Putnam
International
Equity Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
6-30-04
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From the Trustees
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John A. Hill and George Putnam, III
Dear Fellow Shareholder:
Over the past several months, Putnam has introduced a number of
voluntary reforms for the benefit of shareholders, including efforts to
add new disclosure about funds. We would like to call your attention to
new disclosures now being included in these reports. You can find
expense and risk comparison information for your fund in the pages
following the performance tables in the Performance Summary. The expense
information lets you estimate the amount you have actually paid for
ongoing expenses such as management fees and distribution (or 12b-1)
fees and lets you compare these with the average expenses for your
fund's peer group, as tracked by Lipper, an independent fund-rating
company. The risk comparison information illustrates your fund's risk
relative to similar funds as tracked by Morningstar, another independent
fund-rating company. We believe the expense and risk comparisons can
serve as valuable tools when you and your financial advisor make
decisions about your financial program. These enhancements to our
reports are part of our efforts to provide shareholders additional
information about the funds they own.
With regard to your fund's performance, a solid and broadening economic
expansion in the global economy underpinned an advance for international
equity markets during your fund's most recent fiscal period. Your fund's
management team positioned the portfolio effectively to achieve strong
absolute returns. However, the team's emphasis on what it considered
high-quality stocks caused it to underperform its peer group's average
return as well as its benchmark, which had greater exposure to stocks
that led during the market rally. In the following pages the management
team will explain the reasons for its decisions and why it favors the
prospects for this portfolio as international markets are now
experiencing shifting trends.
As always, we appreciate your support of Putnam Investments.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
August 18, 2004
Report from Fund Management
Fund highlights
* During its 2004 fiscal year, Putnam International Equity Fund's class
A shares returned 21.81% at net asset value (NAV) and 14.82% at public
offering price (POP).
* The fund underperformed the 32.37% return of the Morgan Stanley
Capital International EAFE Index, its benchmark, because of stock
selection across several sectors and the fund's emphasis on stocks with
very large market capitalization.
* For the same reasons, the fund underperformed the average 25.48%
return of the Lipper International Large-Cap Core Funds, its peer group.
* See the Performance Summary beginning on page 8 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
Stocks in international markets generally advanced during your fund's
fiscal year, which ended June 30, 2004. They were buoyed by significant
improvement in economic activity around the world, a trend that began in
the wake of major combat operations in Iraq in 2003. We positioned the
portfolio cautiously at the outset of this period because we considered
the global recovery to be frail and subject to possible setbacks. For
this reason, we favored stocks of very large companies that we
considered to be of high quality, with solid balance sheets, little
debt, and strong cash flows. As it turned out, the recovery strengthened
during the year, and was most supportive for stocks with the opposite
features -- smaller companies with weak financial positions that
benefited from easier financing conditions and rising sales. However, we
have not abandoned our positioning, because we currently believe that
these high-quality stocks remain excellent long-term investments for the
portfolio and our positioning did, in fact, deliver attractive returns
on an absolute basis.
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 markets were lifted by a variety of stimulus policies and
government reform efforts during the fiscal year. In Europe, the German
and Italian governments both cut taxes to increase the level of consumer
spending and investment. Although Europe, with the exception of the
United Kingdom, remained the slowest-growing region in the world, its
pace of growth increased steadily during the year.
Japan's government implemented a more credible plan for reforming the
banking system, which provides state financial support for banks that
meet requirements in order to help them clean up bad loans. Beyond the
financial sector, Japan's economy consistently surprised many skeptics
with sustained and substantial economic growth.
Asia was the world's most dynamic region, spurred by China's impressive
growth rates. China's exports and imports surged. Its major trading
partners include neighbors such as Japan and South Korea as well as
commodity-rich exporting nations such as Brazil and Australia. Also,
emerging markets in general performed well during the year, in part
because low interest rates in the United States eased financing
conditions in these markets.
For most of the year, the only exceptions to these positive trends were
the United Kingdom and Australia, where central banks raised interest
rates because robust economic conditions threatened to stoke inflation.
Then, in the last few months of the fiscal year, concerns about a
slowdown in China, rising energy prices, and rising U.S. interest rates
dampened stock performance in emerging markets. The U.S. Federal Reserve
Board raised interest rates for the first time in four years on the last
day of the fund's fiscal year.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 6/30/04
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Equities
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MSCI EAFE Index (international stocks) 32.37%
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Russell 1000 Index (large-company stocks) 19.48%
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Russell 2000 Index (stocks of small and midsize companies) 33.37%
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S&P 500 Index (broad stock market) 19.11%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 0.32%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) -1.36%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 11.70%
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Citigroup World Government Bond Index (global government
bonds) 5.65%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 6/30/04.
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Strategy overview
We make portfolio decisions regarding securities, markets, and sectors.
In selecting stocks using our blend investment strategy, we target
stocks priced below their estimated worth. This investment discipline
led us to favor very large, financially strong companies with solid
balance sheets and strong cash flows that we believe can achieve solid
earnings throughout the coming business cycle.
With regard to markets, we favored emerging markets where stocks were
generally undervalued relative to their global competitors. Given this
emphasis, the fund's exposure to Europe, including the United Kingdom,
was underweight in comparison to the benchmark. We felt justified in
this allocation because European stock valuations were less competitive
and growth was more sluggish than in the emerging markets. We began the
fiscal period with a significant underweighting in Japan, but gradually
added more Japanese stocks to the portfolio as we gained greater
confidence in the nation's recovery. Our search for high-quality stocks
also caused us to increase the fund's exposure to Switzerland. Near the
end of the period, we trimmed the emerging-markets allocation as
concerns arose about rising U.S. interest rates and slowing Chinese
growth, but we still believe these markets offer many attractive
long-term opportunities.
The fund began the year with a significant underweight to the financial
sector. We considered companies such as Japanese banks, undercapitalized
European insurance companies, and British banks, to be unattractive.
However, we changed our view of the Japanese banks as the regulatory
reforms went into effect and began building positions in them in the
latter half of the year.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY WEIGHTINGS COMPARED]
TOP COUNTRY WEIGHTINGS COMPARED
as of 12/31/03 as of 6/30/04
United Kingdom 21.6% 20.3%
Japan 17.5% 19.5%
Switzerland 13.7% 14.9%
France 10.3% 10.4%
Germany 5.0% 4.7%
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
Two holdings that had high-quality characteristics yet still disappointed us
in performance during the year were in the communications services sector.
Vodafone Group of the United Kingdom is the world's largest wireless company.
It unsettled markets with a confused U.S. business strategy. After declaring
it would rely on its investment in Verizon to tap the U.S. market, Vodafone
then launched a bid for AT&T Wireless. It lost the bid and Vodafone's growth
outlook remains intact, but the market was perplexed by the company's
strategy.
NTT DoCoMo, Japan's largest wireless telephone service company, had
disappointing performance in spite of its dominant market position. NTT
DoCoMo has been making major new investments in 3G wireless telephone
technologies to attract future subscribers, but its much smaller rivals
took advantage of the situation to offer discount prices intended to
steal customers away. The competition has been stiffer than we expected,
but we still have confidence in the company.
A holding that benefited from NTT DoCoMo's investments, as well as those
of other service providers, was Ericsson of Sweden. This technology
company is the leading provider of infrastructure equipment for wireless
telephone networks. Samsung Electronics of South Korea also performed
well. One of its major businesses is wireless telephone handsets, sales
of which rose significantly. It also enjoyed strength in its other
businesses, including DRAM memory chips and flat panel monitors for
computers. Samsung's stock stumbled toward the end of the fiscal period,
falling in line with stocks in other Asian markets, but we continue to
feel that the company has strong prospects.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS AS OF 6/30/04]
TOP INDUSTRY WEIGHTINGS AS OF 6/30/04
Banking 12.0%
Telecommunications 8.7%
Pharmaceuticals 7.8%
Oil and gas 7.5%
Investment
banking/brokerage 6.6%
Footnote reads:
Weightings are shown as a percentage of net assets. Holdings will vary
over time.
