Putnam
International
Equity Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
12-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam has introduced a number of
reforms for the benefit of shareholders, including enhancing the
disclosure about your fund. We are now including in this report
portfolio turnover information for your fund, which explains how the
rate at which a fund buys and sells portfolio securities might affect
its return and its taxable distributions to shareholders. We are also
including additional disclosure about your fund's management team.
Following the Outlook for Your Fund, we list any changes in your fund's
Portfolio Leaders and Portfolio Members during the prior year period, as
well as information about these individuals' other fund management
responsibilities at Putnam. We also show how much these individuals have
invested in the fund (in dollar ranges), and fund ownership (in dollar
ranges) is also shown for the members of Putnam's Executive Board. In
equity fund reports, we now list the largest brokerage relationships of
your fund following the Notes to the Financial Statements. Finally, on
page 18, we provide certain information about the most recent approval
of your fund's management contract with Putnam by the Trustees.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as ex-officio
member and past Chair of the New York Stock Exchange (NYSE) Pension
Managers Advisory Committee and as a Trustee of Commonfund, a
not-for-profit asset management firm. Richard B. Worley is Managing
Partner of Permit Capital LLC, an investment management firm. Both Ms.
Drucker and Mr. Worley are independent Trustees (i.e., Trustees who are
not "interested persons" of your fund or its investment advisor).
Charles E. Haldeman, Jr., the third new Trustee, is President and Chief
Executive Officer of Putnam Investments. We also announce the retirement
of one of your fund's Trustees, A.J.C. Smith, formerly Chairman of
Putnam Investments and Consultant to Marsh & McLennan Companies, Inc.
In the following pages, your fund's management team discusses
performance, strategy, and its outlook for the remainder of fiscal 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
February 16, 2005
Report from Fund Management
Fund highlights
* For the six months ended December 31, 2004, Putnam International
Equity Fund's class A shares had a total return of 15.07% without sales
charges and 9.01% with maximum sales charges reflected.
* The fund's benchmark, the Morgan Stanley Capital International EAFE
Index, returned 15.00% for the period.
* The average return for the fund's Lipper category, International
Large-Cap Core funds, was 13.26%.
* See the Performance Summary beginning on page 10 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
During the first half of fiscal 2005, a favorable period for
international stock markets, your fund was in line with its benchmark
index and outperformed the average for its Lipper peer group, based on
results at net asset value (NAV). We believe our successful stock
selection accounted for much of these relative results. Our decisions
about sector and market weightings did not contribute to the same
extent. However, these positioning decisions gave the portfolio exposure
to particularly strong currencies that proved helpful to returns as the
U.S. dollar weakened. We continue to anticipate attractive results from
international stocks and, as of the end of the semiannual period,
believe they offer significant advantages over U.S. stocks.
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TOTAL RETURN FOR
PERIODS ENDED 12/31/04
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Class A
(inception 2/28/91) NAV POP
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6 months 15.07% 9.01%
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1 year 16.18 10.11
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5 years -9.86 -14.58
Annual average -2.05 -3.10
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10 years 168.70 154.62
Annual average 10.39 9.80
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Annual average
(life of fund) 10.22 9.79
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Data is historical. 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. Performance assumes reinvestment of
distributions and does not account for taxes. Returns at NAV do not
reflect a sales charge of 5.25%. For the most recent month-end
performance, visit www.putnaminvestments.com. For a portion of the
period, this fund limited expenses, without which returns would have
been lower. A short-term trading fee of up to 2% may apply.
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 performed well and outperformed the U.S. market
from July 1 through December 31. Overall, the global economy shifted to
a lower gear, though conditions varied across regions. Among developed
markets, Continental Europe had modest, but slightly accelerating
economic growth while the United Kingdom and Japan slowed. Among
developing markets, South Korea began to slow from a 5% pace of economic
growth. China's monetary authorities moderated the country's breakneck
expansion, but it still achieved a growth rate of 9.5% in the final
months of 2004. Other Asian markets, including India, as well as much of
Latin America, continued to expand at a healthy pace. Most non-U.S.
economies, both developed and developing, are also in quite stable
condition in terms of trade and current account balances.
The somewhat slower pace of global growth influenced the performance of
different sectors. As demand for energy and construction materials
peaked, stocks in the basic materials and energy sectors benefited from
higher commodity prices, but may have also reached their peak levels for
this phase of the global economic cycle. Financial stocks, which tend to
be hurt by rising inflationary pressures, performed well as inflation
and interest rates turned out to be fairly stable during the period.
Consumer cyclical stocks underperformed as consumer spending subsided,
particularly in Europe and North America.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 12/31/04
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Equities
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MSCI EAFE Index (international stocks) 15.00%
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Russell 1000 Index (large-company stocks) 7.81%
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Russell 2000 Index (stocks of small and midsize companies) 10.83%
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S&P 500 Index (broad stock market) 7.19%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 4.18%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 3.61%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 9.06%
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Citigroup World Government Bond Index (global government
bonds) 12.06%
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These indexes provide an overview of performance in different market
sectors for the six months ended 12/31/04.
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Strategy overview
In constructing the portfolio, we emphasized what we considered to be
high-quality companies we believed could generate high levels of free
cash flow. In our opinion, these companies' excellent cost controls will
enable them to maintain their earnings growth as rising interest rates
squeeze corporate finances, even as consumer spending slackens. During
the period, interest-rate increases by the U.S. Federal Reserve Board
began to slow global growth, primarily because higher rates depress
growth in U.S. demand for imports.
We had few strong views about markets and sectors from a top-down
perspective, but our stock selection resulted in several noteworthy
overweights and underweights relative to the benchmark index. The fund
had underweight exposure to the United Kingdom and Japan, which are the
two largest country weightings in our benchmark. Our research convinced
us that most stocks in these markets had valuations that already
reflected their earnings potential. In particular, we considered many
British and Japanese financial stocks to be fairly expensive. A
byproduct of avoiding these stocks was the portfolio's underweight
exposure to the financial sector. In France we found companies across
many industries that are taking steps to cut costs; by owning many of
these we kept an overweight to France. The portfolio was overweight in
Switzerland relative to the benchmark because of our positive view of
Swiss pharmaceutical stocks. Developing economies, especially India and
South Korea, were also overweighted because of our positive view of
their potential.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY WEIGHTINGS COMPARED]
TOP COUNTRY WEIGHTINGS COMPARED
as of 6/30/04 as of 12/31/04
Japan 19.5% 20.8%
United Kingdom 20.3% 16.6%
Switzerland 14.9% 12.7%
France 10.4% 12.0%
Germany 4.7% 4.2%
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
The fund's position in Vodafone Group of the United Kingdom
significantly contributed to results. This stock, and the European
telecommunications sector in general, have been recovering from
depressed levels reached earlier this year when investors lowered their
estimates for growth in wireless telephone service. These concerns have
eased recently. We favor Vodafone because it is uniquely positioned with
operations across all of Europe, North America, and Asia. It is well
managed and generates significant amounts of cash.
One of the fund's largest positions in the energy sector, Total, a
French oil and petrochemicals company, also shares a combination of
excellent management and strong cash flow. It performed in line with the
overall market. While it remains a large fund holding, we took profits
on a portion of the position during the period because we forecast a
lower price for oil in the coming year. Taking the profits before this
decline occurs should help to lower the fund's risk exposure, in our
view.
The South Korean diversified electronics manufacturer Samsung
Electronics had disappointing results in the period. We have discussed
Samsung in previous reports. We believe it is a top competitor in many
areas, such as semiconductors, liquid crystal display screens, and
wireless handsets, and is more attractively valued than its global
competitors. Nevertheless, the stock could not resist the negative
effects of weakness in the semiconductor industry and a downturn in the
Korean market. We trimmed the fund's position in the stock, noting that
it might come under pressure. We continue to hold a position because we
still regard Samsung as an attractive company for the long term, but it
could be vulnerable to declines in the short term.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS AS OF 12/31/04]
TOP INDUSTRY WEIGHTINGS AS OF 12/31/04
Banking 14.6%
Telecommunications 9.5%
Pharmaceuticals 7.7%
Oil and gas 7.1%
Automotive 5.9%
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.
We added to an existing position in Toyota Motors of Japan during the
period. The stock's price has been flat over the past six months because
the U.S. dollar was weak, which reduces the company's earnings from
sales in the United States. We saw this as an opportunity to build a
larger position while the stock remained attractively valued. In our
analysis, Toyota is a dominant global competitor in the auto industry
and continues to expand its market share, which will help its future
earnings and cash flow.
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TOP HOLDINGS
(Percent of fund's net assets as of 12/31/04)
1 Vodafone Group PLC (4.0%)
United Kingdom
Telecommunications
2 Total SA (3.6%)
France
Oil and gas
3 Toyota Motor Corp. (3.1%)
Japan
Automotive
4 Barclays PLC (2.2%)
United Kingdom
Banking
5 Novartis AG (2.1%)
Switzerland
Pharmaceuticals
6 Canon, Inc. (2.0%)
Japan
Office equipment and supplies
7 Roche Holding AG (2.0%)
Switzerland
Pharmaceuticals
8 Royal Bank of Scotland Group
PLC (1.8%)
United Kingdom
Banking
9 UBS AG (1.7%)
Switzerland
Investment banking/brokerage
10 Diageo PLC (1.6%)
United Kingdom
Beverage
Footnote reads:
The fund's holdings will change over time.
In Switzerland, the portfolio held two pharmaceutical stocks, Roche and
Novartis, which advanced during the period but lagged the fund's
benchmark. Drug companies around the world struggled during the
semiannual period when two large U.S. companies, Merck and Pfizer (which
the fund does not own), both announced major problems with profitable
products. We believe that the fact that Roche and Novartis both advanced
for the period reflects their higher quality. European pharmaceutical
companies are better positioned than their U.S. counterparts, in our
view, because they have invested more heavily in new drug development
recently. As a result, they have better product pipelines and fewer
drugs facing near-term patent expirations.
