Putnam
International
Equity Fund*
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
6-30-03
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*Formerly Putnam International Growth Fund
From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
The continuing global unrest that has kept the world's stock markets in
turmoil over the past three years is reflected in the negative results
posted by Putnam International Equity Fund for the fiscal year ended June
30, 2003. The fund also lagged its benchmark index and its Lipper peer
group category average. You will find the details on page 8.
In this uncertain environment, some comfort can be taken in the fact that
the management team, in keeping with your fund's objectives, chose to
position the portfolio somewhat defensively by emphasizing more stable and
higher-quality stocks with greater potential for delivering steady gains
over the long term. The managers discuss their strategy in the following
report and also offer their views of prospects for the fiscal year that has
just begun.
Meanwhile, as we look back on one of the most challenging periods in recent
investment history, we would like you to know how much we appreciate your
patience and continued confidence in Putnam. It is heartening now to see
signs that this negative cycle may at last be ending. We remain firm in our
belief that over the long haul your persistence will be rewarded.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
August 20, 2003
Report from Fund Management
Fund highlights
* During its fiscal year, which ended June 30, 2003, Putnam International
Equity Fund returned -8.93% for class A shares at net asset value and
-14.17% at public offering price.
* The fund underperformed its benchmark, the MSCI EAFE Index, which
returned -6.46% during the period, primarily because many fund holdings
lagged during the rally that lifted international markets during the last
few months of the fiscal period.
* The fund also underperformed the average of its Lipper category,
International Funds, which was -7.98%, during the fiscal year because of
underperformance of fund holdings during the international market rally
near the end of the period.
* See the Performance Summary that begins on page 8 for complete fund
performance, comparative performance, and Lipper data.
* On April 30, 2003, your fund's name was changed from Putnam International
Growth Fund to Putnam International Equity Fund. The new name better
reflects the fund's investment style and strategy, which has no bias toward
growth- or value-style stocks. The fund's objective remains the same.
Performance commentary
International stock markets remained quite volatile throughout the fund's
fiscal year. We sought to emphasize high-quality companies with solid,
recurring revenues and cash flows. We considered these characteristics
particularly important given the persistent weakness of the global economy
and the increase in geopolitical risks that accompanied the Iraq crisis.
For most of the period, this relatively defensive posture helped to produce
competitive if unspectacular returns. Unfortunately, in the last few months
of the period, the fund did not keep pace as international markets rallied
in the wake of the Iraq war. Stocks we considered lower quality because
they generated poor cash flows and had unattractive business models became
oversold from January to March, but then performed the best in subsequent
months. We do not expect the trend that favored such stocks to continue,
but we regret its impact on the fund's relative performance.
FUND PROFILE
Putnam International Equity Fund seeks capital appreciation by investing
primarily in common stocks of companies outside the United States. Without
a predetermined bias toward growth or value stocks, the fund targets large
and midsize companies priced below what we believe they are worth. It may
be suitable for investors seeking capital appreciation and willing to
accept the risks of investing in international markets.
Market overview
Stock market performance varied considerably across regions and countries
during the fiscal year. European markets seesawed throughout the period.
The initial descent, sparked by heavy selling of equities by insurance
companies last summer, culminated in early October 2002. Europe then
recovered until early January, when the diplomatic crisis over Iraq began
to take its toll. Stocks declined until March, then rallied as U.S. and
British troops took control of Iraq. Subsequently, a June interest-rate cut
by the European Central Bank helped to sustain the rally in European
markets.
Most Asian markets were more stable than Europe during much of the year.
Exports to the United States helped to buoy these markets, which, with the
exception of Japan, had stronger economic growth than Europe. However,
other risks affected Asia. South Korea's stock market declined during the
winter months when tensions with North Korea increased. The SARS epidemic
caused pessimism that contributed to a market decline in March and April.
Fortunately, SARS appears to have been contained and its economic impact
was limited. China's economy is still growing at a rate of about 7%. In
Japan, stocks soared in June when the Bank of Japan took new, serious steps
to combat deflation. For the fund's fiscal year, Asian markets in general
had positive returns.
In the Americas, Canada and Mexico were strong markets, benefiting from
exports to the United States and foreign investment. Brazil's market and
currency were under pressure during its presidential election last autumn,
but the new president, Luiz Inacio da Silva, also known as Lula, adopted
sound economic policies that have restored stability.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 6/30/03
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Equities
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MSCI EAFE Index (international stocks) -6.46%
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Citigroup PMI World Value ex-U.S. Index (international value
stocks) -5.17%
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Citigroup PMI World Growth ex-U.S. Index (international
growth stocks) -4.25%
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S&P 500 Index (broad U.S. stock market) 0.25%
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Russell 2000 Index (U.S. small-company stocks) -1.64%
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Bonds
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Lehman Aggregate Bond Index (broad U.S. bond market) 10.40%
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Lehman Government Bond Index (U.S. government bonds) 11.34%
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CSFB High Yield Index (high-yield corporate bonds) 20.78%
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Citigroup World Government Bond Index (global bonds) 16.51%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 6/30/03.
Strategy overview
In a year characterized by global economic weakness and serious
geopolitical risks, we decided not to build large market or sector
overweights that could be hurt by an unexpected adverse event. We increased
our emphasis on analyzing company cash flows, which we use to determine
stock valuations. We wanted to identify high-quality companies that could
generate strong cash flows even in stagnant economies, and to favor
individual stocks with attractive valuations that had the potential to
withstand volatility.
Following this strategy caused us to maintain underweight exposure to Japan
and overweight exposure to emerging markets when compared with the fund's
benchmark index. We disliked Japan because of its weak economy, low levels
of corporate earnings, and the continuing burden of bad loans on its
banking sector. At the same time, we maintained overweight positions in
emerging markets, primarily South Korea, but also Mexico and Brazil. In our
view, stocks that we selected for the portfolio in these markets had very
attractive valuations and superior operating fundamentals. This positioning
helped performance because emerging markets outperformed Japan for the
year, but the gap narrowed significantly at the end of the period.
Our emphasis on companies with strong cash flows generally worked well
until March, when international markets began recovering from the tensions
that had preceded war in Iraq. In this recovery, stocks with less
attractive qualities -- lower profitability and more questionable cash
flows -- performed the best. As an example, in the financial sector, in
particular, we favored relatively conservative retail bank stocks in
continental Europe, but these underperformed many of the more leveraged
banks, as well as financial companies more exposed to the stock markets.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY WEIGHTINGS COMPARED]
TOP COUNTRY WEIGHTINGS COMPARED
as of 12/31/02 as of 6/30/03
United
Kingdom 22.2% 23.3%
Japan 15.8% 15.5%
Switzerland 9.9% 11.8%
France 13.4% 11.7%
South Korea 6.8% 5.5%
Footnote reads:
This chart shows how the fund's top country weightings have changed over
the last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
Our selection of individual stocks had a bigger effect on the fund's
relative performance than the fund's market or sector weightings. This was
especially true in the last few months of the period when, as mentioned
above, stocks of companies with strong cash flows lagged behind in the
rally.
Our choices were most effective in the energy industry. Our top holding in
the sector throughout the fiscal year has been TotalFinaElf, based in
France. This company continues to realize new costs savings from the merger
several years ago of its French and Belgian predecessors. Based on our
research, we consider it the best-managed European oil company. Our
decision contributed positively to performance because TotalFinaElf
outperformed most industry competitors. The fund had little exposure to
other oil companies, such as ENI of Italy and BP of the United Kingdom,
during the fiscal year.
In South Korea, our top holding, and one of the fund's largest holdings
throughout the year, was Samsung Electronics. This company is a diversified
electronics manufacturer, but has been achieving both earnings growth and
expanded market share in several product segments, including semiconductors
and wireless phone equipment. Samsung declined with the rest of South
Korea's market when tensions rose with North Korea, but it performed quite
well during the rally late in the fiscal period. We still consider it a
strong competitor and believe its valuation is attractive based on global
comparisons. The fund's other holdings in South Korea did not perform as
well. The stocks of SK Telecom and Korea Telecom, two companies growing
with South Korea's telephone industry, were hurt by a harsh regulatory
environment.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS COMPARED
AS OF 6/30/03]
TOP INDUSTRY WEIGHTINGS COMPARED AS OF 6/30/03
Banking 12.4%
Telecommunications 10.6%
Pharmecuticals 10.5%
Oil and gas 8.8%
Automotive 4.7%
Footnote reads:
Weightings are shown as a percentage of net assets. Holdings will vary over
time.
Fortunately, our holdings in other telecommunications stocks performed
better. Vodafone Group of the United Kingdom, Europe's largest wireless
company, was a top holding much of the year and did well for the fund. In
the technology sector, cellular telephone maker Nokia of Finland also
helped performance. Although Nokia issued a cautious outlook after the
period ended, we consider it attractive because it is achieving sales
growth and the company's global manufacturing sources keep its costs
competitive.
Our stock selections in Japan were positive early in the fiscal year, but
less so in the second half. Holding Canon, Olympus Optical, and Toyota
contributed positively to performance. However, toward the end of the
fiscal year, Toyota, one of the world's best car companies, in our view,
underperformed industry competitor Nissan, in which we had a much smaller
position. Last, our decision to avoid Japanese bank stocks, which carry
huge amounts of non-performing loans, turned against us late in the year.