CVRD of Brazil also outperformed for the portfolio. CVRD is an iron ore
mining company supplying China's economic development, which includes
surging steel production. We sold the stock at a profit when it reached
what we considered full valuation. In a much different industry, the
portfolio also enjoyed the appreciation of LVMH of France, a maker of
luxury goods that include Louis Vuitton luggage. Sales of luxury goods
have risen in the past year thanks to reduced taxes for many high-income
earners around the world and a recovery in the travel and tourism
industries.
As mentioned in the previous section, we built positions in several
Japanese banks in recent months. Foremost among them were UFJ Bank and
Mitsubishi Tokyo Financial Group. With continuing resolution of Japan's
bad debt situation these institutions should benefit. Also, prospects
are improving for consolidation in the banking industry and continued
strength in Japan's domestic economy.
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.
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TOP HOLDINGS
(Percent of fund's net assets as of 6/30/04)
1 Total SA Class B (4.3%)
France
Oil and gas
2 Vodafone Group PLC (3.7%)
United Kingdom
Telecommunications
3 UBS AG (3.5%)
Switzerland
Investment banking/brokerage
4 Samsung Electronics Co., Ltd. (3.3%)
South Korea
Electronics
5 Nestle SA (2.9%)
Switzerland
Food
6 Canon, Inc. (2.7%)
Japan
Office equipment and supplies
7 AstraZeneca PLC (2.5%)
United Kingdom
Pharmaceuticals
8 Toyota Motor Corp. (2.4%)
Japan
Automotive
9 Diageo PLC (2.1%)
United Kingdom
Beverage
10 NTT DoCoMo, Inc. (1.8%)
Japan
Telecommunications
Footnote reads:
The fund's holdings will change over time.
OF SPECIAL INTEREST
Trustees approve sub-management agreement. The Trustees have approved a
sub-management relationship for your fund that will become effective in
July. Putnam Investments Limited ("PIL") -- a London, U.K.-based,
wholly-owned subsidiary of Putnam Investments and an affiliate of Putnam
Investment Management, LLC ("Putnam Management"), the fund's investment
manager -- has been retained as the sub-manager for a portion of the
assets of the fund. There is no change in the contractual arrangements
between Putnam Management and your fund. Putnam Management will remain
fully responsible for all aspects of the management of the fund,
including any activity by PIL. Putnam Management (and not the fund) will
pay PIL for its investment management services to the fund.
The fund's management team
The fund is managed by the Putnam International Core Team. The members
of the team are Joshua Byrne (Portfolio Leader), Simon Davis (Portfolio
Leader), 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.
New factors are emerging that will influence international markets, but
we believe that we have already positioned the portfolio in order to
take advantage of them. At the start of the previous fiscal year, the
question was whether the global economy would recover. Today, the
question is what forces could derail the current expansion. Markets have
indicated worry that rising U.S. interest rates, China's efforts to slow
its economy, or higher energy prices could cause the expansion to stall.
While we are trimming exposure to sectors such as consumer cyclicals and
basic materials, where we can take profits, we think the monetary
tightening cycle poses little threat because it is likely to be gradual.
However, we think this scenario is favorable for the portfolio. The
high-quality stocks emphasized in the portfolio are best positioned to
compete in an environment of rising rates and declining stimulus. We
currently plan little shift in market weightings, and are likely to
continue the fund's overweighting of the emerging markets and its
underweighting of European stocks. We also expect to gradually increase
the fund's exposure to Japan. Since Japan's business recovery has
deepened and broadened, we are identifying new opportunities in several
different sectors. We expect China's economy will grow at a somewhat
slower, though still healthy pace, and will help to propel growth
throughout Asia and other emerging markets. We find ample evidence in
many regions and markets for a sustained economic expansion that can
support business earnings and financial markets. We have positioned the
portfolio in stocks we consider best able to derive long-term benefits
from these conditions.
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 shows your fund's performance during its fiscal year, which
ended June 30, 2004. Performance should always be considered in light of
a fund's investment strategy. Data represents past performance. Past
performance does not guarantee 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. For the most recent month-end performance, please visit
www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 6/30/04
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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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1 year 21.81% 14.82% 20.84% 15.84% 20.86% 19.86% 21.13% 16.90% 21.50%
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5 years 11.92 5.48 7.82 5.92 7.86 7.86 9.19 5.36 10.60
Annual average 2.28 1.07 1.52 1.16 1.53 1.53 1.77 1.05 2.04
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10 years 135.29 121.79 118.31 118.31 118.27 118.27 124.27 116.42 129.54
Annual average 8.93 8.29 8.12 8.12 8.12 8.12 8.41 8.03 8.66
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Annual average
(life of fund) 9.46 8.97 8.60 8.60 8.65 8.65 8.89 8.60 9.19
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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 on
January 28, 2004; 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 a portion
of the period, this fund limited expenses, without which returns would have
been lower.
A 2% short-term trading fee will be imposed on shares exchanged or sold
within 5 days of purchase. In addition, there is a 1% short-term trading
fee for this fund on shares sold or exchanged between 6 and 90 days.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/04
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MSCI Lipper International
EAFE Large-Cap Core Funds
Index category average*
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1 year 32.37% 25.48%
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5 years 0.30 -6.36
Annual average 0.06 -1.43
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10 years 48.81 56.42
Annual average 4.06 4.31
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Annual average
(life of fund) 4.72 6.12
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 6/30/04, there were 257,
165, and 49 funds, respectively, in this Lipper category.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 6/30/94 to 6/30/04
Fund's class A MSCI EAFE
Date shares at POP Index
6/30/94 9,425 10,000
6/30/95 9,781 10,165
6/30/96 11,757 11,516
6/30/97 14,712 12,994
6/30/98 17,763 13,786
6/30/99 19,818 14,836
6/30/00 28,542 17,382
6/30/01 22,141 13,279
6/30/02 19,994 12,018
6/30/03 18,208 11,242
6/30/04 $22,179 $14,881
Footnote reads:
Past performance does not indicate future results. At the end of the same
time period, a $10,000 investment in the fund's class B and class C shares
would have been valued at $21,831 and $21,827, respectively, and no
contingent deferred sales charges would apply. A $10,000 investment in the
fund's class M shares would have been valued at $22,427 ($21,642 at public
offering price). A $10,000 investment in the fund's class R shares would have
been valued at $22,954. See first page of performance section for performance
calculation method.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 6/30/04
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Class A Class B Class C Class M Class R
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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6/30/04 20.86 22.02* 20.07 20.44 20.51 21.25 20.77
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* Reflects a reduction in sales charges that took effect on January 28, 2004.
Understanding your
fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management fees,
distribution fees (12b-1 fees), and other expenses. In the most recent
six-month period, your fund limited these expenses; had it not done so,
expenses may have been higher. Using the information below, you can estimate
how these expenses affect your investment and compare them with the expenses
of other funds. You may also pay one-time transaction expenses, including
sales charges (loads) and redemption fees, which are not shown in this
section and would have resulted in higher total expenses. For more
information, see your fund's prospectus or talk to your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000 investment
in Putnam International Equity Fund from January 1, 2004, to June 30, 2004.
It also shows how much a $1,000 investment would be worth at the close of the
period, assuming actual returns and expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 6/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $6 $10 $10 $9 $7
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Ending value (after
expenses $1,010 $1,006 $1,006 $1,007 $1,008
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 6/30/04.
The expense ratio may differ for each share class (see the table at the
bottom of the next page). Expenses are calculated by multiplying the
expense ratio by the average account value for the period; then
multiplying the result by the number of days in the period; and then
dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended June 30,
2004, use the calculation method below. To find the value of your investment
on January 1, 2004, go to www.putnaminvestments.com and log on to your
account. Click on the "Transaction History" tab in your Daily Statement and
enter 01/01/2004 in both the "from" and "to" fields. Alternatively, call
Putnam at 1-800-225-1581.
HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 12/1/03 [DIV] $1,000 X per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $6 (see table above) = $60
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to
help investors assess fund expenses. Per these guidelines, the table below
shows your fund's expenses based on a $1,000 investment, assuming a
hypothetical 5% annualized return. You can use this information to compare
the ongoing expenses (but not transaction expenses or total costs) of
investing in the fund with those of other funds. All mutual fund shareholder
reports will provide this information to help you make this comparison.
Please note that you cannot use this information to estimate your actual
ending account balance and expenses paid during the period.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 6/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $6 $10 $10 $9 $7
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Ending value (after
expenses $1,019 $1,015 $1,015 $1,016 $1,018
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 6/30/04.
The expense ratio may differ for each share class (see the table at the
bottom of this page). Expenses are calculated by multiplying the expense
ratio by the average account value for the period; then multiplying the
result by the number of days in the period; and then dividing that
result by the number of days in the year.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment styles or
objectives. The expense ratio for each share class shown below indicates how
much of your fund's net assets have been used to pay ongoing expenses during
the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class C Class M Class R
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Your fund's annualized
expense ratio + 1.23% 1.98% 1.98% 1.73% 1.48%
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Average annualized expense
ratio for Lipper peer group ++ 1.67% 2.42% 2.42% 2.17% 1.92%
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+ For the fund's most recent fiscal half year; may differ from expense
ratios based on one-year data in the financial highlights.
++ For class A shares, expenses shown represent the average of the
expenses of front-end load funds viewed by Lipper as having the same
investment classification or objective as the fund, calculated in
accordance with Lipper's standard reporting methodology for comparing
expenses within a given universe. All Lipper data is for the most
recent fiscal periods available as of 6/30/04. For class B, C, M and R
shares, Putnam has adjusted the Lipper total expense average to reflect
higher 12b-1 fees incurred by these classes of shares. The peer group
may include funds that are significantly larger or smaller than the
fund, which may limit the comparability of the fund's expenses to the
Lipper average.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a risk
comparison to help you understand how your fund compares with other funds.
The comparison utilizes a risk measure developed by Morningstar, an
independent fund-rating agency. This risk measure is referred to as the
fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 2.95
Int'l stock
fund average 3.80
0% Increasing Risk 100%
Your fund's Overall Morningstar Risk is shown alongside that of the average
fund in its broad asset class, as determined by Morningstar. The risk bar
broadens the comparison by translating the fund's Overall Morningstar Risk
into a percentile, which is based on the fund's ranking among all funds rated
by Morningstar as of 6/30/04. A higher Overall Morningstar Risk generally
indicates that a fund's monthly returns have varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those measures
are weighted and averaged to produce the fund's Overall Morningstar Risk. The
information shown is provided for the fund's class A shares only; information
for other classes may vary. Overall Morningstar Risk is based on historical
data and does not indicate future results. Morningstar does not purport to
measure the risk associated with a current investment in a fund, either on an
absolute basis or on a relative basis. Low Overall Morningstar Risk does not
mean that you cannot lose money on an investment in a fund. Copyright 2004
Morningstar, Inc. All Rights Reserved. The information contained herein (1)
is proprietary to Morningstar and/or its content providers; (2) may not be
copied or distributed; and (3) is not warranted to be accurate, complete, or
timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information.
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. NAV
is calculated by dividing the net assets of each class of shares by the
number of outstanding shares in the class.
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 World Government Bond Index is an unmanaged index of
government bonds from 14 countries.
JP Morgan 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.
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.
S&P 500 Index is an unmanaged index of common stock performance.
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 is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
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,
preceded by the Report of Independent Registered Public Accounting Firm,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price are determined. All investment and noninvestment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss. This is
done by first adding up all the fund's earnings -- from dividends and
interest income -- and subtracting its operating expenses to determine net
investment income (or loss). Then, any net gain or loss the fund realized on
the sales of its holdings -- as well as any unrealized gains or losses over
the period -- is added to or subtracted from the net investment result to
determine the fund's net gain or loss for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, 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.
Report of Independent Registered
Public Accounting Firm
To the Trustees and Shareholders of
Putnam International Equity Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Putnam International Equity Fund
(the "fund") at June 30, 2004, and the results of its operations, the changes
in its net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at June 30, 2004, by correspondence with
the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 9, 2004
The fund's portfolio
June 30, 2004
Common stocks (98.5%) (a)
Number of shares Value
Australia (1.0%)
- -------------------------------------------------------------------------------
5,876,418 Amcor, Ltd. $28,527,688
216,183 Australia & New Zealand Banking
Group, Ltd. 2,752,446
100,244 National Australia Bank, Ltd. 2,083,427
146,985 News Corp., Ltd. (The) 1,298,116
348,543 News Corp., Ltd. (The) ADR (S) 12,345,393
382,570 Promina Group, Ltd. 1,065,840
88,741 Publishing & Broadcasting, Ltd. 794,234
149,248 Rinker Group, Ltd. 836,807
2,856,043 Woolworths, Ltd. 22,677,267
--------------
72,381,218
Belgium (0.6%)
- -------------------------------------------------------------------------------
1,222,635 Interbrew 38,897,020
Bermuda (1.1%)
- -------------------------------------------------------------------------------
498,300 ACE, Ltd. 21,068,124
772,436 XL Capital, Ltd. Class A 58,288,021
--------------
79,356,145
Brazil (0.6%)
- -------------------------------------------------------------------------------
304,929 Banco Itau SA ADR 14,221,889
902,600 Petroleo Brasileiro SA ADR 25,335,982
--------------
39,557,871
Canada (2.0%)
- -------------------------------------------------------------------------------
736,308 Canadian Imperial Bank of Commerce 35,810,295
1,239,362 Canadian National Railway Co. 53,398,142
525,103 Imperial Oil, Ltd. 24,441,614
5,219,484 Nortel Networks Corp. (NON) 26,046,806
72,952 Telus Corp. 1,095,967
22,700 Western Oil Sands, Inc. (NON) 571,479
--------------
141,364,303
Cayman Islands (0.3%)
- -------------------------------------------------------------------------------
503,900 Noble Corp. (NON) 19,092,771
China (0.5%)
- -------------------------------------------------------------------------------
106,912,000 China Telecom Corp., Ltd. 37,353,540
Denmark (1.2%)
- -------------------------------------------------------------------------------
2,271,356 Danske Bank A/S 53,819,637
848,395 TDC A/S 144A 27,567,387
--------------
81,387,024
Finland (0.6%)
- -------------------------------------------------------------------------------
2,884,760 Nokia OYJ 41,623,844
France (10.4%)
- -------------------------------------------------------------------------------
710,307 Accor SA 29,977,693
19,695 Air Liquide 3,256,291
1,195,164 BNP Paribas SA 73,501,546
41,868 Carrefour Supermarche SA 2,031,352
130,492 Credit Agricole SA 3,175,131
920,304 France Telecom SA (NON) 23,982,728
22,418 Groupe Danone 1,955,527
22,186 Lagardere SCA 1,386,013
369,717 LVMH Moet Hennessy Louis Vuitton SA 26,740,473
8,948 Pernod-Ricard 1,144,133
334,004 Peugeot SA 18,598,606
286,729 Pinault-Printemps-Redoute SA 29,459,074
705,330 Renault SA 53,717,340
20,947 Schneider Electric SA 1,429,659
591,782 Societe Generale 50,289,344
1,962,811 Societe Television Francaise I 61,824,177
9,650 Thales SA 353,028
1,559,179 Total SA Class B 297,243,787
1,356,053 Veolia Environnement 38,258,261
10,322 Vinci SA 1,039,781
56,127 Vivendi Universal SA (NON) 1,556,878
--------------
720,920,822
Germany (4.7%)
- -------------------------------------------------------------------------------