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.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
As we begin the second half of the fund's 2005 fiscal year, we see
greater challenges facing stocks, but still believe that international
markets offer some of the best opportunities currently available. Since
international stocks generally have attractive valuations, we believe
that they have room to appreciate. We also see much less chance of
rising interest rates in international markets than we do in the United
States. However, we plan to continue emphasizing high-quality companies
that can manage their costs to achieve earnings as growth opportunities
narrow. Economic conditions are sluggish in Europe and Japan. Exports to
the United States are under pressure because the dollar is weak, U.S.
interest rates are increasing, and U.S. consumers are heavily in debt.
Since Japan has underperformed in recent months as China, its
fastest-growing trading partner, has been experiencing slower growth, we
have been adding selectively to Japanese stocks with attractive
valuations. We also continue to find promising economic conditions in
emerging markets, where growth is solid and financial conditions, such
as government budgets, international trade, and current accounts, remain
balanced. The portfolio has overweight exposure to several of the
emerging markets where we have found stocks with attractive relative
valuations. In terms of sectors, we are finding the most opportunities
in health care, industrials, and select financials. We expect once again
to see our stock selections, rather than country or sector weightings,
be the main driver of performance. We believe that the large,
high-quality companies the fund favors have the potential to outperform
as interest rates increase and put pressure on companies with weaker
business models.
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. The fund invests some or all of its assets in small and/or
midsize companies. Such investments increase the risk of greater price
fluctuations.
Your fund's management
Your fund is managed by the members of the Putnam International Core
Team. Joshua Byrne and Simon Davis are the Portfolio Leaders, and
Stephen Oler, Mark Pollard, and George Stairs are Portfolio Members of
your fund. The Portfolio Leaders and Portfolio Members coordinate the
team's management of the fund.
For a complete listing of the members of the Putnam International Core
Team, including those who are not Portfolio Leaders or Portfolio Members
of your fund, visit Putnam's Individual Investor Web site at
www.putnaminvestments.com.
Fund ownership
The table below shows how much the fund's current Portfolio Leaders and
Portfolio Members have invested in the fund (in dollar ranges).
Information shown is for the current and prior year ended December 31.
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FUND PORTFOLIO LEADERS AND PORTFOLIO MEMBERS
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$1 - $10,001 - $50,001- $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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Joshua Byrne 2004 *
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Portfolio Leader 2003 *
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Simon Davis 2004 *
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Portfolio Leader 2003 *
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Stephen Oler 2004 *
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Portfolio Member 2003 *
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Mark Pollard 2004 *
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Portfolio Member N/A
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George Stairs 2004 *
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Portfolio Member 2003 *
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N/A indicates the individual was not a Portfolio Leader or Portfolio Member
as of 12/31/03.
Other Putnam funds managed by
the Portfolio Leaders and Portfolio Members
Joshua Byrne is also a Portfolio Member of Putnam Europe Equity Fund.
Mark Pollard is also a Portfolio Leader of Putnam Europe Equity Fund.
George Stairs is also a Portfolio Member of Putnam International Growth
and Income Fund.
Joshua Byrne, Simon Davis, Stephen Oler, Mark Pollard, and George Stairs
may also manage other accounts and variable trust funds advised by
Putnam Management or an affiliate.
Changes in your fund's Portfolio Leaders and Portfolio Members
During the year ended December 31, 2004, Joshua Byrne and Simon Davis
became Portfolio Leaders of your fund, and Portfolio Member Mark Pollard
joined your fund's management team.
Fund ownership
The table below shows how much the members of Putnam Investments'
Executive Board have invested in the fund (in dollar ranges).
Information shown is for the current and prior year ended December 31.
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PUTNAM EXECUTIVE BOARD
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$1 - $10,001 - $50,001- $100,001
Year $0 $10,000 $50,000 $100,000 and over
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Philippe Bibi 2004 *
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Chief Technology Officer 2003 *
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John Boneparth 2004 *
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Head of Global Institutional Mgmt 2003 *
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Kevin Cronin 2004 *
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Deputy Head of Investments N/A
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Charles Haldeman, Jr. 2004 *
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President and CEO 2003 *
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Amrit Kanwal 2004 *
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Chief Financial Officer N/A
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Steven Krichmar 2004 *
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Chief of Operations N/A
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Francis McNamara, III 2004 *
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General Counsel N/A
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Richard Monaghan 2004 *
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Head of Retail Management 2003 *
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Stephen Oristaglio 2004 *
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Head of Investments 2003 *
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Richard Robie, III 2004 *
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Chief Administrative Officer N/A
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N/A indicates the individual was not a member of Putnam's Executive
Board as of 12/31/03.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended December 31, 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 12/31/04
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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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6 months 15.07% 9.01% 14.67% 9.67% 14.64% 13.64% 14.80% 10.80% 14.94%
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1 year 16.18 10.11 15.30 10.30 15.32 14.32 15.59 11.54 15.89
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5 years -9.86 -14.58 -13.16 -14.73 -13.14 -13.14 -12.06 -15.15 -10.92
Annual average -2.05 -3.10 -2.78 -3.14 -2.78 -2.78 -2.54 -3.23 -2.29
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10 years 168.70 154.62 149.48 149.48 149.39 149.39 156.16 147.12 162.21
Annual average 10.39 9.80 9.57 9.57 9.57 9.57 9.86 9.47 10.12
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Annual average
(life of fund) 10.22 9.79 9.36 9.36 9.40 9.40 9.65 9.37 9.95
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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 5.25% and 3.50%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Class R share returns have no
initial sales charge or CDSC. Performance for class B, C, M, and R
shares before their inception is derived from the historical performance
of class A shares, adjusted for the applicable sales charge (or CDSC)
and higher operating expenses for such shares.
A 2% short-term trading fee may be applied to shares exchanged or sold
within 5 days of purchase.
For a portion of the period, this fund limited expenses, without which
returns would have been lower.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/04
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Lipper International
Large-Cap Core
MSCI EAFE Funds category
Index average*
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6 months 15.00% 13.26%
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1 year 20.25 15.82
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5 years -5.55 -17.19
Annual average -1.13 -3.89
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10 years 72.73 78.52
Annual average 5.62 5.74
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Annual average
(life of fund) 5.60 6.93
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 12/31/04, there
were 201, 200, 127, and 45 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 12/31/04
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Class A Class B Class C Class M Class R
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Distributions (number) 1 1 1 1 1
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Income $0.325 $0.159 $0.139 $0.200 $0.296
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Capital gains -- -- -- -- --
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Total $0.325 $0.159 $0.139 $0.200 $0.296
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Share value: NAV POP NAV NAV NAV POP NAV
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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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12/31/04 23.67 24.98 22.85 23.29 23.34 24.19 23.57
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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 would 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 July 1, 2004, to
December 31, 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 12/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $6.56 $10.61 $10.60 $9.26 $7.91
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Ending value (after expenses) $1,150.70 $1,146.70 $1,146.40 $1,148.00 $1,149.40
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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 12/31/04. 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
December 31, 2004, use the calculation method below. To find the value
of your investment on July 21, 2004, go to www.putnaminvestments.com and
log on to your account. Click on the "Transaction History" tab in your
Daily Statement and enter 07/01/2004 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 7/1/04 [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 $6.56 (see table above) = $65.60
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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
12/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $6.16 $9.96 $9.96 $8.69 $7.43
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Ending value
(after expenses) $1,019.11 $1,015.32 $1,015.32 $1,016.59 $1,017.85
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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 12/31/04. 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 1.21% 1.96% 1.96% 1.71% 1.46%
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Average annualized expense
ratio for Lipper peer group+ 1.66% 2.41% 2.41% 2.16% 1.91%
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+ Average of the expenses of front-end load funds viewed by Lipper as having
the same investment classification or objective as the fund, as of 12/31/04,
calculated in accordance with Lipper's standard reporting methodology for
comparing expenses within a given universe (excluding 12b-1 fees and without
giving effect to any expense offset and brokerage service arrangements that
may reduce fund expenses). To facilitate comparison, Putnam has adjusted
this average to reflect the 12b-1 fees carried by each class 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.
Understanding your fund's
portfolio turnover
Putnam funds are actively managed by teams of experts who buy and sell
securities based on intensive analysis of companies, industries,
economies, and markets. Portfolio turnover is a measure of how often a
fund's managers buy and sell securities for your fund. A portfolio
turnover of 100%, for example, means that the managers sold and replaced
securities valued at 100% of a fund's assets within a one-year period.
Funds with high turnover may be more likely to generate capital gains
and dividends that must be distributed to shareholders as taxable
income. High turnover may also cause a fund to pay more brokerage
commissions and other transaction costs, which may detract from
performance.
- ------------------------------------------------------------------------------
TURNOVER COMPARISONS
percentage of holdings that change every year
- ------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------
Putnam International
Equity Fund 69% 53% 42% 74% 100%
- ------------------------------------------------------------------------------
Lipper International
Large-Cap Core Funds
category average 83% 89% 77% 85% 79%
- ------------------------------------------------------------------------------
Turnover data for the fund is calculated based on the fund's fiscal-year
period, which ends on June 30. Turnover data for the fund's Lipper
category is calculated based on the average of the turnover of each fund
in the category for its fiscal year ended during the indicated year.
Fiscal years vary across funds in the Lipper category, which may limit
the comparability of the fund's portfolio turnover rate to the Lipper
average. Comparative data for 2004 is based on information available as
of 12/31/04.
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 2.80
Int'l stock
fund average 3.48
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 December 31, 2004. 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 5.25% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption (except on certain
redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and
are available only to certain 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.
Trustee approval of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of
each fund and, as required by law, determines annually whether to
approve the continuance of each fund's management contract with Putnam
Management. In this regard the Board of Trustees, with the assistance of
its Contract Committee consisting solely of Independent Trustees,
requests and evaluates all information it deems reasonably necessary in
the circumstances. Over the course of several months beginning in March
and ending in June of 2004, the Contract Committee reviewed the
information provided by Putnam Management and other information
developed with the assistance of the Board's independent counsel and
independent staff. The Contract Committee reviewed and discussed key
aspects of this information with all of the Independent Trustees. Upon
completion of this review, the Contract Committee recommended and the
Independent Trustees approved the continuance of your fund's contract,
effective July 1, 2004.
This approval was based on the following conclusions:
* That the fee schedule currently in effect for your fund represents
reasonable compensation in light of the nature and quality of the
services being provided to the fund, the fees paid by competitive funds
and the costs incurred by Putnam Management in providing such service,
and
* That such fee schedule represents an appropriate sharing between fund
shareholders and Putnam Management of such economies of scale as may
exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all
information provided to the Trustees and were not the result of any
single factor. Some of the factors that figured particularly in the
Trustees' deliberations are described below.
