Item 1. Report to Stockholders:
- -------------------------------
The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
Putnam
International
Equity Fund
6 | 30 | 05
Annual Report
[SCALE LOGO OMITTED]
PUTNAM INVESTMENTS
[GRAPHIC OMITTED: SPOOLS OF SEWING YARN]
BLEND FUNDS
invest opportunistically
in a variety of stocks,
such as growth stocks and value stocks.
What makes Putnam different?
[GRAPHIC OMITTED: FOUNDER]
In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam
established The Prudent Man Rule, a legal foundation for responsible money
management.
THE PRUDENT MAN RULE
All that can be required of a trustee to invest is that he shall conduct
himself faithfully and exercise a sound discretion. He is to observe how men
of prudence, discretion, and intelligence manage their own affairs, not in
regard to speculation, but in regard to the permanent disposition of their
funds, considering the probable income, as well as the probable safety of
the capital to be invested.
[GRAPHIC OMITTED: SIGNATURE, JUSTIN SAMUEL PUTNAM 1830]
A time-honored tradition
in money management
Since 1937, our values have been rooted in a profound sense of
responsibility for the money entrusted to us.
A prudent approach to investing
We use a research-driven team approach to seek consistent, dependable,
superior investment results over time, although there is no guarantee a fund
will meet its objectives.
Funds for every investment goal
We offer a broad range of mutual funds and other financial products so
investors and their advisors can build diversified portfolios.
A commitment to doing
what's right for investors
We have below-average expenses and stringent investor protections, and
provide a wealth of information about the Putnam funds.
Industry-leading service
We help investors, along with their financial
advisors, make informed investment decisions
with confidence.
Putnam
International
Equity Fund
6 | 30 | 05
Annual Report
Message from the Trustees 2
About the fund 4
The year in review 7
Performance 12
Expenses 15
Turnover 17
Risk 18
Your fund's management 19
Terms and definitions 22
Trustee approval of management contract 24
Other information for shareholders 29
Financial statements 30
Federal tax information 61
Shareholder meeting results 62
Brokerage commissions 64
About the Trustees 65
Officers 71
Cover photograph: [C] Marco Cristofori
Message from the Trustees
Dear Fellow Shareholder
During the period ended June 30, 2005, the Federal Reserve Board's more
restrictive monetary policy, along with high energy prices, began to
moderate the pace of economic expansion. International markets generally
outperformed stock and bond markets in the United States. However, the U.S.
dollar strengthened against foreign currencies, partially offsetting the
effects of these gains. Amid the uncertainties of this environment, the
in-depth, professional research and active management that mutual funds can
provide makes them an intelligent choice for today's investors.
We want you to know that Putnam Investments' management team, under the
leadership of Chief Executive Officer Ed Haldeman, continues to focus on
investment performance and remains committed to putting the interests of
shareholders first. In keeping with these goals, we have redesigned and
expanded our shareholder reports to make it easier for you to learn more
about your fund.
More information about your fund's strategy and history has been added to
this report. We have also included additional information about your fund's
management team, including compensation data pertaining to your fund.
Furthermore, on page 24 we provide information about the 2005 approval by
the Trustees of your fund's management contract with Putnam.
We would also like to take this opportunity to announce the retirement of
one of your fund's Trustees, Ronald J. Jackson, who has been an independent
Trustee of the Putnam funds since 1996. We thank him for his service.
In the following pages, members of your fund's management team discuss the
fund's performance, strategies, and their outlook for the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM, III
George Putnam, III
President of the Funds
/S/JOHN A. HILL
John A. Hill
Chairman of the Trustees
August 17, 2005
Putnam International Equity Fund: the benefits
of investing in international stock markets
As a shareholder of Putnam International Equity Fund, you are positioning
your money to benefit from investment opportunities outside the United
States. Although international investing involves additional risks, the fund
lets you take advantage of the capital appreciation potential of a broad
range of leading companies in international markets.
In many cases, international companies are the top competitors in global
industries.
If you look at the products or services you use every day -- from cars to
cellular telephones to household products -- you are likely to find many
items made by international companies.
International economies also generally follow a different business cycle
than the United States and have different systems of tax and monetary
policies. In many regions, especially Asia and Latin America, economies are
growing much faster than the U.S. economy and appear likely to continue this
growth at an accelerated pace. And, when you invest internationally, you can
benefit when foreign currencies strengthen against the U.S. dollar.
While different currencies and economic systems can add risk, investing
internationally may help you manage an important financial risk -- the
possibility of a slump in the U.S. economy -- and gives you a chance to keep
building wealth even if U.S. stocks struggle.
Since 1991, Putnam International Equity Fund has sought to invest in
leading companies in international markets. The fund's management team
selects stocks and determines market and sector weightings by relying on
the proprietary research of Putnam analysts. In addition to the United
States, analysts and other team members are based in London and Tokyo for
better access to information about international companies.
Many changes in the world economy have added to
the growth potential of international companies since
Putnam International Equity Fund launched in 1991.
1991
European Common Market becomes European Union
[GRAPHIC OMITTED: FLAG]
1993
Single European Market ends trade barriers in Europe
1994
NAFTA frees trade among United States, Canada, and Mexico
[GRAPHIC OMITTED: TRUCK]
1995
World Trade Organization is founded by United States and 75 other countries
1997
Hong Kong reverts to China's rule
Using Putnam's blend strategy, the team selects stocks with both growth and
value characteristics, which may help keep the fund competitive given the
risks of changing market conditions and political developments in
international markets. The fund can invest in developed economies such as
Europe, Japan, Canada, and Australia, as well as in less developed but
faster-growing economies in Latin America and Asia. For nearly 15 years, the
fund has helped investors benefit from diversification and economic growth
generated outside the United States.
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.
A rising equity culture fuels the growth of international markets.
Many analysts believe that as equity markets expand an "equity culture"
forms. In an equity culture, people accept the risk of owning stocks in
exchange for the opportunity to earn long-term financial rewards. Signs of a
flourishing equity culture include the creation of new markets and
investor-friendly regulations.
New markets for equity investing were established as communist economies
transitioned to capitalism. In 1989, for example, Slovenia established a
stock exchange, followed by Hungary, China, and more than five other nations
by 1992.
Investor-friendly regulations help to give investors a sound legal footing.
Examples include South Korea's measures requiring companies to respect
minority-shareholder rights, grant real power to independent directors, and
open up to foreign ownership.
1998
European Central Bank is founded
[GRAPHIC OMITTED: BUILDING]
1999
The euro integrates 11 European economies under one currency
[GRAPHIC OMITTED: COINS]
2000
Cross-border corporate merger activity sets record
2001
China joins the World Trade Organization
2004
European Union expands to include 10 new member states
[GRAPHIC OMITTED: BUILDINGS]
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.
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Highlights
* Putnam International Equity Fund class A shares returned 13.71% at net
asset value (NAV) for the 12 months ended June 30, 2005.
* The fund's benchmark, the MSCI EAFE Index, returned 13.65% for the period.
* The fund's Lipper peer group, International Large-Cap Core Funds, had an
average return of 11.31% for the period.
* Additional fund performance, comparative performance, and Lipper data can
be found in the performance section beginning on page 12.
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Performance
Total return for class A shares for periods ended 6/30/05
Since the fund's inception (2/28/91), annualized return is 9.75% at NAV; and
9.34% at POP.
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Annualized return Cumulative return
NAV POP NAV POP
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10 years 9.93% 9.34% 157.84% 144.32%
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5 years -2.45 -3.49 -11.64 -16.28
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1 year 13.71 7.72 13.71 7.72
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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.putnam.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.
Report from the fund managers
The year in review
During your fund's 2005 fiscal year, its performance at net asset value
(NAV, or without sales charges) was in line with its benchmark index while
outperforming the average for its Lipper category. We attribute these
results to our stock selections as well as currency positioning. Our stock
selections contributed to results in most sectors. Holdings in the energy
and communications services sectors had among the best relative results,
while weaker performance came primarily from the financials sector. With
regard to currency, the fund benefited in the first half of the fiscal year
as it had mostly unhedged exposure to strengthening foreign currencies,
while in the second half of the year its defensive hedges partly offset
foreign currency weakness.
Market overview
International stock markets benefited from generally respectable economic
growth and low interest rates in most markets around the world. Though there
were some negative factors at work, including the steady rise in energy
prices, higher U.S. interest rates set by the Federal Reserve Board (the
Fed), and the ongoing geopolitical risk related to terrorism, none of
these factors caused a serious or sustained setback to stocks. The high
energy prices even had a silver lining for investors -- stocks in the energy
sector had the top returns in international markets.
In terms of regional results, emerging markets and European stocks had the
strongest performance. European stocks did well in spite of a nearly
stagnant economy. France and Germany achieved scant growth and, toward the
end of the year, Italy went into recession. The United Kingdom's growth
began to slow because of the tight monetary policy imposed by the Bank of
England to restrain property prices and consumer spending. Asian countries
generally enjoyed robust economic growth, but Japan, with the region's
largest stock market, experienced a slowdown over the winter, which held
back stocks. Australia, Canada, and Latin America delivered both healthy
economic growth and stock returns.
Toward the end of the period, the high-quality stocks that your fund favors
also began to outperform what we consider riskier companies with weaker
earnings quality and smaller market capitalizations. Such higher-risk stocks
had generally led in the first six to nine months of the year,
before the effects of higher U.S. and U.K. interest rates began to be felt
and caused investors to be more concerned about risk. The recent trend has
helped the relative results of your fund.
Strategy overview
In selecting stocks for your fund's portfolio, our approach is to analyze
companies to determine their worth as a business, and then to invest in
those whose stocks appear to be priced below their inherent worth. We
generally look to sell stocks when they are priced at or above the worth we
have determined.
We also analyze markets and sectors as part of the process. When we find a
number of stocks in a sector or market that we believe to have strong
prospects, we may overweight that sector or market in the portfolio
accordingly. For example, during the period we moved from an underweight
position in Japan to an overweight position relative to the benchmark
because we identified several stocks in Japan that had attractive prospects.
We made room for these stocks by selling holdings that had appreciated to
what we considered reasonable prices, primarily in the markets of
Switzerland, the United Kingdom, and South Korea.
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Market sector performance
These indexes provide an overview of performance in different market sectors
for the 12 months ended 6/30/05.
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Equities
- ----------------------------------------------------------------------------
MSCI EAFE Index (international stocks) 13.65%
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Russell 1000 Index (large-company stocks) 7.92%
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Russell 2000 Index (small-company stocks) 9.45%
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S&P 500 Index (broad stock market) 6.32%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 6.80%
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Lehman Government Bond Index (U.S. Treasury and agency securities) 6.65%
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JP Morgan Global High Yield Index (global high-yield corporate bonds) 10.29%
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Citigroup World Government Bond Index (global government bonds) 7.61%
- ----------------------------------------------------------------------------
With regard to sectors, we added to conglomerates, moving from an
underweight to an overweight in this sector. (Sector underweights and
overweights are determined relative to the respective sector's weighting in
the benchmark index.) We built an overweight to communications services
stocks in Europe. As our research led us to believe that strong prices for
oil are likely to persist, we also increased the portfolio's weighting in
energy stocks to an overweight. While building positions in these sectors,
we took profits on financial holdings that we believe have become less
attractive at this point of the interest-rate cycle.
Your fund's holdings
During the fiscal year, we bought more shares of Japan Tobacco, making this
an overweight holding relative to the benchmark. The stock experienced heavy
selling and fell to an undervalued level because it lost its exclusive
partnership with Altria of the United States, which had enabled it to
distribute the valuable Marlboro brand in Japan. In response, Japan Tobacco
restructured and successfully cut costs. Its own brands are competing well
with American imports. The stock has delivered strong performance for the
portfolio. Another Japanese stock in which we built a significant position
is Mitsui and Co., a conglomerate investing in and doing strong business
trading commodities for use in China and throughout the region.
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Comparison of top country weightings
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.
as of 12/31/04 as of 06/30/05
Japan 20.8% 22.6%
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United Kingdom 16.6% 16.6%
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France 12.0% 13.1%
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Switzerland 12.7% 9.5%
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Netherlands 2.5% 5.5%
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Several of our other Japanese holdings underperformed, including Toyota and
Canon. Though we consider these to be industry-leading, world-class
companies, both were hurt by the strength of the yen versus the dollar and
concerns about U.S. consumer spending. In the case of Toyota, we think the
worries are excessive and that the stock is very undervalued at current
price levels. In the case of Canon, with its products facing competitive
pricing pressure, we sold a portion of the fund's position as a way of
protecting against risk.
Two of the fund's top-performing holdings were in the energy sector.
Canadian Natural Resources benefited disproportionately from rising oil
prices, because it possesses vast oil reserves in the province of Alberta.
Royal Dutch Petroleum also delivered strong gains. We built this position as
we traded out of a position in BP, which we believed had reached its fair
value. Total SA of France, another large energy holding, also performed very
well.
Roche Holding AG, of Switzerland, delivered strong results. This
pharmaceutical company has a strong product pipeline, including two new
cancer drugs, through its 50% stake in Genentech of the United States, a
growing biotechnology company. However, we sold the fund's position in UBS,
an investment bank and brokerage, to lock in a profit before rising interest
rates slow the financial industry. We also trimmed Nestle SA, the food
company, which had disappointing performance, and Ciba Specialty Chemicals,
because the company's profits are being squeezed as it pays higher prices
for raw material inputs, while it is unable to pass these price increases on
to customers.
- ---------------------------------------------------------------------------
Top holdings
This table shows the fund's top holdings, and the percentage of the fund's
net assets that each comprised, as of 6/30/05. The fund's holdings will
change over time.
- ---------------------------------------------------------------------------
Holding (percent of fund's
net assets) Country Industry
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Vodafone Group PLC (3.9%) United Kingdom Telecommunications
- ---------------------------------------------------------------------------
Total SA (2.7%) France Oil and gas
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Roche Holding AG (2.6%) Switzerland Pharmaceuticals
- ---------------------------------------------------------------------------
Toyota Motor Corp. (2.4%) Japan Automotive
- ---------------------------------------------------------------------------
Barclays PLC (2.1%) United Kingdom Banking
- ---------------------------------------------------------------------------
Novartis AG (2.0%) Switzerland Pharmaceuticals
- ---------------------------------------------------------------------------
Canon, Inc. (2.0%) Japan Office equipment and supplies
- ---------------------------------------------------------------------------
Royal Bank of Scotland
Group PLC (1.9%) United Kingdom Banking
- ---------------------------------------------------------------------------
Royal Dutch
Petroleum Co. (1.9%) Netherlands Oil and gas
- ---------------------------------------------------------------------------
BASF AG (1.8%) Germany Chemicals
- ---------------------------------------------------------------------------
We increased the portfolio's weighting in communications services stocks
because we believe that the regulatory environment in Europe has become
more benign. Our focus is on European companies that have greater scope for
increasing revenue by offering new bundled services along with traditional
fixed-line telephone service. With their strong cash flows, the companies
can pay out dividends or buy back shares. One of the larger holdings is
France Telecom. Another position to which we added is KPN in the
Netherlands. France Telecom confirmed our outlook when, in the final days of
June, it surprised the market by announcing it would more than double its
dividend. KPN rallied when it decided to acquire its competitor, Telfort, to
enhance its scale and pricing power in its domestic market.
