------------------------------- Operations: -------------------------------------------------------------------------------------------------- Net investment income $ 1,392,542 $ 49,561,305 -------------------------------------------------------------------------------------------------- Net realized loss on investments and foreign currency transactions (526,519,218) (856,852,537) -------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (279,854,087) (2,383,528,011) -------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (804,980,763) (3,190,819,243) -------------------------------------------------------------------------------------------------- Distributions to shareholders: (Note 1) -------------------------------------------------------------------------------------------------- From net investment income Class A -- (103,610,364) -------------------------------------------------------------------------------------------------- Class B -- (25,832,398) -------------------------------------------------------------------------------------------------- Class C -- (6,477,132) -------------------------------------------------------------------------------------------------- Class M -- (3,093,332) -------------------------------------------------------------------------------------------------- Class Y -- (19,362,002) -------------------------------------------------------------------------------------------------- From net realized gain on investments Class A -- (475,932,882) -------------------------------------------------------------------------------------------------- Class B -- (239,147,131) -------------------------------------------------------------------------------------------------- Class C -- (41,027,305) -------------------------------------------------------------------------------------------------- Class M -- (22,792,689) -------------------------------------------------------------------------------------------------- Class Y -- (76,651,468) -------------------------------------------------------------------------------------------------- From return of capital Class A -- (200,239) -------------------------------------------------------------------------------------------------- Class B -- (100,616) -------------------------------------------------------------------------------------------------- Class C -- (17,261) -------------------------------------------------------------------------------------------------- Class M -- (9,590) -------------------------------------------------------------------------------------------------- Class Y -- (32,250) -------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 151,702,814 3,810,979,529 -------------------------------------------------------------------------------------------------- Total decrease in net assets (653,277,949) (394,126,373) Net assets -------------------------------------------------------------------------------------------------- Beginning of period 12,072,422,264 12,466,548,637 -------------------------------------------------------------------------------------------------- End of period (including accumulated net investment loss and distributions in excess of net investment income of $78,110,364 and $79,502,906, respectively) $11,419,144,315 $12,072,422,264 -------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS A ------------------------------------------------------------------------------------------------------------------ Six months ended Per-share December 31 operating performance (Unaudited) Year ended June 30 ------------------------------------------------------------------------------------------------------------------ 2001 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $21.24 $29.92 $21.64 $20.00 $17.58 $14.25 ------------------------------------------------------------------------------------------------------------------ Investment operations ------------------------------------------------------------------------------------------------------------------ Net investment income (a) .02 .16 .54 .07 .20 .15 ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (1.44) (6.64) 8.87 2.14 3.26 3.39 ------------------------------------------------------------------------------------------------------------------ Total from investment operations (1.42) (6.48) 9.41 2.21 3.46 3.54 ------------------------------------------------------------------------------------------------------------------ Less distributions: ------------------------------------------------------------------------------------------------------------------ From net investment income -- (.39) (.34) (.21) (.25) (.15) ------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- (1.81) (.79) (.36) (.79) (.06) ------------------------------------------------------------------------------------------------------------------ From return of capital -- --(d) -- -- -- -- ------------------------------------------------------------------------------------------------------------------ Total distributions -- (2.20) (1.13) (.57) (1.04) (.21) ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $19.82 $21.24 $29.92 $21.64 $20.00 $17.58 ------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(b) (6.69)* (22.43) 44.03 11.57 20.73 25.13 ------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $6,518,859 $6,896,924 $7,040,669 $2,928,662 $1,827,331 $728,849 ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(c) .58* 1.13 1.14 1.27 1.36 1.59 ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) .11* .63 2.01 .38 1.07 .98 ------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 21.49* 73.80 99.53 97.24 93.53 86.40 ------------------------------------------------------------------------------------------------------------------ * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding for the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2). (d) Amount represents less than $0.01 per share.