Model fee schedules and categories; total expenses
The Trustees, working in cooperation with Putnam Management, have
developed and implemented a series of model fee schedules for the Putnam
funds designed to ensure that each fund's management fee is consistent
with the fees for similar funds in the Putnam complex and compares
favorably with fees paid by competitive funds sponsored by other
advisors. The Trustees reviewed the model fee schedule currently in
effect for the fund, including fee levels and breakpoints, and the
assignment of the fund to a particular fee category under this
structure. The Trustees also reviewed comparative fee and expense
information for competitive funds. The Trustees concluded that no
changes should be made in the fund's current fee schedule at this time.
The Trustees noted that expense ratios for a number of Putnam funds had
been increasing recently as a result of declining net assets and the
natural operation of fee breakpoints. They noted that such expense ratio
increases were currently being controlled by expense limitations
implemented in January 2004. They also noted that the competitive
landscape regarding mutual fund fees may be changing as a result of fee
reductions accepted by various other fund groups in connection with
recent regulatory settlements and greater focus on fees and expenses in
the mutual fund industry generally. The Trustees indicated an intention
to monitor these developments closely.
Economies of scale
As noted above, the Trustees concluded that the fee schedule currently
in effect for your fund represents an appropriate sharing of economies
of scale at current asset levels. The Trustees indicated their intention
to continue their ongoing consideration of economies of scale and in
particular to consider further the possible operation of such economies
in the event that a significant recovery in the equity markets or net
fund sales were to raise asset levels substantially above current
levels. In this regard, the Trustees noted that they had reviewed data
relating to the substantial increase in asset levels of the Putnam funds
that occurred during the years leading up to the market peak in 2000,
the subsequent decline in assets and the resulting impact on revenues
and expenses of Putnam Management. The Trustees also noted that recent
declines in net assets in many Putnam funds, together with significant
changes in the cost structure of Putnam Management have altered the
economics of Putnam Management's business in significant ways. The
Trustees concluded that they would monitor these changes carefully and
evaluate the resulting impact on Putnam Management's economics and the
sharing of economies of scale between the parties.
Investment performance
The quality of the investment process provided by Putnam Management
represented a major factor in the Trustees' evaluation of the quality of
services provided by Putnam Management under the Management Contracts.
The Trustees recognized that a high quality investment process -- as
measured by the experience and skills of the individuals assigned to the
management of fund portfolios, the resources made available to such
personnel, and in general the ability of Putnam Management to attract
and retain high-quality personnel -- does not guarantee favorable
investment results for every fund in every time period. The Trustees
considered the investment performance of each fund over multiple time
periods and considered information comparing the fund's performance with
various benchmarks and with the performance of competitive funds. The
Trustees noted the satisfactory investment performance of many Putnam
funds.
They also noted the disappointing investment performance of certain
funds in recent years and continued to discuss with senior management of
Putnam Management the factors contributing to such under-performance and
actions being taken to improve performance. The Trustees recognized
that, in recent years, Putnam Management has made significant changes in
its investment personnel and processes and in the fund product line in
an effort to address areas of underperformance. The Trustees indicated
their intention to continue to monitor performance trends to assess the
effectiveness of these changes and to evaluate whether additional
remedial changes are warranted. As a general matter, the Trustees
concluded that consultation between the Trustees and Putnam Management
represents the most effective way to address investment performance
problems. The Trustees believe that investors in the Putnam funds and
their financial advisors have, as a general matter, effectively placed
their trust in the Putnam organization, under the supervision of the
funds' Trustees, to make appropriate decisions regarding the management
of the funds. The Trustees believe that the termination of the
Management Contract and engagement of a new investment adviser for
under-performing funds, with all the attendant disruptions, would not
serve the interests of fund shareholders at this time and would not
necessarily provide any greater assurance of improved investment
performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam
Management may receive in connection with the services it provides under
the Management Contract with your fund. These include principally
benefits related to brokerage and soft-dollar allocations, which pertain
mainly to funds investing in equity securities. The Trustees believe
that soft-dollar credits and other potential benefits associated with
the allocation of fund brokerage represent assets of the funds that
should be used for the benefit of fund shareholders. The Trustees noted
recent trends in the allocation of fund brokerage, including commission
costs, the allocation of brokerage to firms that provide research
services to Putnam Management, and the sources and application of
available soft-dollar credits. Effective December 31, 2003, reflecting a
decision made by the Trustees earlier that year, Putnam Management
ceased allocating brokerage in connection with the sale of fund shares.
In addition, in preparing its budget for commission allocations in 2004,
Putnam Management voluntarily reduced substantially the allocation of
brokerage commissions to acquire research services from third-party
service providers. In light of evolving best practices in the mutual
fund industry, the Trustees concluded that this practice should be
further curtailed and possibly eliminated in the near future. The
Trustees indicated that they would continue to monitor the allocation of
the funds' brokerage to ensure that the principle of "best price and
execution" remains paramount in the portfolio trading process.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of the annual contract
reviews included information regarding fees charged by Putnam Management
and its affiliates to institutional clients such as defined benefit
pension plans and college endowments. This information included
comparison of such fees with fees charged to the Putnam funds, as well
as a detailed assessment of the differences in the services provided to
these two types of clients. The Trustees devoted special attention to
these issues and reviewed recent articles by critics of mutual fund
fees, articles by the ICI defending such fee differences, and relevant
guidance provided by decisions of the courts. The Trustees observed, in
this regard, that the differences in fee rates between institutional
clients and mutual funds are by no means uniform when examined by
individual asset sectors, suggesting that differences in the pricing of
investment management services to these types of clients reflects to a
substantial degree historical competitive forces operating in separate
market places. In reaching their conclusions, the Trustees considered
the fact that fee rates across all asset sectors are higher on average
for mutual funds than for institutional clients, and also considered the
differences between the services that Putnam provides to the Putnam
funds and those that it provides to institutional clients of the firm.
Settlement of regulatory charges related to market timing
Finally, in reaching their conclusions, the Trustees considered all
matters pertinent to the administrative charges filed against Putnam
Management by the SEC and the Commonwealth of Massachusetts in October
2003 relating to market timing, the firm's settlement of those charges,
and the conclusions and recommendations of the Trustees' Audit and
Pricing Committee based on its review of these matters. The Trustees
considered the actions taken by the owner of Putnam Management and its
new senior management to terminate or discipline the individuals
involved, to implement new compliance systems, to indemnify the funds
against all costs and liabilities related to these matters, and
otherwise to ensure that the interests of the funds and their
shareholders are fully protected. The Trustees noted that, in addition
to the settlements of the regulatory charges which will provide
comprehensive restitution for any losses suffered by shareholders, the
new senior management of Putnam Management has moved aggressively to
control expense ratios of funds affected by market timing, to reduce
charges to new investors, to improve disclosure of fees and expenses,
and to emphasize the paramount role of investment performance in
achieving shareholders' investment goals.
Other information for shareholders
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by 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.
The fund's portfolio
December 31, 2004 (Unaudited)