435,100 Allianz AG 47,111,497
1,775,351 BASF AG 95,143,244
622,781 Bayerische Motoren Werke (BMW) AG 27,541,500
16,201 Deutsche Boerse AG 826,840
30,950 Deutsche Lufthansa AG (NON) 422,099
172,502 Deutsche Telekom AG (NON) 3,032,563
38,810 E.On AG 2,795,202
123,900 Infineon Technologies AG (NON) 1,668,656
28,200 Metro AG 1,338,017
32,831 Porsche AG (Preferred) 22,068,063
1,700,793 Siemens AG 122,392,279
--------------
324,339,960
Greece (--%)
- -------------------------------------------------------------------------------
35,380 Titan Cement Co. SA 832,458
Hong Kong (--%)
- -------------------------------------------------------------------------------
176,000 Hong Kong Electric Holdings, Ltd. 728,877
322,500 Swire Pacific, Ltd. 2,088,141
--------------
2,817,018
Hungary (--%)
- -------------------------------------------------------------------------------
55,645 OTP Bank Rt. 1,137,393
India (1.3%)
- -------------------------------------------------------------------------------
1,685,468 HDFC Bank, Ltd. 13,560,773
2,482,679 Housing Development Finance Corp., Ltd. 27,941,620
11,136 Infosys Technologies, Ltd. 1,338,477
4,706,986 Reliance Industries, Ltd. 44,006,990
--------------
86,847,860
Ireland (2.0%)
- -------------------------------------------------------------------------------
2,610,297 Allied Irish Banks PLC 40,331,229
1,890,113 Bank of Ireland 25,248,636
3,598,723 CRH PLC 76,005,663
--------------
141,585,528
Israel (--%)
- -------------------------------------------------------------------------------
19,462 Teva Pharmaceutical Industries, Ltd. 660,998
Italy (1.5%)
- -------------------------------------------------------------------------------
228,674 ENI SpA 4,540,302
4,987,738 Mediaset SpA 56,857,929
261,513 Sanpaolo IMI SpA 3,149,751
1,042,444 Telecom Italia SpA 3,240,346
7,450,873 UniCredito Italiano SpA 36,802,812
--------------
104,591,140
Japan (19.5%)
- -------------------------------------------------------------------------------
414,480 Acom Co., Ltd. 26,933,033
468,700 Aeon Co., Ltd. 18,815,012
3,542,100 Canon, Inc. 186,665,521
1,611,400 Credit Saison Co., Ltd. 48,440,950
2,004,000 Dai Nippon Printing Co., Ltd. 32,013,308
16,100 Daito Trust Construction Co., Ltd. 619,742
12,109 East Japan Railway Co. 67,919,604
7,000 FUNAI Electric Co., Ltd. 1,054,715
228,000 Hitachi, Ltd. 1,569,315
1,937,400 Honda Motor Co., Ltd. 93,398,625
4,857 Japan Tobacco, Inc. 37,748,474
61,000 JGC Corp. 587,022
77,500 Kansai Electric Power, Inc. 1,412,772
1,837,200 KAO Corp. 44,284,080
2,900 Keyence Corp. 661,543
322,000 Kubota Corp. 1,711,667
333,000 Lawson, Inc. 13,733,847
144,000 Matsushita Electric Industrial Co. 2,044,322
77 Millea Holdings, Inc. 1,143,250
122,000 Mitsubishi Corp. 1,185,226
4,024 Mitsubishi Tokyo Finance Group, Inc. 37,249,015
124,000 Mitsui & Co., Ltd. 928,494
368 Mizuho Financial Group, Inc. 1,669,508
89,000 Nippon Express Co., Ltd. 522,042
2,823,000 Nippon Oil Corp. 17,774,732
7,737 Nippon Telegraph and Telephone Corp.
(NTT) 41,340,583
206,000 Nissan Motor Co., Ltd. 2,290,148
4,876,000 Nomura Securities Co., Ltd. 72,172,486
71,207 NTT DoCoMo, Inc. 127,260,242
2,025,067 Olympus Corp. 38,233,324
320,500 Omron Corp. 7,505,064
69,000 Onward Kashiyama Co., Ltd. 1,106,681
370,000 Orix Corp. 42,388,415
1,048,000 Ricoh Co., Ltd. 22,283,567
288,100 Rohm Co., Ltd. 34,484,337
46,400 Sankyo Co., Ltd. 1,005,737
9,000 SECOM Co., Ltd. 381,908
39,000 Sekisui House, Ltd. 432,857
41,600 Shin-Etsu Chemical Co. 1,486,940
6,300 SMC Corp. 681,331
16,800 Takeda Chemical Industries, Ltd. 737,531
61,600 Tokyo Electric Power Co. 1,397,305
31,900 Tokyo Electron, Ltd. 1,789,277
15,714,000 Tokyo Gas Co., Ltd. 55,735,661
260,000 TonenGeneral Sekiyu KK 2,228,027
30,000 Toyo Suisan Kaisha, Ltd. 394,556
4,202,700 Toyota Motor Corp. 170,249,601
3,810 UFJ Holdings, Inc. 16,830,905
64,000 Victor Co. of Japan, Ltd. 724,993
2,262,700 Yamanouchi Pharmaceutical Co., Ltd. 76,107,680
--------------
1,359,334,975
Mexico (0.6%)
- -------------------------------------------------------------------------------
1,183,164 Telefonos de Mexico SA de CV
(Telmex) ADR Class L 39,363,866
Netherlands (2.1%)
- -------------------------------------------------------------------------------
1,891,105 Aegon NV 22,800,119
59,385 ASML Holding NV (NON) 1,004,967
29,524 European Aeronautic Defense and
Space Co. 821,824
152,568 ING Groep NV 3,600,916
60,605 Koninklijke (Royal) KPN NV 461,563
962,252 Koninklijke (Royal) Philips
Electronics NV 25,907,055
2,569,487 TPG NV 58,706,991
1,014,529 VNU NV 29,462,168
--------------
142,765,603
New Zealand (--%)
- -------------------------------------------------------------------------------
309,377 Telecom Corp. of New Zealand, Ltd. 1,154,606
Norway (0.1%)
- -------------------------------------------------------------------------------
186,000 Statoil ASA 2,361,700
Portugal (--%)
- -------------------------------------------------------------------------------
459,453 Electricidade de Portugal SA 1,285,632
49,293 Portugal Telecom SGPS SA 531,933
--------------
1,817,565
Russia (0.1%)
- -------------------------------------------------------------------------------
241,119 YUKOS ADR 7,667,584
Singapore (2.2%)
- -------------------------------------------------------------------------------
5,592,648 DBS Group Holdings, Ltd. 46,756,927
5,362,000 Overseas-Chinese Banking Corp. 37,668,486
6,962,000 Singapore Airlines, Ltd. 45,270,785
8,730,500 Singapore Press Holdings, Ltd. 21,086,205
248 United Overseas Bank, Ltd. 1,929
--------------
150,784,332
South Africa (--%)
- -------------------------------------------------------------------------------
131,749 Sappi, Ltd. 2,014,146
South Korea (4.7%)
- -------------------------------------------------------------------------------
677,917 Kookmin Bank (NON) 21,071,186
819,550 Korea Electric Power Corp. 13,197,948
39 KT Corp. ADR 704
16,300 LG Electronics, Inc. 773,368
6,620 Pohang Iron & Steel Co., Ltd. 854,009
422,785 POSCO ADR (S) 14,167,525
558,496 Samsung Electronics Co., Ltd. 230,651,595
2,066,431 SK Telecom Co., Ltd. ADR (S) 43,374,387
--------------
324,090,722
Spain (2.1%)
- -------------------------------------------------------------------------------
1,847,573 Altadis SA 57,093,036
210,856 Banco Bilbao Vizcaya Argentaria SA 2,816,671
1,140 Gestevision Telecinco SA 144A (NON) 17,018
3,921,212 Iberdrola SA 82,768,982
251,086 Telefonica SA 3,711,475
--------------
146,407,182
Sweden (3.2%)
- -------------------------------------------------------------------------------
1,919,994 Hennes & Mauritz AB Class B 49,581,618
305,500 Nordea AB 2,200,453
24,995 Sandvik AB 852,879
3,174,244 Securitas AB Class B 39,615,887
1,762,850 SKF AB Class B 64,716,007
22,169,217 Telefonaktiebolaget LM Ericsson AB
Class B (NON) 65,343,825
--------------
222,310,669
Switzerland (14.9%)
- -------------------------------------------------------------------------------
417,660 Adecco SA 20,812,956
678,500 Ciba Specialty Chemicals AG (NON) 48,874,541
2,828,512 Credit Suisse Group (NON) 100,518,115
751,405 Nestle SA 200,422,672
2,655,156 Novartis AG 117,151,708
1,210,136 Roche Holding AG 119,834,582
1,340 Serono SA Class B 844,322
730,720 Swatch Group AG (The) 19,490,535
434,499 Swatch Group AG (The) Class B 56,559,126
1,304,880 Swiss Reinsurance Co. 84,772,391
226,086 Synthes-Stratec, Inc. 25,773,660
3,438,550 UBS AG 242,335,120
16,876 Zurich Financial Services AG (NON) 2,665,093
--------------
1,040,054,821
Taiwan (0.9%)
- -------------------------------------------------------------------------------
425,000 Acer, Inc. 598,289
18,582,030 Compal Electronics, Inc. 20,185,836
29,845,938 Taiwan Semiconductor Manufacturing
Co., Ltd. 42,992,363
--------------
63,776,488
Thailand (--%)
- -------------------------------------------------------------------------------
61,790 Thai Airways International 85,420
41,724 Thai Airways International 144A
(NON) 57,681
--------------
143,101
United Kingdom (20.3%)
- -------------------------------------------------------------------------------
4,189,796 3i Group PLC 46,536,378
14,607,813 Aggregate Industries PLC 21,721,643
3,955,707 AstraZeneca PLC 177,466,924
166,011 BAE Systems PLC 660,040
11,120,627 Barclays PLC 94,730,466
7,472,950 BHP Billiton PLC 64,843,676
13,869,288 BP PLC 122,483,261
231,899 Brambles Industries PLC 895,720
100,532 British Airways PLC (NON) 502,250
138,427 Burberry Group PLC 1,026,059
31,914 Carnival PLC 1,549,835
91,277 Celltech Group PLC (NON) 908,714
10,995,622 Diageo PLC 148,249,892
2,559,994 GlaxoSmithKline PLC 51,807,991
117,649 GUS PLC 1,803,829
405,789 Hilton Group PLC 2,030,967
6,684,818 HSBC Holdings PLC 99,402,441
346,839 International Power PLC (NON) 883,686
560,017 ITV PLC 1,172,943
95,528 Marks & Spencer PLC 628,394
197,024 Peninsular and Oriental Steam
Navigation Co. 786,023
1,478,376 Reckitt Benckiser PLC 41,848,647
1,477,371 Rio Tinto PLC 35,524,396
764,630 Royal Bank of Scotland 144A 22,018,891
3,618,903 Royal Bank of Scotland Group PLC 104,212,797
282,455 Sage Group (The) PLC 955,260
137,442 Scottish and Southern Energy PLC 1,698,552
184,277 Scottish Power PLC 1,332,495
38,908 Severn Trent PLC 561,624
91,562 Smith & Nephew PLC 985,439
5,699,557 Tesco PLC 27,518,473
157,386 Unilever PLC 1,544,034
117,188,979 Vodafone Group PLC 256,606,422
7,911,523 WPP Group PLC 80,341,834
--------------
1,415,239,996
--------------
Total Common stocks
(cost $6,315,273,467) $6,854,034,269
Warrants (0.1%) (a) (NON) (cost $5,214,232) Expiration
Number of warrants date Value