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.
We believe the global economy will gradually decelerate as the stimulus
provided by U.S. monetary policy since 2001 is reversed by the Fed's
interest-rate increases. The Bank of England and the Bank of Australia have
tightened monetary policy, as well, which contributes to this trend.
We continue to favor stocks in several emerging markets, such as Brazil,
Mexico, and Taiwan. We believe stocks in these markets are generally
undervalued, and selected companies there have strong balance sheets. We are
maintaining an underweight position in the United Kingdom because real
estate prices have flattened, consumption has turned down, and credit costs
are rising in the financial sector. Our increased weighting in Japan
reflects our thinking that this market offers many undervalued companies. We
are investing both in companies that benefit from Japan's incipient domestic
recovery and those with globally competitive industry positions.
In this environment of slower growth, we continue to emphasize high-quality
companies and favor large caps relative to mid-cap stocks, because we
believe they continue to offer attractive opportunities to investors.
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 performance
This section shows your fund's performance during its fiscal year, which
ended June 30, 2005. 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.putnam.com.
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Fund performance
Total return for periods ended 6/30/05
- ----------------------------------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
(inception dates) (2/28/91) (6/1/94) (7/26/99) (12/1/94) (1/21/03)
- ----------------------------------------------------------------------------------------------------------
NAV POP NAV CDSC NAV CDSC NAV POP NAV
- ----------------------------------------------------------------------------------------------------------
Annual average
(life of fund) 9.75% 9.34% 8.89% 8.89% 8.93% 8.93% 9.19% 8.91% 9.48%
- ----------------------------------------------------------------------------------------------------------
10 years 157.84 144.32 139.21 139.21 139.24 139.24 145.33 136.71 151.52
Annual average 9.93 9.34 9.11 9.11 9.11 9.11 9.39 9.00 9.66
- ----------------------------------------------------------------------------------------------------------
5 years -11.64 -16.28 -14.91 -16.45 -14.85 -14.85 -13.82 -16.82 -12.72
Annual average -2.45 -3.49 -3.18 -3.53 -3.16 -3.16 -2.93 -3.62 -2.68
- ----------------------------------------------------------------------------------------------------------
1 year 13.71 7.72 12.86 7.86 12.87 11.87 13.13 9.19 13.38
- ----------------------------------------------------------------------------------------------------------
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 (which for class M
shares does not reflect a reduction in sales charges that went into effect
on April 1, 2005; if this reduction had been in place for all periods
indicated, returns would have been higher). Class B share returns reflect
the applicable contingent deferred sales charge (CDSC), which is 5% in the
first year, declining to 1% in the sixth year, and is eliminated thereafter.
Class C shares reflect a 1% CDSC the first year that is eliminated
thereafter. Class R shares have no initial sales charge or CDSC. Performance
for class B, C, M, and R shares before their inception is derived from the
historical performance of class A shares, adjusted for the applicable sales
charge (or CDSC) and higher operating expenses for such shares.
For a portion of the period, this fund limited expenses, without which
returns would have been lower.
A 2% short-term trading fee may be applied to shares exchanged or sold
within 5 days of purchase. In addition, there is a
1% short-term trading fee for this fund on shares sold or exchanged between
6 and 90 days.
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Change in the value of a $10,000 investment ($9,475 after sales charge)
Cumulative total return from 6/30/95 to 6/30/05
Putnam
International
Equity Fund
class A shares MSCI EAFE
at POP Index
- ----------------------------------------
6/30/95 9,475 10,000
6/30/96 11,390 11,328
12/31/97 14,253 12,782
6/30/98 17,208 13,562
6/30/99 19,198 14,595
6/30/00 27,650 17,099
6/30/01 21,449 13,063
6/30/02 19,369 11,823
6/30/03 17,640 11,059
6/30/04 21,486 14,639
6/30/05 $24,432 $16,637
Past performance does not indicate future results. At the end of the same
time period, a $10,000 investment in the fund's class B and class C shares
would have been valued at $23,921 and $23,924, respectively, and no
contingent deferred sales charges would apply. A $10,000 investment in the
fund's class M shares would have been valued at $24,533 ($23,671 at public
offering price). A $10,000 investment in the fund's class R shares would
have been valued at $25,152. See first page of performance section for
performance calculation method.
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Comparative index returns
For periods ended 6/30/05
- -------------------------------------------------------------------------
Lipper International
MSCI EAFE Large-Cap Core Funds
Index category average*
- -------------------------------------------------------------------------
Life of fund
Annual average 5.32% 6.60%
- -------------------------------------------------------------------------
10 years 66.37 72.33
Annual average 5.22 5.34
- -------------------------------------------------------------------------
5 years -2.70 -14.63
Annual average -0.55 -3.28
- -------------------------------------------------------------------------
1 year 13.65 11.31
- -------------------------------------------------------------------------
Index and Lipper results should be compared to fund performance at net asset
value.
* Over the 1-, 5-, and 10-year periods ended 6/30/05 there were 193, 125,
and 49 funds, respectively, in this Lipper category.
- ----------------------------------------------------------------------------
Fund price and distribution information
For the 12-month period ended 6/30/05
- ----------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ----------------------------------------------------------------------------
Distributions
(number) 1 1 1 1 1
- ----------------------------------------------------------------------------
Income $0.325 $0.159 $0.139 $0.200 $0.296
- ----------------------------------------------------------------------------
Capital gains -- -- -- -- --
- ----------------------------------------------------------------------------
Total $0.325 $0.159 $0.139 $0.200 $0.296
- ----------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP NAV
- ----------------------------------------------------------------------------
6/30/04 $20.86 $22.02 $20.07 $20.44 $20.51 $21.25 $20.77
- ----------------------------------------------------------------------------
6/30/05 23.39 24.69 22.49 22.93 23.00 23.77* 23.25
- ----------------------------------------------------------------------------
* Reflects a reduction in sales charges that took effect on April 1, 2005.
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 January 1, 2005, to June
30, 2005. It also shows how much a $1,000 investment would be worth at the
close of the period, assuming actual returns and expenses.
- ----------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ----------------------------------------------------------------------------
Expenses paid per $1,000* $6.26 $9.94 $9.94 $8.71 $7.49
- ----------------------------------------------------------------------------
Ending value (after expenses) $988.20 $984.20 $984.50 $985.40 $986.40
- ----------------------------------------------------------------------------
* Expenses for each share class are calculated using the fund's annualized
expense ratio for each class, which represents the ongoing expenses as a
percentage of net assets for the six months ended 6/30/05. 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.
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Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended June 30,
2005, use the calculation method below. To find the value of your investment
on January 1, 2005, go to www.putnam.com and log on to your account. Click
on the "Transaction History" tab in your Daily Statement and enter
01/01/2005 in both the "from" and "to" fields. Alternatively, call Putnam at
1-800-225-1581.
- ----------------------------------------------------------------------------
How to calculate the expenses you paid
- ----------------------------------------------------------------------------
Total
Value of your Expenses paid = expenses
investment on 1/1/05 [DIV] $1,000 x per $1,000 paid
- ----------------------------------------------------------------------------
Example Based on a $10,000 investment in class A shares of your fund.
- ----------------------------------------------------------------------------
$10,000 [DIV] $1,000 x $6.26 (see table above) = $62.60
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Compare expenses using the SEC's method
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.
- ----------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ----------------------------------------------------------------------------
Expenses paid
per $1,000* $6.36 $10.09 $10.09 $8.85 $7.60
- ----------------------------------------------------------------------------
Ending value (after
expenses) $1,018.50 $1,014.78 $1,014.78 $1,016.02 $1,017.26
- ----------------------------------------------------------------------------
* Expenses for each share class are calculated using the fund's annualized
expense ratio for each class, which represents the ongoing expenses as a
percentage of net assets for the six months ended 6/30/05. 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.
- ----------------------------------------------------------------------------
Compare expenses using industry averages
You can also compare your fund's expenses with the average of its peer
group, as defined 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.
- ----------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ----------------------------------------------------------------------------
Your fund's annualized
expense ratio+ 1.27% 2.02% 2.02% 1.77% 1.52%
- ----------------------------------------------------------------------------
Average annualized expense
ratio for Lipper peer group++ 1.58% 2.33% 2.33% 2.08% 1.83%
- ----------------------------------------------------------------------------
+ For the fund's most recent fiscal half year; may differ from expense
ratios based on one-year data in the financial highlights.
++ Simple average of the expenses of all front-end load funds in the fund's
Lipper peer group, calculated in accordance with Lipper's standard method
for comparing fund expenses (excluding 12b-1 fees and without giving effect
to any expense offset and brokerage service arrangements that may reduce
fund expenses). This average reflects each fund's expenses for its most
recent fiscal year available to Lipper as of 6/30/05. 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 smaller or larger than the fund, which may limit the
comparability of the fund's expenses to the simple average, which typically
is higher than the asset-weighted average.
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
- ----------------------------------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------
Putnam International Equity Fund 75% 69% 53%* 42% 74%
- ----------------------------------------------------------------------------
Lipper International Large-Cap
Core Funds category average 62% 62% 70% 68% 71%
- ----------------------------------------------------------------------------
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 2005 is based on information available as of
6/30/05.
* Portfolio turnover excludes impact of assets received from the
acquisition of Putnam Asia Pacific Fund and Putnam Emerging Markets Fund.
Your fund's risk
This risk comparison is designed 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.
- ----------------------------------------------------------------------------
Your fund's Overall Morningstar Risk
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 June 30, 2005. A higher Overall Morningstar Risk
generally indicates that a fund's monthly returns have varied more widely.
[GRAPHIC OMITTED: chart MORNINGSTAR RISK]
Fund's Overall
Morningstar Risk 2.67
Int'l stock
fund average 3.30
0% INCREASING RISK 100%
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.
Your fund's management
Your fund is managed by the members of the Putnam International Core Team.
Joshua Byrne and Simon Davis are Portfolio Leaders and Mark Pollard is a
Portfolio Member of your fund. The Portfolio Leaders and Portfolio Member
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.putnam.com.
- ----------------------------------------------------------------------------
Fund ownership by the Portfolio Leaders and Portfolio Member
The table below shows how much the fund's current Portfolio Leaders and
Portfolio Member have invested in the fund (in dollar ranges). Information
shown is as of June 30, 2005, and June 30, 2004.
- -------------------------------------------------------------------------------------------
$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
- ------------------------------------------------------------------------------------------
Joshua Byrne 2005 *
- -------------------------------------------------------------------------------------------
Portfolio Leader 2004 *
- -------------------------------------------------------------------------------------------
Simon Davis 2005 *
- -------------------------------------------------------------------------------------------
Portfolio Leader 2004 *
- -------------------------------------------------------------------------------------------
Mark Pollard 2005 *
- -------------------------------------------------------------------------------------------
Portfolio Member N/A
- -------------------------------------------------------------------------------------------
N/A indicates the individual was not a Portfolio Leader or Portfolio Member as of 6/30/04.
- ----------------------------------------------------------------------------
Fund manager compensation
The total 2004 fund manager compensation that is attributable to your fund
is approximately $3,400,000. This amount includes a portion of 2004
compensation paid by Putnam Management to the fund managers listed in this
section for their portfolio management responsibilities, calculated based on
the fund assets they manage taken as a percentage of the total assets they
manage. The compensation amount also includes a portion of the 2004
compensation paid to the Chief Investment Officers of the team and the Group
Chief Investment Officer of the fund's broader investment category for their
oversight responsibilities, calculated based on the fund assets they oversee
taken as a percentage of the total assets they oversee. This amount does not
include compensation of other personnel involved in research, trading,
administration, systems, compliance, or fund operations; nor does it include
non-compensation costs. These percentages are determined as of the fund's
fiscal period-end. For personnel who joined Putnam Management during or
after 2004, the calculation reflects annualized 2004 compensation or an
estimate of 2005 compensation, as applicable.
- ----------------------------------------------------------------------------
Other Putnam funds managed by the Portfolio Leaders and Portfolio Member
Joshua Byrne is also a Portfolio Member of Putnam Europe Equity Fund.
Mark Pollard is also a Portfolio Member of Putnam Europe Equity Fund.
Joshua Byrne, Simon Davis, and Mark Pollard 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 June 30, 2005, Portfolio Member Mark Pollard joined
and Portfolio Members Stephen Oler and George Stairs left your fund's
management team.
- ----------------------------------------------------------------------------
Fund ownership by Putnam's Executive Board
The table below shows how much the members of Putnam's Executive Board have
invested in the fund (in dollar ranges). Information shown is as of June 30,
2005, and June 30, 2004.
- ------------------------------------------------------------------------------
$1 - $10,001 - $50,001 - $100,001
Year $0 $10,000 $50,000 $100,000 and over
- ------------------------------------------------------------------------------
Philippe Bibi 2005 *
- ------------------------------------------------------------------------------
Chief Technology
Officer 2004 *
- ------------------------------------------------------------------------------
John Boneparth 2005 *
- ------------------------------------------------------------------------------
Head of Global
Institutional Mgmt 2004 *
- ------------------------------------------------------------------------------
Joshua Brooks 2005 *
- ------------------------------------------------------------------------------
Deputy Head of
Investments N/A
- ------------------------------------------------------------------------------
Kevin Cronin 2005 *
- ------------------------------------------------------------------------------
Head of Investments 2004 *
- ------------------------------------------------------------------------------
Charles Haldeman, Jr. 2005 *
- ------------------------------------------------------------------------------
President and CEO 2004 *
- ------------------------------------------------------------------------------
Amrit Kanwal 2005 *
- ------------------------------------------------------------------------------
Chief Financial
Officer 2004 *
- ------------------------------------------------------------------------------
Steven Krichmar 2005 *
- ------------------------------------------------------------------------------
Chief of Operations 2004 *
- ------------------------------------------------------------------------------
Francis McNamara, III 2005 *
- ------------------------------------------------------------------------------
General Counsel 2004 *
- ------------------------------------------------------------------------------
Richard Monaghan 2005 *
- ------------------------------------------------------------------------------
Head of Retail
Management 2004 *
- ------------------------------------------------------------------------------
Richard Robie, III 2005 *
- ------------------------------------------------------------------------------
Chief Administrative
Officer 2004 *
- ------------------------------------------------------------------------------
Edward Shadek 2005 *
- ------------------------------------------------------------------------------
Deputy Head of
Investments N/A
- ------------------------------------------------------------------------------
N/A indicates the individual was not a member of Putnam's Executive Board
as of 6/30/04.
