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:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
12-31-03
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
In recent months we have communicated with you regarding short-term
trading activity in certain Putnam funds by a small number of Putnam
employees. Your fund, Putnam International Equity Fund, was one of the
funds in which some of this trading occurred. We apologize for this and
want you to be aware of the steps being taken to correct this problem. A
number of remedial actions, including more stringent employee trading
restrictions, enhanced compliance standards and systems, and new
redemption fees for fund shares held for short time periods are being
implemented. As we have noted earlier, your Trustees will ensure that
the Putnam funds are fully compensated for any losses resulting from
improper trading activity at Putnam. Furthermore, after an exhaustive
investigation we have made sure that the employees involved in the
trading are no longer working at Putnam.
Over the past six months, financial markets enjoyed improving trends as
the global economy emerged from a slump. A broad rally in stocks
extended to international markets and your fund benefited. However, it
had relatively less exposure to stocks that had most to gain from the
stronger-than-expected recovery, and so its return lagged both its
benchmark index and the average of its Lipper peer group. In the report
that follows, your management team describes its rationale for this
positioning, including its emphasis on what the team considers
high-quality companies.
We deeply appreciate your continued support of the Putnam funds during
this challenging period. Putnam is a firm that aspires to high ethical
standards and we want you to know that we intend to restore your
confidence in the firm.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
February 18, 2004
Report from Fund Management
Fund highlights
* Putnam International Equity Fund class A shares' total return for the
first half of its fiscal year, which ended December 31, 2003, was 20.64%
at net asset value (NAV) and 13.72% at public offering price.
* Due to stock selection that emphasized companies in strong financial
condition and that were less dependent on economic growth for earnings,
the fund underperformed the 26.59% return of its benchmark, the MSCI
EAFE Index.
* For the same reason, the fund underperformed the average for the
International Funds category tracked by Lipper, which was 23.93%.
* See the Performance Summary beginning on page 8 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
International stocks advanced vigorously during your fund's semiannual
period, which ended December 31, 2003. While the fund posted a strong
result, it lagged its benchmark for three main reasons that reflect both
its long-term strategy and our team's short-term decisions. First, we
maintained our strategy of buying and holding high-quality, cash
generative companies that trade at a discount to their intrinsic values.
Such stocks typically lagged during the rally, which was led by more
speculative stocks. Second, we favor large-capitalization stocks with
some mid-cap exposure, but small- and mid-cap stocks had the best
results. Third, our market weighting decisions led to unfavorable
currency positions -- we had underweight exposure to Europe and
Australia, countries whose currencies were among the world's strongest
during the period.
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
International stocks advanced rapidly during the period in a rally that
embraced all regions and sectors. The trigger was a
stronger-than-expected world-wide economic recovery. Countries that had
already been growing, including much of Asia and Latin America, began to
accelerate. In Brazil, the reform agenda of President da Silva has
gained momentum, helping to stabilize inflation and the currency and to
attract investment. Countries that were near stagnation, including
Germany, France, and, to a lesser extent, Japan, began growing again.
While the improvement in economic data in many areas was modest based on
historical comparisons, it was better than most investors had
anticipated early in the year when the Iraq war and the SARS epidemic in
Asia seemed likely to prolong the recession and drive some large
companies out of business.
While many sectors advanced, those that did particularly well included
cyclicals, basic materials, and energy. Cyclical companies are beginning
to see earnings increases after lean times. Demand for basic materials
has been strong and steady, thanks to China's efforts to develop cities
and highways. In addition, both developed and developing markets have
demonstrated strong demand for energy. Technology stocks also did well
because most companies have depleted their inventories and are
experiencing a rise in new orders. Financial stocks have performed well
thanks to low interest rates and easing credit risks in many markets of
the world.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 12/31/03
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Equities
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MSCI EAFE Index (international stocks) 26.59%
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Russell 1000 Index (large-company stocks) 15.63%
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Russell 2000 Index (stocks of small and midsize companies) 24.92%
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S&P 500 Index (broad stock market) 15.14%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 0.17%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) -1.23%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 9.21%
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Citigroup World Government Bond Index (global government
bonds) 7.28%
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These indexes provide an overview of performance in different market
sectors for the six months ended 12/31/03.
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Strategy overview
Our strategy is to invest in stocks of high-quality companies priced
below their worth. Our process includes a method for discounting future
cash flows, which tends to favor solid companies that generate cash and
earnings in excess of their cost of capital. As the period began, we
favored such stocks and our concerns about business conditions also
caused us to have only minor sector and market overweightings. We had an
underweight position in Europe and an overweighting (relative to the
benchmark index) in emerging markets.
We also underweighted Japan and the financials sector in general, due to
concerns about Japanese and German banks and European insurance
companies we considered to be facing weak capital bases. However, high
levels of equity ownership on the part of many of these companies
boosted their value as global markets rallied. This improved performance
reduced concerns about capital weakness; we have since increased
holdings in Japan and in the financials sector.
With our doubts about the economy, we held stocks that we considered
economically vulnerable only if they also had solid balance sheets and
long-term potential. As an example, we had an overweighting in the basic
materials sector and some exposure to cyclical and financial stocks that
had undertaken restructurings.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY WEIGHTINGS COMPARED]
TOP COUNTRY WEIGHTINGS COMPARED
as of 6/30/03 as of 12/31/03
United Kingdom 23.3% 21.6%
Japan 15.5% 17.5%
Switzerland 11.8% 13.7%
France 11.7% 10.3%
Germany 4.4% 5.0%
Footnote reads:
This chart shows how the fund's top 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 stock selection decisions had the most disappointing outcomes in
Japan. Large holdings in Japan included NTT DoCoMo, Canon, and Olympus.
We believe each one of these companies is in solid financial condition
and is achieving earnings growth thanks to the quality of their
products. NTT DoCoMo is the leading wireless telephone company in one of
the most profitable wireless markets in the world. Canon and Olympus,
well-known for cameras, have diversified into growing businesses. Canon
is a world-leading office equipment company, and Olympus is expanding in
digital photography and medical equipment. Despite their growth and
profitability, these stocks had weak returns in the period, and
significantly underperformed the broad Japanese market.
Stocks in the basic materials sector provided some of the strongest
results in the period. One of the fund's top contributors was CVRD of
Brazil, a mining company that produces iron ore. In our view, this
company has a high-caliber management team and generates returns greater
than its cost of capital. It is benefiting from the construction boom in
China. BHP Billiton, an Anglo-Australian company that provides building
materials, has similar qualities and also performed well for the fund.