Common stocks (98.0%) (a)
Number of shares Value
Australia (1.0%)
- -------------------------------------------------------------------------------
3,560,661 Amcor, Ltd. $20,510,102
478,501 Australia & New Zealand Banking
Group, Ltd. 7,721,275
26,964 Macquarie Bank, Ltd. 982,623
27,691 Publishing & Broadcasting, Ltd. 379,775
496,261 QBE Insurance Group, Ltd. 5,969,918
55,848 Rinker Group, Ltd. 466,130
126,809 Rio Tinto, Ltd. 3,887,754
584,898 Virgin Blue Holdings, Ltd. (NON) 852,595
238,571 Westpac Banking Corp. 3,644,008
1,833,200 Woolworths, Ltd. 21,564,549
--------------
65,978,729
Austria (0.6%)
- -------------------------------------------------------------------------------
1,558,666 Telekom Austria AG 29,551,442
640,920 Telekom Austria AG 144A 12,151,487
--------------
41,702,929
Belgium (0.6%)
- -------------------------------------------------------------------------------
941,915 Interbrew SA 36,535,672
53,087 KBC Bancassurance Holdings 4,076,506
24,068 Umicore 2,265,224
--------------
42,877,402
Bermuda (--%)
- -------------------------------------------------------------------------------
326,000 Yue Yuen Industrial (Hldgs.), Ltd. 897,563
Brazil (1.3%)
- -------------------------------------------------------------------------------
309,095 Banco Itau SA ADR (S) 23,234,671
3,025 Bradespar SA 144A (Preference) 99,694
19,020 Companhia Vale do Rio Doce (CVRD)
ADR 551,770
1,344,555 Petroleo Brasileiro SA ADR 53,486,398
293,105 Tele Norte Leste Participacoes SA
ADR 4,944,681
129,391 Unibanco-Uniao de Bancos Brasileiros
SA GDR (S) 4,104,283
--------------
86,421,497
Canada (1.2%)
- -------------------------------------------------------------------------------
20,237 ATI Technologies, Inc. (NON) 392,948
17,550 Bank of Montreal 846,221
19,500 Barrick Gold Corp. 472,076
32,005 Canadian Imperial Bank of Commerce 1,929,811
567,322 Canadian National Railway Co. 34,605,742
823,032 Canadian Natural Resources, Ltd. 35,211,946
26,076 Celestica, Inc. (NON) 367,881
10,676 CI Fund Management, Inc. 160,510
15,878 Dofasco, Inc. 601,771
15,209 Imperial Oil, Ltd. (Toronto
Exchange) 903,348
1,530 ING Canada, Inc. 144A (NON) 37,436
5,319 Magna International, Inc. Class A 437,677
30,311 Manulife Financial Corp. 1,401,811
5,477 National Bank of Canada 226,597
11,718 PetroKazakhstan Inc. Class A 435,598
13,262 Power Financial Corp. 354,163
4,547 Precision Drilling Corp. (NON) 286,660
3,520 Shell Canada, Ltd. 235,049
29,136 Shoppers Drug Mart Corp. (NON) 906,502
26,655 Sun Life Financial Services of
Canada, Inc. 893,395
5,977 Teck Corp. 184,215
42,403 Telus Corp. 1,229,719
22,700 Western Oil Sands, Inc. (NON) 793,050
--------------
82,914,126
Cayman Islands (0.6%)
- -------------------------------------------------------------------------------
141,000 Hutchinson Telecommunications
International, Ltd. (NON) 126,985
544,836 XL Capital, Ltd. Class A 42,306,515
--------------
42,433,500
China (0.6%)
- -------------------------------------------------------------------------------
100,246,000 China Telecom Corp., Ltd. 36,757,469
834,000 Shanghai Forte Land Co., Ltd. 292,393
--------------
37,049,862
Denmark (0.7%)
- -------------------------------------------------------------------------------
1,640,140 Danske Bank A/S 50,283,918
Egypt (--%)
- -------------------------------------------------------------------------------
11,655 Orascom Telecom Holding SAE (NON) 246,154
19,128 Orascom Telecom Holding SAE 144A
(NON) 403,983
--------------
650,137
Finland (0.2%)
- -------------------------------------------------------------------------------
242,494 Nokia OYJ 3,829,645
93,569 Orion-Yhtymae OYJ Class B 1,514,590
490,102 Sampo OYJ Class A 6,767,552
--------------
12,111,787
France (12.0%)
- -------------------------------------------------------------------------------
472,584 Accor SA 20,688,126
16,198 Air Liquide 2,993,999
40,557 Autoroutes du Sud de la France (ASF) 2,039,478
1,075,821 BNP Paribas SA 77,932,506
32,508 Christian Dior SA 2,211,290
2,579,887 Credit Agricole SA 77,840,402
1,337,622 France Telecom SA 44,285,556
1,271,582 France Telecom SA 144A 42,099,125
26,768 Groupe Danone 2,472,047
130,588 Lagardere SCA 9,424,302
208,430 LVMH Moet Hennessy Louis Vuitton SA 15,962,671
25,355 Pernod-Ricard SA 3,883,640
596,992 Renault SA 49,939,936
18,261 Sanofi-Synthelabo SA 1,459,329
46,891 Schneider Electric SA 3,262,953
891,217 Societe Television Francaise I 29,009,510
331,446 Societes Des Autoroutes
Paris-Rhin-Rhone (NON) 20,023,314
61,805 Societes Des Autoroutes
Paris-Rhin-Rhone 144A (NON) 3,733,763
9,650 Thales SA 463,233
1,099,239 Total SA 240,081,899
1,658,721 Veolia Environnement 60,033,812
5,956 Vinci SA 799,766
2,469,397 Vivendi Universal SA (NON) 78,836,139
589,042 Vivendi Universal SA 144A 18,805,318
--------------
808,282,114
Germany (4.2%)
- -------------------------------------------------------------------------------
6,238 Adidas-Salomon AG 1,010,246
313,600 Allianz AG 41,406,667
1,212,041 BASF AG 87,174,318
538,100 Bayerische Motoren Werke (BMW) AG 24,243,646
62,400 Commerzbank AG (NON) 1,286,535
30,950 Deutsche Lufthansa AG (NON) 442,515
361,199 Deutsche Telekom AG (NON) 8,168,669
40,098 E.On AG 3,661,121
494,300 Linde AG 30,842,482
69,934 Metro AG 3,845,614
26,535 Porsche AG (Preferred) 16,830,937
7,967 SAP AG 1,420,627
45,618 Schwarz Pharma AG 2,061,481
734,131 Siemens AG 62,220,154
24,700 ThyssenKrupp AG 543,830
--------------
285,158,842
Greece (0.8%)
- -------------------------------------------------------------------------------
84,240 EFG Eurobank Ergasias SA 2,894,322
254,146 Hellenic Telecommunication
Organization (OTE) SA 4,566,318
745,044 National Bank of Greece SA 24,585,668
459,470 National Bank of Greece SA 144A 15,162,027
133,458 Titan Cement Co. SA 3,954,144
--------------
51,162,479
Hong Kong (0.5%)
- -------------------------------------------------------------------------------
18,310,500 China Netcom Group Corp. Hong Kong,
Ltd. (NON) 24,853,431
507,000 CNOOC, Ltd. 272,332
116,000 Esprit Holdings, Ltd. 701,438
176,000 Hong Kong Electric Holdings, Ltd. 803,849
110,000 Orient Overseas International, Ltd. 416,785
239,000 Swire Pacific, Ltd. 1,998,688
240,500 Wing Hang Bank, Ltd. 1,686,340
--------------
30,732,863
Hungary (0.1%)
- -------------------------------------------------------------------------------
11,125 MOL Magyar Olaj- es Gazipari Right 783,442
240,051 OTP Bank Rt. 7,408,325
--------------
8,191,767
India (1.1%)
- -------------------------------------------------------------------------------
1,861,507 Housing Development Finance Corp.,
Ltd. 32,844,323
37,940 Infosys Technologies, Ltd. 1,825,349
16,993 Ranbaxy Laboratories, Ltd. 489,752
3,149,236 Reliance Industries, Ltd. 38,716,310
84,641 Satyam Computer Services., Ltd. 799,041
--------------
74,674,775
Ireland (2.1%)
- -------------------------------------------------------------------------------
1,491,603 Allied Irish Banks PLC 31,118,098
2,382,658 Bank of Ireland 39,668,813
2,096,027 CRH PLC 56,119,593
131,282 Depfa Bank PLC 2,207,122
3,988,834 Eircom Group PLC 9,378,718
--------------
138,492,344
Israel (--%)
- -------------------------------------------------------------------------------
14,109 Teva Pharmaceutical Industries, Ltd. 420,818
14,500 Teva Pharmaceutical Industries, Ltd.
ADR 432,970
--------------
853,788
Italy (4.1%)
- -------------------------------------------------------------------------------
1,021,482 Banca Intesa SPA 4,387,016
3,851,844 ENI SpA 96,429,459
498,379 IntesaBCI SpA 2,397,808
4,970,259 Mediaset SpA 63,024,887
18,638,000 Telecom Italia SpA 76,246,026
5,902,042 UniCredito Italiano SpA 33,930,798
--------------
276,415,994
Japan (20.8%)
- -------------------------------------------------------------------------------
854,610 Acom Co., Ltd. 63,981,051
1,643,400 Aeon Co., Ltd. 27,430,102
118,400 Aeon Co., Ltd. 144A 1,976,223
43,000 Asahi Glass Co., Ltd. 474,280
88,000 Bridgestone Corp. 1,752,269
92,000 Brother Industries, Ltd. 782,157
2,553,500 Canon, Inc. 137,831,674
11,200 Citizen Electronics Co., Ltd. 590,337
1,176,600 Credit Saison Co., Ltd. 42,837,657
2,927,000 Dai Nippon Printing Co., Ltd. 46,969,136
38,000 Daito Trust Construction Co., Ltd. 1,806,345
122,000 Dowa Mining Co., Ltd. 794,280
12,333 East Japan Railway Co. 68,616,984
50,800 Fuji Photo Film Cos., Ltd. 1,854,485
357 Fuji Television Network, Inc. 773,587
26,400 FUNAI Electric Co., Ltd. 3,277,775
6,100 Hirose Electric Co., Ltd. 713,304
730,000 Hitachi, Ltd. 5,059,053
13,200 Hogy Medical Co., Ltd. 621,025
1,133,300 Honda Motor Co., Ltd. 58,739,122
13,300 Hoya Corp. 1,502,011
5,998 Japan Tobacco, Inc. 68,498,389
31,000 JFE Holdings, Inc. 885,066
967,000 JGC Corp. 8,844,109
391,000 Joyo Bank, Ltd. (The) 1,908,248
37,300 Kansai Electric Power, Inc. 757,286
27,000 KAO Corp. 690,483
2,926 KDDI Corp. 15,765,271
16,300 Kose Corp. 715,959
558,000 Kubota Corp. 2,766,852
848,300 Lawson, Inc. 31,298,917
313,000 Matsushita Electric Industrial Co. 4,967,672
174,000 Mitsubishi Corp. 2,248,668
7,806 Mitsubishi Tokyo Finance Group, Inc. 79,240,996
2,183,000 Mitsui & Co., Ltd. 19,582,011
126,000 Mitsui Sumitomo Insurance Co., Ltd. 1,094,583
6,245 Mizuho Financial Group, Inc. 31,453,587
23,700 Nidec Corp. 2,889,341
42,000 Nippon Express Co., Ltd. 207,028
294 Nippon Telegraph & Telephone (NTT)
Corp. 1,320,059
346,000 Nissan Motor Co., Ltd. 3,762,265
167,700 Nomura Research Institute, Ltd. 15,714,202
5,953,000 Nomura Securities Co., Ltd. 86,810,952
15,800 Noritz Corp. 246,755
8,679 NTT DoCoMo, Inc. 16,011,040
752,400 Omron Corp. 17,956,252
193,000 Onward Kashiyama Co., Ltd. 2,808,814