- -------------------------------------------------------------------------------
2,038,322 Singapore Press Holdings 144A 6/9/05 $4,922,955
Short-term investments (1.3%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$5,700,000 U.S. Treasury Note zero %, July 8,
2004 $5,698,991
50,203,168 Short-term investments held as collateral
for loaned securities with yields ranging
from 1.06% to 1.65% and due dates ranging
from July 1, 2004 to August 10, 2004 (d) 50,192,225
34,208,779 Putnam Prime Money Market Fund (e) 34,208,780
--------------
Total Short-term investments
(cost $90,099,996) $90,099,996
- -------------------------------------------------------------------------------
Total Investments
(cost $6,410,587,695) $6,949,057,220
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $6,960,789,750.
(NON) Non-income-producing security.
(S) Securities on loan in part or in entirety at June 30, 2004.
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in the
Putnam Prime Money Market Fund.
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 after the name of a foreign holding stands for American Depositary
Receipts, representing ownership of foreign securities on deposit with a
custodian bank.
The fund had the following industry group concentration greater than 10%
at June 30, 2004 (as a percentage of net assets):
Banking 12.0%
Forward currency contracts to buy at June 30, 2004
(aggregate face value $341,855,838)
Aggregate Delivery Unrealized
Value face value date depreciation
- -------------------------------------------------------------------------------
Australian Dollar $143,537,434 $144,709,618 9/15/04 $(1,172,184)
British Pound 196,060,451 197,146,220 9/15/04 (1,085,769)
- -------------------------------------------------------------------------------
$(2,257,953)
- -------------------------------------------------------------------------------
Forward currency contracts to buy at June 30, 2004
(aggregate face value $192,222,257)
Aggregate Delivery Unrealized
Value face value date appreciation
- -------------------------------------------------------------------------------
Swiss Franc $192,187,634 $192,222,257 9/15/04 $34,623
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
June 30, 2004
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value, including $48,671,082 of securities
on loan (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated Issue $6,914,848,440
- -------------------------------------------------------------------------------
Affiliated Issuers 34,208,780
- -------------------------------------------------------------------------------
Cash 2,483,414
- -------------------------------------------------------------------------------
Foreign currency (cost $10,914,312) (Note 1) 10,567,386
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 16,164,977
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 16,287,334
- -------------------------------------------------------------------------------
Receivable for securities sold 111,912,770
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 34,623
- -------------------------------------------------------------------------------
Total assets 7,106,507,724
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 34,179,245
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 42,357,501
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 9,423,989
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,095,892
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 375,464
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,765
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 4,087,891
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 2,257,953
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 50,192,225
- -------------------------------------------------------------------------------
Other accrued expenses 743,049
- -------------------------------------------------------------------------------
Total liabilities 145,717,974
- -------------------------------------------------------------------------------
Net assets $6,960,789,750
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $8,075,668,535
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 78,902,422
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (1,729,988,159)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 536,206,952
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $6,960,789,750
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,677,492,394 divided by 176,309,061 shares) $20.86
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.75 of $20.86)* $22.02
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,577,583,092 divided by 78,604,201 shares)** $20.07
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($313,496,027 divided by 15,337,147 shares)** $20.44
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($109,647,969 divided by 5,345,848 shares) $20.51
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $20.51)* $21.25
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($558,874 divided by 26,912 shares) $20.77
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($1,282,011,394 divided by 61,020,094 shares) $21.01
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Year ended June 30, 2004
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $26,417,738) $183,834,746
- -------------------------------------------------------------------------------
Interest (including interest income of $98,838 from
investments in affiliated issuers) (Note 5) 1,993,099
- -------------------------------------------------------------------------------
Securities lending 551,827
- -------------------------------------------------------------------------------
Total investment income 186,379,672
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 58,984,135
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 36,455,386
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 150,400
- -------------------------------------------------------------------------------
Administrative services (Note 2) 54,457
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 13,818,084
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 17,992,374
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 4,360,784
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,145,120
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 2,320
- -------------------------------------------------------------------------------
Other 2,486,631
- -------------------------------------------------------------------------------
Non-recurring costs (Note 6) 188,316
- -------------------------------------------------------------------------------
Costs assumed by manager (Note 6) (188,316)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Notes 2 and 5) (2,877,489)
- -------------------------------------------------------------------------------
Total expenses 132,572,202
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (7,562,928)
- -------------------------------------------------------------------------------
Net expenses 125,009,274
- -------------------------------------------------------------------------------
Net investment income 61,370,398
- -------------------------------------------------------------------------------
Net realized gain on investments (net of foreign tax of
$5,434,076) (Notes 1 and 3) 1,878,545,672
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 12,938,988
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 50,982,455
- -------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 9,356
- -------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (12,040,912)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
contracts during the year (net of deferred foreign tax of
$296,723) 164,054,597
- -------------------------------------------------------------------------------
Net gain on investments 2,094,490,156
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,155,860,554
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Year ended June 30
- -------------------------------------------------------------------------------
Decrease in net assets 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $61,370,398 $123,967,168
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 1,942,476,471 (1,675,482,310)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 152,013,685 541,105,843
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 2,155,860,554 (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 (37,173,530) (7,609,608)
- -------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (6,483,626,961) 697,146,527
- -------------------------------------------------------------------------------
Total decrease in net assets (4,478,067,544) (334,106,365)
Net assets
- -------------------------------------------------------------------------------
Beginning of year 11,438,857,294 11,772,963,659
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $78,902,422 and
$117,250,277, respectively) $6,960,789,750 $11,438,857,294
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -------------------------------------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.43 $19.18 $21.24 $29.92 $21.64
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (a) .15 (d) .22 .17 .16 .54
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.63 (1.93) (2.23) (6.64) 8.87
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.78 (1.71) (2.06) (6.48) 9.41
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.35) (.04) -- (.39) (.34)
- -------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.81) (.79)