The fund's overweight position in Samsung Electronics of South Korea
contributed positively to results. Samsung is an electronics
conglomerate with growing businesses in semiconductors, wireless
telephones, and computer components. It has competitive products but, in
our view, trades at a discount to its global peers. Based on our
research, our outlook on Samsung is still positive, though its
performance dropped off some near the end of the period as South Korea's
economy weakened.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS AS OF 12/31/03]
TOP SECTOR WEIGHTINGS AS OF 12/31/03
Banking 14.1%
Telecommunications 9.5%
Oil and gas 7.2%
Pharmaceuticals 6.8%
Investment
banking/
brokerage 5.7%
Footnote reads:
Weightings are shown as a percentage of net assets. Holdings will vary
over time.
Despite our skepticism regarding the strength of the global economy, the
fund had significant exposure to stocks benefiting from the economic
cycle or with leverage to the equity markets, though in hindsight this
exposure was too limited. An example of these holdings is Ericsson,
based in Sweden, a telecommunications company with dominant market share
as a manufacturer of equipment used for third-generation (3G) wireless
services. Ericsson has been out of favor most of the past three years
because wireless service providers had too much debt to invest in new
equipment. However, capital investment has begun to improve in the
industry and we believe the trend will continue. In Switzerland, the
fund owns shares in Credit Suisse Group, an investment bank that had
struggled along with its industry during the bear market. Also, some of
its past dealings have come under legal scrutiny. However, the company
is emerging from a troubled period and is poised for significant growth
from expected mergers and acquisition activity in Europe.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
1 Total SA Class B
France
Oil and gas
2 HSBC Holdings PLC
(London Stock Exchange)
United Kingdom
Banking
3 Vodafone Group PLC
United Kingdom
Telecommunications
4 UBS AG
Switzerland
Investment banking/brokerage
5 Nestle SA
Switzerland
Food
6 Samsung Electronics Co., Ltd.
South Korea
Electronics
7 AstraZeneca PLC
United Kingdom
Pharmaceuticals
8 Novartis AG
Switzerland
Pharmaceuticals
9 Canon, Inc.
Japan
Office equipment and supplies
10 Diageo PLC
United Kingdom
Beverage
Footnote reads:
These holdings represent 31.4% of the fund's net assets as of 12/31/03.
The fund's holdings will change over time.
We increased the fund's exposure to stocks benefiting from the upswing
in the economic cycle. We added to the fund's position in Siemens, a
German conglomerate, which makes capital goods, including machines for
automating factories as well as telecommunications equipment. It is also
completing a restructuring to lower its cost structure in these business
divisions. We also added SKF of Sweden, one of the world's leading
makers of ball bearings and other components we believe are likely to be
in strong demand as manufacturing rebounds around the world. 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.
OF SPECIAL INTEREST
Putnam introduces a new redemption fee to protect long-term investors in
the funds. To discourage attempts to profit from short-term trading and
help preserve the value of your long-term investment, Putnam is
introducing one of the most stringent short-term redemption fees in the
industry. For shares purchased on or after April 19, 2004, a 2%
redemption fee will be applied to shares exchanged or sold within 5
calendar days of purchase. The fee applies to all Putnam funds except
money market funds, variable annuity funds, and closed-end funds. A 1%
redemption fee currently applicable to international, global, and
taxable high-yield funds may still be imposed on shares that are
exchanged or redeemed within 90 days of purchase. Please see your fund's
prospectus for additional information or talk to your financial advisor.
The fund's management team
The fund is managed by the Putnam International Core Team. Joshua Byrne
and Simon Davis have been named as the new Portfolio Leaders of the
fund. The other members of the team are Stephen Oler (Portfolio Member),
George Stairs (Portfolio Member), Heather Arnold, Daniel Grana, Pamela
Holding, 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.
As we move into the second half of the fund's fiscal year, we believe,
based on our research, that many stocks in the portfolio are
significantly undervalued. Since we are confident in business
conditions, we have added to cyclicals. We have also increased our
weighting in Japanese stocks by adding exposure to Japanese export
companies we consider to be well positioned globally. The fund is still
underweight to Japan but is much closer to the benchmark weighting. We
continue to avoid bank stocks and other companies dependent on the
domestic economy in Japan. We continue to favor emerging markets,
especially Brazil and South Korea, and the fund has a small underweight
in Europe. We expect that Asia, particularly China, will have the
strongest growth rates, but that the companies that benefit from this
activity will be spread across many markets and sectors of the world.
Our outlook is subject to the risk of a shock from a terrorist act, but
we think the policy stimulus from lower interest rates and tax rates in
a number of regions will remain in place for many months to come. We
will maintain our focus on what we consider to be high-quality companies
and are striving to deliver improved performance to shareholders.
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
the first half of its fiscal year, which ended December 31, 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 9 for definitions of some terms used
in this section.
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TOTAL RETURN FOR PERIODS ENDED 12/31/03
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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)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 20.64% 13.72% 20.18% 15.18% 20.15% 19.15% 20.30% 16.10% 20.51%
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1 year 28.14 20.78 27.23 22.23 27.16 26.16 27.52 23.03 27.92
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5 years 24.74 17.58 20.21 18.21 20.22 20.22 21.72 17.48 23.24
Annual average 4.52 3.29 3.75 3.40 3.75 3.75 4.01 3.27 4.27
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10 years 131.67 118.27 114.93 114.93 115.07 115.07 121.06 113.38 126.16
Annual average 8.76 8.12 7.95 7.95 7.96 7.96 8.26 7.87 8.50
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Annual average
(life of fund) 9.76 9.26 8.91 8.91 8.95 8.95 9.20 8.90 9.50
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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 (which
for class A shares does not reflect a reduction in sales charges that
went into effect after December 31, 2003; if this reduction had been in
place for all periods indicated, returns would have been higher). 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 more recent
performance, please visit www.putnaminvestments.com.
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
of purchase will be imposed for all share classes.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/03
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Lipper
International
MSCI EAFE Funds category
Index average*
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6 months 26.59% 23.93%
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1 year 38.59 34.74
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5 years -0.27 9.01
Annual average -0.05 1.28
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10 years 54.81 62.80
Annual average 4.47 4.65
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Annual average
(life of fund) 4.54 6.30
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 12/31/03, there
were 854, 833, 482, and 114 funds, respectively, in this Lipper
category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 12/31/03
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Class A Class B Class C Class M Class R
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Distributions (number) 1 1 1 1 1
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Income $0.354 $0.210 $0.160 $0.229 $0.378
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Capital gains -- -- -- -- --
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Total $0.354 $0.210 $0.160 $0.229 $0.378
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Share value: NAV POP NAV NAV NAV POP NAV
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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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12/31/03 20.66 21.92* 19.96 20.32 20.37 21.11 20.60
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* Does not reflect a reduction in class A sales charges that went into
effect after December 31, 2003.