185,500 Orix Corp. 25,204,100
140,300 Rohm Co., Ltd. 14,516,154
140,000 Sankyo Co., Ltd. 3,163,494
31,500 SECOM Co., Ltd. 1,260,615
172,000 Sekisui House, Ltd. 2,004,568
89,000 Sharp Corp. 1,453,363
503,000 Shin-Etsu Chemical Co. 20,620,791
218,785 SMC Corp. 25,049,761
44,100 Sony Corp. 1,704,597
908,000 Taisho Pharmaceutical Co., Ltd. 19,764,178
118,400 Takeda Chemical Industries, Ltd. 5,963,338
387,920 Takefuji Corp. 26,239,977
61,600 Tokyo Electric Power Co. 1,512,191
12,273,000 Tokyo Gas Co., Ltd. 50,313,909
260,000 TonenGeneral Sekiyu KK 2,367,789
89,000 Toto, Ltd. 849,605
51,000 Toyo Suisan Kaisha, Ltd. 751,684
5,193,500 Toyota Motor Corp. 211,389,898
440,400 Uni-Charm Corp. 21,106,530
6,900 Yamada Denki Co., Ltd. 295,666
2,089,100 Yamanouchi Pharmaceutical Co., Ltd. 81,361,728
--------------
1,403,721,598
Kenya (--%)
- -------------------------------------------------------------------------------
194,700 Theta Group, Ltd. 633,008
Luxembourg (--%)
- -------------------------------------------------------------------------------
26,936 Arcelor 621,250
Malaysia (--%)
- -------------------------------------------------------------------------------
156,000 Telekom Malaysia Berhad 476,211
Mexico (0.7%)
- -------------------------------------------------------------------------------
11,400 America Movil SA de CV ADR Ser. L 596,790
12,100 Cemex SA de CV ADR 440,682
8,700 Grupo Televisa SA de CV ADR 526,350
1,197,964 Telefonos de Mexico SA de CV
(Telmex) ADR Ser. L 45,905,980
113,300 Wal-Mart de Mexico SA de CV Ser. V 389,358
--------------
47,859,160
Morocco (--%)
- -------------------------------------------------------------------------------
37,660 Maroc Telecom 144A (Casablanca Stock
Exchange) (NON) 430,455
Netherlands (2.5%)
- -------------------------------------------------------------------------------
59,385 ASML Holding NV (NON) 953,187
29,524 European Aeronautic Defense and
Space Co. 858,297
145,240 IHC Caland NV 9,226,274
336,342 ING Groep NV 10,175,545
681,407 Koninklijke (Royal) KPN NV 6,473,441
658,149 Koninklijke (Royal) Philips
Electronics NV 17,451,506
1,023,664 Koninklijke Ahold NV (NON) 7,930,192
389,515 Royal Dutch Petroleum Co. 22,419,660
95,074 Royal Numico NV (NON) 3,428,076
2,568,830 TPG NV 69,756,111
744,407 VNU NV 21,984,753
--------------
170,657,042
New Zealand (0.1%)
- -------------------------------------------------------------------------------
1,318,859 Telecom Corp. of New Zealand, Ltd. 5,856,130
Norway (0.4%)
- -------------------------------------------------------------------------------
326,540 Norsk Hydro ASA 25,734,751
Poland (0.1%)
- -------------------------------------------------------------------------------
689,722 Powszechna Kasa Oszczednosci Bank
Polski SA (NON) 6,406,586
17,300 Powszechna Kasa Oszczednosci Bank
Polski SA 144A (NON) 160,694
--------------
6,567,280
Portugal (--%)
- -------------------------------------------------------------------------------
560,532 Electricidade de Portugal SA 1,698,856
Russia (--%)
- -------------------------------------------------------------------------------
15,100 Lukoil 458,285
1,408 Sberbank RF 691,328
13,016 Unified Energy Systems ADR 361,194
14,300 Vimpel-Communications ADR (NON) 516,802
4,200 Wimm-Bill-Dann Foods ADR (NON) 60,102
--------------
2,087,711
Singapore (2.3%)
- -------------------------------------------------------------------------------
6,498,648 DBS Group Holdings, Ltd. 64,106,509
4,044,000 Overseas-Chinese Banking Corp. 33,450,156
157,000 SembCorp Industries, Ltd. 155,836
5,961,000 Singapore Airlines, Ltd. 41,636,787
4,828,500 Singapore Press Holdings, Ltd. 13,608,909
--------------
152,958,197
South Africa (--%)
- -------------------------------------------------------------------------------
45,106 Sappi, Ltd. 665,127
75,474 Standard Bank Investment Corp., Ltd. 882,298
--------------
1,547,425
South Korea (2.7%)
- -------------------------------------------------------------------------------
11,520 Hyundai Motor Co. 617,679
1,329,761 Hyundai Motor Co. GDR 144A 34,573,786
606,137 Kookmin Bank (NON) 23,716,113
17,710 Korea Electric Power Corp. 459,389
2,670 KT Freetel Co., Ltd. 63,713
20,920 KT&G Corp. 625,518
395,560 LG Electronics, Inc. 24,495,600
2,640 Pohang Iron & Steel Co., Ltd. 476,939
208,166 Samsung Electronics Co., Ltd. 90,598,766
2,138 Samsung Electronics Co., Ltd. GDR 468,222
153,768 SK Telecom Co., Ltd. ADR (S) 3,421,338
--------------
179,517,063
Spain (2.6%)
- -------------------------------------------------------------------------------
1,599,543 Altadis SA 73,261,741
210,856 Banco Bilbao Vizcaya Argentaria SA 3,739,796
9,170 Cintra Concesiones de
Infraestructuras de Transporte SA
144A (NON) 100,701
32,056 Gas Natural SDG SA 991,592
292,730 Gestevision Telecinco SA (NON) 6,039,353
1,140 Gestevision Telecinco SA 144A (NON) 23,520
3,376,034 Iberdrola SA 85,802,478
81,739 Indra Sistemas SA Class A 1,396,420
246,350 Telefonica SA 4,640,526
--------------
175,996,127
Sweden (3.4%)
- -------------------------------------------------------------------------------
2,324,840 Assa Abloy AB Class B 39,729,187
1,479,652 Hennes & Mauritz AB Class B 51,574,061
1,142,459 Nordea AB 11,524,874
16,495 Sandvik AB 665,592
66,988 Securitas AB Class B 1,149,801
1,404,007 SKF AB Class B 62,572,244
34,771 Svenska Cellulosa AB (SCA) Class B 1,484,195
17,931,990 Telefonaktiebolaget LM Ericsson AB
Class B (NON) 57,238,085
14,700 Volvo AB Class B 583,202
29,000 Vostok Nafta Investment, Ltd. (NON) 515,230
--------------
227,036,471
Switzerland (12.7%)
- -------------------------------------------------------------------------------
35,348 ABB, Ltd. (NON) 197,449
17,499 Adecco SA 881,261
743,135 Ciba Specialty Chemicals AG 56,545,723
2,306,077 Credit Suisse Group (NON) 96,965,588
159,427 Nestle SA 41,721,967
2,847,636 Novartis AG 143,534,081
1,192,810 Roche Holding AG 137,349,427
898,900 Swatch Group AG (The) 26,726,619
346,085 Swatch Group AG (The) Class B 50,810,685
1,448,358 Swiss Re 103,326,736
171,705 Synthes-Stratec, Inc. (NON) 19,257,906
1,362,867 UBS AG 114,311,549
397,763 Zurich Financial Services AG 66,340,486
--------------
857,969,477
Taiwan (1.3%)
- -------------------------------------------------------------------------------
7,967,082 Acer, Inc. 13,219,716
909,000 Cathay Financial Holding Co., Ltd. 1,867,415
11,746,000 Fubon Financial Holding Co., Ltd. 12,065,265
1,792,825 Fubon Financial Holding Co., Ltd.
GDR 18,017,891
321,000 Hon Hai Precision Industry Co., Ltd. 1,491,372
317,000 Nan Ya Plastic Corp. 486,922
306,000 Novatek Microelectronics Corp., Ltd. 1,073,515
23,201,940 Taiwan Semiconductor Manufacturing
Co., Ltd. 37,032,174
--------------
85,254,270
Thailand (--%)
- -------------------------------------------------------------------------------
174,800 Bangkok Bank Public Co., Ltd. 513,985
1,254,744 Thai Airways International 1,569,644
--------------
2,083,629
Turkey (--%)
- -------------------------------------------------------------------------------
201,374 Akbank TAS 625,080
294,692 Dogan Yayin Holding (NON) 668,258
--------------
1,293,338
United Kingdom (16.6%)
- -------------------------------------------------------------------------------
98,516 3i Group PLC 1,259,547
13,386,773 Aggregate Industries PLC 26,855,025
2,284,893 AstraZeneca PLC (London Exchange) 82,857,379
166,011 BAE Systems PLC 734,583
12,939,036 Barclays PLC 145,556,935
3,723,513 BHP Billiton PLC 43,638,705
150,228 Brambles Industries PLC 750,542
100,532 British Airways PLC (NON) 453,530
174,229 British Sky Broadcasting PLC 1,879,707
366,029 Burberry Group PLC 2,817,690
31,914 Carnival PLC 1,947,011
129,750 Compass Group PLC 613,362
7,782,399 Diageo PLC 111,003,244
1,790,170 GlaxoSmithKline PLC 41,995,122
352,220 Hilton Group PLC 1,923,666
492,358 HSBC Holdings PLC 8,308,129
1,361,356 International Power PLC (NON) 4,037,695
12,506,834 ITV PLC 25,269,861
906,306 John Wood Group PLC 2,331,380
142,987 Peninsular and Oriental Steam
Navigation Co. 816,614
1,186,016 Reckitt Benckiser PLC 35,836,752
1,473,973 Rio Tinto PLC 43,377,553
3,688,315 Royal Bank of Scotland Group PLC 124,049,630
1,343,265 Royal Bank of Scotland Group PLC
144A 45,178,225
409,954 Sage Group (The) PLC 1,591,685
137,442 Scottish and Southern Energy PLC 2,302,069
184,277 Scottish Power PLC 1,426,523
38,908 Severn Trent PLC 722,269
517,951 Shell Transport & Trading Co. PLC 4,414,739
5,438,656 Tesco PLC 33,592,592
98,865,809 Vodafone Group PLC 268,082,180
4,998,464 WPP Group PLC 54,982,509
--------------
1,120,606,453
United States (0.1%)
- -------------------------------------------------------------------------------
416,894 News Corp., Ltd. (The) Class B (S) 8,004,365
--------------
Total Common stocks
(cost $5,514,990,006) $6,615,896,683
Warrants (0.1%) (a) (NON) (cost $3,973,041) Expiration
Number of warrants date Value
- -------------------------------------------------------------------------------
1,553,122 Singapore Press Holdings 144A 6/9/05 $4,377,474
Short-term investments (5.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$50,000,000 Danske Corp. 2.34s, January 3, 2005
(Denmark) $49,993,500
50,000,000 J.P. Morgan Chase & Co. 2.22s,
January 3, 2005 49,993,833
11,500,000 U.S. Treasury Bills zero %, March
31, 2005 11,438,729
17,317,790 Short-term investments held as
collateral for loaned securities
with yields ranging from 2.15% to
2.50% and due dates ranging from
January 3, 2005 to February 2, 2005
(d) 17,302,295
144,701,000 Interest in $700,000,000 joint
tri-party repurchase agreement
dated December 31, 2004 with
Goldman Sachs & Co. due January 3,
2005 with respect to various U.S.