Terms and definitions
- ----------------------------------------------------------------------------
Important terms
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 (since reduced to 3.25%).
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.
- ----------------------------------------------------------------------------
Share classes
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 global
investment-grade fixed-income securities.
JP Morgan Global High Yield Index is an unmanaged index of global high-yield
fixed-income securities.
Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade
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 equity securities from developed countries in Western Europe, the Far
East, and Australasia.
Russell 1000 Index is an unmanaged index of the 1,000 largest companies in
the Russell 3000 Index.
Russell 2000 Index is an unmanaged index of the 2,000 smallest companies in
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 total return 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 your fund's management contract with Putnam Management and
its sub-management contract with Putnam Management's affiliate, Putnam
Investments Limited ("PIL"). In this regard, the Board of Trustees, with the
assistance of its Contract Committee consisting solely of Trustees who are
not "interested persons" (as such term is defined in the Investment Company
Act of 1940, as amended) of the Putnam funds (the "Independent Trustees"),
requests and evaluates all information it deems reasonably necessary under
the circumstances. Over the course of several months beginning in March and
ending in June 2005, the Contract Committee met five times to consider 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 management contract and
sub-management contract, effective July 1, 2005. Because PIL is an affiliate
of Putnam Management and Putnam Management remains fully responsible for all
services provided by PIL, the Trustees have not evaluated PIL as a separate
entity and all subsequent references to Putnam Management below should be
deemed to include reference to PIL as necessary or appropriate in the
context.
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 services, 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 and how the Trustees considered these factors are described
below, although individual Trustees may have evaluated the information
presented differently, giving different weights to various factors. It is
also important to recognize that the fee arrangements for your fund and the
other Putnam funds are the result of many years of review and discussion
between the Independent Trustees and Putnam Management, that certain aspects
of such arrangements may receive greater scrutiny in some years than others,
and that the Trustees' conclusions may be based, in part, on their
consideration of these same arrangements in prior years.
- ----------------------------------------------------------------------------
Model fee schedules and categories; total expenses
The Trustees' review of the management fees and total expenses of the Putnam
funds focused on three major themes:
* Consistency. 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 family of funds and
compares favorably with fees paid by competitive funds sponsored by other
investment advisers. Under this approach, each Putnam fund is assigned to
one of several fee categories based on a combination of factors, including
competitive fees and perceived difficulty of management, and a common fee
schedule is implemented for all funds in a given fee category. The Trustees
reviewed the model fee schedule currently in effect for your fund, including
fee levels and breakpoints, and the assignment of the fund to a particular
fee category under this structure. ("Breakpoints" refer to reductions in fee
rates that apply to additional assets once specified asset levels are
reached.) The Trustees concluded that no changes should be made in the
fund's current fee schedule at this time.
* Competitiveness. The Trustees also reviewed comparative fee and expense
information for competitive funds, which indicated that, in a custom peer
group of competitive funds selected by Lipper Inc., your fund ranked in the
first percentile in management fees and in the first percentile in total
expenses (less any applicable 12b-1 fees) as of December 31, 2004 (the first
percentile being the least expensive funds and the 100th percentile being
the most expensive funds). The Trustees noted that expense ratios for a
number of Putnam funds, which show the percentage of fund assets used to pay
for management and administrative services, distribution (12b-1) fees and
other expenses, 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 and which Putnam Management, in
consultation with the Contract Committee, has committed to maintain at least
through 2006. The Trustees expressed their intention to monitor this
information closely to ensure that fees and expenses of the Putnam funds
continue to meet evolving competitive standards.
* Economies of scale. 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. Your fund currently has the benefit of
breakpoints in its management fee that provide shareholders with significant
economies of scale, which means that the effective management fee rate of a
fund (as a percentage of fund assets) declines as a fund grows in size and
crosses specified asset thresholds. The Trustees examined the existing
breakpoint structure of the funds' management fees in light of competitive
industry practices. The Trustees considered various possible modifications
to the current breakpoint structure, but ultimately concluded that the current
breakpoint structure continues to serve the interests of fund shareholders.
Accordingly, the Trustees continue to believe that the fee schedules
currently in effect for the funds represent an appropriate sharing of
economies of scale at current asset levels. The Trustees noted that
significant redemptions 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. In view of
these changes, the Trustees intend to consider whether a greater sharing of
the economies of scale by fund shareholders would be appropriate if and when
aggregate assets in the Putnam funds begin to experience meaningful growth.
In connection with their review of the management fees and total expenses of
the Putnam funds, the Trustees also reviewed the costs of the services to be
provided and profits to be realized by Putnam Management and its affiliates
from the relationship with the funds. This information included trends in
revenues, expenses and profitability of Putnam Management and its affiliates
relating to the investment management and distribution services provided to
the funds. In this regard, the Trustees also reviewed an analysis of Putnam
Management's revenues, expenses and profitability with respect to the funds'
management contracts, allocated on a fund-by-fund basis.
- ----------------------------------------------------------------------------
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 your fund's management
contract. The Trustees were assisted in their review of the funds'
investment process and performance by the work of the Investment Oversight
Committees of the Trustees, which meet on a regular monthly basis with the
funds' portfolio teams throughout the year. The Trustees concluded that
Putnam Management generally provides 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 -- but also recognize that this 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
underperformance 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 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.
In the case of your fund, the Trustees considered that your fund's Class A
share performance at net asset value was in the following percentiles of its
Lipper Inc. peer group for the one-, three- and five-year periods ended
December 31, 2004 (the first percentile being the best performing funds and
the 100th percentile being the worst performing funds):
One-year period Three-year period Five-year period
- -----------------------------------------------------------------------------
48th 59th 22nd
(Because of the passage of time, these performance results may differ from
the performance results for more recent periods shown elsewhere in this
report.)
As a general matter, the Trustees believe that cooperative efforts between
the Trustees and Putnam Management represent the most effective way to
address investment performance problems. The Trustees believe that investors
in the Putnam funds have, in effect, placed their trust in the Putnam
organization, under the oversight of the funds' Trustees, to make
appropriate decisions regarding the management of the funds. Based on the
responsiveness of Putnam Management in the recent past to Trustee concerns
about investment performance, the Trustees believe that it is preferable to
seek change within Putnam Management to address performance shortcomings. In
the Trustees' view, the alternative of terminating a management contract and
engaging a new investment adviser for an underperforming fund would entail
significant disruptions and would not 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, whereby a portion of the commissions
paid by a fund for brokerage is earmarked to pay for research services that
may be utilized by a fund's investment adviser. The Trustees believe that
soft-dollar credits and other potential benefits associated with the
allocation of fund brokerage, which pertains mainly to funds investing in
equity securities, represent assets of the funds that should be used for the
benefit of fund shareholders. This area has been marked by significant
change in recent years. In July 2003, acting upon the Contract Committee's
recommendation, the Trustees directed that allocations of brokerage to
reward firms that sell fund shares be discontinued no later than December
31, 2003. In addition, commencing in 2004, the allocation of brokerage
commissions by Putnam Management to acquire research services from
third-party service providers has been significantly reduced, and continues
at a modest level only to acquire research that is customarily not available
for cash. The Trustees will 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.
The Trustees' annual review of your fund's management contract also included
the review of its distributor's contract and distribution plan with Putnam
Retail Management Limited Partnership and the custodian agreement and investor
servicing agreement with Putnam Fiduciary Trust Company, all of which provide
benefits to affiliates of Putnam Management.
- -----------------------------------------------------------------------------
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of their annual contract
review has included for many years information regarding fees charged by
Putnam Management and its affiliates to institutional clients such as defined
benefit pension plans, college endowments, etc. This information included
comparison of such fees with fees charged to the funds, as well as a detailed
assessment of the differences in the services provided to these two types of
clients. The Trustees observed, in this regard, that the differences in fee
rates between institutional clients and the 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
reflect to a substantial degree historical competitive forces operating in
separate market places. The Trustees considered the fact that fee rates across
all asset sectors are higher on average for mutual funds than for
institutional clients, as well as the differences between the services that
Putnam Management provides to the Putnam funds and those that it provides to
institutional clients of the firm, but have not relied on such comparisons to
any significant extent in concluding that the management fees paid by your
fund are reasonable.
Other information for shareholders
- -----------------------------------------------------------------------------
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone numbers,
Social Security numbers, and the names of their financial advisors. We use
this information to assign an account number and to help us maintain accurate
records of transactions and account balances. It is our policy to protect the
confidentiality of your information, whether or not you currently own shares
of our funds, and in particular, not to sell information about you or your
accounts to outside marketing firms. We have safeguards in place designed to
prevent unauthorized access to our computer systems and procedures to protect
personal information from unauthorized use. Under certain circumstances, we
share this information with outside vendors who provide services to us, such
as mailing and proxy solicitation. In those cases, the service providers enter
into confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to your
account. We may also share this information with our Putnam affiliates to
service your account or provide you with information about other Putnam
products or services. It is also our policy to share account information with
your financial advisor, if you've listed one on your Putnam account. If you
would like clarification about our confidentiality policies or have any
questions or concerns, please don't hesitate to contact us at 1-800-225-1581,
Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to
5:00 p.m. Eastern Time.
- -----------------------------------------------------------------------------
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,
2005, are available on the Putnam Individual Investor Web site,
www.putnam.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
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.
Financial statements
- -----------------------------------------------------------------------------
A guide to the financial statements
These sections of the report, as well as the accompanying Notes, preceded by
the Report of Independent Registered Public Accounting Firm, constitute the
fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
ofthe last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price are determined. All investment and noninvestment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss. This is
done by first adding up all the fund's earnings -- from dividends and interest
income -- and subtracting its operating expenses to determine net investment
income (or loss). Then, any net gain or loss the fund realized on the sales
of its holdings -- as well as any unrealized gains or losses over the period
- -- is added to or subtracted from the net investment result to determine the
fund's net gain or loss for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, by distributions to
shareholders, and by changes in the number of the fund's shares. It lists
distributions and their sources (net investment income or realized capital
gains) over the current reporting period and the most recent fiscal year-end.
The distributions listed here may not match the sources listed in the
Statement of operations because the distributions are determined on a tax
basis and may be paid in a different period from the one in which they were
earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios, and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-end funds, a separate table is provided
for each share class.