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 (since reduced to 5.25%) 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 defined contribution plans.
Comparative indexes
Citigroup (formerly Salomon Smith Barney) World Government Bond Index is
an unmanaged index of government bonds from 14 countries.
JP Morgan (formerly Chase) Global High Yield Index is an unmanaged index
used to mirror the investable universe of the U.S. dollar global
high-yield corporate debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
S&P 500 Index is an unmanaged index of common stock performance.
Russell 1000 Index is an unmanaged index of the largest 1,000 companies
in the Russell 3000 Index.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
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.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
The fund's portfolio
December 31, 2003 (Unaudited)
Common stocks (97.5%) (a)
Number of shares Value
Australia (1.8%)
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5,252,020 Amcor, Ltd. $32,683,762
68,600 AMP, Ltd. 144A (NON) 258,933
704,788 Australia & New Zealand Banking
Group, Ltd. 9,387,855
2,688,286 BHP Billiton, Ltd. 24,689,073
306,087 National Australia Bank, Ltd. 6,906,648
944,823 News Corp., Ltd. (The) ADR 34,108,110
1,466,235 Promina Group, Ltd. 3,623,290
433,757 Publishing & Broadcasting, Ltd. 4,091,442
2,830,765 Qantas Airways, Ltd. 7,016,578
201,303 Rinker Group, Ltd. 993,384
3,991,523 Woolworths, Ltd. 35,485,118
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159,244,193
Belgium (0.5%)
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5,153 Electrabel SA 1,619,413
1,613,174 Interbrew 43,047,348
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44,666,761
Bermuda (0.3%)
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340,900 XL Capital, Ltd. Class A 26,436,795
Brazil (1.6%)
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129,529 Banco Itau SA ADR 6,317,129
1,117,986 Companhia de Bebidas das Americas
(AmBev) ADR 28,519,823
932,789 Companhia Vale do Rio Doce (CVRD)
ADR 54,568,157
350,001 Companhia Vale do Rio Doce (CVRD)
(Preference A) ADR 18,028,552
1,022,157 Petroleo Brasileiro SA ADR 29,887,871
212,700 Unibanco-Uniao de Bancos Brasileiros
SA GDR 5,306,865
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142,628,397
Canada (2.0%)
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88,700 Alcan Aluminum, Ltd. 4,164,465
107,360 Bank of Nova Scotia 5,467,715
1,570,100 Canadian Imperial Bank of Commerce 77,775,851
916,430 Canadian National Railway Co. 58,163,514
78,900 Canadian Natural Resources, Ltd. 3,992,022
107,638 EnCana Corp. 4,248,868
209,461 Sun Life Financial Services of
Canada, Inc. 5,236,525
372,214 Suncor Energy, Inc. 9,362,968
41,200 Talisman Energy, Inc. 2,344,446
252,920 Telus Corp. 4,737,356
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175,493,730
China (0.3%)
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3,001,000 China Life Insurance Co., Ltd. (NON) 2,454,893
56,884,000 China Telecom Corp., Ltd. 23,449,463
--------------
25,904,356
Denmark (0.7%)
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2,800,364 Danske Bank A/S 65,716,195
Finland (1.5%)
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7,939,300 Nokia OYJ 137,267,964
10,520 UPM-Kymmene OYJ 200,594
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137,468,558
France (10.3%)
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82,000 Accor SA 3,712,426
63,164 Air Liquide 11,151,857
20,834 Aventis SA 1,376,745
2,063,874 BNP Paribas SA 129,929,355
1,201,735 Bouygues SA 42,009,882
1,260,378 LVMH Moet Hennessy Louis Vuitton SA 91,711,998
28,216 Pernod-Ricard 3,136,659
239,063 Pinault-Printemps-Redoute SA 23,108,622
39,509 Schneider Electric SA 2,585,907
835,885 Societe Generale 73,789,420
2,632,869 Societe Television Francaise I 91,906,211
133,754 STMicroelectronics NV 3,626,559
2,145,665 Total SA Class B 398,849,385
1,815,036 Veolia Environnement 48,754,462
--------------
925,649,488
Germany (5.0%)
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51,100 Allianz AG 6,450,665
2,440,460 BASF AG 137,725,469
2,388,669 Bayerische Motoren Werke (BMW) AG 111,306,350
45 Bayerische Vereinsbank AG (NON) 1,050
33,838 Deutsche Boerse AG 1,856,280
178,592 Deutsche Lufthansa AG 2,984,196
3,186,160 Deutsche Telekom AG (NON) 58,422,685
92,410 E.On AG 6,051,831
50,753 Hypo Real Estate Holding (NON) 1,257,691
47,585 Metro AG 2,100,331
5,185 Porsche AG (Preferred) 3,066,699
27,350 SAP AG 4,614,907
146,600 Schering AG 7,424,671
1,279,432 Siemens AG 102,940,770
220,070 T-Online International AG (NON) 2,844,685
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449,048,280
Greece (--%)
- -------------------------------------------------------------------------------
107,860 Greek Organization of Football
Prognostics SA 1,550,654
Hong Kong (0.1%)
- -------------------------------------------------------------------------------
2,276,000 China Unicom, Ltd. (NON) 2,125,705
490,500 CLP Holdings, Ltd. 2,337,941
390,000 Sun Hung Kai Properties, Ltd. 3,227,978
549,500 Swire Pacific, Ltd. 3,390,752
--------------
11,082,376
India (1.2%)
- -------------------------------------------------------------------------------
3,784,816 HDFC Bank, Ltd. 30,438,754
2,587,842 Housing Development Finance Corp.,
Ltd. 36,575,477
24,213 Infosys Technologies, Ltd. 2,954,900
2,653,817 Reliance Industries, Ltd. (NON) 33,354,624
--------------
103,323,755
Ireland (1.7%)
- -------------------------------------------------------------------------------
3,779,163 Allied Irish Banks PLC 60,526,961
420,517 Bank of Ireland 5,737,997
4,038,979 CRH PLC 82,923,098
--------------
149,188,056
Israel (0.1%)
- -------------------------------------------------------------------------------
50,305 Teva Pharmaceutical Industries, Ltd. 2,865,895
Italy (3.1%)
- -------------------------------------------------------------------------------
5,631,913 ENI SpA 106,251,986
9,279,000 Mediaset SpA 110,230,456
442,000 Sanpaolo IMI SpA 5,763,580
10,484,996 UniCredito Italiano SpA 56,592,850
--------------
278,838,872
Japan (17.5%)
- -------------------------------------------------------------------------------
395,370 Acom Co., Ltd. 17,934,461
184,370 Acom Co., Ltd. 144A 8,363,246
39,600 Advantest Corp. 3,141,684
712,000 Aeon Co., Ltd. 23,857,383
195,000 Asahi Glass Co., Ltd. 1,601,643
333,000 Bridgestone Corp. 4,478,747
4,747,000 Canon, Inc. 221,089,509
1,448,000 Credit Saison Co., Ltd. 32,706,366
1,677,200 Denso Corp. 33,030,539
452 Dentsu, Inc. 2,278,141
10,352 East Japan Railway Co. 48,793,728
1,000 Fuji Photo Film Cos., Ltd. 32,294
137,700 FUNAI Electric Co., Ltd. 18,905,796
2,459,400 Honda Motor Co., Ltd. 109,265,858
27,800 Hoya Corp. 2,553,220
252 Japan Tobacco, Inc. 1,846,369
184,600 Kansai Electric Power, Inc. 3,235,755
2,214,200 KAO Corp. 45,052,791
68,600 Lawson, Inc. 2,343,438
7,031 Millea Holdings, Inc. 91,874,183
463,000 Mitsui & Co., Ltd. 3,729,410
451,000 Mitsui O.S.K Lines, Ltd. 2,201,540
38,600 Murata Manufacturing Co., Ltd. 2,086,000
4,989,000 Nippon Oil Corp. 25,424,622
5,480 Nippon Telegraph and Telephone Corp.