Government obligations -- maturity
value of $144,728,614 for an
effective yield of 2.29%
(collateralized by Fannie Mae with
yields ranging from 5.11% to 7.66%
and due dates ranging from January
1, 2009 to November 1, 2034, valued
at $714,000,000) 144,701,000
76,203,727 Putnam Prime Money Market Fund (e) 76,203,727
--------------
Total Short-term investments
(cost $349,632,092) $349,633,084
- -------------------------------------------------------------------------------
Total Investments
(cost $5,868,595,139) $6,969,907,241
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $6,753,866,341.
(NON) Non-income-producing security.
(S) Securities on loan, in part or in entirety, at December 31, 2004.
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in
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 or GDR after the name of a foreign holding stands for American
Depositary Receipts and Global Depositary Receipts, respectively,
representing ownership of foreign securities on deposit with a custodian
bank.
The fund had the following industry group concentration greater than 10%
at December 30, 2004,
(as a percentage of net assets):
Banking 14.6%
Forward currency contracts to buy at December 31, 2004
(aggregate face value $1,632,005,648)
Aggregate Delivery Unrealized
Value face value date appreciation
- --------------------------------------------------------------------------
Australian Dollar $317,755,088 $315,445,145 4/20/05 $2,309,943
British Pound 919,237,729 913,076,544 3/16/05 6,161,185
Euro 357,853,741 351,253,816 3/16/05 6,599,925
Japanese Yen 15,511,643 15,507,410 5/18/05 4,233
Norwegian Krone 37,369,151 36,722,733 3/16/05 646,418
- --------------------------------------------------------------------------
$15,721,704
- --------------------------------------------------------------------------
Forward currency contracts to sell at December 31, 2004
(aggregate face value $1,043,160,292)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
- --------------------------------------------------------------------------
British Pound $30,201,789 $30,531,607 3/16/05 $329,818
Canadian Dollar 93,378,376 93,781,104 4/20/05 402,728
Euro 139,073,077 137,472,141 3/16/05 (1,600,936)
Japanese Yen 255,527,613 255,007,727 5/18/05 (519,886)
Swiss Franc 445,532,233 445,211,711 3/16/05 (320,522)
Swedish Krona 82,254,356 81,156,002 3/16/05 (1,098,354)
- --------------------------------------------------------------------------
$(2,807,152)
- --------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
December 31, 2004 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value, including $16,698,728 of securities
on loan (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $5,792,391,412) $6,893,703,514
- -------------------------------------------------------------------------------
Affiliated issuers (identified cost $76,203,727) (Note 5) 76,203,727
- -------------------------------------------------------------------------------
Cash 4,534
- -------------------------------------------------------------------------------
Foreign currency (cost $6,482,475) (Note 1) 6,553,947
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 11,152,879
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 29,601,466
- -------------------------------------------------------------------------------
Receivable for securities sold 23,069,943
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 848,156
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 17,947,419
- -------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 7,386,403
- -------------------------------------------------------------------------------
Total assets $7,066,471,988
Liabilities
- -------------------------------------------------------------------------------
Distributions payable to shareholders 1,029
- -------------------------------------------------------------------------------
Payable for securities purchased 12,812,886
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 257,891,882
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 9,003,999
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,915,316
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 427,873
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,659
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 3,822,627
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 5,032,867
- -------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 3,388,323
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 17,302,295
- -------------------------------------------------------------------------------
Other accrued expenses 1,000,891
- -------------------------------------------------------------------------------
Total liabilities 312,605,647
- -------------------------------------------------------------------------------
Net assets $6,753,866,341
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) $7,027,355,806
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (4,033,819)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (1,384,466,684)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 1,115,011,038
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $6,753,866,341
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,544,805,583 divided by 149,754,313 shares) $23.67
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.75 of $23.67)* $24.98
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,589,058,404 divided by 69,553,385 shares)** $22.85
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($301,627,545 divided by 12,949,511 shares)** $23.29
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($103,933,406 divided by 4,452,754 shares) $23.34
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $23.34)* $24.19
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($773,714 divided by 32,833 shares) $23.57
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($1,213,667,689 divided by 50,981,114 shares) $23.81
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended December 31, 2004 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $5,137,553) $44,589,826
- -------------------------------------------------------------------------------
Interest (including interest income of $321,062 from
investments in affiliated issuers) (Note 5) 433,092
- -------------------------------------------------------------------------------
Securities lending 134,852
- -------------------------------------------------------------------------------
Total investment income 45,157,770
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 20,963,747
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 10,276,063
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 3,160,232
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 65,679
- -------------------------------------------------------------------------------
Administrative services (Note 2) 48,659
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 4,322,489
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 7,653,123
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 1,479,487
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 381,719
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 1,613
- -------------------------------------------------------------------------------
Other 1,349,353
- -------------------------------------------------------------------------------
Non-recurring costs (Note 6) 188,557
- -------------------------------------------------------------------------------
Costs assumed by manager (Note 6) (188,557)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Notes 2 and 5) (3,732,930)
- -------------------------------------------------------------------------------
Total expenses 45,969,234
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (2,731,691)
- -------------------------------------------------------------------------------
Net expenses 43,237,543
- -------------------------------------------------------------------------------
Net investment income 1,920,227
- -------------------------------------------------------------------------------
Net realized gain on investments (net of foreign tax of
$567,073) (Notes 1 and 3) 318,659,530
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (3,055,550)
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 29,917,495
- -------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 15,961,509
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 562,842,577
- -------------------------------------------------------------------------------
Net gain on investments 924,325,561
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $926,245,788
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
December 31 June 30
Decrease in net assets 2004* 2004
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $1,920,227 $61,370,398
- -------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 345,521,475 1,942,476,471
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 578,804,086 152,013,685
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 926,245,788 2,155,860,554
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
- -------------------------------------------------------------------------------
Class A (48,773,597) (89,583,495)
- -------------------------------------------------------------------------------
Class B (11,127,164) (18,719,523)
- -------------------------------------------------------------------------------
Class C (1,810,078) (3,170,988)
- -------------------------------------------------------------------------------
Class M (906,794) (1,644,581)
- -------------------------------------------------------------------------------
Class R (9,386) (9,020)
- -------------------------------------------------------------------------------
Class Y (22,229,449) (37,173,530)
- -------------------------------------------------------------------------------
Redemption fees (Note 1) 48,193 800,297
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (1,048,360,922) (6,484,427,258)
- -------------------------------------------------------------------------------
Total decrease in net assets (206,923,409) (4,478,067,544)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 6,960,789,750 11,438,857,294
- -------------------------------------------------------------------------------
End of period (including distributions in
excess of net investment income of
$4,033,819 and undistributed net investment
income of $78,902,422, respectively) $6,753,866,341 $6,960,789,750
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2004 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.86 $17.43 $19.18 $21.24 $29.92 $21.64
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .02 (d) .15 (d) .22 .17 .16 .54
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.12 3.63 (1.93) (2.23) (6.64) 8.87
- ---------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.14 3.78 (1.71) (2.06) (6.48) 9.41
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.33) (.35) (.04) -- (.39) (.34)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (1.81) (.79)
- ---------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.33) (.35) (.04) -- (2.20) (1.13)
- ---------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.67 $20.86 $17.43 $19.18 $21.24 $29.92
- ---------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 15.07* 21.81 (8.93) (9.70) (22.43) 44.03
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,544,806 $3,677,492 $6,855,608 $6,930,312 $6,896,924 $7,040,669
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .61* (d) 1.23 (d) 1.22 1.16 1.13 1.14
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .11* (d) .74 (d) 1.33 .85 .63 2.01
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.56* 69.27 53.11 (f) 42.17 73.80 99.53
- ---------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding for the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, expenses of the fund for the periods ended December 31, 2004
and June 30, 2004 reflect a reduction of 0.06% and 0.03%, respectively,
based on average net assets for class A 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.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2004 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.07 $16.79 $18.57 $20.72 $29.23 $21.20
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.05) (d) .02 (d) .08 .01 (.04) .35
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.99 3.47 (1.86) (2.16) (6.46) 8.67
- -----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.94 3.49 (1.78) (2.15) (6.50) 9.02
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income (.16) (.21) -- -- (.20) (.20)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (1.81) (.79)
- -----------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.16) (.21) -- -- (2.01) (.99)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $22.85 $20.07 $16.79 $18.57 $20.72 $29.23
- -----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 14.67* 20.84 (9.59) (10.38) (23.00) 43.00
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,589,058 $1,577,583 $1,892,054 $2,326,938 $2,983,524 $3,591,546
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .99* (d) 1.98 (d) 1.97 1.91 1.88 1.89
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.27)* (d) .12 (d) .51 .04 (.16) 1.26
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.56* 69.27 53.11 (f) 42.17 73.80 99.53
- -----------------------------------------------------------------------------------------------------------------------------
* 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 involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, expenses of the fund for the periods ended December 31, 2004
and June 30, 2004 reflect a reduction of 0.06% and 0.03%, respectively,
based on average net assets for class B 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.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
December 31 July 26, 1999+
Per-share (Unaudited) Year ended June 30 to June 30
operating performance 2004 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.44 $17.05 $18.86 $21.03 $29.74 $21.87
- ------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.06) (d) -- (d)(e) .09 .01 (.02) .32
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.05 3.55 (1.90) (2.18) (6.59) 8.66
- ------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.99 3.55 (1.81) (2.17) (6.61) 8.98
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income (.14) (.16) -- -- (.29) (.32)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (1.81) (.79)
- ------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.16) -- -- (2.10) (1.11)
- ------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.29 $20.44 $17.05 $18.86 $21.03 $29.74
- ------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 14.64* 20.86 (9.60) (10.32) (23.01) 41.54*
- ------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $301,628 $313,496 $534,933 $601,907 $637,547 $439,522
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .99* (d) 1.98 (d) 1.97 1.91 1.88 1.76*
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.27)* (d) .02 (d) .54 .07 (.07) 1.12*
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.56* 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 involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, expenses of the fund for the periods ended December 31, 2004
and June 30, 2004 reflect a reduction of 0.06% and 0.03%, respectively,
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.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2004 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.51 $17.13 $18.90 $21.04 $29.61 $21.45
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.03) (d) .05 (d) .11 .06 .03 .40
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.06 3.56 (1.88) (2.20) (6.54) 8.79
- ---------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.03 3.61 (1.77) (2.14) (6.51) 9.19
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.20) (.23) -- -- (.25) (.24)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (1.81) (.79)
- ---------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.23) -- -- (2.06) (1.03)
- ---------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.34 $20.51 $17.13 $18.90 $21.04 $29.61
- ---------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 14.80* 21.13 (9.37) (10.17) (22.75) 43.32
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $103,933 $109,648 $187,266 $248,921 $302,838 $367,638
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .86* (d) 1.73 (d) 1.72 1.66 1.63 1.64
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.14)* (d) .28 (d) .73 .30 .11 1.51
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.56* 69.27 53.11 (f) 42.17 73.80 99.53
- ---------------------------------------------------------------------------------------------------------------------------