- -----------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of
Putnam International Equity Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Putnam International Equity Fund
(the "fund") at June 30, 2005, and the results of its operations, the changes
in its net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at June 30, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 9, 2005
The fund's portfolio 6/30/05
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (99.1%) *
- -----------------------------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------------------------------------
Australia (1.2%)
Adelaide Brighton, Ltd. 2,187,044 $3,110,750
Alumina, Ltd. 294,219 1,241,449
BlueScope Steel, Ltd. 289,007 1,792,646
Commonwealth Bank of Australia 226,681 6,537,604
Macquarie Bank, Ltd. 901,311 40,800,076
Macquarie Infrastructure Group 432,578 1,366,467
News Corp., Ltd. (The) Class B 88,800 1,497,168
QBE Insurance Group, Ltd. 503,357 6,130,826
Rio Tinto, Ltd. 133,691 4,538,970
Woolworths, Ltd. 225,278 2,822,029
69,837,985
- ------------------------------------------------------------------------------------------------
Belgium (2.0%)
InBev NV 1,858,158 62,864,548
KBC Groupe SA 640,836 50,516,959
Solvay SA 12,207 1,253,593
Umicore NV/SA 24,068 1,920,974
116,556,074
- ------------------------------------------------------------------------------------------------
Bermuda (0.6%)
ACE, Ltd. 98,100 4,399,785
XL Capital, Ltd. Class A 412,594 30,705,245
35,105,030
- ------------------------------------------------------------------------------------------------
Brazil (1.8%)
All America Latina Logistica 11,950 352,016
Braskem SA Class A (Preference) 71,200 590,064
Companhia Vale do Rio Doce (CVRD) ADR 17,820 521,770
Petroleo Brasileiro SA ADR 1,254,055 65,373,887
Tele Norte Leste Participacoes SA ADR 1,241,302 20,667,678
Unibanco-Uniao de Bancos Brasileiros SA GDR 456,691 17,637,406
105,142,821
- ------------------------------------------------------------------------------------------------
Canada (1.8%)
Agrium, Inc. 23,942 468,086
ATI Technologies, Inc. + 1,227,637 14,537,147
Bank of Montreal 17,550 817,376
Barrick Gold Corp. 19,500 487,301
Brascan Corp. Class A 2,800 107,015
Canadian Imperial Bank of Commerce 22,429 1,388,235
Canadian National Railway Co. 283,722 16,376,865
Canadian Natural Resources, Ltd. 1,622,290 58,823,745
Canadian Pacific Railway, Ltd. 11,400 394,648
CI Fund Management, Inc. 3,276 47,220
Dofasco, Inc. 15,878 500,523
EnCana Corp. 16,200 639,401
Imperial Oil, Ltd. 8,509 708,933
ING Canada, Inc. 10,400 283,590
ING Canada, Inc. 144A 1,530 41,720
IPSCO, Inc. 9,523 415,450
Magna International, Inc. Class A 5,319 373,829
Manulife Financial Corp. 31,211 1,491,348
National Bank of Canada 18,377 816,572
Nexen, Inc. 26,400 802,025
Power Financial Corp. 15,737 419,996
Potash Corp. Of Saskatchewan, Inc. 1,731 165,325
Precision Drilling Corp. + 9,094 358,636
Royal Bank of Canada 6,300 390,502
Shell Canada, Ltd. 10,560 283,641
Shoppers Drug Mart Corp. 29,136 1,011,254
Talisman Energy, Inc. 9,731 364,764
Teck Corp. 24,377 822,985
Telus Corp. 31,605 1,078,622
104,416,754
- ------------------------------------------------------------------------------------------------
Chile (--%)
Compania Telecommunicaciones de Chile SA ADR 21,700 220,689
- ------------------------------------------------------------------------------------------------
China (1.1%)
China Life Insurance Co., Ltd. + 45,400,000 30,898,295
China Shenhua Energy Co., Ltd. + 1,155,500 1,114,917
China Shenhua Energy Co., Ltd. Class H + 30,503,500 29,432,169
China Telecom Corp., Ltd. 2,078,000 742,149
Lianhua Supermarket Holdings Co., Ltd. 298,000 339,096
Shanghai Forte Land Co., Ltd. 1,594,000 413,174
Yanzhou Coal Mining Co., Ltd. 212,400 165,647
63,105,447
- ------------------------------------------------------------------------------------------------
Denmark (0.6%)
TDC A/S 881,942 37,769,257
- ------------------------------------------------------------------------------------------------
Egypt (--%)
Orascom Construction Industries (OCI) 10,005 285,453
- ------------------------------------------------------------------------------------------------
Finland (1.5%)
Nokia OYJ 5,066,827 84,345,570
Orion-Yhtymae OYJ Class B 114,369 2,206,015
Sampo OYJ Class A 139,880 2,180,314
88,731,899
- ------------------------------------------------------------------------------------------------
France (13.1%)
Air Liquide 16,198 2,754,359
Autoroutes du Sud de la France (ASF) 40,557 2,311,987
Axa SA 174,208 4,333,709
BNP Paribas SA 1,258,331 86,055,762
Business Objects SA + 127,094 3,356,523
Christian Dior SA 32,508 2,512,767
Credit Agricole SA 3,702,831 93,585,131
France Telecom SA 2,966,349 86,202,793
France Telecom SA 144A 1,250,182 36,330,580
Groupe Danone 22,205 1,947,449
LVMH Moet Hennessy Louis Vuitton SA 32,199 2,479,889
Renault SA 1,054,425 92,689,229
Sanofi-Synthelabo SA 19,450 1,592,805
Schneider Electric SA 53,507 4,022,876
Societe des Autoroutes du Nord et de l'Est de la France 144A + 15,000 804,578
Societes Des Autoroutes Paris-Rhin-Rhone 455,036 26,965,500
Societes Des Autoroutes Paris-Rhin-Rhone 144A 2,344 138,906
Thales SA 9,650 391,169
Total SA 692,935 162,319,820
Veolia Environnement 1,416,235 53,033,815
Vinci SA 15,382 1,279,946
Vivendi Universal SA 3,044,858 95,380,849
Vivendi Universal SA 144A 589,042 18,451,871
778,942,313
- ------------------------------------------------------------------------------------------------
Germany (3.6%)
Allianz AG 122,950 14,111,892
BASF AG 1,645,502 109,095,367
Bayerische Motoren Werke (BMW) AG 64,446 2,942,386
Commerzbank AG 103,000 2,233,718
Deutsche Lufthansa AG 46,350 567,868
E.On AG 40,598 3,605,337
Henkel KGaA 35,882 3,017,978
Henkel KGaA (Preferred) 60,300 5,388,338
Hypo Real Estate Holding 193,062 7,317,497
Linde AG 48,000 3,232,254
Metro AG 69,934 3,461,053
Porsche AG (Preferred) 2,105 1,578,125
Premiere AG 144A + 15,530 535,147
SAP AG 7,967 1,387,046
Schwarz Pharma AG 305,432 13,796,982
Siemens AG 587,638 42,774,735
ThyssenKrupp AG 24,700 428,243
215,473,966
- ------------------------------------------------------------------------------------------------
Greece (0.9%)
EFG Eurobank Ergasias SA 47,307 1,453,162
Greek Organization of Football Prognostics SA 27,820 803,660
Hellenic Telecommunication Organization (OTE) SA 986,187 19,102,993
National Bank of Greece SA 605,997 20,516,118
National Bank of Greece SA 144A 273,633 9,263,886
51,139,819
- ------------------------------------------------------------------------------------------------
Hong Kong (1.3%)
China Netcom Group Corp. Hong Kong, Ltd. 20,923,500 30,359,961
Esprit Holdings, Ltd. 248,000 1,784,338
Hong Kong Electric Holdings, Ltd. 178,000 811,387
Orient Overseas International, Ltd. 121,000 527,179
Sun Hung Kai Properties, Ltd. 155,000 1,524,264
Swire Pacific, Ltd. 4,854,500 42,744,117
Wing Hang Bank, Ltd. 243,000 1,584,820
79,336,066
- ------------------------------------------------------------------------------------------------
Hungary (0.2%)
OTP Bank Rt. 279,338 9,434,494
- ------------------------------------------------------------------------------------------------
India (0.6%)
Infosys Technologies, Ltd. 6,960 376,787
National Thermal Power Corp., Ltd. 13,187,118 25,167,696
Reliance Industries, Ltd. 770,073 11,369,559
Satyam Computer Services., Ltd. 32,127 374,350
37,288,392
- ------------------------------------------------------------------------------------------------
Indonesia (--%)
PT Telekomunikasi 676,000 348,898
- ------------------------------------------------------------------------------------------------
Ireland (0.9%)
Allied Irish Banks PLC 144,175 3,083,821
Bank of Ireland PLC 456,383 7,398,028
CRH PLC 172,531 4,580,128
Depfa Bank PLC 1,683,961 27,088,048
Eircom Group PLC 2,821,483 6,278,124
Iaws Group PLC 186,701 2,611,815
51,039,964
- ------------------------------------------------------------------------------------------------
Israel (--%)
Bank Hapoalim, Ltd. 202,541 634,890
Bank Hapoalim, Ltd. 144A 20,300 63,633
Teva Pharmaceutical Industries, Ltd. 11,121 346,876
1,045,399
- ------------------------------------------------------------------------------------------------
Italy (1.5%)
Banca Intesa SpA 492,500 2,100,502
Banca Popolare di Milano Scarl (BPM) 229,578 2,259,040
ENI SpA 177,712 4,555,276
Mediaset SpA 6,900,573 81,230,420
Telecom Italia SpA RNC 104,338 270,141
90,415,379
- ------------------------------------------------------------------------------------------------
Japan (22.6%)
Acom Co., Ltd. 514,460 32,887,742
Aeon Co., Ltd. 1,875,700 28,587,447
Aeon Co., Ltd. 144A 118,400 1,804,528
Astellas Pharma, Inc. 2,945,600 100,631,409
Bridgestone Corp. 126,000 2,413,286
Brother Industries, Ltd. 121,000 1,108,089
Canon, Inc. 2,260,500 118,531,625
Credit Saison Co., Ltd. 951,300 31,557,567
Dai Nippon Printing Co., Ltd. 3,249,000 52,263,205
Daito Trust Construction Co., Ltd. 793,400 29,653,521
Dowa Mining Co., Ltd. 121,000 800,916
East Japan Railway Co. 9,553 49,026,451
Fanuc, Ltd. 48,100 3,051,486
Fuji Television Network, Inc. 8,027 15,535,345
Fujitsu, Ltd. 230,000 1,198,224
FUNAI Electric Co., Ltd. 33,500 3,428,321
Hirose Electric Co., Ltd. 9,900 1,086,530
Honda Motor Co., Ltd. 22,000 1,083,400
Japan Tobacco, Inc. 7,211 96,207,729
JFE Holdings, Inc. 92,400 2,273,289
JGC Corp. 2,496,000 30,609,582
Joyo Bank, Ltd. (The) 135,000 660,718
Jupiter Telecommunications Co. 144A + 606 509,674
Jupiter Telecommunications Co., Ltd. + 35,026 29,458,510
Kansai Electric Power, Inc. 37,800 760,060
KDDI Corp. 135 623,551
Komatsu, Ltd. 153,000 1,182,507
Konica Corp. 1,852,000 17,215,488
Kubota Corp. 386,000 2,109,199
Lawson, Inc. 569,800 19,877,363
Matsushita Electric Industrial Co. 396,000 6,015,188
Mitsubishi Corp. 423,900 5,740,298
Mitsubishi Tokyo Finance Group, Inc. 8,530 72,082,629
Mitsui & Co., Ltd. 6,248,000 58,919,131
Mitsui Chemicals, Inc. 164,000 959,578
Mizuho Financial Group, Inc. 11,822 53,296,789
Nidec Corp. 16,600 1,749,917
Nintendo Co., Ltd. 23,700 2,471,486
Nippon Telegraph & Telephone (NTT) Corp. 310 1,330,117
Nissan Motor Co., Ltd. 387,000 3,813,867
Nomura Research Institute, Ltd. 215,300 21,331,438
Nomura Securities Co., Ltd. 224,100 2,663,749
NTT DoCoMo, Inc. 11,060 16,276,279
Obayashi Corp. 97,000 518,350
Obic Co., Ltd. 12,400 2,100,452
Omron Corp. 1,702,800 37,555,643
Onward Kashiyama Co., Ltd. 1,641,000 20,754,579
Orix Corp. 167,300 25,043,063
Sankyo Co., Ltd. 2,215,400 42,445,111
Sankyo Co., Ltd. 20,700 959,974
Santen Pharmaceutical Co., Ltd. 51,700 1,174,567
Shin-Etsu Chemical Co. 31,000 1,172,825
SMC Corp. 212,685 23,091,920
Sony Corp. 12,600 434,376
Sumitomo Electric Industries, Ltd. 149,000 1,514,761
Taisho Pharmaceutical Co., Ltd. 47,000 912,688
Takeda Pharmaceutical Co., Ltd. 418,000 20,689,132
Takefuji Corp. 82,050 5,545,312
Tokyo Electric Power Co. 62,400 1,491,087
Tokyo Gas Co., Ltd. 14,796,000 55,303,020
TonenGeneral Sekiyu KK 2,650,000 28,675,684
Toshiba Corp. 343,000 1,360,666
Toto, Ltd. 144,000 1,135,857
Toyo Suisan Kaisha, Ltd. 76,000 1,188,790
Toyota Motor Corp. 4,050,500 144,971,980
Uni-Charm Corp. 47,600 1,914,061
Yamada Denki Co., Ltd. 32,500 1,861,632
1,344,602,758
- ------------------------------------------------------------------------------------------------
Luxembourg (--%)
Arcelor 60,426 1,179,640
- ------------------------------------------------------------------------------------------------
Malaysia (--%)
Airasia BHD + 790,600 340,196
Public Bank Berhad 184,000 324,423
664,619
- ------------------------------------------------------------------------------------------------
Mexico (0.7%)
Coca-Cola Femsa SA de CV ADR (S) 13,000 347,230
Grupo Mexico SA 257,000 419,677
Telefonos de Mexico SA de CV (Telmex) ADR Ser. L 2,277,666 43,025,111
Wal-Mart de Mexico SA de CV Ser. V 82,100 333,190
44,125,208
- ------------------------------------------------------------------------------------------------
Netherlands (5.5%)
ASML Holding NV + 102,856 1,608,329
European Aeronautic Defense and Space Co. (S) 1,754,678 55,695,772
ING Groep NV 153,084 4,308,038
Koninklijke (Royal) KPN NV 7,915,118 66,314,610
Koninklijke (Royal) KPN NV 144A 1,245,685 10,436,625
Koninklijke (Royal) Philips Electronics NV 56,206 1,413,780
Royal Dutch Petroleum Co. 1,766,252 114,985,964
Royal Numico NV + 111,369 4,442,814
SBM Offshore NV 167,216 11,449,923
TNT NV 2,238,312 56,692,468
327,348,323
- ------------------------------------------------------------------------------------------------
New Zealand (0.3%)
Telecom Corp. of New Zealand, Ltd. 4,217,969 17,614,306
- ------------------------------------------------------------------------------------------------
Norway (1.3%)
DnB Holdings ASA 248,400 2,576,848
Norsk Hydro ASA 713,369 65,198,584
Smedvig ASA Class A 437,490 8,809,615
Telenor ASA 44,000 349,285
76,934,332
- ------------------------------------------------------------------------------------------------
Portugal (--%)
Energias de Portugal (EDP) SA 567,605 1,428,092
- ------------------------------------------------------------------------------------------------
Russia (--%)
Lukoil 39,325 1,438,443
Pyaterochka Holding NV 144A GDR + 31,095 447,768
Sberbank RF 620 409,200
2,295,411
- ------------------------------------------------------------------------------------------------
Singapore (2.0%)
DBS Group Holdings, Ltd. 6,981,648 59,035,900
Flextronics International, Ltd. + 1,444,000 19,075,240
Flextronics International, Ltd. + 78,969 1,055,335
SembCorp Industries, Ltd. 147,580 233,084
Singapore Airlines, Ltd. 5,716,000 37,902,175
Singapore Telecommunications, Ltd. 406,000 667,078
StarHub Ltd. + 62,000 67,166
118,035,978
- ------------------------------------------------------------------------------------------------
South Africa (0.1%)
African Bank Investments, Ltd. 119,500 333,768
Barloworld, Ltd. 31,000 441,270
Foschini, Ltd. 102,600 605,746
Impala Platinum Holdings, Ltd. 3,750 334,898
Lewis Group, Ltd. 62,459 341,611
Liberty Group, Ltd. 38,900 346,025
Murray & Roberts Holdings, Ltd. 176,600 370,314
Reunert, Ltd. 90,864 499,224
Standard Bank Investment Corp., Ltd. 32,505 313,792
3,586,648
- ------------------------------------------------------------------------------------------------
South Korea (1.6%)
Hanwha Chemical Corp. 24,600 291,754
Hyundai Department Store Co., Ltd. 6,490 298,811
Hyundai Motor Co. 11,610 642,217
Hyundai Motor Co. GDR 144A 605,651 17,104,632
Kookmin Bank 7,600 346,409
KT Freetel Co., Ltd. 5,510 127,515
LG Electronics, Inc. 5,650 356,588
LG Engineering & Construction, Ltd. 12,690 417,760
Pohang Iron & Steel Co., Ltd. 1,850 326,242
Samsung Electronics Co., Ltd. 152,016 72,128,634
Samsung Electronics Co., Ltd. GDR 2,138 508,429
92,548,991
- ------------------------------------------------------------------------------------------------
Spain (2.0%)
Altadis SA 780,133 32,618,199
Cintra Concesiones de Infraestructuras de Transporte SA 46,913 549,353
Cintra Concesiones de Infraestructuras de Transporte SA 144A 9,170 107,381
Gas Natural SDG SA 32,461 954,258
Gestevision Telecinco SA (S) 292,730 6,826,149
Gestevision Telecinco SA 144A 1,140 26,584
Iberdrola SA 2,790,071 73,384,936
Indra Sistemas SA Class A 81,739 1,614,776
Telefonica SA 256,204 4,184,442
120,266,078
- ------------------------------------------------------------------------------------------------
Sweden (2.9%)
Assa Abloy AB Class B 1,721,240 22,096,039
Hennes & Mauritz AB Class B 1,347,472 47,348,347
Nordea AB 6,839,458 62,032,240
Securitas AB Class B 75,588 1,259,030
Skanska AB Class B 66,600 821,307
SKF AB Class B 3,088,468 31,506,132
Tele2 AB Class B 19,650 184,205
Telefonaktiebolaget LM Ericsson AB Class B 2,261,386 7,229,197
Volvo AB Class B 31,500 1,279,116
Vostok Nafta Investment, Ltd. + 29,000 559,049
174,314,662
- ------------------------------------------------------------------------------------------------
Switzerland (9.5%)
Adecco SA 21,208 963,369
Ciba Specialty Chemicals AG 65,139 3,784,728
Credit Suisse Group 1,692,701 66,451,210
Nestle SA 11,813 3,025,427
Nobel Biocare Holding AG 4,263 863,303
Novartis AG 2,499,174 118,777,286
Roche Holding AG 1,227,147 154,851,509
Straumann Holding AG 1,643 342,033
Swatch Group AG (The) 194,754 5,557,941
Swatch Group AG (The) Class B 267,587 37,517,390
Swiss Re 1,518,498 93,126,010
Synthes, Inc. 8,674 951,133
Zurich Financial Services AG 461,277 79,270,158
565,481,497
- ------------------------------------------------------------------------------------------------
Taiwan (1.3%)
ASE Test, Ltd. + 175,433 1,129,789
AU Optronics Corp. 190,000 316,760
Cathay Financial Holding Co., Ltd. 371,000 749,012
Chinatrust Financial Holding Co. 25,979,000 28,354,859
Chunghwa Telecom Co., Ltd. 285,000 583,848
Hon Hai Precision Industry Co., Ltd. 124,000 643,961
Siliconware Precision Industries Co. 413,000 405,412
Taiwan Semiconductor Manufacturing Co., Ltd. 17,915,532 31,061,025
United Microelectronics Corp. 23,170,000 16,805,715
Yuanta Core Pacific Securities Co. + 617,000 456,270
80,506,651
- ------------------------------------------------------------------------------------------------
Thailand (--%)
Advanced Info Service Public Co., Ltd. 194,500 460,609
Krung Thai Bank Public Co., Ltd. 2,103,800 471,969
932,578
- ------------------------------------------------------------------------------------------------
Turkey (--%)
Akbank TAS 60,010 343,912
Dogan Yayin Holding + 152,297 381,663
725,575
- ------------------------------------------------------------------------------------------------