Japan's bank stocks performed well on hopes that the Bank of Japan's new
efforts to overcome deflation would succeed. We are not yet convinced that
the Bank of Japan will resolve the industry's problems.
We favored several basic materials stocks because of their strong cash
flows. They did well early in the period but then lagged significantly
during the rally. In the cement industry, Lafarge of France struggled as
construction spending in North America and Europe slowed. Iron ore exporter
CVRD of Brazil was hurt by currency appreciation, as new confidence in
Brazil caused the real to rise in value versus the U.S. dollar.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
1 TotalFinaElf SA Class B
France
Oil and gas
2 Vodafone Group PLC
United Kingdom
Telecommunications
3 Novartis AG
Switzerland
Pharmaceuticals
4 Nestle SA
Switzerland
Food
5 AstraZeneca PLC
United Kingdom
Pharmaceuticals
6 Samsung Electronics
South Korea
Electronics
7 NTT DoCoMo, Inc.
Japan
Telecommunications
8 GlaxoSmithKline PLC
United Kingdom
Pharmaceuticals
9 Nokia OYJ
Finland
Communications equipment
10 Toyota Motor Corp.
Japan
Automotive
Footnote reads:
These holdings represent 28.7% of the fund's net assets as of 6/30/03. The
fund's holdings will change over time.
The fund's management team
The fund is managed by the Putnam International Core Team. The members of
the team are Omid Kamshad (Portfolio Leader), Joshua Byrne (Portfolio
Member), Simon Davis (Portfolio Member), Steve Oler (Portfolio Member),
George Stairs (Portfolio Member), Daniel Grana, Pamela Holding, Carmel
Peters, and Melissa Reilly.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
Our outlook for international markets differs between short-term and
long-term expectations. We think markets in the next few months will be
vulnerable to a pullback after the recent rally. Stock prices in many
markets rose extremely fast, much faster than improvement in corporate
earnings could justify, especially since many of the leaders in the rally
lack strong earnings growth potential.
At the same time, we have a more optimistic long-term view because we
recognize that the recent stock rally was based in part on justifiable
expectations of an economic recovery. That is because the global economy is
experiencing massive and unprecedented stimulus. The European Central Bank
cut short-term interest rates in June, the Bank of England cut short-term
rates in early July (after the end of the fund's fiscal period), and the
Bank of Japan has taken the unprecedented step of buying corporate bonds to
provide monetary stimulus. Efforts to stimulate the U.S. economy, including
tax cuts and low interest rates, are also positive for the global economy
because the United States is the world's largest importer. Also, Germany,
Europe's largest economy, has introduced positive labor and health-care
reforms to enhance its competitiveness and stimulate growth. Deficit
spending by the German and French governments are also providing stimulus
to growth. In Asia, containment of the SARS epidemic has helped to restore
confidence. Generally speaking, the risk factors that created uncertainty
in financial markets during the past year, particularly Iraq and SARS, have
subsided and market sentiment has improved.
Our fundamental research on companies indicates that many of our holdings
are managing themselves with strategies to take advantage of the firmer
conditions in the global economy. Also, our global industry comparisons
indicate that international stocks still have more favorable valuations
than their U.S. counterparts. So while we remain cautious about the
near-term prospects for stocks, especially those that led in the recent
rally, we believe that the fund's holdings are attractive long-term
investments.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. International
investing involves certain risks, such as currency fluctuations, economic
instability, and political developments. Additional risks may be associated
with emerging-market securities, including illiquidity and volatility.
Performance summary
This section provides information about your fund's performance during its
fiscal year, which ended June 30, 2003. Performance should always be
considered in light of a fund's investment strategy. 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. A profile of your
fund's strategy appears on the first page of this report. See page 10 for
definitions of some terms used in this section.
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TOTAL RETURN FOR PERIODS ENDED 6/30/03
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Class A Class B Class C Class M Class R
(inception dates) (2/28/91) (6/1/94) (7/26/99) (12/1/94) (1/21/03)
NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year -8.93% -14.17% -9.59% -14.11% -9.60% -10.50% -9.37% -12.56% -9.13%
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5 years 2.51 -3.39 -1.19 -2.90 -1.18 -1.18 0.03 -3.47 1.28
Annual average 0.50 -0.69 -0.24 -0.59 -0.24 -0.24 0.01 -0.70 0.26
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10 years 143.02 129.14 125.56 125.56 125.50 125.50 131.91 123.79 137.24
Annual average 9.29 8.65 8.47 8.47 8.47 8.47 8.78 8.39 9.02
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Annual average
(life of fund) 8.52 7.99 7.67 7.67 7.71 7.71 7.96 7.65 8.25
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Performance assumes reinvestment of distributions and does not account for
taxes. Returns at public offering price (POP) for class 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. Class R share returns have no initial sales
charge or CDSC. Performance for class B, C, M, and R shares before their
inception is 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, this fund limited
expenses, without which returns would have been lower.
A 1% redemption fee on total assets redeemed or exchanged within 90 days or
purchase will be imposed for all share classes.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/03
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Lipper
International
MSCI EAFE Funds
Index category average*
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1 year -6.46% -7.98%
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5 years -18.46 -16.10
Annual average -4.00 -3.79
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10 years 31.53 54.37
Annual average 2.78 4.17
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Annual average
(life of fund) 2.75 4.61
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* Lipper and index results should be compared to fund performance at net
asset value. Over the 1-, 5-, and 10-year periods ended 6/30/03, there were
818, 461, and 103 funds, respectively, in this Lipper category.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 6/30/93 to 6/30/03
Fund's class A MSCI EAFE
shares at POP Index
'93 9,425 10,000
'94 11,863 11,700
'95 12,309 11,894
'96 14,796 13,473
'97 18,515 15,203
'98 22,353 16,130
'99 24,939 17,358
'00 35,919 20,337
'01 27,863 15,537
'02 25,161 14,061
'03 $22,914 $13,153
Footnote reads:
Past performance does not indicate future results. At the end of the same
time period, a $10,000 investment in the fund's class B and class C shares
would have been valued at $22,556 and $22,550, respectively, and no
contingent deferred sales charges would apply. A $10,000 investment in the
fund's class M shares would have been valued at $23,191 ($22,379 at public
offering price). A $10,000 investment in the fund's class R shares would
have been valued at $23,724. See first page of performance summary for
performance calculation method.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 6/30/03
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Class A Class B Class C Class M Class R
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Distributions (number) 1 -- -- -- --
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Income $0.035 -- -- -- --
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Total $0.035 -- -- -- --
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Share value: NAV POP NAV NAV NAV POP NAV
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6/30/02 $19.18 $20.35 $18.57 $18.86 $18.90 $19.59 --
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1/21/03* -- -- -- -- -- -- $16.52
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6/30/03 17.43 18.49 16.79 17.05 17.13 17.75 17.42
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* Inception date of class R shares.
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.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by the
number of outstanding shares.
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.
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).
Class R shares are not subject to an initial sales charge or CDSC and are
available only to certain qualified employee-benefit plans.
Comparative indexes
Morgan Stanley Capital International EAFE Index (MSCI EAFE) is an unmanaged
list of equity securities from Europe, Australasia, and the Far East, with
all values expressed in U.S. dollars.
Citigroup World ex-U.S. Primary Markets Value Index is an unmanaged index
of mostly large and some small capitalization stocks from developed
countries excluding the U.S. chosen for their value orientation.
Citigroup World ex-U.S. Primary Markets Growth Index is an unmanaged index
of mostly large and some small capitalization stocks from developed
countries excluding the U.S. chosen for their growth orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell 3000
Index.
Lehman Aggregate Bond Index is an unmanaged index of U.S. fixed- income
securities.
Lehman Government Bond Index is an unmanaged list of U.S. Treasury and
agency securities.
Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged index of
high-yield debt securities.
Citigroup World Government Bond Index is an unmanaged index of government
bonds from 14 countries.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results at
net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone numbers,
Social Security numbers, and the names of their financial advisors. We use
this information to assign an account number and to help us maintain
accurate records of transactions and account balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized access
to our computer systems and procedures to protect personal information from
unauthorized use.
Under certain circumstances, we share this information with outside vendors
who provide services to us, such as mailing and proxy solicitation. In
those cases, the service providers enter into confidentiality agreements
with us, and we provide only the information necessary to process
transactions and perform other services related to your account. We may
also share this information with our Putnam affiliates to service your
account or provide you with information about other Putnam products or
services. It is also our policy to share account information with your
financial advisor, if you've listed one on your Putnam account.
If you would like clarification about our confidentiality policies or have
any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays
from 9:00 a.m. to 5:00 p.m. Eastern Time.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes, preceded
by the Independent Auditors' Report, 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
year.
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.