* 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 involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, expenses of the fund for the periods ended December 31, 2004
and June 30, 2004 reflect a reduction of 0.06% and 0.03%, respectively,
based on average net assets for class M 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.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- -------------------------------------------------------------------------------------------
Six months For the
ended Year period
Dec. 31 ended Jan. 21, 2003+
Per-share (Unaudited) June 30 to June 30
operating performance 2004 2004 2003
- -------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.77 $17.42 $16.52
- -------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------
Net investment income (a) -- (d) .18 (d) .08
- -------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.10 3.55 .82
- -------------------------------------------------------------------------------------------
Total from
investment operations 3.10 3.73 .90
- -------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------
From net investment income (.30) (.38) --
- -------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- --
- -------------------------------------------------------------------------------------------
Total distributions (.30) (.38) --
- -------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) --
- -------------------------------------------------------------------------------------------
Net asset value, end of period $23.57 $20.77 $17.42
- -------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 14.94* 21.50 5.45*
- -------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $774 $559 $1
- -------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .74* (d) 1.48 (d) .65*
- -------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.02)* (d) .84 (d) .47*
- -------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.56* 69.27 53.11 (f)
- -------------------------------------------------------------------------------------------
+ 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 involuntary contractual expense limitation and waivers of certain
fund expenses in connection with investments in Putnam Prime Money Market Fund
during the period. As a result of such limitation and waivers, expenses of the
fund for the periods ended December 31, 2004 and June 30, 2004 reflect a reduction
of 0.06% and 0.03%, respectively, based on average net assets for class R 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.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- ---------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2004 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $21.01 $17.57 $19.33 $21.35 $30.07 $21.72
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .05 (d) .19 (d) .28 .22 .23 .61
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.14 3.67 (1.96) (2.24) (6.69) 8.92
- ---------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.19 3.86 (1.68) (2.02) (6.46) 9.53
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.39) (.42) (.08) -- (.45) (.39)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (1.81) (.79)
- ---------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.42) (.08) -- (2.26) (1.18)
- ---------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.81 $21.01 $17.57 $19.33 $21.35 $30.07
- ---------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 15.24* 22.07 (8.67) (9.46) (22.25) 44.43
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,213,668 $1,282,011 $1,968,996 $1,664,886 $1,251,589 $1,027,174
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .48* (d) .98 (d) .97 .91 .88 .89
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .24* (d) .98 (d) 1.64 1.13 .92 2.26
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.56* 69.27 53.11 (f) 42.17 73.80 99.53
- ---------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding for the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, expenses of the fund for the periods ended December 31, 2004
and June 30, 2004 reflect a reduction of 0.06% and 0.03%, respectively,
based on average net assets for class Y 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.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
December 31, 2004 (Unaudited)
Note 1
Significant accounting policies
Putnam International Equity Fund ("the fund"), a Massachusetts business
trust, 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%. Class B shares, which convert to class A shares after
approximately eight years, do not pay a front-end sales charge but pay a
higher ongoing distribution fee than class A, class M and class R
shares, and are subject to a contingent deferred sales charge, if those
shares are redeemed within six years of purchase. Class C shares are
subject to the same fees and expenses as class B shares, except that
class C shares have a one-year 1.00% contingent deferred sales charge
and do not convert to class A shares. Class M shares are sold with a
maximum front-end sales charge of 3.50% and pay an ongoing distribution
fee that is higher than class A and class R shares but lower than class
B and class C shares. Class R shares are sold without a front-end sales
charge and pay an ongoing distribution fee that is higher than class A
shares, but lower than class B, class C and class M shares. Class R
shares are offered to qualified employee-benefit plans. Class Y shares,
which are sold at net asset value, are generally subject to the same
expenses as class A, class B, class C, class M and class R shares, but
do not bear a distribution fee. Class Y shares are sold to certain
eligible purchasers including certain defined contribution plans
(including corporate IRAs), bank trust departments and trust companies.
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. Prior year redemption fee balances have
been reclassified to conform with current year financial statement
presentation.
Investment income, realized and unrealized gains and losses and expenses
of the fund are borne pro-rata based on the relative net assets of each
class to the total net assets of the fund, except that each class bears
expenses unique to that class (including the distribution fees
applicable to such classes). 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. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates fair value.
B) Joint trading account Pursuant to an exemptive order from the
Securities and Exchange Commission, 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) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are 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.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when 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.
F) 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.
G) 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. If a written call
option is exercised, the premium originally received is recorded as an
addition to sales proceeds. If a written put option is exercised, the
premium originally received is recorded as an addition to the cost of
investments.
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.
H) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the statement of operations. At December 31, 2004, the value
of securities loaned amounted to $16,698,728. The fund received cash
collateral of $17,302,295 which is pooled with collateral of other
Putnam funds into 25 issues of high grade short-term investments.
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 of 1986 (the "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 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
The aggregate identified cost on a tax basis is $5,928,426,541,
resulting in gross unrealized appreciation and depreciation of
$1,134,253,213 and $92,772,513, respectively, or net unrealized
appreciation of $1,041,480,700.
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
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.
Putnam Management has agreed to limit its compensation (and, to the
extent necessary, bear other expenses) through December 31, 2004, at
which time the Lipper limit will become effective, to the extent that
expenses of the fund (exclusive of brokerage commissions, interest,
taxes, 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 December 31, 2004,
Putnam Management waived $3,703,939 of its management fee from the fund.
Effective January 3, 2005, Putnam Management has agreed to waive fees
and reimburse expenses of the fund through June 30, 2005 to the extent
necessary to ensure that the fund's expenses do not exceed the average
expenses of the front-end load funds viewed by Lipper Inc. as having the
same investment classification or objective as the fund. The expense
reimbursement is based on a comparison of the fund's expenses with the
average annualized operating expenses of the funds in its Lipper peer
group for each calendar quarter during the fund's last fiscal year,
excluding 12b-1 fees and without giving effect to any expense offset and
brokerage service arrangements that may reduce fund expenses.
For the period ended December 31, 2004, Putnam Management has assumed
$188,557 of legal, shareholder servicing and communication, audit and
Trustee fees incurred by the fund in connection with certain legal and
regulatory matters (including those described in Note 6).
Effective July 15, 2004, Putnam Investments Limited ("PIL"), an
affiliate of Putnam Management is authorized by the Trustees to manage a
separate portion of the assets of the fund as determined by Putnam
Management from time to time. 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 fund managed by PIL.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended December 31, 2004,
the fund paid PFTC $13,073,022 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 six months ended December 31,
2004, the fund's expenses were reduced by $2,731,691 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $5,361 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 Trustees have terminated the Pension Plan with
respect to any Trustee first elected after 2003.
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 to 0.35%, 1.00%, 1.00%, 1.00% and
1.00% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the six months ended December 31, 2004, Putnam Retail Management,
acting as underwriter, received net commissions of $54,629 and $1,305
from the sale of class A and class M shares, respectively, and received
$1,241,661 and $6,881 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% and 0.65% is assessed on certain redemptions
of class A and class M shares, respectively. For the six months ended
December 31, 2004, Putnam Retail Management, acting as underwriter,
received $10,431 and no monies on class A and class M redemptions,
respectively.
Note 3
Purchases and sales of securities
During the six months ended December 31, 2004, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $2,251,101,300 and $3,371,850,829, respectively.
There were no purchases or sales of U.S. government securities.
Note 4
Capital shares
At December 31, 2004, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended December 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 13,936,534 $299,686,823
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,987,363 45,808,678
- ----------------------------------------------------------------
15,923,897 345,495,501
Shares repurchased (42,478,645) (906,604,585)
- ----------------------------------------------------------------
Net decrease (26,554,748) $(561,109,084)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 104,479,477 $1,995,472,831
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 4,229,286 84,205,067
- ----------------------------------------------------------------
108,708,763 2,079,677,898
Shares repurchased (325,649,680) (6,424,417,016)
- ----------------------------------------------------------------
Net decrease (216,940,917) $(4,344,739,118)
- ----------------------------------------------------------------
Six months ended December 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 1,449,312 $30,017,880
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 439,072 9,769,355
- ----------------------------------------------------------------
1,888,384 39,787,235
Shares repurchased (10,939,200) (225,600,235)
- ----------------------------------------------------------------
Net decrease (9,050,816) $(185,813,000)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 5,667,778 $106,956,438
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 850,561 16,356,276
- ----------------------------------------------------------------
6,518,339 123,312,714
Shares repurchased (40,613,856) (774,379,357)
- ----------------------------------------------------------------
Net decrease (34,095,517) $(651,066,643)
- ----------------------------------------------------------------
Six months ended December 31, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 313,927 $6,605,446
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 61,828 1,402,876
- ----------------------------------------------------------------
375,755 8,008,322
Shares repurchased (2,763,391) (57,735,200)
- ----------------------------------------------------------------
Net decrease (2,387,636) $(49,726,878)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 2,726,099 $50,793,496
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 124,841 2,445,652
- ----------------------------------------------------------------
2,850,940 53,239,148
Shares repurchased (18,884,766) (364,919,447)
- ----------------------------------------------------------------
Net decrease (16,033,826) $(311,680,299)
- ----------------------------------------------------------------
Six months ended December 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 309,307 $6,530,166
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 38,150 867,147
- ----------------------------------------------------------------
347,457 7,397,313
Shares repurchased (1,240,551) (25,949,767)
- ----------------------------------------------------------------
Net decrease (893,094) $(18,552,454)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,506,951 $29,186,510
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 79,905 1,568,546
- ----------------------------------------------------------------
1,586,856 30,755,056
Shares repurchased (7,175,461) (139,750,584)
- ----------------------------------------------------------------
Net decrease (5,588,605) $(108,995,528)
- ----------------------------------------------------------------
Six months ended December 31, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 9,018 $192,608
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 388 8,910
- ----------------------------------------------------------------
9,406 201,518
Shares repurchased (3,485) (76,729)
- ----------------------------------------------------------------
Net increase 5,921 $124,789
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 44,854 $836,446
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 427 8,477
- ----------------------------------------------------------------
45,281 844,923
Shares repurchased (18,430) (351,306)
- ----------------------------------------------------------------
Net increase 26,851 $493,617
- ----------------------------------------------------------------
Six months ended December 31, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 8,515,507 $185,691,924
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 958,992 22,229,449
- ----------------------------------------------------------------
9,474,499 207,921,373
Shares repurchased (19,513,479) (441,205,668)
- ----------------------------------------------------------------
Net decrease (10,038,980) $(233,284,295)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 56,910,506 $1,090,959,624
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,855,858 37,173,530
- ----------------------------------------------------------------
58,766,364 1,128,133,154
Shares repurchased (109,821,728) (2,196,572,441)
- ----------------------------------------------------------------
Net decrease (51,055,364) $(1,068,439,287)
- ----------------------------------------------------------------
Note 5
Investment in Putnam
Prime Money Market Fund
Pursuant to an exemptive order from the Securities and Exchange
Commission, the fund invests in 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. For the
year ended December 30, 2004, management fees paid were reduced by
$28,991 relating to the fund's investment in Putnam Prime Money Market
Fund. Income distributions earned by the fund are recorded as income in
the statement of operations and totaled $321,062 for the period ended
December 31, 2004.