United Kingdom (16.6%)
AstraZeneca PLC 153,360 6,339,096
BAE Systems PLC 303,650 1,554,843
Barclays PLC 12,743,915 126,485,101
BHP Billiton PLC 1,727,212 22,159,991
British Airways PLC + 146,445 688,664
British Sky Broadcasting PLC 174,229 1,642,415
Burberry Group PLC 366,029 2,635,721
Carnival PLC 31,914 1,813,040
Compass Group PLC 166,031 696,716
Diageo PLC 411,995 6,055,681
Enterprise Inns PLC 1,129,208 16,825,081
GlaxoSmithKline PLC 2,264,462 54,651,357
GUS PLC 148,977 2,342,693
Hilton Group PLC 352,220 1,799,716
HSBC Holdings PLC 506,533 8,075,391
Imperial Tobacco Group PLC 149,812 4,024,499
International Power PLC 1,288,495 4,754,296
ITV PLC 558,885 1,230,000
John Wood Group PLC 539,899 1,656,111
Lloyds TSB Group PLC 1,109,540 9,381,262
Marks & Spencer PLC 143,332 923,190
Next PLC 52,678 1,419,163
Peninsular and Oriental Steam Navigation Co. 201,927 1,145,330
Punch Taverns PLC 2,372,881 31,054,793
Reckitt Benckiser PLC 2,641,407 77,631,035
Rio Tinto PLC 1,850,371 56,352,591
Royal Bank of Scotland Group PLC 3,842,389 115,741,738
Royal Bank of Scotland Group PLC 144A 1,293,868 38,974,328
Scottish and Southern Energy PLC 139,176 2,517,192
Scottish Power PLC 218,558 1,936,803
Severn Trent PLC 39,399 716,148
Shell Transport & Trading Co. PLC 6,370,404 61,728,831
Tesco PLC 14,882,042 84,790,846
Vodafone Group PLC 96,235,407 233,907,775
WPP Group PLC 135,328 1,388,639
985,040,076
- ------------------------------------------------------------------------------------------------
Total common stocks (cost $5,394,694,009) $5,893,267,522
- ------------------------------------------------------------------------------------------------
WARRANTS (--%) * + (cost $486,360)
- ------------------------------------------------------------------------------------------------
Expiration
date Warrants Value
- ------------------------------------------------------------------------------------------------
Hanaro Telecom, Inc. 144A Structured Exercise Call
Warrants (issued by UBS AG) 9/5/05 186,865 $452,239
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (1.5%) *
- ------------------------------------------------------------------------------------------------
Principal amount/shares Value
- ------------------------------------------------------------------------------------------------
Short-term investments held as collateral for
loaned securities with yields ranging from 2.30%
to 3.59% and due dates ranging from July 1, 2005
to August 17, 2005 (d) $13,032,169 $13,031,073
- ------------------------------------------------------------------------------------------------
Putnam Prime Money Market Fund (e) 77,907,116 77,907,116
- ------------------------------------------------------------------------------------------------
Total short-term investments (cost $90,938,189) $90,938,189
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
- ------------------------------------------------------------------------------------------------
Total investments (cost $5,486,118,558) $5,984,657,950
* Percentages indicated are based on net assets of $5,945,004,564.
+ Non-income-producing security.
(S) Securities on loan, in part or in entirety, at June 30, 2005.
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in Putnam
Prime Money Market Fund.
At June 30, 2005, liquid assets totaling $407,381,622 have been designated
as collateral for forward contracts and warrants.
144A after the name of a security represents those exempt from registration
under Rule 144A of the Securities Act of 1933. These securities may be
resold in transactions exempt from registration, normally to qualified
institutional buyers.
ADR or GDR after the name of a foreign holding stands for American
Depositary Receipts or Global Depositary Receipts, respectively,
representing ownership of foreign securities on deposit with a custodian bank.
The fund had the following industry group concentration greater than 10% at
June 30, 2005 (as a percentage of net assets):
Banking 14.40%
- ----------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS TO BUY at 6/30/05
(aggregate face value $1,375,291,642)
- ----------------------------------------------------------------------------
Aggregate Delivery Unrealized
Value face value date depreciation
- ----------------------------------------------------------------------------
Australian Dollar $529,156,341 $530,098,700 7/20/05 $(942,359)
British Pound 684,865,905 694,304,230 9/21/05 (9,438,325)
Euro 130,203,828 130,761,518 9/21/05 (557,690)
Norwegian Krone 5,137,872 5,244,144 9/21/05 (106,272)
Swiss Franc 14,837,937 14,883,050 9/21/05 (45,113)
- ----------------------------------------------------------------------------
Total $(11,089,759)
- ----------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS TO SELL at 6/30/05
(aggregate face value $981,719,452)
- ----------------------------------------------------------------------------
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
- ----------------------------------------------------------------------------
Australian Dollar $30,499,369 $30,435,267 7/20/05 $(64,102)
British Pound 29,594,966 30,013,025 9/21/05 418,059
Canadian Dollar 108,056,581 108,234,802 7/20/05 178,221
Euro 77,750,833 78,115,477 9/21/05 364,644
Japanese Yen 367,249,559 381,487,117 8/17/05 14,237,558
Swedish Krona 142,135,792 147,204,353 9/21/05 5,068,561
Swiss Franc 201,916,045 206,229,411 9/21/05 4,313,366
- ----------------------------------------------------------------------------
Total $24,516,307
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities 6/30/05
- -------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------
Investment in securities, at value, including
$12,409,551 of securities on loan (Note 1):
Unaffiliated issuers (identified cost
$5,408,211,442) $5,906,750,834
Affiliated issuers (identified cost
$77,907,116) (Note 5) 77,907,116
- -------------------------------------------------------------------------
Cash 2,212,076
- -------------------------------------------------------------------------
Foreign currency (cost $8,149,366) (Note 1) 8,139,149
- -------------------------------------------------------------------------
Dividends, interest and other receivables 11,614,635
- -------------------------------------------------------------------------
Receivable for shares of the fund sold 4,874,000
- -------------------------------------------------------------------------
Receivable for securities sold 31,213,419
- -------------------------------------------------------------------------
Receivable for open forward currency
contracts (Note 1) 24,580,409
- -------------------------------------------------------------------------
Receivable for closed forward currency
contracts (Note 1) 5,633,940
- -------------------------------------------------------------------------
Foreign tax reclaims receivable 3,206,153
- -------------------------------------------------------------------------
Total assets 6,076,131,731
- -------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------
Payable for securities purchased 42,498,104
- -------------------------------------------------------------------------
Payable for shares of the fund repurchased 44,524,459
- -------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2
and 5) 9,521,644
- -------------------------------------------------------------------------
Payable for investor servicing and custodian
fees (Note 2) 1,222,834
- -------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 432,081
- -------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,610
- -------------------------------------------------------------------------
Payable for distribution fees (Note 2) 3,401,133
- -------------------------------------------------------------------------
Payable for open forward currency contracts
(Note 1) 11,153,861
- -------------------------------------------------------------------------
Payable for closed forward currency contracts
(Note 1) 5,041,132
- -------------------------------------------------------------------------
Collateral on securities loaned, at value
(Note 1) 13,031,073
- -------------------------------------------------------------------------
Other accrued expenses 295,236
- -------------------------------------------------------------------------
Total liabilities 131,127,167
- -------------------------------------------------------------------------
Net assets $5,945,004,564
- -------------------------------------------------------------------------
REPRESENTED BY
- -------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized)
(Notes 1 and 4) $6,302,504,462
- -------------------------------------------------------------------------
Undistributed net investment income (Note 1) 97,570,644
- -------------------------------------------------------------------------
Accumulated net realized loss on investments
and foreign currency transactions (Note 1) (966,767,262)
- -------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 511,696,720
- -------------------------------------------------------------------------
Total -- Representing net assets applicable
to capital shares outstanding $5,945,004,564
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,137,593,365 divided by 134,158,322 shares) $23.39
- -------------------------------------------------------------------------
Offering price per class A share
(100/94.75 of $23.39)* $24.69
- -------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,344,142,144 divided by 59,766,419 shares)** $22.49
- -------------------------------------------------------------------------
Net asset value and offering price per class C share
($259,992,906 divided by 11,339,566 shares)** $22.93
- -------------------------------------------------------------------------
Net asset value and redemption price per class M share
($90,499,015 divided by 3,933,958 shares) $23.00
- -------------------------------------------------------------------------
Offering price per class M share
(100/96.75 of $23.00)* $23.77
- -------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($1,124,964 divided by 48,379 shares) $23.25
- -------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($1,111,652,170 divided by 47,200,127 shares) $23.55
- -------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
Statement of operations Year ended 6/30/05
- -------------------------------------------------------------------------
INVESTMENT INCOME
- -------------------------------------------------------------------------
Dividends (net of foreign tax of $13,990,767) $141,823,109
- -------------------------------------------------------------------------
Interest (including interest income of $1,109,187
from investments in affiliated issuers) (Note 5) 1,395,024
- -------------------------------------------------------------------------
Securities lending 137,445
- -------------------------------------------------------------------------
Other income (Note 6) 1,120,592
- -------------------------------------------------------------------------
Total investment income 144,476,170
- -------------------------------------------------------------------------
EXPENSES
- -------------------------------------------------------------------------
Compensation of Manager (Note 2) 40,627,357
- -------------------------------------------------------------------------
Investor servicing fees (Note 2) 18,648,768
- -------------------------------------------------------------------------
Custodian fees (Note 2) 6,757,266
- -------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 176,511
- -------------------------------------------------------------------------
Administrative services (Note 2) 110,717
- -------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 8,447,905
- -------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 14,895,194
- -------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 2,860,642
- -------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 741,310
- -------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 4,121
- -------------------------------------------------------------------------
Other 1,373,658
- -------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 6) 200,551
- -------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 6) (200,551)
- -------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Notes
2 and 5) (3,775,460)
- -------------------------------------------------------------------------
Total expenses 90,867,989
- -------------------------------------------------------------------------
Expense reduction (Note 2) (6,780,532)
- -------------------------------------------------------------------------
Net expenses 84,087,457
- -------------------------------------------------------------------------
Net investment income 60,388,713
- -------------------------------------------------------------------------
Net realized gain on investments(net of
foreign tax of $1,212,839) (Notes 1 and 3) 766,044,422
- -------------------------------------------------------------------------
Net realized loss on futures contracts
(Note 1) (3,417,165)
- -------------------------------------------------------------------------
Net realized gain on foreign currency
transactions (Note 1) 44,142,254
- -------------------------------------------------------------------------
Net unrealized appreciation of assets and
liabilities in foreign currencies during the year 15,419,901
- -------------------------------------------------------------------------
Net unrealized depreciation of investments
during the year (39,930,133)
- -------------------------------------------------------------------------
Net gain on investments 782,259,279
- -------------------------------------------------------------------------
Net increase in net assets resulting from
operations $842,647,992
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
- ---------------------------------------------------------------------------
DECREASE IN NET ASSETS
- ---------------------------------------------------------------------------
Year ended Year ended
6/30/05 6/30/04
- ---------------------------------------------------------------------------
Operations:
Net investment income $60,388,713 $61,370,398
- ---------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 806,769,511 1,942,476,471
- ---------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies (24,510,232) 152,013,685
- ---------------------------------------------------------------------------
Net increase in net assets resulting from
operations 842,647,992 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) 166,514 800,297
- ---------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (1,773,743,224) (6,484,427,258)
- ---------------------------------------------------------------------------
Total decrease in net assets (1,015,785,186) (4,478,067,544)
- ---------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------
Beginning of year 6,960,789,750 11,438,857,294
- ---------------------------------------------------------------------------
End of year (including undistributed net
investment income of $97,570,644 and
$78,902,422, respectively) $5,945,004,564 $6,960,789,750
The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------
PER-SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Year ended
6/30/05 6/30/04 6/30/03 6/30/02 6/30/01
- ------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.86 $17.43 $19.18 $21.24 $29.92
- ------------------------------------------------------------------------------------------------
Investment operations:
Net investment income (a) .25 (d,e) .15 (d) .22 .17 .16
- ------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.61 3.63 (1.93) (2.23) (6.64)
- ------------------------------------------------------------------------------------------------
Total from
investment operations 2.86 3.78 (1.71) (2.06) (6.48)
- ------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.33) (.35) (.04) -- (.39)
- ------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (1.81)
- ------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (f)
- ------------------------------------------------------------------------------------------------
Total distributions (.33) (.35) (.04) -- (2.20)
- ------------------------------------------------------------------------------------------------
Redemption fees -- (f) -- (f) -- -- --
- ------------------------------------------------------------------------------------------------
Net asset value,
end of period $23.39 $20.86 $17.43 $19.18 $21.24
- ------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.71 21.81 (8.93) (9.70) (22.43)
- ------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,137,593 $3,677,492 $6,855,608 $6,930,312 $6,896,924
- ------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.24 (d) 1.23 (d) 1.22 1.16 1.13
- ------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.11 (d,e) .74 (d) 1.33 .85 .63
- ------------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.79 69.27 53.11 (g) 42.17 73.80
(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 waiver of
certain fund expenses in connection with investments in Putnam Prime
Money Market Fund in effect during the period. As a result of such
limitation and waivers, expenses of the fund for the periods ended June
30, 2004 and June 30, 2005 reflect a reduction of 0.03% and 0.06%,
respectively, based on average net assets for class A shares (Notes 2
and 5).