Independent auditors' report
To the Trustees of and Shareholders of
Putnam International Equity Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam International
Equity Fund, formerly the Putnam International Growth Fund, (the "fund") at
June 30, 2003, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of investments owned at June 30, 2003 by
correspondence with the custodian, provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 12, 2003
The fund's portfolio
June 30, 2003
Common stocks (98.2%) (a)
Number of shares Value
Australia (2.8%)
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436,523 Australia & New Zealand Banking
Group, Ltd. $5,447,749
4,465,543 BHP Billiton, Ltd. 25,873,285
6,287,409 Brambles Industries, Ltd. 19,268,658
1,192,519 Foster's Brewing Group, Ltd. 3,366,751
354,944 National Australia Bank, Ltd. 7,973,852
1,163,286 News Corp., Ltd. (The) 8,737,115
4,446,329 News Corp., Ltd. (The) ADR 134,590,379
13,237,754 Qantas Airways, Ltd. 29,028,568
2,024,927 Rio Tinto, Ltd. 39,664,728
3,695,807 Westpac Banking Corp. 40,274,133
461,917 Woolworths, Ltd. 3,878,214
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318,103,432
Belgium (0.9%)
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11,799 Electrabel SA 3,006,215
2,558,204 Fortis 44,059,947
2,751,103 Interbrew 61,123,099
------------
108,189,261
Bermuda (1.2%)
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1,476,700 ACE, Ltd. 50,636,043
1,046,492 XL Capital, Ltd. Class A 86,858,836
------------
137,494,879
Brazil (1.7%)
- -------------------------------------------------------------------------------
445,500 Aracruz Celulose SA ADR 917,114
343,900 Banco Bradesco SA ADR 6,424,052
393,670 Banco Itau SA ADR 13,345,413
2,357,289 Companhia de Bebidas das Americas
(AmBev) ADR 47,970,831
1,374,378 Companhia Vale do Rio Doce (CVRD)
ADR 40,764,051
874,065 Companhia Vale do Rio Doce (CVRD)
(Preference A) ADR 24,255,304
2,905,140 Petroleo Brasileiro SA ADR 57,405,566
39,796 Petroleo Brasileiro SA (Preference)
ADR 706,777
252,300 Unibanco-Uniao de Bancos Brasileiros
SA GDR 4,329,468
------------
196,118,576
Canada (2.5%)
- -------------------------------------------------------------------------------
825,455 Abitibi-Consolidated, Inc. 5,225,552
135,300 Alcan Aluminum, Ltd. 4,233,537
158,160 Bank of Nova Scotia 6,996,994
1,410,318 Canadian Imperial Bank of Commerce 55,955,937
1,585,400 Canadian National Railway Co. 75,949,821
1,800 Canadian National Railway Co.
(Toronto Exchange) 86,868
102,000 Canadian Natural Resources, Ltd. 4,035,701
1,038,673 EnCana Corp. 39,528,446
79,611 Four Seasons Hotels, Inc. 3,414,160
2,315,635 National Bank of Canada 62,795,726
111,244 Nexen, Inc. 2,796,454
308,661 Sun Life Financial Services of
Canada, Inc. 6,357,258
1,125,818 Suncor Energy, Inc. 20,999,800
------------
288,376,254
China (0.2%)
- -------------------------------------------------------------------------------
94,490,000 China Telecom Corp., Ltd. 21,690,083
Denmark (1.1%)
- -------------------------------------------------------------------------------
6,320,051 Danske Bank A/S 123,096,942
41,021 Novo-Nordisk A/S 1,436,252
------------
124,533,194
Finland (2.2%)
- -------------------------------------------------------------------------------
15,329,491 Nokia OYJ 252,402,951
49,964 TietoEnator OYJ 841,025
32,658 TietoEnator OYJ 144A 549,719
------------
253,793,695
France (11.7%)
- -------------------------------------------------------------------------------
2,229,122 Accor SA 80,623,553
41,867 Air Liquide 6,206,055
3,609,409 BNP Paribas SA 183,386,311
2,238,605 Bouygues SA 61,791,605
55,225 Christian Dior SA 2,207,913
3,200 Havas Advertising SA 14,293
961,603 Lafarge 56,309,741
195,205 Lafarge SA (NON) 526,716
1,073,156 LVMH Moet Hennessy Louis Vuitton SA 53,218,619
300,625 Orange SA (NON) 2,668,223
527,419 Peugeot SA 25,616,140
1,286,645 Sanofi-Synthelabo SA 75,343,615
104,710 Schneider Electric SA 4,922,135
1,397,104 Societe Generale 88,549,346
2,438,169 Societe Television Francaise I 75,026,751
3,333,617 TotalFinaElf SA Class B 503,719,930
5,224,484 Veolia Environnement (NON) 107,377,670
79,267 Vinci SA 5,347,094
------------
1,332,855,710
Germany (4.4%)
- -------------------------------------------------------------------------------
27,800 Altana AG 1,739,638
3,767,358 BASF AG 160,266,461
4,178,862 Bayerische Motoren Werke (BMW) AG 160,498,765
4,191,671 Deutsche Post AG 61,123,533
282,449 Deutsche Telekom AG 4,300,323
211,510 E.On AG 10,843,511
116,500 Metro AG 3,706,636
11,631 Porsche AG (Preference) 4,901,180
286,650 SAP AG 33,571,416
1,107,586 Schering AG 54,048,535
107,900 Siemens AG 5,283,942
------------
500,283,940
Greece (--%)
- -------------------------------------------------------------------------------
272,650 Hellenic Telecommunication
Organization SA 3,224,484
Hong Kong (0.9%)
- -------------------------------------------------------------------------------
6,819,090 Cheung Kong Holdings, Ltd. 41,013,006
801,100 China Mobile, Ltd. 1,890,283
1,123,000 CLP Holdings, Ltd. 4,910,848
12,498,500 Hong Kong Electric Holdings, Ltd. 49,045,782
216,000 Sun Hung Kai Properties, Ltd. 1,091,371
------------
97,951,290
India (0.1%)
- -------------------------------------------------------------------------------
89,800 HDFC Bank, Ltd. 500,510
1,300,000 Housing Development Finance Corp.,
Ltd. 11,448,450
41,637 Infosys Technologies, Ltd. 2,925,927
------------
14,874,887
Ireland (1.7%)
- -------------------------------------------------------------------------------
7,188,573 Allied Irish Banks PLC 108,043,807
655,392 Bank of Ireland 7,939,098
5,066,165 CRH PLC 79,401,649
------------
195,384,554
Italy (2.2%)
- -------------------------------------------------------------------------------
4,404,324 ENI SpA 66,752,992
9,511,765 Mediaset SpA 80,490,781
9,079,545 Telecom Italia Mobile SpA 44,723,823
737,910 Telecom Italia SpA 6,676,474
9,218,500 Telecom Italia SpA-RNC 50,488,932
------------
249,133,002
Japan (15.5%)
- -------------------------------------------------------------------------------
590,630 Acom Co., Ltd. 21,352,222
254,620 Acom Co., Ltd. 144A 9,204,921
45,000 Advantest Corp. 1,994,169
496,800 Aeon Co. Ltd. 11,380,258
5,232,000 Canon, Inc. 240,135,943
250,800 Denso Corp. 3,975,613
3,447 East Japan Railway Co. 15,332,761
1,577,000 Fuji Photo Film Cos., Ltd. 45,582,591
100 Fujisawa Pharmaceutical Co. 1,874
35,400 FUNAI Electric Co., Ltd. 3,951,354
26,600 Hirose Electric Co., Ltd. 2,200,233
2,141,500 Honda Motor Co., Ltd. 81,164,723
1,587 Japan Tobacco, Inc. 8,579,450
422,600 Kansai Electric Power, Inc. 6,667,259
5,496,200 KAO Corp. 102,324,090
96,700 Matsushita Electric Works, Ltd. 572,709
11,664 Millea Holdings, Inc. 89,192,436
100 Mitsubishi Corp. 694
1,358,100 Mitsui Sumitomo Insurance Co., Ltd. 6,301,222
749,400 Nintendo Co., Ltd. 54,496,143
831,000 Nissan Motor Co., Ltd. 7,946,589
564,000 Nomura Securities Co., Ltd. 7,159,817
132,351 NTT DoCoMo, Inc. 286,641,066
4,020 NTT DoCoMo, Inc. 144A 8,706,372
4,273,800 Olympus Optical Co., Ltd. 88,466,414
584,100 Orix Corp. 32,306,739
11,800 Orix Corp. 144A 652,661
3,550,000 Ricoh Co., Ltd. 58,018,326
314,300 Rohm Co., Ltd. 34,270,612
1,876,000 SECOM Co., Ltd. 55,006,414
150,000 Seven-Eleven Japan Co., Ltd. 3,735,943
652,500 Shin-Etsu Chemical Co. 22,284,465
171,500 Sony Corp. 4,828,571
870,700 Takeda Chemical Industries, Ltd. 32,129,954
336,000 Tokyo Electric Power Co. 6,423,324
22,745,000 Tokyo Gas Co., Ltd. 65,364,640
2,736,000 Toppan Printing Co., Ltd. 19,599,833
9,619,600 Toyota Motor Corp. 249,204,132
3,125,000 Yamanouchi Pharmaceutical Co., Ltd. 81,476,468
------------
1,768,633,005
Mexico (1.3%)
- -------------------------------------------------------------------------------
84,350 America Movil SA de CV ADR Ser. L 1,581,563
912,600 Fomento Economico Mexicano SA de CV
ADR 37,599,120
5,563,671 Grupo Financiero BBVA Bancomer SA de
CV (NON) 4,715,156
2,907,581 Telefonos de Mexico SA de CV
(Telmex) 4,582,252
2,960,277 Telefonos de Mexico SA de CV
(Telmex) ADR Class L 93,011,903
1,897,319 Wal-Mart de Mexico SA de CV Ser. V 5,610,557
------------
147,100,551
Netherlands (1.5%)
- -------------------------------------------------------------------------------
380,215 ABN AMRO Holdings NV 7,268,772
1,445,215 ABN AMRO Holdings NV (acquired
5/9/03, cost $23,522,803) (RES) 27,628,941
4,123,944 ING Groep NV 71,642,252
2,534,675 Koninklijke (Royal) Philips
Electronics NV 48,194,797
1,201,900 Reed Elsevier NV 14,172,822
193,543 TPG NV 3,360,058
------------
172,267,642
New Zealand (0.2%)
- -------------------------------------------------------------------------------
4,389,091 Telecom Corp. of New Zealand, Ltd. 13,454,320
4,533,434 Telecom Corp. of New Zealand, Ltd.