Note 6
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") 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. The fund
may experience increased redemptions as a result of these matters, which
could result in increased transaction costs and operating expenses.
In connection with its investigation of certain brokerage matters, the
staff of the Philadelphia district office of the SEC has raised the
question whether, in years prior to 2004, Putnam Management fully and
effectively disclosed its practices relating to the allocation of
brokerage on mutual fund portfolio transactions to broker-dealers who
sold shares of the funds. Putnam Management ceased directing brokerage
to broker-dealers in connection with the sale of fund shares as of
January 1, 2004. Putnam Management and the Philadelphia office
negotiated an offer of settlement under which Putnam Management would
pay a civil penalty in the amount of $40 million and disgorgement in the
amount of $1, and the total amount would be distributed to certain
Putnam funds. The offer of settlement is subject to final documentation
and approval by the Commissioners and the staff of the SEC. Discussions
with the staff with respect to the offer of settlement are ongoing.
Results of November 11, 2004
and January 10, 2005
shareholder meetings
(Unaudited)
A special meeting of shareholders of the fund was held on November 11,
2004. At that meeting consideration of certain proposals was adjourned
to a final meeting held on January 10, 2005.
November 11, 2004 meeting
At the meeting, each of the nominees for Trustees was elected, as follows:
Votes Votes
for withheld
- ----------------------------------------------------------------
Jameson A. Baxter 163,597,273 5,533,247
Charles B. Curtis 163,572,449 5,558,071
Myra R. Drucker 165,011,946 4,118,574
Charles E. Haldeman, Jr. 164,492,814 4,637,706
John A. Hill 163,556,357 5,574,163
Ronald J. Jackson 163,620,413 5,510,107
Paul L. Joskow 163,550,619 5,579,901
Elizabeth T. Kennan 163,517,040 5,613,480
John H. Mullin, III 163,514,817 5,615,703
Robert E. Patterson 163,594,414 5,536,106
George Putnam, III 163,401,185 5,729,335
A.J.C. Smith* 163,402,416 5,728,104
W. Thomas Stephens 163,594,855 5,535,665
Richard B. Worley 165,050,333 4,080,187
* Mr. Smith resigned from the Board of Trustees on January 21, 2005.
January 10, 2005 meeting
A proposal to amend fund's fundamental investment restriction with
respect to borrowing to allow the fund the investments flexibility
permitted by the Investment Company Act was defeated as follows:
Votes Votes
for against Abstentions
- ----------------------------------------------------------------
113,467,261 9,853,254 4,843,777
A proposal to amend the fund's fundamental investment restriction with
respect to making loans to enhance the fund's ability to participate in
an interfund borrowing and lending program was defeated as follows:
Votes Votes
for against Abstentions
- ----------------------------------------------------------------
114,103,299 9,611,613 4,449,381
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments to enhance the fund's ability
to invest in registered investment companies such as Putnam Prime
Money Market was defeated as follows:
Votes Votes
for against Abstentions
- ----------------------------------------------------------------
118,153,085 5,723,881 4,287,326
A proposal to amend the fund's Agreement and Declaration of Trust to
permit the fund to satisfy redemption requests other than in cash was
defeated as follows:
Votes Votes
for against Abstentions
- ----------------------------------------------------------------
114,784,161 7,974,771 5,405,361
All tabulations are rounded to nearest whole number.
Brokerage commissions
(Unaudited)
Brokerage commissions are paid to firms that execute trades on behalf of
your fund. When choosing these firms, Putnam is required by law to seek
the best execution of the trades, taking all relevant factors into
consideration, including expected quality of execution and commission
rate. Listed below are the largest relationships based upon brokerage
commissions for your fund and the other funds in Putnam's International
group for the year ended December 31, 2004. The other Putnam mutual
funds in this group are Putnam Europe Equity Fund, Putnam Global Equity
Fund, Putnam International Capital Opportunities Fund, Putnam
International Growth and Income Fund, Putnam International New
Opportunities Fund, Putnam VT Global Equity Fund, Putnam VT
International Equity Fund, Putnam VT International Growth and Income
Fund, and Putnam VT International New Opportunities Fund.
The top five firms that received brokerage commissions for trades
executed for the International group are (in descending order) Goldman
Sachs, Union Bank of Switzerland, Merrill Lynch, Citigroup, and Credit
Suisse First Boston. Commissions paid to these firms together
represented approximately 51% of the total brokerage commissions paid
for the year ended December 31, 2004.
Commissions paid to the next 10 firms together represented approximately
35% of the total brokerage commissions paid during the period. These
firms are (in alphabetical order) ABN AMRO, Bear Stearns, Deutsche Bank,
Dresdner, Hong Kong Shanghai Banking Corp, JP Morgan, Lehman Brothers,
Morgan Stanley, Royal Bank of Canada, and Sanford Bernstein.
Additional information about brokerage commissions is available on the
Securities and Exchange Commission (SEC) Web site at www.sec.gov. Putnam
funds disclose commissions by firm to the SEC in semiannual filings on
form N-SAR.
Putnam puts your interests first
In January 2004, Putnam announced a number of voluntary initiatives
designed to reduce fund expenses, provide investors with more useful
information, and help safeguard the interests of all Putnam investors.
Visit www.putnaminvestments.com for details.
Cost-cutting initiatives
Reduced sales charges
The maximum sales charge for class A shares has been reduced to 5.25%
for equity funds (formerly 5.75%) and 4.50% for most income funds
(formerly 4.75%).*
Lower class B purchase limit
To help ensure that investors are in the most cost-effective share class,
the maximum amount that can be invested in class B shares has been reduced
to $100,000. (Larger trades or accumulated amounts will be directed to
class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including management fees
for all funds, will be maintained at or below the average of each fund's
industry peers in its Lipper load-fund universe. information, please see
the Statement of Additional information.
Additional measures are being taken to reduce expenses for shareholders
in the six global and international funds that had short-term trading
issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being revised to
disclose additional information that will help shareholders compare
funds and weigh their costs and risks along with their potential
benefits. Shareholders will find easy-to-understand information about
fund expense ratios, portfolio manager compensation, risk comparisons,
brokerage commissions, and employee and trustee ownership of Putnam
funds. Disclosure of breakpoint discounts is also being enhanced to
alert investors to potential cost savings.
Protecting investors' interests
New short-term trading fee introduced
To discourage short-term trading, which can interfere with a fund's
long-term strategy, a 2% short-term trading fee will be imposed on any
Putnam fund shares redeemed or exchanged within five calendar days of
purchase.
* The maximum sales charge for class A shares of Putnam Limited
Duration Government Income Fund (formerly Putnam Intermediate U.S.
Government Income Fund) and Putnam Floating Rate Income Fund remains
3.25%.
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
Investment Sub-Manager
Putnam Investments Limited
57-59 St. James Street
London, England SW1A 1LD
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
W. Thomas Stephens
Richard B. Worley
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
Steven D. Krichmar
Vice President and Principal
Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
Beth S. Mazor
Vice President
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
Charles A. Ruys de Perez
Vice President and Chief Compliance 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.
SA009-216567 2/05
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam International Equity Fund
Supplement to Semiannual Report dated 12/31/04
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 12/31/04
NAV
6 months 15.24%
1 year 16.46
5 years -8.72
Annual average -1.81
10 years 174.63
Annual average 10.63
Life of fund (since class A inception, 2/28/91)
Annual average 10.39
Share value: NAV
6/30/04 $21.01
12/31/04 $23.81
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 $0.391 -- $0.391
- ----------------------------------------------------------------------------
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 (7/12/96) 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, 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.
Please see page 12 of the accompanying shareholder report for a discussion
of the information appearing in the tables below:
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 12/31/04
Class Y
Expenses paid per $1,000* $5.21
Ending value (after expenses) $1,152.40
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 12/31/04
Class Y
Expenses paid per $1,000* $4.89
Ending value (after expenses) $1,020.37
- ----------------------------------------------------------------------------
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA
Your fund's annualized expense ratio 0.96%
Average annualized expense ratio for Lipper peer group+ 1.41%
- ----------------------------------------------------------------------------
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Item 5. Audit Committee: Not applicable
- -------------------------
Item 6. Schedule of Investments: Not applicable
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- --------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
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, that the design and operation of
such procedures are generally effective to provide reasonable
assurance that information required to be disclosed by the registrant
in this report is recorded, processed, summarized and reported within
the time periods specified in the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and 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: February 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and 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: February 28, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: February 28, 2005