(e) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to less than $0.01 per share and 0.02% of average net assets
for class A shares (Note 6).
(f) Amount represents less than $0.01 per share.
(g) 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
- ------------------------------------------------------------------------------------------------
PER-SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Year ended
6/30/05 6/30/04 6/30/03 6/30/02 6/30/01
- ------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.07 $16.79 $18.57 $20.72 $29.23
- ------------------------------------------------------------------------------------------------
Investment operations:
Net investment income
(loss) (a) .07 (d,e) .02 (d) .08 .01 (.04)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.51 3.47 (1.86) (2.16) (6.46)
- ------------------------------------------------------------------------------------------------
Total from
investment operations 2.58 3.49 (1.78) (2.15) (6.50)
- ------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.16) (.21) -- -- (.20)
- ------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (1.81)
- ------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (f)
- ------------------------------------------------------------------------------------------------
Total distributions (.16) (.21) -- -- (2.01)
- ------------------------------------------------------------------------------------------------
Redemption fees -- (f) -- (f) -- -- --
- ------------------------------------------------------------------------------------------------
Net asset value,
end of period $22.49 $20.07 $16.79 $18.57 $20.72
- ------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 12.86 20.84 (9.59) (10.38) (23.00)
- ------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,344,142 $1,577,583 $1,892,054 $2,326,938 $2,983,524
- ------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.99 (d) 1.98 (d) 1.97 1.91 1.88
- ------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) .35 (d,e) .12 (d) .51 .04 (.16)
- ------------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.79 69.27 53.11 (g) 42.17 73.80
(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 waiver of
certain fund expenses in connection with investments in Putnam Prime
Money Market Fund in effect during the period. As a result of such
limitation and waivers, expenses of the fund for the periods ended June
30, 2004 and June 30, 2005 reflect a reduction of 0.03% and 0.06%,
respectively, based on average net assets for class B shares (Notes 2
and 5).
(e) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to less than $0.01 per share and 0.02% of average net assets
for class B shares (Note 6).
(f) Amount represents less than $0.01 per share.
(g) 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
- ------------------------------------------------------------------------------------------------
PER-SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Year ended
6/30/05 6/30/04 6/30/03 6/30/02 6/30/01
- ------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.44 $17.05 $18.86 $21.03 $29.74
- ------------------------------------------------------------------------------------------------
Investment operations:
Net investment income
(loss) (a) .08 (d,e) -- (d)(f) .09 .01 (.02)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.55 3.55 (1.90) (2.18) (6.59)
- ------------------------------------------------------------------------------------------------
Total from
investment operations 2.63 3.55 (1.81) (2.17) (6.61)
- ------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.14) (.16) -- -- (.29)
- ------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (1.81)
- ------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (f)
- ------------------------------------------------------------------------------------------------
Total distributions (.14) (.16) -- -- (2.10)
- ------------------------------------------------------------------------------------------------
Redemption fees -- (f) -- (f) -- -- --
- ------------------------------------------------------------------------------------------------
Net asset value,
end of period $22.93 $20.44 $17.05 $18.86 $21.03
- ------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 12.87 20.86 (9.60) (10.32) (23.01)
- ------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $259,993 $313,496 $534,933 $601,907 $637,547
- ------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.99 (d) 1.98 (d) 1.97 1.91 1.88
- ------------------------------------------------------------------------------------------------
Ratio of net investment
income (loss)
to average net assets (%) .34 (d,e) .02 (d) .54 .07 (.07)
- ------------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.79 69.27 53.11 (g) 42.17 73.80
(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 waiver of
certain fund expenses in connection with investments in Putnam Prime
Money Market Fund in effect during the period. As a result of such
limitation and waivers, expenses of the fund for the periods ended June
30, 2004 and June 30, 2005 reflect a reduction of 0.03% and 0.06%,
respectively, based on average net assets for class C shares (Notes 2
and 5).
(e) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to less than $0.01 per share and 0.02% of average net assets
for class C shares (Note 6).
(f) Amount represents less than $0.01 per share.
(g) 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
- ------------------------------------------------------------------------------------------------
PER-SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Year ended
6/30/05 6/30/04 6/30/03 6/30/02 6/30/01
- ------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.51 $17.13 $18.90 $21.04 $29.61
- ------------------------------------------------------------------------------------------------
Investment operations:
Net investment income
(loss) (a) .13 (d,e) .05 (d) .11 .06 .03
- ------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.56 3.56 (1.88) (2.20) (6.54)
- ------------------------------------------------------------------------------------------------
Total from
investment operations 2.69 3.61 (1.77) (2.14) (6.51)
- ------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.20) (.23) -- -- (.25)
- ------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (1.81)
- ------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (f)
- ------------------------------------------------------------------------------------------------
Total distributions (.20) (.23) -- -- (2.06)
- ------------------------------------------------------------------------------------------------
Redemption fees -- (f) -- (f) -- -- --
- ------------------------------------------------------------------------------------------------
Net asset value,
end of period $23.00 $20.51 $17.13 $18.90 $21.04
- ------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.13 21.13 (9.37) (10.17) (22.75)
- ------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $90,499 $109,648 $187,266 $248,921 $302,838
- ------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.74 (d) 1.73 (d) 1.72 1.66 1.63
- ------------------------------------------------------------------------------------------------
Ratio of net investment
income (loss)
to average net assets (%) .60 (d,e) .28 (d) .73 .30 .11
- ------------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.79 69.27 53.11 (g) 42.17 73.80
(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 waiver of
certain fund expenses in connection with investments in Putnam Prime
Money Market Fund in effect during the period. As a result of such
limitation and waivers, expenses of the fund for the periods ended June
30, 2004 and June 30, 2005 reflect a reduction of 0.03% and 0.06%,
respectively, based on average net assets for class M shares (Notes 2
and 5).
(e) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to less than $0.01 per share and 0.02% of average net assets
for class M shares (Note 6).
(f) Amount represents less than $0.01 per share.
(g) 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
- ------------------------------------------------------------------------------------------------
PER-SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Year ended Year ended Period
6/30/05 6/30/04 1/21/03+-6/30/03
- ------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.77 $17.42 $16.52
- ------------------------------------------------------------------------------------------------
Investment operations:
Net investment income (a) .26 (d,e) .18 (d) .08
- ------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.52 3.55 .82
- ------------------------------------------------------------------------------------------------
Total from investment
operations 2.78 3.73 .90
- ------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.30) (.38) --
- ------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- --
- ------------------------------------------------------------------------------------------------
Total distributions (.30) (.38) --
- ------------------------------------------------------------------------------------------------
Redemption fees -- (f) -- (f) --
- ------------------------------------------------------------------------------------------------
Net asset value end of period $23.25 $20.77 $17.42
- ------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.38 21.50 5.45 *
- ------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,125 $559 $1
- ------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.49 (d) 1.48 (d) .65 *
- ------------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets (%) 1.17 (d,e) .84 (d) .47 *
- ------------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.79 69.27 53.11 (g)
+ 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 waiver of
certain fund expenses in connection with investments in Putnam Prime Money
Market Fund in effect during the period. As a result of such limitation and
waivers, expenses of the fund for the periods ended June 30, 2004 and June
30, 2005 reflect a reduction of 0.03% and 0.06%, respectively, based on
average net assets for class R shares (Notes 2 and 5).
(e) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to less than $0.01 per share and 0.02% of average net assets for
class R shares (Note 6).
(f) Amount represents less than $0.01 per share.
(g) 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
- ------------------------------------------------------------------------------------------------
PER-SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Year ended
6/30/05 6/30/04 6/30/03 6/30/02 6/30/01
- ------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $21.01 $17.57 $19.33 $21.35 $30.07
- ------------------------------------------------------------------------------------------------
Investment operations:
Net investment income (a) .29 (d,e) .19 (d) .28 .22 .23
- ------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.64 3.67 (1.96) (2.24) (6.69)
- ------------------------------------------------------------------------------------------------
Total from
investment operations 2.93 3.86 (1.68) (2.02) (6.46)
- ------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.39) (.42) (.08) -- (.45)
- ------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (1.81)
- ------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (f)
- ------------------------------------------------------------------------------------------------
Total distributions (.39) (.42) (.08) -- (2.26)
- ------------------------------------------------------------------------------------------------
Redemption fees -- (f) -- (f) -- -- --
- ------------------------------------------------------------------------------------------------
Net asset value,
end of period $23.55 $21.01 $17.57 $19.33 $21.35
- ------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.98 22.07 (8.67) (9.46) (22.25)
- ------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,111,652 $1,282,011 $1,968,996 $1,664,886 $1,251,589
- ------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .99 (d) .98 (d) .97 .91 .88
- ------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.31 (d,e) .98 (d) 1.64 1.13 .92
- ------------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.79 69.27 53.11 (g) 42.17 73.80
(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 waiver of
certain fund expenses in connection with investments in Putnam Prime
Money Market Fund in effect during the period. As a result of such
limitation and waivers, expenses of the fund for the periods ended June
30, 2004 and June 30, 2005 reflect a reduction of 0.03% and 0.06%,
respectively, based on average net assets for class Y shares (Notes 2
and 5).
(e) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to less than $0.01 per share and 0.02% of average net assets
for class Y shares (Note 6).
(f) Amount represents less than $0.01 per share.
(g) 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 6/30/05
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 and class M shares are sold with a maximum front-end sales
charge of 5.25% and 3.25%, respectively, and do not pay a contingent
deferred sales charge. Prior to April 1, 2005, the maximum front-end sales
charge for class M shares was 3.50%. Class B shares, which convert to class
A shares after approximately eight years, do not pay a front-end sales
charge 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 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 R shares, which are offered to qualified employee-benefit
plans, are sold without a front-end sales charge or a contingent deferred
sales charge. The expenses for class A, class B, class C, class M and class
R shares may differ based on each class' distribution fee, which is
identified in Note 2. Class Y shares, which are sold at net asset value, are
generally subject to the same expenses as class A, class B, class C, class M
and class R shares, but do not bear a distribution fee. Class Y shares are
sold to certain eligible purchasers including certain defined contribution
plans (including corporate IRAs), bank trust departments, trust companies,
other Putnam funds and products, and certain college savings plans.
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.
In the normal course of business, the fund enters into contracts that may
include agreements to indemnify another party under given circumstances. The
fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be, but have not yet been, made against the
fund. However, the fund expects the risk of material loss to be remote.
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. At June 30, 2005,
fair value pricing was used for certain foreign securities in the
portfolio. Securities quoted in foreign currencies are translated into
U.S. dollars at the current exchange rate. Short-term investments having
remaining maturities of 60 days or less are valued at amortized cost,
which approximates fair value. Other investments, including certain
restricted securities, are valued at fair value following procedures
approved by the Trustees. Such valuations and procedures are reviewed
periodically by the Trustees.
B) Joint trading account 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
issues 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 gains 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 a reduction 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 June 30,
2005, the value of securities loaned amounted to $12,409,551. The fund
received cash collateral of $13,031,073 which is pooled with collateral of
other Putnam funds into 29 issuers 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, 2005, the fund had a capital loss carryover of $933,544,718
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
- ---------------------------------------------
$4,817,122 June 30, 2007
- ---------------------------------------------
30,394,163 June 30, 2008
- ---------------------------------------------
898,333,433 June 30, 2011
- ---------------------------------------------
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
These differences include temporary and permanent differences of losses on
wash sale transactions, foreign currency gains and losses, foreign taxes
paid on capital gains, realized gains and losses on passive foreign
investment companies and foreign tax credits. Reclassifications are made to
the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended June 30, 2005, the fund reclassified
$43,135,977 to increase undistributed net investment income and $412,637 to
increase paid-in capital, with an increase to accumulated net realized
losses of $43,548,614.
The tax basis components of distributable earnings and the federal tax cost
as of period end were as follows:
Unrealized appreciation $627,765,922
Unrealized depreciation (163,100,014)
--------------
Net unrealized appreciation 464,665,908
Undistributed ordinary income 112,401,322
Capital loss carryforward (933,544,718)
Cost for federal income
tax purposes $5,519,992,042
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 waive fees and reimburse expenses of the
fund through June30, 2006 to the extent necessary to ensure that the fund's
expenses do not exceed the simple average of the expenses of all 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.
Prior to December 31, 2004, Putnam Management agreed to limit its
compensation (and, to the extent necessary, bear other expenses) 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 year ended June 30, 2005, Putnam Management waived $3,703,939 of its
management fee from the fund.
For the period ended June 30, 2005, Putnam Management has assumed $200,551
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 PFTC. PFTC
receives fees for custody services based on the fund's asset level, the
number of its security holdings and transaction volumes. Putnam Investor
Services, a division of PFTC, provides investor servicing agent functions to
the fund. Putnam Investor Services receives fees for investor servicing
based on the number of shareholder accounts in the fund and the level of
defined contribution plan assets in the fund. During the year ended June 30,
2005, the fund paid PFTC $25,049,004 for these services.