144A 13,896,789
------------
27,351,109
Portugal (0.2%)
- -------------------------------------------------------------------------------
4,210,691 Electricidade de Portugal SA 8,992,571
1,356,536 Portugal Telecom SGPS SA 9,719,266
------------
18,711,837
Russia (0.4%)
- -------------------------------------------------------------------------------
186,372 YUKOS 2,609,208
780,095 YUKOS ADR 43,529,301
------------
46,138,509
Singapore (1.5%)
- -------------------------------------------------------------------------------
4,739,648 DBS Group Holdings, Ltd. 27,726,685
7,129,185 Overseas-Chinese Banking Corp. 40,490,629
3,279,000 Singapore Press Holdings, Ltd. 34,080,593
10,130,000 United Overseas Bank, Ltd. 71,342,080
------------
173,639,987
South Africa (--%)
- -------------------------------------------------------------------------------
309,887 Sappi, Ltd. 3,733,529
South Korea (5.5%)
- -------------------------------------------------------------------------------
27 Kookmin Bank 815
5,231,680 Korea Electric Power Corp. 82,882,441
6,564,592 KT Corp. ADR 129,388,108
30,090 Pohang Iron & Steel Co., Ltd. 3,127,544
1,082,582 POSCO ADR 28,352,823
1,013,428 Samsung Electronics Co., Ltd. 301,564,912
2,970 Samsung Electronics Co., Ltd.
(Preference) 424,464
220,380 SK Telecom Co., Ltd. 37,684,426
2,293,317 SK Telecom Co., Ltd. ADR 43,251,959
------------
626,677,492
Spain (1.4%)
- -------------------------------------------------------------------------------
2,390,045 Altadis SA 61,251,653
76,659 Banco Popular Espanol 3,872,874
4,994,273 Iberdrola SA 86,475,118
674,433 Telefonica SA 7,829,022
------------
159,428,667
Sweden (1.6%)
- -------------------------------------------------------------------------------
260,420 Hennes & Mauritz AB Class B 5,987,041
4,108,383 Investor AB Class B 30,029,413
200,200 Sandvik AB 5,240,445
348,300 Securitas AB Class B 3,568,514
4,033,071 Svenska Handelsbanken AB Class A 66,012,657
68,716,523 Telefonaktiebolaget LM Ericsson AB
Class B 73,837,958
------------
184,676,028
Switzerland (11.8%)
- -------------------------------------------------------------------------------
1,276,980 Ciba Specialty Chemicals AG 77,324,147
1,685,532 Cie Financier Richemont AG 27,258,271
1,327,855 Holcim Ltd. 49,076,313
128,921 Julius Baer Holdings, Ltd. AG Class B 31,606,684
1,649,142 Nestle SA 340,374,530
9,673,430 Novartis AG 382,879,817
866,708 Swatch Group AG (The) 15,776,364
481,698 Swatch Group AG (The) Class B 43,662,996
1,381,514 Swiss Reinsurance Co. 76,563,747
101,062 Swisscom AG 28,731,997
45,626 Synthes-Stratec, Inc. 32,782,527
4,408,991 UBS AG 245,323,787
------------
1,351,361,180
Taiwan (0.1%)
- -------------------------------------------------------------------------------
14,200 China Steel Corp. 9,861
172,200 Compal Electronics, Inc. 231,194
16,384 Formosa Chemicals & Fibre Corp. 18,394
27,300 Formosa Plastics Corp. 38,075
1,052,050 Hon Hai Precision Industry Co., Ltd. 3,820,378
30,590 Nan Ya Plastic Corp. 33,192
17,515 President Chain Store Corp. 23,566
67,650 Quanta Computer, Inc. 139,959
13 Sinopac Holdings Co. 5
5,563,712 Taiwan Semiconductor Manufacturing
Co., Ltd. 9,176,261
------------
13,490,885
Turkey (--%)
- -------------------------------------------------------------------------------
64,555,997 Haci Omer Sabanci Holdings 155,117
United Kingdom (23.3%)
- -------------------------------------------------------------------------------
2,590,768 3i Group PLC 24,152,435
208,136 Anglo American PLC 3,176,676
7,590,421 AstraZeneca PLC 304,337,930
1,316,525 Barclays PLC 9,775,198
7,244,470 BAT Industries PLC 82,179,457
1,733,854 BG Group PLC 7,681,407
21,396,400 BHP Billiton PLC 112,619,951
2,098,093 BP PLC 14,548,439
7,017,743 Brambles Industries PLC 18,990,013
11,111,771 Carlton Communications PLC 27,776,650
16,515,487 Diageo PLC 176,311,081
13,219,234 GlaxoSmithKline PLC 266,757,533
6,211,780 GUS PLC 69,593,677
10,852,222 Hilton Group PLC 32,947,346
19,559,680 HSBC Holdings PLC (London Stock
Exchange) 231,078,060
4,019,600 HSBC Holdings PLC (Hong Kong
Exchange) 47,681,171
221,771 Imperial Tobacco Group PLC 3,962,937
3,795,125 Reckitt Benckiser PLC 69,632,954
11,104,282 Reed International PLC 92,389,014
2,942,472 Rio Tinto PLC 55,347,898
5,494,257 Royal Bank of Scotland Group PLC 154,113,909
2,424,200 SABMiller PLC 16,229,692
871,000 Scottish and Southern Energy PLC 8,967,816
6,173,434 Scottish Power PLC 37,077,645
36,657,046 Shell Transport & Trading Co. PLC 241,936,504
14,729,472 Tesco PLC 53,285,706
203,206,215 Vodafone Group PLC 397,318,947
13,147,930 WPP Group PLC 103,046,901
------------
2,662,916,947
United States (0.3%)
- -------------------------------------------------------------------------------
4,354,143 Amcor, Ltd. 23,709,493
82,900 Biovail Corp. (NON) 3,840,799
1 Citigroup, Inc. 43
56,400 SMC Corp. 4,749,721
------------
32,300,056
------------
Total Common Stocks
(cost $10,857,868,555) $11,230,589,782
Units (0.1%) (a)
Number of units Value
- -------------------------------------------------------------------------------
118,268 Infosys Technologies, Ltd. 144A
Structured Warrants
(issued by UBS AG) expiration
4/13/04 $8,310,962
508,400 Singapore Press Holdings Structured
Call Warrants
(issued by Merrill Lynch
International & Co., C.V.)
expiration 6/15/04 5,284,106
------------
Total Units (cost $11,901,367) $13,595,068
Short-term investments (4.5%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$274,529,861 Short-term investments held as
collateral for loaned securities
with yields ranging from 0.91% to
1.40% and due dates ranging
from July 1, 2003 to August 22, 2003 (d) $274,381,003
244,937,226 Short-term investments held in
Putnam commingled cash
account with yields ranging from
1.00%to 1.32% and due dates
ranging from July 1, 2003 to August
18, 2003 (d) 244,937,226
------------
Total Short-Term Investments
(cost $519,318,229) $519,318,229
- -------------------------------------------------------------------------------
Total Investments
(cost $11,389,088,151) $11,763,503,079
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $11,438,857,294.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The total
market value of restricted securities held at June 30, 2003 was
$27,628,941 or less than 0.2% of net assets.
(d) See Note 1 to the financial statements.