(NTT) 26,443,532
385,000 Nippon Yusen Kabushiki Kaisha 1,742,813
2,113,000 Nomura Securities Co., Ltd. 35,992,393
79,523 NTT DoCoMo, Inc. 180,362,974
8,500 Obic Co., Ltd. 1,710,472
3,381,800 Olympus Corp. 73,387,017
259,100 Omron Corp. 5,259,870
169,000 Onward Kashiyama Co., Ltd. 2,050,588
406,500 Orix Corp. 33,615,736
1,215,000 Ricoh Co., Ltd. 23,984,740
445,800 Rohm Co., Ltd. 52,261,042
1,787,500 SECOM Co., Ltd. 66,735,113
120,700 Shin-Etsu Chemical Co. 4,934,348
181,800 Sony Corp. 6,295,296
1,308 Sumitomo Mitsui Financial Group,
Inc. 6,970,954
59,000 Taisho Pharmaceutical Co., Ltd. 1,055,105
101,500 Takeda Chemical Industries, Ltd. 4,026,274
146,700 Tokyo Electric Power Co. 3,217,706
17,798,000 Tokyo Gas Co., Ltd. 63,457,495
485,100 Toppan Printing Co., Ltd. 5,048,409
237,000 Toto, Ltd. 2,008,550
5,952,300 Toyota Motor Corp. 201,113,739
1,981,700 Yamanouchi Pharmaceutical Co., Ltd. 61,592,878
--------------
1,569,093,767
Mexico (0.8%)
- -------------------------------------------------------------------------------
3,775,617 Grupo Financiero BBVA Bancomer SA de
CV (NON) 3,226,879
2,039,539 Telefonos de Mexico SA de CV
(Telmex) ADR Class L 67,365,973
699,742 Wal-Mart de Mexico SA de CV Ser. V 1,995,347
--------------
72,588,199
Netherlands (2.1%)
- -------------------------------------------------------------------------------
237,981 ABN AMRO Holdings NV 5,567,186
113,821 European Aeronautic Defense and
Space Co. 2,705,723
3,446,662 ING Groep NV 80,368,365
785,929 Koninklijke (Royal) KPN NV (NON) 6,065,747
1,587,652 Koninklijke (Royal) Philips
Electronics NV 46,350,651
1,817,088 TPG NV 42,553,706
59,361 Unilever NV 3,881,499
--------------
187,492,877
Norway (0.1%)
- -------------------------------------------------------------------------------
1,035,449 DnB Holdings ASA 6,914,726
523,600 Statoil ASA 5,886,730
--------------
12,801,456
Portugal (0.1%)
- -------------------------------------------------------------------------------
1,839,059 Electricidade de Portugal SA 4,847,206
521,668 Portugal Telecom SGPS SA 5,249,847
--------------
10,097,053
Russia (0.4%)
- -------------------------------------------------------------------------------
13,296 YUKOS 141,602
754,571 YUKOS ADR 31,691,982
--------------
31,833,584
Singapore (1.5%)
- -------------------------------------------------------------------------------
3,227,648 DBS Group Holdings, Ltd. 27,940,890
832,385 Overseas-Chinese Banking Corp. 5,931,252
3,226,000 Singapore Airlines, Ltd. 21,277,428
2,644,000 Singapore Press Holdings 29,427,949
5,874,248 United Overseas Bank, Ltd. 45,662,843
--------------
130,240,362
South Africa (0.1%)
- -------------------------------------------------------------------------------
343,412 Sappi, Ltd. 4,692,266
South Korea (4.7%)
- -------------------------------------------------------------------------------
38,170 Hyundai Motor Co., Ltd. 1,618,459
85,307 Kookmin Bank 3,198,117
897,460 Korea Electric Power Corp. 16,125,646
96,780 Korea Tobacco & Ginseng Corp. 1,682,071
42,750 KT Corp. 1,600,882
3,499,881 KT Corp. ADR 66,742,731
27,780 Pohang Iron & Steel Co., Ltd. 3,801,965
653,137 POSCO ADR 22,187,064
669,618 Samsung Electronics Co., Ltd. 253,566,514
2,970 Samsung Electronics Co., Ltd.