The fund has entered into an arrangement with PFTC whereby credits realized
as a result of uninvested cash balances are used to reduce a portion of the
fund's expenses. The fund also reduced expenses through brokerage service
arrangements. For the year ended June30, 2005, the fund's expenses were
reduced by $6,780,532 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,281, 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. George Putnam
III, who is not an independent Trustee, also receives the foregoing fees for
his services as Trustee.
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 year ended June 30, 2005, Putnam Retail Management, acting as
underwriter, received net commissions of $146,725 and $2,713 from the sale
of class A and class M shares, respectively, and received $2,237,625 and
$10,791 in contingent deferred sales charges from redemptions of class B and
class C shares, respectively. Putnam Retail Management, acting as
underwriter, received $12,199 on class A and no monies on class M
redemptions.
Note 3: Purchases and sales of securities
During the year ended June 30, 2005, cost of purchases and proceeds from
sales of investment securities other than short-term investments aggregated
$4,759,163,418 and $6,451,726,284, respectively. There were no purchases or
sales of U.S. government securities.
Note 4: Capital shares
At June 30, 2005, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- -------------------------------------------------------------------------
CLASS A Shares Amount
- -------------------------------------------------------------------------
Year ended 6/30/05:
Shares sold 29,246,262 $659,058,376
- -------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 1,987,429 45,810,180
- -------------------------------------------------------------------------
31,233,691 704,868,556
- -------------------------------------------------------------------------
Shares repurchased (73,384,430) (1,631,089,568)
- -------------------------------------------------------------------------
Net decrease (42,150,739) $(926,221,012)
Year ended 6/30/04:
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)
- -------------------------------------------------------------------------
CLASS B Shares Amount
- -------------------------------------------------------------------------
Year ended 6/30/05:
Shares sold 3,015,103 $65,482,288
- -------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 439,024 9,768,291
- -------------------------------------------------------------------------
3,454,127 75,250,579
- -------------------------------------------------------------------------
Shares repurchased (22,291,909) (482,073,054)
- -------------------------------------------------------------------------
Net decrease (18,837,782) $(406,822,475)
Year ended 6/30/04:
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)
- -------------------------------------------------------------------------
CLASS C Shares Amount
- -------------------------------------------------------------------------
Year ended 6/30/05:
Shares sold 707,079 $15,642,603
- -------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 61,825 1,402,820
- -------------------------------------------------------------------------
768,904 17,045,423
- -------------------------------------------------------------------------
Shares repurchased (4,766,485) (103,823,967)
- -------------------------------------------------------------------------
Net decrease (3,997,581) $(86,778,544)
Year ended 6/30/04:
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)
- -------------------------------------------------------------------------
CLASS M Shares Amount
- -------------------------------------------------------------------------
Year ended 6/30/05:
- -------------------------------------------------------------------------
Shares sold 655,911 $14,535,490
- -------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 38,150 867,147
- -------------------------------------------------------------------------
694,061 15,402,637
- -------------------------------------------------------------------------
Shares repurchased (2,105,951) (45,878,747)
- -------------------------------------------------------------------------
Net decrease (1,411,890) $(30,476,110)
Year ended 6/30/04:
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)
- -------------------------------------------------------------------------
CLASS R Shares Amount
- -------------------------------------------------------------------------
Year ended 6/30/05:
- -------------------------------------------------------------------------
Shares sold 37,405 $860,756
- -------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 388 8,910
- -------------------------------------------------------------------------
37,793 869,666
- -------------------------------------------------------------------------
Shares repurchased (16,326) (380,945)
- -------------------------------------------------------------------------
Net increase 21,467 $488,721
Year ended 6/30/04:
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
- -------------------------------------------------------------------------
CLASS Y Shares Amount
- -------------------------------------------------------------------------
Year ended 6/30/05:
Shares sold 16,052,920 $363,546,592
- -------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 958,993 22,229,449
- -------------------------------------------------------------------------
17,011,913 385,776,041
- -------------------------------------------------------------------------
Shares repurchased (30,831,880) (709,709,845)
- -------------------------------------------------------------------------
Net decrease (13,819,967) $(323,933,804)
Year ended 6/30/04:
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 and administrative
services 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
June 30, 2005, management fees paid were reduced by $71,521 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 $1,109,187 for the year ended June 30, 2005. During the year ended
June 30, 2005, cost of purchases and cost of sales of investments in Putnam
Prime Money Market Fund aggregated $1,866,831,388 and $1,823,133,052,
respectively.
Note 6: Regulatory matters and litigation
Putnam Management has entered into agreements with the Securities and
Exchange Commission and the Massachusetts Securities Division settling
charges connected 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. Pursuant to these
settlement agreements, Putnam Management will pay a total of $193.5 million
in penalties and restitution, with $153.5 million being paid to shareholders
and the funds. The restitution amount will be allocated to shareholders
pursuant to a plan developed by an independent consultant, with payments to
shareholders following approval of the plan by the SEC and the Massachusetts
Securities Division.
The Securities and Exchange Commission'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 will bear any costs incurred by Putnam funds
in connection with these lawsuits. 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.
On March 23, 2005, Putnam Management entered into a settlement with the
Securities and Exchange Commission resolving its inquiry into Putnam
Management's alleged failure to fully and effectively disclose a former
brokerage allocation practice to the Board of Trustees and shareholders of
the Putnam Funds. This practice, which Putnam Management ceased as of
January 1, 2004, involved allocating a portion of the brokerage on mutual
fund portfolio transactions to certain broker-dealers who sold shares of
Putnam mutual funds. Under the settlement order, Putnam Management has
paid a civil penalty of $40 million and disgorgement of $1 to the
Securities and Exchange Commission. These amounts, which are included in
Other income on the Statement of operations, subsequently will be
distributed to certain Putnam funds pursuant to a plan to be approved by
the Securities and Exchange Commission. As part of the settlement, Putnam
Management neither admitted nor denied any wrongdoing.
Putnam Investments has recorded a charge of $30million for the estimated
cost that it believes will be necessary to address issues relating to the
calculation of certain amounts paid by the Putnam mutual funds in previous
years. The previous payments were cost reimbursements by the Putnam funds to
Putnam for transfer agent services relating to defined contribution
operations. Putnam currently anticipates that any payments made by Putnam
related to this issue will be paid to the Putnam funds. Review of this issue
is ongoing.
Putnam Management and Putnam Retail Management are named as defendants in a
civil suit in which the plaintiffs allege that the management and
distribution fees paid by certain Putnam funds were excessive and seek
recovery under the Investment Company Act of 1940. Putnam Management and
Putnam Retail Management have contested the plaintiffs' claims and the
matter is currently pending in the U.S. District Court for the District of
Massachusetts. Based on currently available information, Putnam Management
believes that this action is without merit and that it is unlikely to have a
material effect on Putnam Management's and Putnam Retail Management's
ability to provide services to their clients, including the fund.
Federal tax information
(Unaudited)
For the period, interest and dividends from foreign countries were
$156,001,417 or $0.608 per share for all classes of shares. Taxes paid to
foreign countries were $15,203,606 or $0.059 per share for all classes of
shares.
For its tax year ended June 30, 2005, the fund hereby designates 100% or the
maximum amount allowable, of its net taxable income as qualified dividends
taxed at individual net capital gain rates.
The Form 1099 you receive in January 2006 will show the tax status of all
distributions paid to your account in calendar 2005.
Shareholder meeting results (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. Jackson retired from the Board of Trustees on June 10, 2005.
+ Mr. Smith retired from the Board of Trustees on January 14, 2005.
All tabulations are rounded to nearest whole number.
- -----------------------------------------------------------------------------
January 10, 2005 meeting
A proposal to amend the 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 For Votes Against Abstentions
- -----------------------------------------------------------------------------
113,467,261 9,853,254 54,116,967
- -----------------------------------------------------------------------------
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 For Votes Against Abstentions
- -----------------------------------------------------------------------------
114,103,299 9,611,613 53,722,570
- -----------------------------------------------------------------------------
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 For Votes Against Abstentions
- -----------------------------------------------------------------------------
118,153,085 5,723,881 53,560,516
- -----------------------------------------------------------------------------
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 For Votes Against Abstentions
- -----------------------------------------------------------------------------
114,784,161 7,974,771 54,678,550
- -----------------------------------------------------------------------------
All tabulations are rounded to the 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 June 30, 2005. 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) UBS Warburg, Merrill
Lynch, Goldman Sachs, Credit Suisse First Boston, and Citigroup Global
Markets. Commissions paid to these firms together represented approximately
51% of the total brokerage commissions paid for the year ended June 30,
2005.
Commissions paid to the next 10 firms together represented approximately
34% of the total brokerage commissions paid during the period. These firms
are (in alphabetical order) ABN AMRO U.S., Bear Stearns & Company,
Deutsche Bank Securities, Dresdner Kleinwort Wasserstein, Hong Kong
Shanghai Banking Corp., JP Morgan Clearing, Lehman Brothers, Morgan
Stanley Dean Witter, RBC Capital Markets, 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.
About the Trustees
- -----------------------------------------------------------------------------
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private investment
firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta Corporation
(a printing and digital imaging firm), Ryerson Tull, Inc. (a steel service
corporation), the Mutual Fund Directors Forum, Advocate Health Care and
BoardSource, formerly the National Center for Nonprofit Boards. She is
Chairman Emeritus of the Board of Trustees, Mount Holyoke College, having
served as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms.Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and corporate
finance, including Vice President and Principal of the Regency Group, and
Vice President of and Consultant to First Boston Corporation. She is a
graduate of Mount Holyoke College.
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Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear Threat
Initiative (a private foundation dealing with national security issues) and
serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the Trustee
Advisory Council of the Applied Physics Laboratory, Johns Hopkins
University. Until 2003, Mr. Curtis was a member of the Electric Power
Research Institute Advisory Council and the University of Chicago Board of
Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was a
Member of the Board of Directors of the Gas Technology Institute and the
Board of Directors of the Environment and Natural Resources Program Steering
Committee, John F. Kennedy School of Government, Harvard University. Until
2001, Mr. Curtis was a member of the Department of Defense Policy Board and
Director of EG&G Technical Services, Inc. (a fossil energy research and
development support company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr. Curtis
was Deputy Secretary of Energy. He served as Chairman of the Federal Energy
Regulatory Commission from 1977 to 1981 and has held positions on the staff
of the U.S. House of Representatives, the U.S. Treasury Department, and the
SEC.
- -----------------------------------------------------------------------------
Myra R. Drucker (1/16/48), Trustee since 2004
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a member of
the Investment Committee of the Kresge Foundation (a charitable trust). She
is also an ex-officio member of the New York Stock Exchange (NYSE) Pension
Managers Advisory Committee, having served as Chair for seven years and a
member of the Executive Committee of the Committee on Investment of Employee
Benefit Assets. She is Chair of the Advisory Board of Hamilton Lane Advisors
(an investment management firm) and a member of the Advisory Board of RCM
(an investment management firm). Until August 31, 2004, Ms. Drucker was
Managing Director and a member of the Board of Directors of General Motors
Asset Management and Chief Investment Officer of General Motors Trust Bank.
Ms. Drucker also served as a member of the NYSE Corporate Accountability and
Listing Standards Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker held
various executive positions in the investment management industry. Ms.
Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company's pension assets. Ms. Drucker
was also Staff Vice President and Director of Trust Investments for
International Paper (a paper, paper distribution, packaging and forest
products company) and previously served as Manager of Trust Investments for
Xerox Corporation. Ms. Drucker received a B.A. degree in Literature and
Psychology from Sarah Lawrence College and pursued graduate studies in
economics, statistics and portfolio theory at Temple University.
- -----------------------------------------------------------------------------
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company and various private companies controlled by First Reserve
Corporation, as well as a Trustee of TH Lee, Putnam Investment Trust (a
closed-end investment company advised by an affiliate of Putnam Management).
He is also a Trustee of Sarah Lawrence College. Until 2005, he was a
Director of Continuum Health Partners of New York.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy Associate
Director of the Office of Management and Budget and Deputy Director of the
Federal Energy Administration. He is active in various business
associations, including the Economic Club of New York, and lectures on
energy issues in the United States and Europe. Mr. Hill holds a B.A. degree
in Economics from Southern Methodist University and pursued graduate studies
there as a Woodrow Wilson Fellow.
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Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental Policy
Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based holding
company with interests in electric and gas transmission and distribution and
telecommunications infrastructure) and TransCanada Corporation (an energy
company focused on natural gas transmission and power services). Prior to
February 2005, he served on the board of the Whitehead Institute for
Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February 2002,
he was a Director of State Farm Indemnity Company (an automobile insurance
company), and, prior to March 2000, he was a Director of New England
Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and competition
policy. He is active in industry restructuring, environmental, energy,
competition and privatization policies -- serving as an advisor to
governments and corporations worldwide. Dr. Joskow holds a Ph.D. and M. Phil
from Yale University and a B.A. from Cornell University.
- -----------------------------------------------------------------------------
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities. Until 2005, she was a Director of Talbots, Inc. She has served as
Director on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic Preservation,
of Centre College and of Midway College in Midway, Kentucky. She is also a
member of The Trustees of Reservations. Dr. Kennan has served on the
oversight committee of the Folger Shakespeare Library, as President of Five
Colleges Incorporated, as a Trustee of Notre Dame University and is active
in various educational and civic associations.
As a member of the faculty of Catholic University for twelve years, until
1978, Dr. Kennan directed the post-doctoral program in Patristic and
Medieval Studies, taught history and published numerous articles. Dr. Kennan
holds a Ph.D. from the University of Washington in Seattle, an M.S. from
St.Hilda's College at Oxford University and an A.B. from Mount Holyoke
College. She holds several honorary doctorates.
- -----------------------------------------------------------------------------
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a broadcasting
company), Progress Energy, Inc. (a utility company, formerly known as
Carolina Power & Light) and Sonoco Products, Inc. (a packaging company). Mr.
Mullin is Trustee Emeritus of The National Humanities Center and Washington
& Lee University, where he served as Chairman of the Investment Committee.
Prior to May 2001, he was a Director of Graphic Packaging International
Corp. Prior to February 2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate of
Washington & Lee University and The Wharton Graduate School, University of
Pennsylvania.
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Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman of
Cabot Properties, Inc. (a private equity firm investing in commercial real
estate).
Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin Diabetes
Center and as a Director of Brandywine Trust Group, LLC. Prior to June 2003,
he was a Trustee of Sea Education Association. Prior to December 2001, he
was President and Trustee of Cabot Industrial Trust (apublicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited Partnership
(a registered investment adviser involved in institutional real estate
investments). Prior to 1990, he served as Executive Vice President of Cabot,
Cabot & Forbes Realty Advisors, Inc. (the predecessor company of Cabot
Partners).