- -------------------------------------------------------------------------------------------------------------
From return
of capital -- -- -- -- (f) --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.35) (.04) -- (2.20) (1.13)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.86 $17.43 $19.18 $21.24 $29.92
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 21.81 (8.93) (9.70) (22.43) 44.03
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,677,492 $6,855,608 $6,930,312 $6,896,924 $7,040,669
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.23 (d) 1.22 1.16 1.13 1.14
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .74 (d) 1.33 .85 .63 2.01
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 69.27 53.11 (e) 42.17 73.80 99.53
- -------------------------------------------------------------------------------------------------------------
(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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended
June 30, 2004 reflect a reduction of 0.03% based on average net assets
for class A shares (Notes 2 and 5).
(e) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund
(Note 7).
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- --------------------------------------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $16.79 $18.57 $20.72 $29.23 $21.20
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) .02 (d) .08 .01 (.04) .35
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.47 (1.86) (2.16) (6.46) 8.67
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.49 (1.78) (2.15) (6.50) 9.02
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.21) -- -- (.20) (.20)
- -------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.81) (.79)
- -------------------------------------------------------------------------------------------------------------
From return
of capital -- -- -- -- (f) --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.21) -- -- (2.01) (.99)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.07 $16.79 $18.57 $20.72 $29.23
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.84 (9.59) (10.38) (23.00) 43.00
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,577,583 $1,892,054 $2,326,938 $2,983,524 $3,591,546
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.98 (d) 1.97 1.91 1.88 1.89
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) .12 (d) .51 .04 (.16) 1.26
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 69.27 53.11 (e) 42.17 73.80 99.53
- -------------------------------------------------------------------------------------------------------------
(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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended
June 30, 2004 reflect a reduction of 0.03% based on average net assets
for class B shares (Notes 2 and 5).
(e) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund
(Note 7).
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------
For the
period
July 26,
1999+ to
Per-share Year ended June 30 June 30
operating performance 2004 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) -- (d)(e) .09 .01 (.02) .32
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.55 (1.90) (2.18) (6.59) 8.66
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 3.55 (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 -- -- -- -- (e) --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.16) -- -- (2.10) (1.11)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.44 $17.05 $18.86 $21.03 $29.74
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.86 (9.60) (10.32) (23.01) 41.54*
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $313,496 $534,933 $601,907 $637,547 $439,522
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.98 (d) 1.97 1.91 1.88 1.76*
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) .02 (d) .54 .07 (.07) 1.12*
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 69.27 53.11 (f) 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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended
June 30, 2004 reflect a reduction of 0.03% based on average net assets
for class C shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund
(Note 7).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- -------------------------------------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.13 $18.90 $21.04 $29.61 $21.45
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) .05 (d) .11 .06 .03 .40
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.56 (1.88) (2.20) (6.54) 8.79
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.61 (1.77) (2.14) (6.51) 9.19
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.23) -- -- (.25) (.24)
- -------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.81) (.79)
- -------------------------------------------------------------------------------------------------------------
From return
of capital -- -- -- -- (f) --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.23) -- -- (2.06) (1.03)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.51 $17.13 $18.90 $21.04 $29.61
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 21.13 (9.37) (10.17) (22.75) 43.32
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $109,648 $187,266 $248,921 $302,838 $367,638
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.73 (d) 1.72 1.66 1.63 1.64
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) .28 (d) .73 .30 .11 1.51
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 69.27 53.11 (e) 42.17 73.80 99.53
- -------------------------------------------------------------------------------------------------------------
(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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended
June 30, 2004 reflect a reduction of 0.03% based on average net assets
for class M shares (Notes 2 and 5).
(e) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund
(Note 7).
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- -------------------------------------------------------------------------
For the
period
Year January 21,
ended 2003+ to
Per-share June 30 June 30
operating performance 2004 2003
- -------------------------------------------------------------------------
Net asset value,
beginning of period $17.42 $16.52
- -------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------
Net investment income (a) .18 (d) .08
- -------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.55 .82
- -------------------------------------------------------------------------
Total from
investment operations 3.73 .90
- -------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------
From net
investment income (.38) --
- -------------------------------------------------------------------------
From net
realized gain on investments -- --
- -------------------------------------------------------------------------
Total distributions (.38) --
- -------------------------------------------------------------------------
Net asset value,
end of period $20.77 $17.42
- -------------------------------------------------------------------------
Total return at
net asset value (%)(b) 21.50 5.45*
- -------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------
Net assets, end of period
(in thousands) $559 $1
- -------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.48 (d) .65*
- -------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .84 (d) .47*
- -------------------------------------------------------------------------
Portfolio turnover (%) 69.27 53.11 (e)
- -------------------------------------------------------------------------
+ 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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended June
30, 2004 reflect a reduction of 0.03% based on average net assets for
class R shares (Notes 2 and 5).
(e) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund
(Note 7).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- -------------------------------------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.57 $19.33 $21.35 $30.07 $21.72
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 (d) .28 .22 .23 .61
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.67 (1.96) (2.24) (6.69) 8.92
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 3.86 (1.68) (2.02) (6.46) 9.53
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.08) -- (.45) (.39)
- -------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.81) (.79)
- -------------------------------------------------------------------------------------------------------------
From return
of capital -- -- -- -- (f) --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.08) -- (2.26) (1.18)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.01 $17.57 $19.33 $21.35 $30.07
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.07 (8.67) (9.46) (22.25) 44.43
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,282,011 $1,968,996 $1,664,886 $1,251,589 $1,027,174
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .98 (d) .97 .91 .88 .89
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .98 (d) 1.64 1.13 .92 2.26
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 69.27 53.11 (e) 42.17 73.80 99.53
- -------------------------------------------------------------------------------------------------------------
(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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended
June 30, 2004 reflect a reduction of 0.03% based on average net assets
for class Y shares (Notes 2 and 5).