(Preferred) 612,204
168,770 SK Telecom Co., Ltd. 28,199,186
1,309,204 SK Telecom Co., Ltd. ADR 24,416,655
--------------
423,751,494
Spain (1.8%)
- -------------------------------------------------------------------------------
1,532,351 Altadis SA 43,480,077
372,244 Banco Bilbao Vizcaya Argentaria SA 5,140,334
47,951 Banco Popular Espanol 2,860,279
5,250,425 Iberdrola SA 103,755,943
571,812 Telefonica SA 8,393,745
--------------
163,630,378
Sweden (2.0%)
- -------------------------------------------------------------------------------
1,451,556 Hennes & Mauritz AB Class B 34,516,162
63,995 Sandvik AB 2,206,939
3,795,806 Securitas AB Class B 51,199,808
734,160 SKF AB Class B 28,381,027
38,424 Svenska Cellulosa AB (SCA) Class B 1,570,878
33,342,225 Telefonaktiebolaget LM Ericsson AB
Class B (NON) 59,810,424
50,564 Volvo AB Class B 1,546,880
--------------
179,232,118
Switzerland (13.7%)
- -------------------------------------------------------------------------------
47,331 Adecco SA 3,043,856
727,471 Ciba Specialty Chemicals AG (NON) 56,316,919
3,461,193 Credit Suisse Group 126,693,887
1,015,615 Nestle SA 253,862,672
5,034,416 Novartis AG 228,670,489
404,400 Roche Holding AG 40,809,659
814,042 Swatch Group AG (The) 19,425,853
522,886 Swatch Group AG (The) Class B 62,812,305
1,372,255 Swiss Reinsurance Co. 92,689,931
43,712 Synthes-Stratec, Inc. 43,280,608
4,369,011 UBS AG 299,348,998
35,137 Zurich Financial Services AG (NON) 5,059,364
--------------
1,232,014,541
Taiwan (0.9%)
- -------------------------------------------------------------------------------
16,454,000 Cathay Financial Holding Co., Ltd. 24,746,505
413 China Steel Corp. 343
39,769,030 Compal Electronics, Inc. 54,534,353
694 Formosa Chemicals & Fibre Corp. 1,167
938 Formosa Plastics Corp. 1,549
357,460 Hon Hai Precision Industry Co., Ltd. 1,407,281
425 Nan Ya Plastic Corp. 614
476 President Chain Store Corp. 730
415 Quanta Computer, Inc. 1,022
13 Sinopac Holdings Co. 7
2,336,808 Taiwan Semiconductor Manufacturing
Co., Ltd. (NON) 4,375,923
--------------
85,069,494
Thailand (--%)
- -------------------------------------------------------------------------------
177,772 Thai Airways International 205,458
104,724 Thai Airways International 144A
(NON) 121,034
--------------
326,492
United Kingdom (21.6%)
- -------------------------------------------------------------------------------
4,486,088 3i Group PLC 49,588,622
8,315,000 Aggregate Industries PLC 12,726,403
158,136 Anglo American PLC 3,416,767
5,039,470 AstraZeneca PLC 241,766,961
1,063,226 Barclays PLC 9,483,097
1,223,671 BG Group PLC 6,281,240
12,202,916 BHP Billiton PLC 106,600,867
179,756 Burberry Group PLC 1,176,110
16,345,089 Diageo PLC 215,056,177
817,637 GlaxoSmithKline PLC 18,734,746
4,292,500 GUS PLC 59,435,773
10,084,965 Hilton Group PLC 40,574,333
22,218,211 HSBC Holdings PLC (London Stock
Exchange) 349,205,388
3,865,400 HSBC Holdings PLC (Hong Kong
Exchange) 60,999,085
72,000 Next PLC 1,447,403
567,827 Peninsular and Oriental Steam
Navigation Co. 2,337,874
2,235,515 Reckitt Benckiser PLC 50,582,694
986,558 Rio Tinto PLC 27,249,958
4,293,704 Royal Bank of Scotland Group PLC 126,514,186
380,417 Scottish and Southern Energy PLC 4,583,025
345,598 Scottish Power PLC 2,302,943
2,512,532 Shell Transport & Trading Co. PLC 18,687,875
213,177 Smith & Nephew PLC 1,790,696
157,636 Smiths Group PLC 1,865,238
1,827,090 Standard Chartered PLC 30,171,966
17,420,455 Tesco PLC 80,377,679
140,832,805 Vodafone Group PLC 349,165,154
6,607,378 WPP Group PLC 64,875,852
--------------
1,936,998,112
--------------
Total Common stocks (cost $7,466,298,189) $8,738,968,554
Units (0.1%) (a) (cost $5,119,064)
Number of units Value
- -------------------------------------------------------------------------------
479,605 Singapore Press Holdings Structured
Call Warrants (issued by Merrill
Lynch International & Co., C.V.)
expiration 6/15/04 $5,338,052
Short-term investments (6.1%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$38,500,000 US Treasury Note zero %, February 5,
2004 (SEG) $38,465,753
94,323,219 Short-term investments held as
collateral for loaned securities
with yields ranging from 0.73% to
1.10% and due dates ranging from
January 2, 2004 to January 16, 2004
(d) 94,319,917
415,580,982 Short-term investments held in
Putnam commingled cash account with
yields ranging from 0.80% to 1.13%
and due dates ranging from January
2, 2004 to February 25, 2004 (d) 415,580,981
--------------
Total Short-term investments (cost $548,366,651) $548,366,651
- -------------------------------------------------------------------------------
Total Investments (cost $8,019,783,904) $9,292,673,257
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $8,962,375,631.
(NON) Non-income-producing security.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at December 31, 2003.
(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 concentration greater than 10%
at December 31, 2003
(as a percentage of net assets):
Banking 14.1%
Forward currency contracts to buy at December 31, 2003 (Unaudited)
(aggregate face value $330,934,831)
Market Aggregate Delivery Unrealized
value face value date appreciation
- ------------------------------------------------------------------------------------------------------
Australian Dollars $155,237,866 $147,535,151 3/17/04 $7,702,715
British Pounds 193,757,969 183,399,680 3/17/04 10,358,289
- ------------------------------------------------------------------------------------------------------
$18,061,004
- ------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at December 31, 2003 (Unaudited)
(aggregate face value $190,774,267)
Market Aggregate Delivery Unrealized
value face value date depreciation
- ------------------------------------------------------------------------------------------------------
Swiss Franc $194,582,800 $190,774,267 3/17/04 $(3,808,533)
- ------------------------------------------------------------------------------------------------------
Futures contracts outstanding at December 31, 2003 (Unaudited)
Market Aggregate Expiration Unrealized
value face value date appreciation
- ------------------------------------------------------------------------------------------------------
Dow Jones Euro
STOXX 50 (Long) $16,492,237 $16,288,640 Mar-04 $203,597
FTSE 100 Index (Long) 16,630,602 16,249,939 Mar-04 380,663
Hang Seng Index (Long) 3,337,000 3,298,085 Jan-04 38,915
S&P ASX 200 (Long) 4,170,728 4,106,279 Mar-04 64,449
TOPIX Index (Long) 39,989,733 38,426,763 Mar-04 1,562,970
- ------------------------------------------------------------------------------------------------------
$2,250,594
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
December 31, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value, including $90,337,025
of securities on loan (identified cost $8,019,783,904)
(Note 1) $9,292,673,257
- -------------------------------------------------------------------------------
Foreign currency (cost $14,274,896) (Note 1) 14,823,995
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 40,316,072
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 14,094,835
- -------------------------------------------------------------------------------
Receivable for securities sold 51,566,060
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 5,540,104
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 18,061,004
- -------------------------------------------------------------------------------
Total assets 9,437,075,327
Liabilities
- -------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 115,407
- -------------------------------------------------------------------------------
Distributions payable to shareholders 7,756,063
- -------------------------------------------------------------------------------
Payable for securities purchased 33,388,098
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 303,973,940
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 16,785,607
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,614,604
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 358,774
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,643
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 5,896,088
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 3,808,533
- -------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 4,472,923
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 94,319,917
- -------------------------------------------------------------------------------
Other accrued expenses 1,206,099
- -------------------------------------------------------------------------------
Total liabilities 474,699,696
- -------------------------------------------------------------------------------
Net assets $8,962,375,631
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $10,184,161,579
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (25,604,867)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (2,488,512,166)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 1,292,331,085
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $8,962,375,631
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($5,018,043,210 divided by 242,866,646 shares) $20.66
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $20.66)* $21.92
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,768,477,220 divided by 88,620,716 shares)** $19.96
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($392,429,390 divided by 19,308,976 shares)** $20.32
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($142,852,981 divided by 7,013,280 shares) $20.37
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $20.37)* $21.11
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($504,963 divided by 24,510 shares) $20.60
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($1,640,067,867 divided by 78,896,415 shares) $20.79
- -------------------------------------------------------------------------------
* 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.