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 June 30, 2003 (as a percentage of net assets):
Banking 12.4%
Telecommunications 10.6
Pharmaceuticals 10.5
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at June 30, 2003
(aggregate face value $544,794,185)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
Australian Dollars $175,179,998 $171,865,472 9/17/03 $3,314,526
British Pounds 115,858,608 114,198,002 9/17/03 1,660,606
Canadian Dollar 115,555,546 113,884,707 9/17/03 1,670,839
Euro Dollars 29,466,087 30,077,565 9/17/03 (611,478)
Swedish Krona 111,804,384 114,768,439 9/17/03 (2,964,055)
- ------------------------------------------------------------------------------
$3,070,438
- ------------------------------------------------------------------------------
Forward Currency Contracts to Sell at June 30, 2003
(aggregate face value $427,004,678)
- ------------------------------------------------------------------------------
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
Euro Dollars $86,319,031 $88,043,629 9/17/03 $1,724,598
Japanese Yen 171,784,664 173,212,669 9/17/03 1,428,005
Mexican Peso 108,521,636 108,108,328 9/17/03 (413,308)
Swiss Franc 55,822,542 57,640,052 9/17/03 1,817,510
- ------------------------------------------------------------------------------
$4,556,805
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
June 30, 2003
Assets
- -----------------------------------------------------------------------------
Investments in securities, at value, including $265,109,087
of securities on loan (identified cost $11,389,088,151)
(Note 1) $11,763,503,079
- -----------------------------------------------------------------------------
Foreign currency (cost $1,324,156) (Note 1) 1,326,121
- -----------------------------------------------------------------------------
Dividends, interest and other receivables 38,344,070
- -----------------------------------------------------------------------------
Receivable for shares of the fund sold 52,262,783
- -----------------------------------------------------------------------------
Receivable for securities sold 97,990,645
- -----------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 11,616,084
- -----------------------------------------------------------------------------
Total assets 11,965,042,782
Liabilities
- -----------------------------------------------------------------------------
Payable to subcustodian (Note 2) 4,816,194
- -----------------------------------------------------------------------------
Payable for securities purchased 102,166,208
- -----------------------------------------------------------------------------
Payable for shares of the fund repurchased 113,512,551
- -----------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 16,687,809
- -----------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,831,323
- -----------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 300,633
- -----------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,354
- -----------------------------------------------------------------------------
Payable for distribution fees (Note 2) 6,301,330
- -----------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 3,988,841
- -----------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 165,392
- -----------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 274,381,003
- -----------------------------------------------------------------------------
Other accrued expenses 1,030,850
- -----------------------------------------------------------------------------
Total liabilities 526,185,488
- -----------------------------------------------------------------------------
Net assets $11,438,857,294
Represented by
- -----------------------------------------------------------------------------
Paid-in capital (Notes 1,4 and 5) $14,558,998,158
- -----------------------------------------------------------------------------
Undistributed net investment income (Note 1) 117,250,277
- -----------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (3,621,584,408)
- -----------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies (Note 5) 384,193,267
- -----------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $11,438,857,294
Computation of net asset value and offering price
- -----------------------------------------------------------------------------
Net asset value and redemption price per class A share
($6,855,607,701 divided by 393,249,978 shares) $17.43
- -----------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $17.43)* $18.49
- -----------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,892,053,635 divided by 112,699,718 shares)** $16.79
- -----------------------------------------------------------------------------
Net asset value and offering price per class C share
($534,932,820 divided by 31,370,973 shares)** $17.05
- -----------------------------------------------------------------------------
Net asset value and redemption price per class M share
($187,266,131 divided by 10,934,453 shares) $17.13
- -----------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $17.13)* $17.75
- -----------------------------------------------------------------------------
Net asset value, offering price and redemption price per class R share
($1,054 divided by 61 shares) $17.42
- -----------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($1,968,995,953 divided by 112,075,458 shares) $17.57
- -----------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended June 30, 2003
Investment income:
- -----------------------------------------------------------------------------
Dividends (net of foreign tax of $31,384,731) $256,267,522
- -----------------------------------------------------------------------------
Interest 2,607,076
- -----------------------------------------------------------------------------
Securities lending 1,325,769
- -----------------------------------------------------------------------------
Total investment income 260,200,367
Expenses:
- -----------------------------------------------------------------------------
Compensation of Manager (Note 2) 63,721,383
- -----------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 29,163,125
- -----------------------------------------------------------------------------
Compensation of Trustees (Note 2) 155,978
- -----------------------------------------------------------------------------
Administrative services (Note 2) 55,600
- -----------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 15,657,206
- -----------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 18,941,686
- -----------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 5,103,118
- -----------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,472,146
- -----------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 2
- -----------------------------------------------------------------------------
Other 8,506,989
- -----------------------------------------------------------------------------
Total expenses 142,777,233
- -----------------------------------------------------------------------------
Expense reduction (Note 2) (6,544,034)
- -----------------------------------------------------------------------------
Net expenses 136,233,199
- -----------------------------------------------------------------------------
Net investment income 123,967,168
- -----------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,688,367,380)
- -----------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 12,864,193
- -----------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 20,877
- -----------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 7,414,104
- -----------------------------------------------------------------------------
Net unrealized appreciation of investments during the year
(Note 5) 533,691,739
- -----------------------------------------------------------------------------
Net loss on investments (1,134,376,467)
- -----------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(1,010,409,299)
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended June 30
Decrease in net assets 2003 2002
- -----------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------
Net investment income $123,967,168 $74,436,454
- -----------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (1,675,482,310) (990,956,274)
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities
in foreign currencies 541,105,843 (268,878,077)
- -----------------------------------------------------------------------------
Net decrease in net assets resulting from
operations (1,010,409,299) (1,185,397,897)
- -----------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -----------------------------------------------------------------------------
From net investment income
Class A (13,233,985) --
- -----------------------------------------------------------------------------
Class Y (7,609,608) --
- -----------------------------------------------------------------------------
Increase from capital share transactions
(Note 4) 697,146,527 885,939,292
- -----------------------------------------------------------------------------
Total decrease in net assets (334,106,365) (299,458,605)
Net assets
- -----------------------------------------------------------------------------
Beginning of year 11,772,963,659 12,072,422,264
- -----------------------------------------------------------------------------
End of year (including undistributed net
investment income of $117,250,277 and
distributions in excess of net investment
income of $4,878,241, respectively) $11,438,857,294 $11,772,963,659
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2003 2002 2001
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $19.18 $21.24 $29.92
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (a) .22 .17 .16
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.93) (2.23) (6.64)
- -------------------------------------------------------------------------------
Total from investment
operations (1.71) (2.06) (6.48)
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income (.04) -- (.39)
- -------------------------------------------------------------------------------
From net realized gain on
investments -- -- (1.81)
- -------------------------------------------------------------------------------
From return of capital -- -- --(d)
- -------------------------------------------------------------------------------
Total distributions (.04) -- (2.20)
- -------------------------------------------------------------------------------
Net asset value, end of period $17.43 $19.18 $21.24
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) (8.93) (9.70) (22.43)
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $6,855,608 $6,930,312 $6,896,924
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.22 1.16 1.13
- -------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.33 .85 .63
- -------------------------------------------------------------------------------
Portfolio turnover (%) 53.11 (e) 42.17 73.80
- -------------------------------------------------------------------------------
Financial highlights (continued)
(For a common share outstanding throughout the period)
CLASS A
- -------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2000 1999
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $21.64 $20.00
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (a) .54 .07
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8.87 2.14
- -------------------------------------------------------------------------------
Total from investment
operations 9.41 2.21
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income (.34) (.21)
- -------------------------------------------------------------------------------
From net realized gain on
investments (.79) (.36)
- -------------------------------------------------------------------------------
From return of capital -- --
- -------------------------------------------------------------------------------
Total distributions (1.13) (.57)
- -------------------------------------------------------------------------------
Net asset value, end of period $29.92 $21.64
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) 44.03 11.57
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $7,040,669 $2,928,662
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.14 1.27
- -------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.01 .38
- -------------------------------------------------------------------------------
Portfolio turnover (%) 99.53 97.24
- -------------------------------------------------------------------------------
(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.
(e) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund
(Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- -------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2003 2002 2001
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $18.57 $20.72 $29.23
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (loss) (a) .08 .01 (.04)
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.86) (2.16) (6.46)
- -------------------------------------------------------------------------------
Total from investment
operations (1.78) (2.15) (6.50)
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income -- -- (.20)
- -------------------------------------------------------------------------------
From net realized gain on
investments -- -- (1.81)
- -------------------------------------------------------------------------------
From return of capital -- -- --(d)
- -------------------------------------------------------------------------------
Total distributions -- -- (2.01)
- -------------------------------------------------------------------------------
Net asset value, end of period $16.79 $18.57 $20.72
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) (9.59) (10.38) (23.00)
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $1,892,054 $2,326,938 $2,983,524
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.97 1.91 1.88
- -------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) .51 .04 (.16)
- -------------------------------------------------------------------------------
Portfolio turnover (%) 53.11 (e) 42.17 73.80
- -------------------------------------------------------------------------------
Financial highlights (continued)
(For a common share outstanding throughout the period)
CLASS B
- -------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2000 1999
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $21.20 $19.63
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (loss) (a) .35 (.07)
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8.67 2.10
- -------------------------------------------------------------------------------
Total from investment
operations 9.02 2.03
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income (.20) (.10)
- -------------------------------------------------------------------------------
From net realized gain on
investments (.79) (.36)
- -------------------------------------------------------------------------------
From return of capital -- --
- -------------------------------------------------------------------------------
Total distributions (.99) (.46)
- -------------------------------------------------------------------------------
Net asset value, end of period $29.23 $21.20
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) 43.00 10.75
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $3,591,546 $1,821,024
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.89 2.02
- -------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 1.26 (.38)
- -------------------------------------------------------------------------------
Portfolio turnover (%) 99.53 97.24
- --------------------------------------------------------------------------------
(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.
(e) Portfolio turnover excludes impact of assets received from the acquisition
of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund (Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- -------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2003 2002 2001
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $18.86 $21.03 $29.74
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (loss)(a) .09 .01 (.02)
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.90) (2.18) (6.59)
- -------------------------------------------------------------------------------
Total from investment
operations (1.81) (2.17) (6.61)
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income -- -- (.29)
- -------------------------------------------------------------------------------
From net realized gain on
investments -- -- (1.81)
- -------------------------------------------------------------------------------
From return of capital -- -- --(d)
- -------------------------------------------------------------------------------
Total distributions -- -- (2.10)
- -------------------------------------------------------------------------------
Net asset value, end of period $17.05 $18.86 $21.03
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) (9.60) (10.32) (23.01)
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $534,933 $601,907 $637,547
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.97 1.91 1.88
- -------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) .54 .07 (.07)
- -------------------------------------------------------------------------------
Portfolio turnover (%) 53.11 (e) 42.17 73.80
- -------------------------------------------------------------------------------
Financial highlights (continued)
(For a common share outstanding throughout the period)
CLASS C
- -------------------------------------------------------------------------------
For the
period
July 26, 1999+
Per-share to June 30
operating performance 2000
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $21.87
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (loss)(a) .32
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8.66
- -------------------------------------------------------------------------------
Total from investment
operations 8.98
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income (.32)
- -------------------------------------------------------------------------------
From net realized gain on
investments (.79)
- -------------------------------------------------------------------------------
From return of capital --
- -------------------------------------------------------------------------------
Total distributions (1.11)
- -------------------------------------------------------------------------------
Net asset value, end of period $29.74
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) 41.54*
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $439,522
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.76*
- -------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 1.12*
- -------------------------------------------------------------------------------
Portfolio turnover (%) 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.