(e) Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund
(Note 7).
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
June 30, 2004
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
5.25%. Prior to January 28, 2004, the maximum front-end sales charge for
class A shares was 5.75%. Class B shares, which convert to class A
shares after approximately eight years, do not pay a front-end sales
charge but pay a higher ongoing distribution fee than class A, class M
and class R shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
C shares are subject to the same fees and expenses as class B shares,
except that class C shares have a one-year 1.00% contingent deferred
sales charge and do not convert to class A shares. Class M shares are
sold with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is higher than class A and class R shares but
lower than class B and class C shares. Class R shares are sold without a
front-end sales charge and pay an ongoing distribution fee that is
higher than class A shares, but lower than class B, class C and class M
shares. Class R shares are offered to qualified employee-benefit plans.
Class Y shares, which are sold at net asset value, are generally subject
to the same expenses as class A, class B, class C, class M and class R
shares, but do not bear a distribution fee. Class Y shares are sold to
certain eligible purchasers including certain defined contribution plans
(including corporate IRAs), bank trust departments, trust companies and
certain college savings plans.
Prior to April 19, 2004, a redemption fee of 1.00% which is retained by
the fund, applied to shares of any class redeemed (either by selling or
by exchanging to another fund) within 90 days of purchase. Effective
April 19, 2004 (May 3, 2004 for defined contribution plans administered
by Putnam), 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. The redemption fee is accounted for as an
addition to paid-in-capital. Total redemption fees received by the fund
for the year ended June 30, 2004, were $800,297.
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.
Many securities markets and exchanges outside the U.S. close prior to
the close of the New York Stock Exchange and therefore the closing
prices for securities in such markets or on such exchanges may not fully
reflect events that occur after such close but before the close of the
New York Stock Exchange. Accordingly, on certain days, the fund will
fair value foreign securities taking into account multiple factors,
including movements in the U.S. securities markets. The number of days
on which fair value prices will be used will depend on market activity
and it is possible that fair value prices will be used by the fund to a
significant extent.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income, net
of applicable withholding taxes, 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. The fund may be
subject to taxes imposed by governments of countries in which it
invests. Such taxes are generally based on either income or gain earned
or repatriated. The fund accrues and applies such taxes to net
investment income, net realized gains and net unrealized gains as income
and/or capital gains are earned.
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. Risks may exceed amounts recognized on the statement of
assets and liabilities. 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. Risks may exceed amounts recognized on the statement
of assets and liabilities. 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 June 30, 2004, the value of
securities loaned amounted to $48,671,082. The fund received cash
collateral of $50,192,225 which is pooled with collateral of other
Putnam funds into 28 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 (the "Code"), 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, 2004 the fund had a capital loss carryover of $1,672,618,590
available to the extent allowed by the Code to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -----------------------------------
$11,737,095 June 30, 2005
4,817,122 June 30, 2007
30,394,163 June 30, 2009
215,499,906 June 30, 2010
1,410,170,304 June 30, 2011
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations, which may differ from generally accepted accounting
principles. These differences include temporary and permanent differences
of losses on wash sales transactions, foreign currency gains and losses,
foreign taxes paid on capital gains, realized and unrealized gains and
losses on passive foreign investment companies and foreign tax credits.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended June 30,
2004, the fund reclassified $50,582,884 to increase undistributed net
investment income and $297,338 to increase paid-in-capital, with an
increase to accumulated net realized losses of $50,880,222.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $819,042,815
Unrealized depreciation (340,404,692)
------------
Net unrealized appreciation 478,638,123
Undistributed ordinary income 79,140,926
Capital loss carryforward (1,672,618,590)
Post October loss --
Cost for federal income
tax purposes $6,470,419,097
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory services
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 July 15, 2004, Putnam Management has retained its affiliate,
Putnam Investments Limited ("PIL"), to manage a separate portion of the
assets of the fund. Putnam Management pays a quarterly sub-management
fee to PIL for its services at an annual rate of 0.35% of the average
net assets of the portion of the assets of the fund managed by PIL.
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 fund's distribution
plan) would exceed an annual rate of 0.96% of the fund's average net
assets. For the period ended June 30, 2004 Putnam Management waived
$2,859,334 of its management fee to the fund.
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 June 30, 2004, the fund
paid PFTC $29,405,905 for these services.
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 year ended June 30, 2004, the
fund's expenses were reduced by $7,562,928 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $5,551 as a quarterly retainer, 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 in distributing shares of the
fund. The Plans provide for payments by the fund to Putnam Retail
Management at an annual rate of up 0.35%, 1.00%, 1.00%, 1.00%, and 1.00%
of the average net assets attributable to class A, class B, class C,
class M and class R shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75%, and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the year ended June 30, 2004, Putnam Retail Management, acting as
underwriter, received net commissions of $286,762 and $6,492 from the
sale of class A and class M shares, respectively, and received
$7,096,292 and $174,508 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% and 0.65% is assessed on certain redemptions
of class A and class M shares, respectively. For the year ended June 30,
2004, Putnam Retail Management, acting as underwriter, received $561,872
and no monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended June 30, 2004, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $6,486,983,339 and $12,920,280,386, respectively. There were
no purchases or sales of U.S. government securities.
Written option transactions during the year are
summarized as follows:
Contract Premiums
Amounts Received
- ----------------------------------------------------------------
Written options
outstanding at
beginning of year -- $--
- ----------------------------------------------------------------
Options opened 50,000 1,393,390
Options expired -- --
Options closed (50,000) (1,393,390)
- ----------------------------------------------------------------
Written options
outstanding at
end of year -- $--
- ----------------------------------------------------------------
Note 4
Capital shares
At June 30, 2004, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares
were as follows:
Year ended June 30, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 104,479,477 $1,995,948,991
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 4,229,286 84,205,067
- ----------------------------------------------------------------
108,708,763 2,080,154,058
Shares repurchased (325,649,680) (6,424,417,016)
- ----------------------------------------------------------------
Net decrease (216,940,917) $(4,344,262,958)
- ----------------------------------------------------------------
Year ended June 30, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 297,352,233 $4,887,953,497
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 721,391 11,773,092
- ----------------------------------------------------------------
Shares issued in
connection with the
merger of Putnam
Asia Pacific Growth
and Putnam Emerging
Markets Funds 7,587,615 131,447,946
- ----------------------------------------------------------------
305,661,239 5,031,174,535
Shares repurchased (273,704,994) (4,514,452,777)
- ----------------------------------------------------------------
Net increase 31,956,245 $516,721,758
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 5,667,778 $107,088,644
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 850,561 16,356,276
- ----------------------------------------------------------------
6,518,339 123,444,920
Shares repurchased (40,613,856) (774,379,357)
- ----------------------------------------------------------------
Net decrease (34,095,517) $(650,934,437)
- ----------------------------------------------------------------
Year ended June 30, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 14,597,410 $233,792,223
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ----------------------------------------------------------------
Shares issued in
connection with the
merger of Putnam
Asia Pacific Growth
and Putnam Emerging
Markets Funds 5,490,252 91,982,910
- ----------------------------------------------------------------
20,087,662 325,775,133
Shares repurchased (32,698,269) (520,951,265)
- ----------------------------------------------------------------
Net decrease (12,610,607) $(195,176,132)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 2,726,099 $50,827,202
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 124,841 2,445,652
- ----------------------------------------------------------------
2,850,940 53,272,854
Shares repurchased (18,884,766) (364,919,447)
- ----------------------------------------------------------------
Net decrease (16,033,826) $(311,646,593)
- ----------------------------------------------------------------
Year ended June 30, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 12,576,467 $205,414,214
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ----------------------------------------------------------------
Shares issued in
connection with the
merger of Putnam
Asia Pacific Growth
and Putnam Emerging
Markets Funds 275,472 4,687,624
- ----------------------------------------------------------------
12,851,939 210,101,838
Shares repurchased (13,395,638) (218,466,652)
- ----------------------------------------------------------------
Net decrease (543,699) $(8,364,814)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,506,951 $29,198,062
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 79,905 1,568,546
- ----------------------------------------------------------------
1,586,856 30,766,608
Shares repurchased (7,175,461) (139,750,584)
- ----------------------------------------------------------------
Net decrease (5,588,605) $(108,983,976)
- ----------------------------------------------------------------
Year ended June 30, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 8,139,586 $133,436,717
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ----------------------------------------------------------------
Shares issued in
connection with the
merger of Putnam
Asia Pacific Growth
and Putnam Emerging
Markets Funds 286,835 4,891,301
- ----------------------------------------------------------------
8,426,421 138,328,018
Shares repurchased (10,665,796) (174,618,786)
- ----------------------------------------------------------------
Net decrease (2,239,375) $(36,290,768)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 44,854 $836,476
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 427 8,477
- ----------------------------------------------------------------
45,281 844,953
Shares repurchased (18,430) (351,306)
- ----------------------------------------------------------------
Net increase 26,851 $493,647
- ----------------------------------------------------------------
For the period
January 21, 2003
(commencement of
operations) to
June 30, 2003
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 61 $1,011
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ----------------------------------------------------------------
61 1,011
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 61 $1,011
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 56,910,506 $1,091,106,267
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,855,858 37,173,530
- ----------------------------------------------------------------
58,766,364 1,128,279,797
Shares repurchased (109,821,728) (2,196,572,441)
- ----------------------------------------------------------------
Net decrease (51,055,364) $(1,068,292,644)
- ----------------------------------------------------------------
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
Investment in Putnam Prime Money
Market Fund
The fund invests in the Putnam Prime Money Market Fund, an open-end
management investment company managed by Putnam Management. Management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. Income
distributions earned by the fund are recorded as income in the statement
of operations and totaled $98,838 for the period ended June 30, 2004.