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS B ------------------------------------------------------------------------------------------------------------------ Six months ended Per-share December 31 operating performance (Unaudited) Year ended June 30 ------------------------------------------------------------------------------------------------------------------ 2001 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $20.72 $29.23 $21.20 $19.63 $17.32 $14.10 ------------------------------------------------------------------------------------------------------------------ Investment operations ------------------------------------------------------------------------------------------------------------------ Net investment income (loss)(a) (.05) (.04) .35 (.07) .06 .03 ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (1.41) (6.46) 8.67 2.10 3.21 3.34 ------------------------------------------------------------------------------------------------------------------ Total from investment operations (1.46) (6.50) 9.02 2.03 3.27 3.37 ------------------------------------------------------------------------------------------------------------------ Less distributions: ------------------------------------------------------------------------------------------------------------------ From net investment income -- (.20) (.20) (.10) (.17) (.09) ------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- (1.81) (.79) (.36) (.79) (.06) ------------------------------------------------------------------------------------------------------------------ From return of capital -- --(d) -- -- -- -- ------------------------------------------------------------------------------------------------------------------ Total distributions -- (2.01) (.99) (.46) (.96) (.15) ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $19.26 $20.72 $29.23 $21.20 $19.63 $17.32 ------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(b) (7.05)* (23.00) 43.00 10.75 19.87 24.09 ------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $2,580,280 $2,983,524 $3,591,546 $1,821,024 $1,226,917 $472,663 ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(c) .95* 1.88 1.89 2.02 2.11 2.34 ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average net assets (%) (.26)* (.16) 1.26 (.38) .31 .18 ------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 21.49* 73.80 99.53 97.24 93.53 86.40 ------------------------------------------------------------------------------------------------------------------ * Not annualized. (a) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding for the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2). (d) Amount represents less than $0.01 per share.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS C --------------------------------------------------------------------------- Six months ended For the period Per-share December 31 Year ended July 26, 1999+ operating performance (Unaudited) June 30 to June 30 --------------------------------------------------------------------------- 2001 2001 2000 --------------------------------------------------------------------------- Net asset value, beginning of period $21.03 $29.74 $21.87 --------------------------------------------------------------------------- Investment operations --------------------------------------------------------------------------- Net investment income (loss)(a) (.05) (.02) .32 --------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.43) (6.59) 8.66 --------------------------------------------------------------------------- Total from investment operations (1.48) (6.61) 8.98 --------------------------------------------------------------------------- Less distributions: --------------------------------------------------------------------------- From net investment income -- (.29) (.32) --------------------------------------------------------------------------- From net realized gain on investments -- (1.81) (.79) --------------------------------------------------------------------------- From return of capital -- --(d) -- --------------------------------------------------------------------------- Total distributions -- (2.10) (1.11) --------------------------------------------------------------------------- Net asset value, end of period $19.55 $21.03 $29.74 --------------------------------------------------------------------------- Total return at net asset value (%)(b) (7.04)* (23.01) 41.54* --------------------------------------------------------------------------- Ratios and supplemental data --------------------------------------------------------------------------- Net assets, end of period (in thousands) $588,481 $637,547 $439,522 --------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .95* 1.88 1.76* --------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (.26)* (.07) 1.12* --------------------------------------------------------------------------- Portfolio turnover (%) 21.49* 73.80 99.53 --------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding for the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2). (d) Amount represents less than $0.01 per share.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS M ------------------------------------------------------------------------------------------------------------------ Six months ended Per-share December 31 operating performance (Unaudited) Year ended June 30 ------------------------------------------------------------------------------------------------------------------ 2001 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $21.04 $29.61 $21.45 $19.85 $17.48 $14.22 ------------------------------------------------------------------------------------------------------------------ Investment operations ------------------------------------------------------------------------------------------------------------------ Net investment income (loss)(a) (.03) .03 .40 (.02) .10 .07 ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (1.44) (6.54) 8.79 2.11 3.26 3.36 ------------------------------------------------------------------------------------------------------------------ Total from investment operations (1.47) (6.51) 9.19 2.09 3.36 3.43 ------------------------------------------------------------------------------------------------------------------ Less distributions: ------------------------------------------------------------------------------------------------------------------ From net investment income -- (.25) (.24) (.13) (.20) (.11) ------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- (1.81) (.79) (.36) (.79) (.06) ------------------------------------------------------------------------------------------------------------------ From return of capital -- --(d) -- -- -- -- ------------------------------------------------------------------------------------------------------------------ Total distributions -- (2.06) (1.03) (.49) (.99) (.17) ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $19.57 $21.04 $29.61 $21.45 $19.85 $17.48 ------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(b) (6.99)* (22.75) 43.32 10.97 20.18 24.40 ------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $268,144 $302,838 $367,638 $208,064 $140,202 $58,471 ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(c) .83* 1.63 1.64 1.77 1.86 2.09 ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average net assets (%) (.14)* .11 1.51 (.12) .54 .44 ------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 21.49* 73.80 99.53 97.24 93.53 86.40 ------------------------------------------------------------------------------------------------------------------ * Not annualized. (a) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding for the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2). (d) Amount represents less than $0.01 per share.