(e) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund
(Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- -------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2003 2002 2001
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $18.90 $21.04 $29.61
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (loss) (a) .11 .06 .03
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.88) (2.20) (6.54)
- -------------------------------------------------------------------------------
Total from investment
operations (1.77) (2.14) (6.51)
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income -- -- (.25)
- -------------------------------------------------------------------------------
From net realized gain on
investments -- -- (1.81)
- -------------------------------------------------------------------------------
From return of capital -- -- --(d)
- -------------------------------------------------------------------------------
Total distributions -- -- (2.06)
- -------------------------------------------------------------------------------
Net asset value, end of period $17.13 $18.90 $21.04
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) (9.37) (10.17) (22.75)
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $187,266 $248,921 $302,838
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.72 1.66 1.63
- -------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets
(%) .73 .30 .11
- -------------------------------------------------------------------------------
Portfolio turnover (%) 53.11 (e) 42.17 73.80
- -------------------------------------------------------------------------------
Financial highlights (continued)
(For a common share outstanding throughout the period)
CLASS M
- -------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2000 1999
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $21.45 $19.85
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (loss) (a) .40 (.02)
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8.79 2.11
- -------------------------------------------------------------------------------
Total from investment
operations 9.19 2.09
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income (.24) (.13)
- -------------------------------------------------------------------------------
From net realized gain on
investments (.79) (.36)
- -------------------------------------------------------------------------------
From return of capital -- --
- -------------------------------------------------------------------------------
Total distributions (1.03) (.49)
- -------------------------------------------------------------------------------
Net asset value, end of period $29.61 $21.45
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) 43.32 10.97
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $367,638 $208,064
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.64 1.77
- -------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 1.51 (.12)
- -------------------------------------------------------------------------------
Portfolio turnover (%) 99.53 97.24
- -------------------------------------------------------------------------------
(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.
(e) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets
Fund (Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- -------------------------------------------------------------------------------
For the
period
January 21, 2003+
Per-share to June 30
operating performance 2003
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $16.52
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (a) .08
- -------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .82
- -------------------------------------------------------------------------------
Total from investment
operations .90
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income --
- -------------------------------------------------------------------------------
From net realized gain on investments --
- -------------------------------------------------------------------------------
Total distributions --
- -------------------------------------------------------------------------------
Net asset value,
end of period $17.42
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) 5.45*
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $1
- -------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .65*
- -------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .47*
- -------------------------------------------------------------------------------
Portfolio turnover (%) 53.11*(d)
- -------------------------------------------------------------------------------
+ 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) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund
(Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- -------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2003 2002 2001
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $19.33 $21.35 $30.07
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (a) .28 .22 .23
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.96) (2.24) (6.69)
- -------------------------------------------------------------------------------
Total from investment
operations (1.68) (2.02) (6.46)
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income (.08) -- (.45)
- -------------------------------------------------------------------------------
From net realized gain on
investments -- -- (1.81)
- -------------------------------------------------------------------------------
From return of capital -- -- --(d)
- -------------------------------------------------------------------------------
Total distributions (.08) -- (2.26)
- -------------------------------------------------------------------------------
Net asset value, end of period $17.57 $19.33 $21.35
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) (8.67) (9.46) (22.25)
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $1,968,996 $1,664,886 $1,251,589
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) (c) .97 .91 .88
- -------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.64 1.13 .92
- -------------------------------------------------------------------------------
Portfolio turnover (%) 53.11 (e) 42.17 73.80
- -------------------------------------------------------------------------------
Financial highlights (continued)
(For a common share outstanding throughout the period)
CLASS Y
- -------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2000 1999
- -------------------------------------------------------------------------------
Net asset value, beginning of
period $21.72 $20.05
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (a) .61 .14
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8.92 2.13
- -------------------------------------------------------------------------------
Total from investment
operations 9.53 2.27
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net investment income (.39) (.24)
- -------------------------------------------------------------------------------
From net realized gain on
investments (.79) (.36)
- -------------------------------------------------------------------------------
From return of capital -- --
- -------------------------------------------------------------------------------
Total distributions (1.18) (.60)
- -------------------------------------------------------------------------------
Net asset value, end of period $30.07 $21.72
- -------------------------------------------------------------------------------
Total return at net asset
value (%)(b) 44.43 11.83
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $1,027,174 $255,867
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) (c) .89 1.02
- -------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.26 .70
- -------------------------------------------------------------------------------
Portfolio turnover (%) 99.53 97.24
- -------------------------------------------------------------------------------
(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.
(e) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund
(Note 5).
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
June 30, 2003
Note 1
Significant accounting policies
Putnam International Equity Fund (formerly known as 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, class R and class Y
shares. The fund began offering class R shares on January 21, 2003. 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, class M and class R 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 and class R shares but lower
than class B and class C shares. Class R shares are sold without a front
end sales charge and pay an ongoing distribution fee that is higher than
class A shares, but lower than class B, class C and class M shares. Class R
shares are offered to qualified employee-benefit plans. Class Y shares,
which are sold at net asset value, are generally subject to the same
expenses as class A, class B, class C, class M and class R shares, but do
not bear a distribution fee. Class Y shares are sold to certain eligible
purchasers including certain defined contribution plans (including
corporate IRAs), certain college savings plans, bank trust departments and
trust companies.
A redemption fee of 1.00%, which is retained by the fund, may apply to
shares of any class redeemed (either by selling or exchanging to another
fund) within 90 days of purchase.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with 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 valued at the last reported sales price on their principal
exchange, or official closing price for certain markets. If no sales are
reported -- as in the case of some securities traded over-the-counter
- -- a security is valued at its last reported bid price. For foreign
investments, if trading or events occurring in other markets after the
close of the principal exchange in which the foreign investments are traded
are expected to materially affect the value of the investments, then those
investments are valued, taking into consideration these events, at their
fair value following procedures approved by the Trustees. 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 valued at amortized cost, which approximates fair value.
Other investments, including restricted securities, are valued at fair
value following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically 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
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having maturities
of up to 397 days for collateral received under security lending
arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded 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
recognized on the ex-dividend date except that certain dividends from
foreign securities are recognized 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.
D) 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 earned 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,
currency gains and losses realized between the trade and settlement dates
on securities transactions 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.
E) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted (or
an increase in the value of a currency in which securities a fund intends
to buy are denominated, when a fund holds cash reserves and short term
investments). The U.S. dollar value of forward currency contracts is
determined using current forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is marked to market daily
and the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The fund could be exposed
to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
Forward currency contracts outstanding at period end are listed after The
fund's portfolio.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
When the contract is closed, the fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Realized gains and losses
on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in the
value of the futures contract. Such receipts or payments are known as
"variation margin." Exchange traded options are valued at the last sale
price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by
dealers. Futures and written option contracts outstanding at period end are
listed after The fund's portfolio.
G) Security lending The fund may lend securities, through its agents, 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 the fund's agents; 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 June 30, 2003, the value of securities loaned amounted to
$265,109,087. The fund received cash collateral of $274,381,003 which is
pooled with collateral of other Putnam funds into 31 issuers of high-grade
short-term investments.
H) Line of credit During the period, the fund was entered into a committed
line of credit with certain banks. The line of credit agreement included
restrictions that the fund maintain an asset coverage ratio of at least
300% and borrowings must not exceed prospectus limitations. For the period
ended June 30, 2003, the fund had no borrowings against the line of credit.
Effective August 6, 2003, the fund will no longer participate in a
committed line of credit.
I) 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, 2003, the fund had a capital loss carryover of $2,646,372,628
available to the extent allowed by tax law to offset future capital gains,
if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- ------------------------------
$493,938 June 30, 2004
44,943,091 June 30, 2005
4,817,122 June 30, 2007
30,394,163 June 30, 2008
14,120,840 June 30, 2009
1,141,433,169 June 30, 2010
1,410,170,305 June 30, 2011
J) 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. These differences include
temporary and permanent differences of losses on wash sale transactions,
foreign currency gains and losses, post-October loss deferrals, realized
and unrealized gains and losses on passive foreign investment companies.
For the year ended June 30, 2003, the fund reclassified $19,004,943 to
increase undistributed net investment income and $110,540,482 to increase
paid-in-capital, with an increase to accumulated net realized losses of
$129,545,425.
The tax basis components of distributable earnings and the federal tax cost
as of period end were as follows:
Unrealized appreciation $985,477,913
Unrealized depreciation (852,349,737)
--------------
Net unrealized appreciation 133,128,176
Undistributed ordinary income 125,090,704
Capital loss carryforward (2,646,372,628)
Post October loss (734,138,215)
Cost for federal income
tax purposes $11,630,374,903
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.80% of the first $500
million of average net assets, 0.70% of the next $500 million, 0.65% of the
next $500 million, 0.60% of the next $5 billion, 0.575% of the next $5
billion, 0.555% of the next $5 billion, 0.54% of the next $5 billion and
0.53% thereafter.