Note 6
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division'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.
For the period ended June 30, 2004, Putnam Management has assumed
$188,316 of legal, shareholder servicing and communication, audit, and
Trustee fees incurred by the Fund in connection with these matters.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. The fund may experience increased redemptions as a result
of these matters, which could result in increased transaction costs and
operating expenses.
Note 7
Acquisition of Putnam Asia Pacific
Growth and Putnam Emerging
Markets Funds
On August 16, 2002, the fund issued 7,587,615; 5,490,252; 275,472;
286,835; and 345,554 of class A, class B, class C, class M and class Y
shares to acquire Putnam Asia Pacific Fund and Putnam Emerging Markets
Fund net assets in a tax-free exchange approved by the shareholders. The
net assets of the fund, Putnam Asia Pacific Fund and Putnam Emerging
Markets Fund on August 16, 2002, valuation date, were $10,713,632,846,
$160,983,391 and $78,061,315, respectively. On August 16, 2002, Putnam
Asia Pacific Fund and Putnam Emerging Markets Fund had unrealized
appreciation of $1,405,114 and $10,106,846, respectively.
The aggregate net assets of the fund immediately following the
acquisition were $10,952,677,552.
Federal tax information
(Unaudited)
For the period, interest and dividends from foreign countries were
$211,355,339 or $0.628 per share. Taxes paid to foreign countries were
$26,417,738 or $0.0785 for all classes of shares.
For its tax year ended June 30, 2004, the fund hereby designates 100%,
or the maximum amount allowable, of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care, and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan and
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the Securities and Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
managed by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget, and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure) as well as a
Director of TransCanada Corporation (a gas transmission and power
company). He also serves on the board of the Whitehead Institute for
Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company) and prior to March 2000 he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition, and privatization policies --
serving as an advisor to governments and corporations worldwide. Dr.
Joskow holds a Ph.D. and M. Phil from Yale University and B.A. from
Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner in Cambus-Kenneth Farm, LLC (cattle and
thoroughbred horses). She is President Emeritus of Mount Holyoke
College.
Dr. Kennan serves as Lead Director (formerly Chairman) of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life
Insurance. She is a Trustee of Centre College and of Midway College in
Midway, Kentucky. She is also a member of The Trustees of Reservations
and a Trustee of the National Trust for Historic Preservation. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University, and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history, and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University, and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light), and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon Read & Co., Inc.:
Fisher-Price, Inc.: and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, Inc., a private
equity firm specializing in real estate investments, and Chairman of
Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company, LLC. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, Mr. Patterson was
Executive Vice President and Director of Acquisitions of Cabot Partners
Limited Partnership (a registered investment advisor involved in
institutional real estate investments). Prior to 1990, he served as
Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc.
(the predecessor company of Cabot Partners) and as a Senior Vice
President of the Beal Companies (a real estate management, investment,
and development firm).
Mr. Patterson practiced law and held various positions in state
government, and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, and Norske Canada, Inc.
(a paper manufacturer). Until 2004, Mr. Stephens was a Director of Qwest
Communications. Until 2003, he was a Director of Mail-Well, Inc. (a
diversified printing company). He served as Chairman of Mail-Well until
2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest products company)
until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is Chairman of Putnam Investments and a Director of and
Consultant to Marsh & McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of June 30, 2004, there were 102 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers or shareholders of the fund or Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc. George Putnam, III is the President of your fund and each of the
other Putnam funds. Mr. Smith serves as a Director of Marsh & McLennan
Companies, Inc. and as Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer
and Principal Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments
and Putnam Management
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments.
Prior to July 2001, Partner,
PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance
Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to
2004, Associate, Ropes & Gray LLP; prior to
2000, Law Clerk, Massachusetts Supreme
Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004,
General Counsel, State Street Research &
Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and
Putnam Management. From 2001 to 2002, Chief
Operating Officer, Atalanta/Sosnoff Management
Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003, Senior Vice
President, United Asset Management Corporation
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers 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
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and Principal
Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
Francis J. McNamara, III
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 carefully consider the
investment objective, risks, charges, and expenses of a fund, which are
described in its prospectus. For this and other 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.
AN009-216026 841/524/891/2BA 8/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam International Equity Fund
Supplement to Annual Report dated 6/30/04
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their holdings.
Class Y shares are offered exclusively to clients that meet the
eligibility requirements specified in the fund's prospectus for such
shares. Performance of class Y shares, which do not incur a front-end
load, a distribution fee, or a contingent deferred sales charge, will
differ from the performance of class A, B, C, M, and R shares, which are
discussed more extensively in the annual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 6/30/04
NAV
1 year 22.07%
5 years 13.35
Annual average 2.54
10 years 140.13
Annual average 9.16
Life of fund (since class A inception, 2/28/91)
Annual average 9.63
Share value: NAV
6/30/03 $17.57
6/30/04 $21.01
- ----------------------------------------------------------------------------
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:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
June 30, 2004 $111,614* $-- $19,483 $1,530
June 30, 2003 $ 85,176 $-- $28,967 $--
*Includes fees of $3,498 billed by the fund's independent auditor
to the fund for audit procedures necessitated by regulatory and
litigation matters. These fees were reimbursed to the fund by
Putnam.
For the fiscal years ended June 30, 2004 and June 30, 2003, the
fund's independent auditors billed aggregate non-audit fees in the
amounts of $154,641 and $ 83,485, respectively, to the fund,
Putnam Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing services
to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees represent fees billed for services relating to
fund expense processing.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
June 30, 2004 $-- $-- $-- $--
June 30, 2003 $-- $-- $-- $--
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. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal financial
officer 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 officer
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 11. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: August 30, 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/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: August 30, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: August 30, 2004