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS Y ------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share December 31 July 12, 1996+ operating performance (Unaudited) Year ended June 30 to June 30 ------------------------------------------------------------------------------------------------------------------ 2001 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $21.35 $30.07 $21.72 $20.05 $17.60 $13.88 ------------------------------------------------------------------------------------------------------------------ Investment operations ------------------------------------------------------------------------------------------------------------------ Net investment income (a) .04 .23 .61 .14 .22 .20 ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (1.44) (6.69) 8.92 2.13 3.30 3.75 ------------------------------------------------------------------------------------------------------------------ Total from investment operations (1.40) (6.46) 9.53 2.27 3.52 3.95 ------------------------------------------------------------------------------------------------------------------ Less distributions: ------------------------------------------------------------------------------------------------------------------ From net investment income -- (.45) (.39) (.24) (.28) (.17) ------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- (1.81) (.79) (.36) (.79) (.06) ------------------------------------------------------------------------------------------------------------------ From return of capital -- --(d) -- -- -- -- ------------------------------------------------------------------------------------------------------------------ Total distributions -- (2.26) (1.18) (.60) (1.07) (.23) ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $19.95 $21.35 $30.07 $21.72 $20.05 $17.60 ------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(b) (6.56)* (22.25) 44.43 11.83 21.08 25.44* ------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $1,463,382 $1,251,589 $1,027,174 $255,867 $151,139 $96,375 ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(c) .45* .88 .89 1.02 1.11 1.30* ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) .23* .92 2.26 .70 1.22 1.26* ------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 21.49* 73.80 99.53 97.24 93.53 86.40 ------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding for the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2). (d) Amount represents less than $0.01 per share.
NOTES TO FINANCIAL STATEMENTS December 31, 2001 (Unaudited) Note 1 Significant accounting policies Putnam International Growth Fund ("the fund") is registered under the Investment Company Act of 1940, as amended, as a diversified open-end management investment company. The fund seeks capital appreciation by investing primarily in equity securities of companies located outside the United States. The fund offers class A, class B, class C, class M and class Y shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares are subject to the same fees and expenses as class B shares, except that class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. 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 and class C shares. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C and class M shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that invest at least $150 million in a combination of Putnam funds and other accounts managed by affiliates of Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam Investments, LLC. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if that fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. 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 sales price on its principal exchange, or if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value. Other investments, including restricted securities, are stated at fair value following procedures approved by the Trustees. B) Joint trading account The fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. 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. Non-cash dividends, if any, are recorded at the fair market value of the securities received. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. F) Security lending The fund may lend securities, through its agent Citibank N.A., to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by Citibank N.A., the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At December 31, 2001, the value of securities loaned amounted to $165,352,866. The fund received cash collateral of $172,243,524 which is pooled with collateral of other Putnam funds into 50 issuers of high grade short-term investments. G) Line of credit The fund has entered into a committed line of credit with certain banks. This line of credit agreement includes restrictions that the fund maintains an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the six months ended December 31, 2001, the fund had no borrowings against the line of credit. H) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. At June 30, 2001, the fund had a capital loss carryover of approximately $14,121,000 available to offset future net capital gain, if any, which will expire on June 30, 2009. I) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. Note 2 Management fee, administrative services and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.80% of the first $500 million of average net assets, 0.70% of the next $500 million, 0.65% of the next $500 million, 0.60% of the next $5 billion, 0.575% of the next $5 billion, 0.555% of then next $5 billion, 0.54% of the next $5 billion and 0.53% thereafter. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, LLC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. The fund also reduced expenses through brokerage service arrangements. For the six months ended December 31, 2001, the fund's expenses were reduced by $2,175,901 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $5,118 has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a 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, class C 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 Retail Management, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, 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 Retail Management at an annual rate up to 0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of the average net assets attributable to class A, class B, class C and class M shares, respectively. For the six months ended December 31, 2001, Putnam Retail Management, acting as underwriter received net commissions of $451,559 and $14,171 from the sale of class A and class M shares, respectively, and received $2,647,008 and $84,829 in contingent deferred sales charges from redemptions of class B and class C shares, respectively. A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the six months ended December 31, 2001, Putnam Retail Management, acting as underwriter received $11,841 and no monies on class A and class M redemptions, respectively. Note 3 Purchases and sales of securities During the six months ended December 31, 2001, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $2,975,693,178 and $2,321,417,017, respectively. There were no purchases and sales of U.S. government obligations. Written option transactions during the period are summarized as follows: Contract Premiums Amounts Received --------------------------------------------------------------------------- Written options outstanding at beginning of period $-- $-- --------------------------------------------------------------------------- Options opened EUR 341,500 103,756 --------------------------------------------------------------------------- Options expired EUR (341,500) (103,765) --------------------------------------------------------------------------- Options closed -- -- --------------------------------------------------------------------------- Written options outstanding at end of period $-- $-- --------------------------------------------------------------------------- Note 4 Capital shares At December 31, 2001, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended December 31, 2001 --------------------------------------------------------------------------- Class A Shares Amount --------------------------------------------------------------------------- Shares sold 109,814,271 $ 2,141,446,002 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 109,814,271 2,141,446,002 Shares repurchased (105,632,774) (2,065,933,541) --------------------------------------------------------------------------- Net increase 4,181,497 $ 75,512,461 --------------------------------------------------------------------------- Year ended June 30, 2001 --------------------------------------------------------------------------- Class A Shares Amount --------------------------------------------------------------------------- Shares sold 242,760,735 $ 6,034,351,621 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 22,566,086 535,042,032 --------------------------------------------------------------------------- 265,326,821 6,569,393,653 Shares repurchased (175,959,145) (4,354,013,680) --------------------------------------------------------------------------- Net increase 89,367,676 $ 2,215,379,973 --------------------------------------------------------------------------- Six months ended December 31, 2001 --------------------------------------------------------------------------- Class B Shares Amount --------------------------------------------------------------------------- Shares sold 11,568,416 $ 220,827,292 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 11,568,416 220,827,292 Shares repurchased (21,614,498) (407,874,441) --------------------------------------------------------------------------- Net decrease (10,046,082) $(187,047,149) --------------------------------------------------------------------------- Year ended June 30, 2001 --------------------------------------------------------------------------- Class B Shares Amount --------------------------------------------------------------------------- Shares sold 38,129,258 $ 948,581,128 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 9,658,020 224,162,622 --------------------------------------------------------------------------- 47,787,278 1,172,743,750 Shares repurchased (26,665,783) (632,943,553) --------------------------------------------------------------------------- Net increase 21,121,495 $ 539,800,197 --------------------------------------------------------------------------- Six months ended December 31, 2001 --------------------------------------------------------------------------- Class C Shares Amount --------------------------------------------------------------------------- Shares sold 9,037,993 $ 174,492,862 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 9,037,993 174,492,862 Shares repurchased (9,254,605) (178,561,347) --------------------------------------------------------------------------- Net decrease (216,612) $ (4,068,485) --------------------------------------------------------------------------- Year ended June 30, 2001 --------------------------------------------------------------------------- Class C Shares Amount --------------------------------------------------------------------------- Shares sold 25,097,920 $ 623,429,549 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,553,144 36,607,684 --------------------------------------------------------------------------- 26,651,064 660,037,233 Shares repurchased (11,117,393) (264,118,539) --------------------------------------------------------------------------- Net increase 15,533,671 $ 395,918,694 --------------------------------------------------------------------------- Six months ended December 31, 2001 --------------------------------------------------------------------------- Class M Shares Amount --------------------------------------------------------------------------- Shares sold 4,080,900 $ 78,111,314 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 4,080,900 78,111,314 Shares repurchased (4,777,922) (91,654,802) --------------------------------------------------------------------------- Net decrease (697,022) $(13,543,488) --------------------------------------------------------------------------- Year ended June 30, 2001 --------------------------------------------------------------------------- Class M Shares Amount --------------------------------------------------------------------------- Shares sold 6,537,795 $ 159,392,202 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,037,576 24,414,195 --------------------------------------------------------------------------- 7,575,371 183,806,397 Shares repurchased (5,596,657) (136,056,556) --------------------------------------------------------------------------- Net increase 1,978,714 $ 47,749,841 --------------------------------------------------------------------------- Six months ended December 31, 2001 --------------------------------------------------------------------------- Class Y Shares Amount --------------------------------------------------------------------------- Shares sold 45,092,473 $ 876,498,843 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 45,092,473 876,498,843 Shares repurchased (30,359,326) (595,649,368) --------------------------------------------------------------------------- Net increase 14,733,147 $ 280,849,475 --------------------------------------------------------------------------- Year ended June 30, 2001 --------------------------------------------------------------------------- Class Y Shares Amount --------------------------------------------------------------------------- Shares sold 54,746,103 $1,352,060,244 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 4,035,534 96,069,232 --------------------------------------------------------------------------- 58,781,637 1,448,129,476 Shares repurchased (34,329,438) (835,998,652) --------------------------------------------------------------------------- Net increase 24,452,199 $ 612,130,824 --------------------------------------------------------------------------- THE PUTNAM FAMILY OF FUNDS The following is a complete list of Putnam's open-end mutual funds. 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. GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund Capital Opportunities Fund Europe Growth Fund Global Equity Fund Global Growth Fund Global Natural Resources Fund Growth Opportunities Fund Health Sciences Trust International Growth Fund International New Opportunities Fund Investors Fund New Century Growth Fund New Opportunities Fund OTC & Emerging Growth Fund Research Fund Tax Smart Equity Fund Technology Fund Vista Fund Voyager Fund Voyager Fund II GROWTH AND INCOME FUNDS Balanced Fund Balanced Retirement Fund Classic Equity Fund * Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston Global Growth and Income Fund The Putnam Fund for Growth and Income International Growth and Income Fund Mid Cap Value Fund New Value Fund Small Cap Value Fund Utilities Growth and Income Fund INCOME FUNDS American Government Income Fund Diversified Income Trust Global Governmental Income Trust High Yield Advantage Fund [DBL. DAGGER] High Yield Trust [DBL. DAGGER] High Yield Trust II Income Fund Intermediate U.S. Government Income Fund Money Market Fund ** Preferred Income Fund Strategic Income Fund U.S. Government Income Trust TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax Exempt Money Market Fund ** Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds [SECTION MARK] Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania State tax-free money market funds [SECTION MARK] ** California, New York ASSET ALLOCATION FUNDS Putnam Asset Allocation Funds--three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio * Formerly Putnam Growth and Income Fund II [DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact Putnam for details. [SECTION MARK] Not available in all states. ** An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve your investment at $1.00 per share, it is possible to lose money by investing in the fund. Check your account balances and current performance at www.putnaminvestments.com. FUND INFORMATION WEB SITE www.putnaminvestments.com INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam, III President Charles E. Porter Executive Vice President and Treasurer Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President Justin M. Scott Vice President Omid Kamshad Vice President Richard G. Leibovitch Vice President John R. Verani Vice President This report is for the information of shareholders of Putnam International Growth Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary and Putnam's Quarterly Ranking Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. The fund's Statement of Additional Information contains additional information about the fund's Trustees and is available without charge upon request by calling 1-800-225-1581. You can also learn more at Putnam Investments' Web site: www.putnaminvestments.com. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 --------------------- PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com SA009-79228 841/524/891/2BA 2/02 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] ---------------------------------------------------------------------------- Putnam International Growth Fund Supplement to semiannual Report dated 12/31/01 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 $150 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, C, and M shares, which are discussed more extensively in the annual report. SEMIANNUAL RESULTS AT A GLANCE ---------------------------------------------------------------------------- Total return for periods ended 12/31/01 NAV 6 months -6.56% 1 year -19.56 5 years 66.26 Annual average 10.70 10 years 206.20 Annual average 11.84 Life of fund (since class A inception, 2/28/91) 215.33 Annual average 11.18 Share value: NAV 6/30/01 $21.35 12/31/01 $19.95 ---------------------------------------------------------------------------- Distributions: No. Income Capital gains Total -- -- -- -- ---------------------------------------------------------------------------- Please note that past performance is not indicative of future results. More recent returns may be more or less than those shown. Returns shown for class Y shares for periods prior to their inception are derived from the historical performance of class A shares, and are not adjusted to reflect the initial sales charge currently applicable to class A shares. These returns have not been adjusted to reflect differences in operating expenses which, for class Y shares, typically are lower than the operating expenses applicable to class A shares. All returns assume reinvestment of distributions at net asset value. 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.