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, LLC. Investor servicing agent
functions are provided by Putnam Investor Services, a division of PFTC.
Under the subcustodian contract between the subcustodian bank and PFTC, the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made
by the subcustodian bank for the settlement of securities purchased by the
fund. At June 30, 2003, the payable to the subcustodian bank represents the
amount due for cash advanced for the settlement of a security purchased.
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. For the year ended June 30, 2003, the fund's expenses were
reduced by $6,544,034 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $6,228 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, class M and class R 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, 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%, 1.00% and 1.00% of the average net assets
attributable to class A, class B, class C, class M and class R shares,
respectively. The Trustees have approved payment by the fund at an annual
rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets
attributable to class A, class B, class C, class M and class R shares,
respectively.
For the year ended June 30, 2003, Putnam Retail Management, acting as
underwriter, received net commissions of $667,773 and $11,918 from the sale
of class A and class M shares, respectively, and received $4,035,764 and
$60,908 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 year ended June 30, 2003, Putnam Retail Management,
acting as underwriter, received $264,427 and no monies on class A and class
M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended June 30, 2003, cost of purchases and proceeds from
sales of investment securities other than short-term investments aggregated
$6,252,879,957 and $5,513,183,659, respectively. There were no purchases
and sales of U.S. government obligations.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ------------------------------------------------------------------
Written options
outstanding at
beginning of year -- $--
- ------------------------------------------------------------------
Options opened 480,000 11,744,251
Options expired -- --
Options closed (480,000) (11,744,251)
- ------------------------------------------------------------------
Written options
outstanding at
end of year -- $--
- ------------------------------------------------------------------
Note 4
Capital shares
At June 30, 2003, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended June 30, 2003
- ------------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------------
Shares sold 297,352,233 $4,887,953,497
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 721,391 11,773,092
- ------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Asia Pacific
Growth and Putnam
Emerging Markets
Funds 7,587,615 131,447,946
- ------------------------------------------------------------------
305,661,239 5,031,174,535
Shares repurchased (273,704,994) (4,514,452,777)
- ------------------------------------------------------------------
Net increase 31,956,245 $516,721,758
- ------------------------------------------------------------------
Year ended June 30, 2002
- ------------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------------
Shares sold 293,619,885 $5,733,822,534
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ------------------------------------------------------------------
293,619,885 5,733,822,534
Shares repurchased (256,975,161) (5,033,826,065)
- ------------------------------------------------------------------
Net increase 36,644,724 $699,996,469
- ------------------------------------------------------------------
Year ended June 30, 2003
- ------------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------------
Shares sold 14,597,410 $233,792,223
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Asia Pacific
Growth and Putnam
Emerging Markets
Funds 5,490,252 91,982,910
- ------------------------------------------------------------------
20,087,662 325,775,133
Shares repurchased (32,698,269) (520,951,265)
- ------------------------------------------------------------------
Net decrease (12,610,607) $(195,176,132)
- ------------------------------------------------------------------
Year ended June 30, 2002
- ------------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------------
Shares sold 26,004,333 $494,743,905
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ------------------------------------------------------------------
26,004,333 494,743,905
Shares repurchased (44,705,698) (847,391,828)
- ------------------------------------------------------------------
Net decrease (18,701,365) $(352,647,923)
- ------------------------------------------------------------------
Year ended June 30, 2003
- ------------------------------------------------------------------
Class C Shares Amount
- ------------------------------------------------------------------
Shares sold 12,576,467 $205,414,214
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Asia Pacific
Growth and Putnam
Emerging Markets
Funds 275,472 4,687,624
- ------------------------------------------------------------------
12,851,939 210,101,838
Shares repurchased (13,395,638) (218,466,652)
- ------------------------------------------------------------------
Net decrease (543,699) $(8,364,814)
- ------------------------------------------------------------------
Year ended June 30, 2002
- ------------------------------------------------------------------
Class C Shares Amount
- ------------------------------------------------------------------
Shares sold 22,461,656 $432,620,576
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ------------------------------------------------------------------
22,461,656 432,620,576
Shares repurchased (20,857,249) (402,292,910)
- ------------------------------------------------------------------
Net increase 1,604,407 $30,327,666
- ------------------------------------------------------------------
Year ended June 30, 2003
- ------------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------------
Shares sold 8,139,586 $133,436,717
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Asia Pacific
Growth and Putnam
Emerging Markets
Funds 286,835 4,891,301
- ------------------------------------------------------------------
8,426,421 138,328,018
Shares repurchased (10,665,796) (174,618,786)
- ------------------------------------------------------------------
Net decrease (2,239,375) $(36,290,768)
- ------------------------------------------------------------------
Year ended June 30, 2002
- ------------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------------
Shares sold 12,295,515 $235,623,812
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ------------------------------------------------------------------
12,295,515 235,623,812
Shares repurchased (13,517,203) (259,964,932)
- ------------------------------------------------------------------
Net decrease (1,221,688) $(24,341,120)
- ------------------------------------------------------------------
For the period January 21, 2003
(commencement of operations)
to June 30, 2003
- ------------------------------------------------------------------
Class R Shares Amount
- ------------------------------------------------------------------
Shares sold 61 $1,011
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ------------------------------------------------------------------
61 1,011
Shares repurchased -- --
- ------------------------------------------------------------------
Net increase 61 $1,011
- ------------------------------------------------------------------
Year ended June 30, 2003
- ------------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------------
Shares sold 105,663,022 $1,732,448,674
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 461,989 7,609,608
- ------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Asia Pacific
Growth and Putnam
Emerging Markets
Funds 345,554 6,034,925
- ------------------------------------------------------------------
106,470,565 1,746,093,207
Shares repurchased (80,518,017) (1,325,837,735)
- ------------------------------------------------------------------
Net increase 25,952,548 $420,255,472
- ------------------------------------------------------------------
Year ended June 30, 2002
- ------------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------------
Shares sold 86,557,160 $1,694,183,576
- ------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ------------------------------------------------------------------
86,557,160 1,694,183,576
Shares repurchased (59,049,885) (1,161,579,376)
- ------------------------------------------------------------------
Net increase 27,507,275 $532,604,200
- ------------------------------------------------------------------
At June 30, 2003 Putnam Investments LLC owned 61 class R shares of the fund
(100% of class R shares outstanding), valued at $1,063.
Note 5
Acquisition of Putnam Asia Pacific Growth and Putnam Emerging Markets
Funds
On August 16, 2002, the fund issued 7,587,615; 5,490,252; 275,472; 286,835;
and 345,554 of class A, class B, class C, class M and class Y shares to
acquire Putnam Asia Pacific Fund and Putnam Emerging Markets Fund net
assets in a tax-free exchange approved by the shareholders. The net assets
of the fund, Putnam Asia Pacific Fund and Putnam Emerging Markets Fund on
August 16, 2002, valuation date, were $10,713,632,846, $160,983,391 and
$78,061,315, respectively. On August 16, 2002, Putnam Asia Pacific Fund and
Putnam Emerging Markets Fund had unrealized appreciation of $1,405,114 and
$10,106,846, respectively.
The aggregate net assets of the fund immediately following the acquisition
were $10,952,677,552.
Federal tax information
(Unaudited)
For the period, interest and dividends from foreign countries were
$287,652,253 or $0.436 per share. Taxes paid to foreign countries were
$31,384,731 or $0.048 {for all classes of shares}.
For its tax year ended June 30, 2003, the fund hereby designates 100%, or
the maximum amount allowable, of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2004 will show the tax status of all
distributions paid to your account in calendar 2003.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
President, Baxter Associates, Inc. (a consulting and private investments
firm)
Director of ASHTA Chemicals, Inc., Banta Corporation (a printing and
digital imaging firm), Ryerson Tull, Inc. (a steel service corporation),
Advocate Health Care, and the National Center for Nonprofit Boards.
Chairman Emeritus of the Board of Trustees, Mount Holyoke College. Until
2002, Mrs. Baxter was a director of Intermatic Corporation, a manufacturer
of energy control products. Also held various positions in investment
banking and corporate finance, including Vice President and principal of
the Regency Group and Vice President and consultant to First Boston Corp.
Charles B. Curtis (4/27/40), Trustee since 2001
President and Chief Operating Officer, Nuclear Threat Initiative (a private
foundation dealing with national security issues), also serves as Senior
Advisor to the United Nations Foundation
Member of the Council on Foreign Relations and the Trustee Advisory Council
of the Applied Physics Laboratory at Johns Hopkins University. Until 2003,
Mr. Curtis was a member of the Electric Power Research Institute Advisory
Council, and the University of Chicago Board of Governors for Argonne
National Laboratory. Prior to 2002, Mr. Curtis was a member of the Board of
Directors of the Gas Technology Institute and the Board of Directors of the
Environment and Natural Resources Program Steering Committee, John F.