+ Effective January 28, 2004, the maximum front-end sales charge for class A
shares will decrease to 5.25%.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Six months ended December 31, 2003 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $12,478,930) $79,385,733
- -------------------------------------------------------------------------------
Interest 1,449,766
- -------------------------------------------------------------------------------
Securities lending 268,706
- -------------------------------------------------------------------------------
Total investment income 81,104,205
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 34,807,584
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 20,954,970
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 72,218
- -------------------------------------------------------------------------------
Administrative services (Note 2) 25,587
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 8,445,906
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 9,592,265
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 2,606,434
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 675,221
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 907
- -------------------------------------------------------------------------------
Other 1,026,309
- -------------------------------------------------------------------------------
Total expenses 78,207,401
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (4,549,188)
- -------------------------------------------------------------------------------
Net expenses 73,658,213
- -------------------------------------------------------------------------------
Net investment income 7,445,992
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,091,194,610
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 8,992,636
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 32,875,640
- -------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 9,356
- -------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 7,412,799
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
contracts during the period 900,725,019
- -------------------------------------------------------------------------------
Net gain on investments 2,041,210,060
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,048,656,052
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Six months ended Year ended
December 31 June 30
Decrease in net assets 2003* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $7,445,992 $123,967,168
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 1,133,072,242 (1,675,482,310)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 908,137,818 541,105,843
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 2,048,656,052 (1,010,409,299)
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (89,583,495) (13,233,985)
- -------------------------------------------------------------------------------
Class B (18,719,523) --
- -------------------------------------------------------------------------------
Class C (3,170,988) --
- -------------------------------------------------------------------------------
Class M (1,644,581) --
- -------------------------------------------------------------------------------
Class R (9,020) --
- -------------------------------------------------------------------------------
Class Y (37,173,529) (7,609,608)
- -------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Notes 4 and 5) (4,374,836,579) 697,146,527
- -------------------------------------------------------------------------------
Total decrease in net assets (2,476,481,663) (334,106,365)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 11,438,857,294 11,772,963,659
- -------------------------------------------------------------------------------
End of period (including distributions in
excess of net investment income of
$25,604,867 and undistributed net investment
income of $117,250,277, respectively) $8,962,375,631 $11,438,857,294
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2003 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.43 $19.18 $21.24 $29.92 $21.64 $20.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .02 .22 .17 .16 .54 .07
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.56 (1.93) (2.23) (6.64) 8.87 2.14
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.58 (1.71) (2.06) (6.48) 9.41 2.21
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.35) (.04) -- (.39) (.34) (.21)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.81) (.79) (.36)
- ---------------------------------------------------------------------------------------------------------------------------------
From return
of capital -- -- -- -- (d) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.35) (.04) -- (2.20) (1.13) (.57)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.66 $17.43 $19.18 $21.24 $29.92 $21.64
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.64* (8.93) (9.70) (22.43) 44.03 11.57
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,018,043 $6,855,608 $6,930,312 $6,896,924 $7,040,669 $2,928,662
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .62* 1.22 1.16 1.13 1.14 1.27
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .13* 1.33 .85 .63 2.01 .38
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.47* 53.11 (e) 42.17 73.80 99.53 97.24
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding for the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(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
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2003 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $16.79 $18.57 $20.72 $29.23 $21.20 $19.63
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.05) .08 .01 (.04) .35 (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.43 (1.86) (2.16) (6.46) 8.67 2.10
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.38 (1.78) (2.15) (6.50) 9.02 2.03
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) -- -- (.20) (.20) (.10)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.81) (.79) (.36)
- ---------------------------------------------------------------------------------------------------------------------------------
From return
of capital -- -- -- -- (d) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) -- -- (2.01) (.99) (.46)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.96 $16.79 $18.57 $20.72 $29.23 $21.20
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.18* (9.59) (10.38) (23.00) 43.00 10.75
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,768,477 $1,892,054 $2,326,938 $2,983,524 $3,591,546 $1,821,024
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.00* 1.97 1.91 1.88 1.89 2.02
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.25)* .51 .04 (.16) 1.26 (.38)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.47* 53.11 (e) 42.17 73.80 99.53 97.24
- ---------------------------------------------------------------------------------------------------------------------------------
* 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 C
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
December 31 July 26, 1999+
Per-share (Unaudited) Year ended June 30 to June 30
operating performance 2003 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.05 $18.86 $21.03 $29.74 $21.87
- --------------------------------------------------------------------------------------------------------------------------
Investment operations:
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.05) .09 .01 (.02) .32
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.48 (1.90) (2.18) (6.59) 8.66
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.43 (1.81) (2.17) (6.61) 8.98
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.16) -- -- (.29) (.32)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.81) (.79)
- --------------------------------------------------------------------------------------------------------------------------
From return
of capital -- -- -- -- (d) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.16) -- -- (2.10) (1.11)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.32 $17.05 $18.86 $21.03 $29.74
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.15* (9.60) (10.32) (23.01) 41.54*
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $392,429 $534,933 $601,907 $637,547 $439,522
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.00* 1.97 1.91 1.88 1.76*
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.25)* .54 .07 (.07) 1.12*
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.47* 53.11 (e) 42.17 73.80 99.53
- --------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding for the
period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(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
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2003 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.13 $18.90 $21.04 $29.61 $21.45 $19.85
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.02) .11 .06 .03 .40 (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.49 (1.88) (2.20) (6.54) 8.79 2.11
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.47 (1.77) (2.14) (6.51) 9.19 2.09
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) -- -- (.25) (.24) (.13)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.81) (.79) (.36)
- ---------------------------------------------------------------------------------------------------------------------------------
From return
of capital -- -- -- -- (d) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) -- -- (2.06) (1.03) (.49)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.37 $17.13 $18.90 $21.04 $29.61 $21.45
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.30* (9.37) (10.17) (22.75) 43.32 10.97
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $142,853 $187,266 $248,921 $302,838 $367,638 $208,064
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .87* 1.72 1.66 1.63 1.64 1.77
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.12)* .73 .30 .11 1.51 (.12)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.47* 53.11 (e) 42.17 73.80 99.53 97.24
- ---------------------------------------------------------------------------------------------------------------------------------
* 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 R
- ------------------------------------------------------------------------------------------------------
Six months
ended For the period
Dec. 31 Jan. 21, 2003+
Per-share (Unaudited) to June 30
operating performance 2003 2003
- ------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.42 $16.52
- ------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------
Net investment income (a) -- (e) .08
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.56 .82
- ------------------------------------------------------------------------------------------------------
Total from
investment operations 3.56 .90
- ------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------
From net
investment income (.38) --
- ------------------------------------------------------------------------------------------------------
From net
realized gain on investments -- --
- ------------------------------------------------------------------------------------------------------
Total distributions (.38) --
- ------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.60 $17.42
- ------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.51* 5.45*
- ------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $505 $1
- ------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .75* .65*
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) -- * (f) .47*
- ------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.47* 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).