Kennedy School of Government, Harvard University. Until 2001, Mr. Curtis
was a Member of the Department of Defense's Policy Board and Director of
EG&G Technical Services, Inc. (fossil energy research and development
support). Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He
served as Chairman of the Federal Energy Regulatory Commission from 1977 to
1987 and has held positions on the staff of the U.S. House of
Representatives, the U.S. Treasury Department, and the Securities and
Exchange Commission. Mr. Curtis is also a lawyer with over 15 years of
experience.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Vice-Chairman and Managing Director, First Reserve Corporation (a
registered investment advisor investing in companies in the world-wide
energy industry on behalf of institutional investors)
Director of Devon Energy Corporation (formerly known as Snyder Oil
Corporation), TransMontaigne Oil Company, Continuum Health Partners of New
York, Sarah Lawrence College, and various private companies owned by First
Reserve Corporation. Trustee of TH Lee, Putnam Investment Trust (a
closed-end investment company). Prior to acquiring First Reserve in 1983,
Mr. Hill held executive positions with several advisory firms and various
positions with the federal government, including Associate Director of the
Office of Manage ment and Budget and Deputy Director of the Federal Energy
Administration.
Ronald J. Jackson (12/17/43), Trustee since 1996
Private investor
Former Chairman, President, and Chief Executive Officer of Fisher-Price,
Inc. (a toy manufacturer). Previously served as President and Chief
Executive Officer of Stride-Rite, Inc. and Kenner Parker Toys. Also held
financial and marketing positions with General Mills, Parker Brothers, and
Talbots. President of the Kathleen and Ronald J. Jackson Foundation
(charitable trust). Member of the Board of Overseers of WGBH (public
television and radio). Member of the Board of Overseers of the Peabody
Essex Museum.
Paul L. Joskow (6/30/47), Trustee since 1997
Elizabeth and James Killian Professor of Economics and Management and
Director of the Center for Energy and Environmental Policy Research,
Massachusetts Institute of Technology
Director, National Grid Transco (formerly National Grid Group, a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure), and the Whitehead
Institute for Biomedical Research (a non-profit research institution).
President of the Yale University Council. Prior to February 2002, March
2000, and September 1998, Dr. Joskow was a Director of State Farm
Indemnity Company (an automobile insurance company), Director of New
England Electric System (a public utility holding company) and a
consultant to National Economic Research Associates, respectively.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Chairman, Cambus-Kenneth Bloodstock (a limited liability company involved
in thoroughbred horse breeding and farming), President Emeritus of Mount
Holyoke College
Director, Northeast Utilities, and Talbots (a distributor of women's
apparel). Trustee of Centre College. Prior to 2001, Dr. Kennan was a member
of the Oversight Committee of Folger Shakespeare Library. Prior to
September 2000, June 2000, and November 1999, Dr. Kennan was a Director of
Chastain Real Estate, Bell Atlantic, and Kentucky Home Life Insurance,
respectively. Prior to 1995, Dr. Kennan was a Trustee of Notre Dame
University. For 12 years, she was on the faculty of Catholic University.
John H. Mullin, III (6/15/41), Trustee since 1997
Chairman and CEO of Ridgeway Farm (a limited liability company engaged in
timber and farming)
Director Alex. Brown Realty, Inc., Sonoco Products, Inc. (a packaging
company), The Liberty Corporation (a company engaged in the broadcasting
industry), and Progress Energy, Inc. (a utility company, formerly known as
Carolina Power & Light). Trustee Emeritus of Washington & Lee University.
Prior to October 1997, January 1998, and May 2001, Mr. Mullin was a
Director of Dillon, Read & Co. Inc., The Ryland Group, Inc., and Graphic
Packaging International Corp., respectively.
Robert E. Patterson (3/15/45), Trustee since 1984
Senior Partner of Cabot Properties, L.P. and Chairman of Cabot Properties,
Inc.
Chairman of the Joslin Diabetes Center, Trustee of SEA Education
Association, and Director of Brandywine Trust Company (a trust company).
Prior to February 1998, Mr. Patterson was Executive Vice President and
Director of Acquisitions of Cabot Partners Limited Partnership. Prior to
December 2001, Mr. Patterson was President and Trustee of Cabot Industrial
Trust (publicly traded real estate investment trust). Prior to 1990, Mr.
Patterson was Executive Vice President of Cabot, Cabot & Forbes Realty
Advisors, the predecessor of Cabot Partners, and prior to that was Senior
Vice President of the Beal Companies.
W. Thomas Stephens (9/2/42), Trustee since 1997
Corporate Director
Director of Xcel Energy Incorporated (public utility company), TransCanada
Pipelines, Norske Canada, Inc. (paper manufacturer), and Qwest
Communications (communications company). Until 2003, Mr. Stephens was a
Director of Mail-Well, a printing and envelope company. Prior to July 2001
and October 1999, Mr. Stephens was Chairman of Mail-Well and
MacMillan-Bloedel (forest products company). Prior to 1996, Mr. Stephens
was Chairman and Chief Executive Officer of Johns Manville.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Director of various corporations and charitable organizations, including
Courier Corporation (a book manufacturer and publisher) and Providence
Journal Co. (a newspaper publisher)
Trustee of Northeastern University and Honorary Trustee of Massachusetts
General Hospital. Prior to September 2000, April 2000, and December 2001,
Mr. Thorndike was a Director of Bradley Real Estate, Inc., a Trustee of
Eastern Utilities Associates, and a Trustee of Cabot Industrial Trust,
respectively. Previously served as Chairman of the Board and managing
partner of Wellington Management/Thorndike Doran Paine & Lewis, and
Chairman and Director of Ivest Fund.
Lawrence J. Lasser* (11/1/42), Trustee since 1992 and Vice President
since 1981
President and Chief Executive Officer of Putnam Investments and Putnam
Management
Director of Marsh & McLennan Companies, Inc. and the United Way of
Massachusetts Bay. Member of the Board of Governors of the Investment
Company Institute, Trustee of the Museum of Fine Arts, Boston, a Trustee
and Member of the Finance and Executive Committees of Beth Israel
Deaconess Medical Center, Boston, and a Member of the CareGroup Board of
Managers Investment Committee, the Council on Foreign Relations, and the
Commercial Club of Boston.
George Putnam, III* (8/10/51), Trustee since 1984 and President since 2000
President, New Generation Research, Inc. (a publisher of financial advisory
and other research services relating to bankrupt and distressed companies)
and New Generation Advisers, Inc. (a registered investment adviser)
Director of The Boston Family Office, L.L.C. (registered investment
advisor), Trustee of St. Mark's School, and Trustee of Shore Country Day
School. Until 2002, Mr. Putnam was a Trustee of the SEA Education
Association. Previously, Mr. Putnam was an attorney with the firm of
Dechert Price & Rhoads.
A.J.C. Smith* (4/13/34), Trustee since 1986
Director of Marsh & McLennan Companies, Inc.
Director of Trident Corp. (a limited partnership with over 30 institutional
investors). Trustee of the Carnegie Hall Society, the Educational
Broadcasting Corporation and the National Museums of Scotland. Chairman of
the Central Park Conservancy. Member of the Board of Overseers of the Joan
and Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Fellow of the Faculty of Actuaries in Edinburgh, the Canadian
Institute of Actuaries, and the Conference of Actuaries. Associate of the
Society of Actuaries. Member of the American Actuaries, the International
Actuarial Association and the International Association of Consulting
Actuaries. Prior to May 2000 and November 1999, Mr. Smith was Chairman and
CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of June 30, 2003, there were 104 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her resignation,
death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc., the parent
company of Putnam LLC and its affiliated companies. Messrs. Putnam, III,
Lasser and Smith are deemed "interested persons" by virtue of their
positions as officers or shareholders of the fund or Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. George Putnam,
III is the President of your fund and each of the other Putnam funds.
Lawrence J. Lasser is the President and Chief Executive Officer of Putnam
Investments and Putnam Management. Mr. Lasser and Mr. Smith serve as
Directors of Marsh & McLennan Companies, Inc.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer and Principal Financial
Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and Putnam
Management
Karnig H. Durgarian (1/13/56)
Vice President and Principal Executive Officer
Since 2002
Senior Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to July 2001,
Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Gordon H. Silver (7/3/47)
Vice President
Since 1990
Senior Managing Director, Putnam Investments, Putnam
Management and Putnam Retail Management
Mark C. Trenchard (6/5/62)
Vice President
Since 2002
Senior Vice President, Putnam Investments
William H. Woolverton (1/17/51)
Vice President and Chief Legal Officer
Since 2003
Managing Director, Putnam Investments, Putnam Management and
Putnam Retail Management
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded over 65 years ago, Putnam Investments was
built around the concept that a balance between risk and reward is the
hallmark of a well-rounded financial program. We presently manage over 100
mutual funds in growth, value, blend, fixed income, and international.
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 LLP
Independent Auditors
PricewaterhouseCoopers LLP
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, Treasurer and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and Principal Accounting Officer
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam International
Equity 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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
AN009-88686 841/524/891/2BA 8/03
May Lose Value Not FDIC Insured No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam International Equity Fund
Supplement to Annual Report dated 6/30/03.
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 clients that meet the
eligibility requirements specified in the fund's prospectus for
such shares. Performance of class Y shares, which do not incur a
front-end load, a distribution fee, or a contingent deferred sales
charge, will differ from the performance of class A, B, C, M, and R
shares, which are discussed more extensively in the annual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 6/30/03
NAV
1 year -8.67%
5 years 3.83
Annual average 0.76
10 years 147.47
Annual average 9.48
Life of fund (since class A inception, 2/28/91)
Annual average 8.68
Share value: NAV
6/30/02 $19.33
6/30/03 $17.57
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 $0.078 -- $0.078
- ----------------------------------------------------------------------------
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.
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: August 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: August 22, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: August 22, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: August 22, 2003