(e) Amount represents less than $0.01 per share.
(f) Amount represents less than 0.01% of average net assets.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2003 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.57 $19.33 $21.35 $30.07 $21.72 $20.05
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .05 .28 .22 .23 .61 .14
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.59 (1.96) (2.24) (6.69) 8.92 2.13
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.64 (1.68) (2.02) (6.46) 9.53 2.27
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.08) -- (.45) (.39) (.24)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.81) (.79) (.36)
- ---------------------------------------------------------------------------------------------------------------------------------
From return
of capital -- -- -- -- (d) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.08) -- (2.26) (1.18) (.60)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.79 $17.57 $19.33 $21.35 $30.07 $21.72
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.80* (8.67) (9.46) (22.25) 44.43 11.83
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,640,068 $1,968,996 $1,664,886 $1,251,589 $1,027,174 $255,867
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .50* .97 .91 .88 .89 1.02
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .25* 1.64 1.13 .92 2.26 .70
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.47* 53.11 (e) 42.17 73.80 99.53 97.24
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding for the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(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
December 31, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam International Equity 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. Class A shares are sold with a maximum front-end sales charge of
5.75%. Effective January 28, 2004, the maximum front-end sales charge
for class A shares will decrease to 5.25%. 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),
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. Effective April 19, 2004, a 2.00%
redemption fee may apply to any shares that are redeemed (either by
selling or exchanging into another fund) within 5 days of purchase. A
1.00% redemption fee would apply to any shares that are redeemed (either
by selling or exchanging into another fund) within 6-90 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 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, if any, 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, if any,
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 December 31, 2003, the value
of securities loaned amounted to $90,337,025. The fund received cash
collateral of $94,319,917 which is pooled with collateral of other
Putnam funds into 15 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 would maintain an asset
coverage ratio of at least 300% and that borrowings would not exceed
prospectus limitations. For the period ended August 6, 2003, the fund
had no borrowings against the line of credit. Effective August 6, 2003,
the fund no longer participated 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
The aggregate identified cost on a tax basis is $8,261,070,656,
resulting in gross unrealized appreciation and depreciation of
$1,290,433,995 and $258,831,394, respectively, or net unrealized
depreciation of $1,031,602,601.
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending June 30, 2004, $734,138,215 of losses recognized during the
period November 1, 2002 to June 30, 2003.
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.
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.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary bear other expenses) through
December 31, 2004, to the extent that expenses of the fund (exclusive of
brokerage commissions, interest, taxes, offering and extraordinary
expenses, credits from Putnam Fiduciary Trust Company (PFTC), a
subsidiary of Putnam, LLC, and payments under the funds distribution
plan) would exceed an annual rate of 0.96% of the funds average net
assets.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the year ended October 31, 2003 the fund
paid PFTC $16,913,381 for these services.
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 December 31, 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. The fund also reduced expenses through
brokerage service arrangements. For the six months ended December 31,
2003, the fund's expenses were reduced by $4,549,188 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 Trustee compensation and expenses in the
Statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses 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 six months ended December 31, 2003, Putnam Retail Management,
acting as underwriter, received net commissions of $263,236 and $4,355
from the sale of class A and class M shares, respectively, and received
$4,971,039 and $143,195 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% and 0.65% is assessed on certain redemptions
of class A and class M shares, respectively. For the six months ended
December 31, 2003, Putnam Retail Management, acting as underwriter,
received $540,753 and no monies on class A and class M redemptions,
respectively.
Note 3
Purchases and sales of securities
During the six months ended December 31, 2003, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $4,089,607,857 and $8,579,180,929, respectively.
There were no purchases and sales of U.S. government obligations.
Written options during the period are summarized as follows:
Contract Premiums
Amounts Received
- ----------------------------------------------------------------
Written options
outstanding at
beginning of period -- $--
- ----------------------------------------------------------------
Options opened 50,000 1,393,390
Options expired -- --
Options closed (50,000) (1,393,390)
- ----------------------------------------------------------------
Written options
outstanding at
end of period -- $--
- ----------------------------------------------------------------
Note 4
Capital shares
At December 31, 2003, there were an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended December 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 82.681,499 $1,531,013,265
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 4,229,874 84,216,775
- ----------------------------------------------------------------
86,911,373 1,615,230,040
Shares repurchased (237,294,705) (4,555,916,858)
- ----------------------------------------------------------------
Net decrease (150,383,332) $(2,940,686,818)
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Six months ended December 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 3,603,234 $65,002,811
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 850,652 16,358,035
- ----------------------------------------------------------------
4,453,886 81,360,846
Shares repurchased (28,532,888) (528,560,108)
- ----------------------------------------------------------------
Net decrease (24,079,002) $(447,199,262)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended December 31, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 2,143,274 $38,748,447
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 124,843 2,445,666
- ----------------------------------------------------------------
2,268,117 41,194,113
Shares repurchased (14,330,114) (270,396,094)
- ----------------------------------------------------------------
Net decrease (12,061,997) $(229,201,981)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended December 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 904,221 $16,668,266
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 79,906 1,568,546
- ----------------------------------------------------------------
984,127 18,236,812
Shares repurchased (4,905,300) (92,583,581)
- ----------------------------------------------------------------
Net decrease (3,921,173) $(74,346,769)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended December 31, 2003
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 37,988 $692,251
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 427 8,476
- ----------------------------------------------------------------
38,415 700,727
Shares repurchased (13,966) (257,653)
- ----------------------------------------------------------------
Net increase 24,449 $443,074
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Six months ended December 31, 2003
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 45,607,818 $851,090,538
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,855,849 37,173,529
- ----------------------------------------------------------------
47,463,667 888,264,067
Shares repurchased (80,642,710) (1,572,108,890)
- ----------------------------------------------------------------
Net decrease (33,179,043) $(683,844,823)
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
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.
Note 6
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order by
the Securities and Exchange Commission in partial resolution of
administrative and cease-and-desist proceedings initiated by the SEC on
October 28, 2003 in connection with alleged excessive short-term trading
by at least six Putnam Management investment professionals. The SEC's
findings reflect that four of those employees engaged in such trading in
funds over which they had investment decision-making responsibility and
had access to non-public information regarding, among other things,
current portfolio holdings, and valuations. The six individuals are no
longer employed by Putnam Management. Under the order, Putnam Management
will make restitution for losses attributable to excessive short-term
trading by Putnam employees, institute new employee trading restrictions
and enhanced employee trading compliance, retain an independent
compliance consultant, and take other remedial actions. Putnam
Management neither admitted nor denied the order's findings, which
included findings that Putnam Management willfully violated provisions
of the federal securities laws. A civil monetary penalty and other
monetary relief, if any, will be determined at a later date. If a
hearing is necessary to determine the amounts of such penalty or other
relief, Putnam Management will be precluded from arguing that it did not
violate the federal securities laws in the manner described in the SEC
order, the findings set forth in the SEC order will be accepted as true
by the hearing officer and additional evidence may be presented. Putnam
Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal fees.
Administrative proceedings instituted by the Commonwealth of
Massachusetts on October 28, 2003 against Putnam Management in
connection with alleged market timing activities by Putnam employees and
by participants in some Putnam-administered 401(k) plans are pending.
Putnam Management has committed to make complete restitution for any
losses suffered by Putnam shareholders as a result of any improper
market-timing activities by Putnam employees or within
Putnam-administered 401(k) plans.
The SEC's and Commonwealth's allegations and related matters also serve
as the general basis for numerous lawsuits, including purported class
action lawsuits filed against Putnam Management and certain related
parties, including certain Putnam funds. Putnam Management has agreed to
bear any costs incurred by Putnam funds in connection with these
lawsuits. Based on currently available information, Putnam Management
believes that the likelihood that the pending private lawsuits and
purported class action lawsuits will have a material adverse financial
impact on the fund is remote, and the pending actions are not likely to
materially affect its ability to provide investment management services
to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. In addition, Marsh & McLennan Companies, Inc., Putnam
Management's parent company, has engaged counsel to conduct a separate
review of Putnam Management's policies and controls related to
short-term trading. The fund may experience increased redemptions as a
result of these matters, which could result in increased transaction
costs and operating expenses.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Investors should consider the investment objective, risks, charges, and
expenses of a fund before investing. For a prospectus containing this
and other information for any Putnam fund or product, call your
financial advisor at 1-800-225-1581 and ask for a prospectus. Please
read the prospectus carefully before investing.
Growth Funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund+
Income Funds
American Government Income Fund
Diversified Income Trust
Global Income Trust*
High Yield Advantage Fund+*
High Yield Trust*
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund++
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund++
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
Asset Allocation Funds
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* A 1% redemption fee on total assets redeemed or exchanged within 90
days of purchase may be imposed for all share classes of these funds.
+ Closed to new investors.
++ An investment in a money market fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government
agency. Although the funds seek to preserve your investment at $1.00
per share, it is possible to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
Services for shareholders
Investor services
Help your investment grow Set up a program for systematic investing with
as little as $25 a month from a Putnam fund or from your own savings or
checking account. (Regular investing does not guarantee a profit or
protect against loss in a declining market.)
Switch funds easily* You can move money from one Putnam fund to another
within the same class of shares without a service charge.
Access your money easily You can have checks sent regularly or redeem
shares any business day at the then-current net asset value, which may
be more or less than the original cost of the shares. Class B and class
C shares carry a sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial
advisor or directly from Putnam. To open an account by mail, send a
check made payable to the name of the fund along with a completed fund
application. To add to an existing account, complete the investment slip
found at the top of your Confirmation of Activity statement and return
it with a check payable to your fund.
For more information
Visit www.putnaminvestments.com
A secure section of our Web site contains complete information on your
account, including balances and transactions, updated daily. You may
also conduct transactions, such as exchanges, additional investments,
and address changes. Log on today to get your password.
Use our toll-free number 1-800-225-1581 Ask a helpful Putnam
representative or your financial advisor for details about any of these
or other services, or see your prospectus.
* This privilege is subject to change or termination. An exchange of
funds may result in a taxable event. Certain funds have imposed a 1%
redemption fee on total assets redeemed or exchanged within 90 days of
purchase. See a prospectus for details.
Fund information
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
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
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 and BSA Compliance Officer
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, the most recent copy
of Putnam's Quarterly Performance Summary, and Putnam's Quarterly
Ranking Summary. For more recent performance, please visit
www.putnaminvestments.com. Investors should consider the investment
objective, risks, charges, and expenses of a fund, which are described
in its prospectus. For more information or to request a prospectus, call
1-800-225-1581 toll free. Please read the prospectus carefully before
investing. 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.
SA009-203449 841/524/891/2BA 2/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam International Equity Fund
Supplement to Semiannual Report dated 12/31/03
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 semiannual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 12/31/03
NAV
6 months 20.80%
1 year 28.48
5 years 26.35
Annual average 4.79
10 years 136.22
Annual average 8.98
Life of fund (since class A inception, 2/28/91)
Annual average 9.93
Share value: NAV
6/30/03 $17.57
12/31/03 $20.79
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 $0.418 -- $0.418
- ----------------------------------------------------------------------------
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 generally 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.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officers
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(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: March 5, 2004
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/Steven Spiegel
---------------------------
Steven Spiegel
Principal Executive Officer
Date: March 5, 2004
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: March 5, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: March 5, 2004