Mr. Patterson practiced law and held various positions in state government
and was the founding Executive Director of the Massachusetts Industrial
Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard
Law School.
- -----------------------------------------------------------------------------
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company).
Mr. Stephens serves as a Director of TransCanada Pipelines Limited. Until
2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public
utility company), Qwest Communications, and Norske Canada, Inc. (a paper
manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well, Inc. (a
diversified printing company). He served as Chairman of Mail-Well until 2001
and as CEO of MacMillan-Bloedel, Ltd. (a forest products company) until
1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
- -----------------------------------------------------------------------------
Richard B. Worley (11/15/45), Trustee since 2004
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues) and
is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment Officer of
Morgan Stanley Dean Witter Investment Management and as a Managing Director
of Morgan Stanley, a financial services firm. Mr. Worley also was the
Chairman of Miller Anderson & Sherrerd, an investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
- -----------------------------------------------------------------------------
Charles E. Haldeman, Jr.* (10/29/48), Trustee since 2004
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr.Haldeman was also a partner
and director of Cooke & Bieler, Inc. (an investment management firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
- -----------------------------------------------------------------------------
George Putnam, III* (8/10/51), Trustee since 1984 and President since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert LLP
(formerly known as Dechert Price & Rhoads) in Philadelphia. He is a graduate
of Harvard College, Harvard Business School and Harvard Law School.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of June 30, 2005, there were 108 Putnam Funds. All Trustees serve as
Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation,
retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent
company of Putnam, LLC and its affiliated companies. Messrs. Haldeman and
Putnam III are deemed "interested persons" by virtue of their positions as
officers of the fund, Putnam Management or Putnam Retail Management and as
shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the
President of your fund and each of the other Putnam funds. Mr. Haldeman is
President and Chief Executive Officer of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the fund are shown
below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer
and Principal Executive Officer
Since 1989
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Prior to 2004, Managing Director,
Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam
Investments. Prior to July 2001, Partner,
PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Senior Vice President, Staff Counsel
and Compliance Liaison
Since 2004
Prior to 2004, Associate, Ropes & Gray LLP;
prior to 2000, Law Clerk, Massachusetts
Supreme Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management
and Putnam Retail Management. Prior
to 2004, General Counsel, State Street
Research & Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments
and Putnam Management. During 2002,
Chief Operating Officer, Atalanta/Sosnoff
Management Corporation; prior to 2001,
President and Chief Executive Officer,
UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management
and Putnam Retail Management. Prior
to 2003, Senior Vice President, United
Asset Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Vice President, Clerk and Assistant Treasurer
Since 1993
Wanda M. McManus (1/4/47)
Vice President, Senior Associate Treasurer
and Assistant Clerk
Since 2005
Nancy T. Florek (6/13/57)
Vice President, Assistant Clerk,
Assistant Treasurer and Proxy Manager
Since 2005
The address of each Officer is One Post Office Square, Boston, MA 02109.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Investors should carefully consider the investment objective, risks,
charges, and expenses of a fund before investing. For a prospectus
containing this and other information for any Putnam fund or product, call
your financial advisor at 1-800-225-1581 and ask for a prospectus. Please
read the prospectus carefully before investing.
Growth Funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital
Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth
and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund+
Income Funds
American Government Income Fund
Diversified Income Trust
Floating Rate Income Fund
Global Income Trust*
High Yield Advantage Fund*+
High Yield Trust*
Income Fund
Limited Duration Government
Income Fund++
Money Market Fund[S]
U.S. Government Income Trust
* A 1% redemption fee on total assets redeemed or exchanged between 6 and
90 days of purchase may be imposed for all share classes of these funds.
+ Closed to new investors.
++ Formerly Putnam Intermediate U.S. Government Income Fund.
[S] An investment in a money market fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the fund seeks to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Tax-free Income Funds
AMT-Free Insured Municipal Fund**
Tax Exempt Income Fund
Tax Exempt Money Market Fund[S]
Tax-Free High Yield Fund
State tax-free income funds:
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio, and Pennsylvania
Asset Allocation Portfolios
Putnam Asset Allocation Portfolios--three investment portfolios that spread
your money across a variety of stocks, bonds, andmoney market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
Putnam RetirementReady[R] Funds
Putnam RetirementReady Funds -- ten investment portfolios that offer
diversification among stocks, bonds, and money market instruments and adjust
to become more conservative over time based on a target date for withdrawing
assets.
The ten funds:
Putnam RetirementReady 2050 Fund
Putnam RetirementReady 2045 Fund
Putnam RetirementReady 2040 Fund
Putnam RetirementReady 2035 Fund
Putnam RetirementReady 2030 Fund
Putnam RetirementReady 2025 Fund
Putnam RetirementReady 2020 Fund
Putnam RetirementReady 2015 Fund
Putnam RetirementReady 2010 Fund
Putnam RetirementReady Maturity Fund
** Formerly Putnam Tax-Free Insured Fund.
With the exception of money market funds, a 2% redemption fee may be applied
to shares exchanged or sold within 5 days of purchase.
Check your account balances and the most recent month-end performance at
www.putnam.com.
Services for shareholders
- -----------------------------------------------------------------------------
Investor services
Help your investment grow Set up a program for systematic investing with as
little as $25 a month from a Putnam fund or from your own savings or checking
account. (Regular investing does not guarantee a profit or protect against
loss in a declining market.)
Switch funds easily* You can move money from one Putnam fund to another within
the same class of shares without a service charge.
Access your money easily You can have checks sent regularly or redeem shares
any business day at the then-current net asset value, which may be more or
less than the original cost of the shares. Class B and class C shares carry a
sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial advisor
or directly from Putnam. To open an account by mail, send a check made payable
to the name of the fund along with a completed fund application. To add to an
existing account, complete the investment slip found at the top of your
Confirmation of Activity statement and return it with a check payable to your
fund.
- -----------------------------------------------------------------------------
For more information
Visit www.putnam.com A secure section of our Web site contains complete
information on your account, including balances and transactions, updated
daily. You may also conduct transactions, such as exchanges, additional
investments, and address changes. Log on today to get your password.
Use our toll-free number 1-800-225-1581 Ask a helpful Putnam representative or
your financial advisor for details about any of these or other services, or
see your prospectus.
* This privilege is subject to change or termination. An exchange of funds may
result in a taxable event. In addition, a 2% redemption fee will be applied to
shares exchanged or sold within 5 days of purchase, and certain funds have
imposed a 1% redemption fee on total assets redeemed or exchanged between 6
and 90 days of purchase.
- -----------------------------------------------------------------------------
Putnam puts your interests first
In January 2004, Putnam began introducing 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.putnam.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 3.75% for most income
funds (formerly 4.50%). The maximum sales charge for class M shares has been
reduced to 3.25% for equity funds (formerly 3.50%).*
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 refused.)
Ongoing expenses will be limited Through calendar 2005, 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. For more information, please see the Statement of Additional
information.
- -----------------------------------------------------------------------------
Improved disclosure
Putnam fund prospectuses and shareholder reports have been 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, turnover comparisons, brokerage
commissions, and employee and trustee ownership of Putnam funds. Disclosure of
breakpoint discounts has also been enhanced to alert investors to potential
cost savings.
- -----------------------------------------------------------------------------
Protecting investors' interests
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 (other than money market funds) 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
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 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
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
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
Beth S. Mazor
Vice President
T. Gallagher
Senior Vice President,
Staff Counsel and
Compliance Liaison
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
Vice President, Clerk and
Assistant Treasurer
Wanda M. McManus
Vice President, Senior Associate
Treasurer and Assistant Clerk
Nancy T. Florek
Vice President, Assistant Clerk,
Assistant Treasurer and
Proxy Manager
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.putnam.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.
[blank page]
[LOGO OMITTED]
PUTNAM INVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
www.putnam.com
1-800-225-1581
Founded in 1937, Putnam Investments began with the principle
that a balance between risk and reward is the mark of
a well-rounded financial program. Today, we manage money
with a focus on seeking consistent results over time. This
balanced approach continues to underscore everything we do.
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
[GRAPHIC OMITTED: SCALE]
Not FDIC Insured May Lose Value No Bank Guarentee
AN009 226460 8/05
[GRAPHIC OMITTED: PUTNAM LOGO]
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Putnam International Equity Fund
Supplement to Annual Report dated 6/30/05
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to clients that meet the eligibility requirements
specified in the fund's prospectus for such shares. Performance of class Y
shares, which do not incur a front-end load, a distribution fee, or a
contingent deferred sales charge, will differ from the performance of class
A, B, C, M, and R shares, which are discussed more extensively in the annual
report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 6/30/05
NAV
Life of fund (since class A inception, 2/28/91)
Annual average 9.93%
10 years 163.78
Annual average 10.19
5 years -10.55
Annual average -2.20
1 year 13.98
Share value: NAV
6/30/04 $21.01
6/30/05 $23.55
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 $0.391 Long-term Short-term $0.391
-- --
- ----------------------------------------------------------------------------
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.
Performance assumes reinvestment of distributions and does not account for
taxes. 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. 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. 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. 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. Please see pages 15-16 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 6/30/05
Class Y
Expenses paid per $1,000* $5.03
Ending value (after expenses) $989.10
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 6/30/05
Class Y
Expenses paid per $1,000* $5.11
Ending value (after expenses) $1,019.74
- ----------------------------------------------------------------------------
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA
Your fund's annualized expense ratio + 1.02%
Average annualized expense ratio for Lipper peer group++ 1.33%
+ For the fund's most recent fiscal half year; may differ from expense
rations based on one-year data in financial highlights.
++ For class Y shares, Putnam has adjusted the Lipper total expense average
to reflect that class Y shares do not incur 12b-1 fees.
- ----------------------------------------------------------------------------
Item 2. Code of Ethics:
- ---------------------------------------
(a) All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
(c) In July 2004, Putnam Investment Management, LLC, the Fund's investment
manager, Putnam Retail Management Limited Partnership, the Fund's principal
underwriter, and Putnam Investments Limited, the sub-manager for a portion
of the assets of certain funds as determined by Putnam Management from time
to time, adopted several amendments to their Code of Ethics. Some of these
amendments were adopted as a result of Putnam Investment Management's
partial settlement order with the SEC on November 13, 2003. Insofar as such
Code of Ethics applies to the Fund's principal executive officer, principal
financial officer and principal accounting officer, the amendments provided
for the following: (i) a 90-day blackout period for all shares of Putnam
open-end funds (except for money market funds) purchased or sold (including
exchanges into or out of a fund) by Putnam employees and certain family
members; (ii) a one-year holding period for all access persons that operates
in the same manner as the 90-day rule; (iii) delivery by Putnam employees to
the Code of Ethics Administrator of both quarterly account statements for
all brokerage accounts (irrespective of activity in the accounts) and
account statements for any Putnam funds not held at Putnam or for any funds
sub-advised by Putnam; (iv) a prohibition of Putnam employees from making
more than 25 trades in individual securities in their personal accounts in
any given quarter; (v) the extension of the existing prohibition of access
persons from a purchase and sale or sale and purchase of an individual
security within 60 days to include trading based on tax-lot election; (vi)
the inclusion of trades in Marsh & McLennan Companies, Inc. (ultimate parent
company of Putnam Investment Management) securities in pre-clearance and
reporting requirements; (vii) a prohibition of limit and good-until-canceled
orders as inconsistent with the requirements of daily pre-clearance; (viii)
new limits and procedures for accounts managed by outside managers and
brokers, in order for trading in such accounts to be exempt from
pre-clearance requirements; (ix) a new gift and entertainment policy that
imposes a reporting obligation on all meals and entertainment and new limits
on non-meal entertainment; (x) a number of alternatives for the reporting of
irregular activity.
In December 2004, additional amendments to the Code of Ethics were adopted.
Insofar as such Code of Ethics applies to the Fund's principal executive
officer, principal financial officer and principal accounting officer, the
amendments provided for the following: (i) implementation of minimum
monetary sanctions for violations of the Code; (ii) expansion of the
definition of "access person" under the Code include all Putnam employees
with access to non-public information regarding Putnam-managed mutual fund
portfolio holdings; (iii) lengthening the period during which access persons
are required to complete quarterly reports; (iv) reducing the maximum number
of trades than can be made by Putnam employees in their personal accounts in
any calendar quarter from 25 trades to 10 trades; and (v) lengthening the
required holding period for securities by access persons from 60 days to 90
days.
In March 2005, additional amendments to the Code of Ethics were adopted,
that went into effect on April 1, 2005. Insofar as such Code of Ethics
applies to the Fund's principal executive officer, principal financial
officer and principal accounting officer, the amendments (i) prohibit Putnam
employees and their immediate family members from having any direct or
indirect personal financial interest in companies that do business with
Putnam (excluding investment holdings in public companies that are not
material to the employee), unless such interest is disclosed and approved by
the Code of Ethics Officer; (ii) prohibit Putnam employees from using Putnam
assets, letterhead or other resources in making political or campaign
contributions, solicitations or endorsements;(iii) require Putnam employees
to obtain pre-clearance of personal political or campaign contributions or
other gifts to government officials or political candidates in certain
jurisdictions and to officials or candidates with whom Putnam has or is
seeking to establish a business relationship and (iv) require Putnam
employees to obtain pre-approval from Putnam's Director of Government
Relations prior to engaging in lobbying activities.
Item 3. Audit Committee Financial Expert:
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The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson, Mr. Stephens and Mr. Worley qualify as "audit
committee financial experts" (as such term has been defined by the
Regulations) based on their review of their pertinent experience and
education. Certain other Trustees, although not on the Audit and Pricing
Committee, would also qualify as "audit committee financial experts."
The SEC has stated that the designation or identification of a person as
an audit committee financial expert pursuant to this Item 3 of Form N-CSR
does not impose on such person any duties, obligations or liability that
are greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- ---------------------------------------------------
The following table presents fees billed in each of the last two fiscal
years for services rendered to the fund by the fund's independent auditors:
Fiscal year ended Audit Fees Audit-Related Fees Tax Fees All Other Fees
- ----------------- ----------- ------------------ --------- --------------
June 30, 2005 $113,776* $-- $21,510 $4,088
June 30, 2004 $111,614* $-- $19,483 $1,530
*: Includes fees of $ 7,463 and $ 3,498 billed by the fund's independent
auditor to the fund for audit procedures necessitated by regulatory and
litigation matters for the fiscal years ended June 30, 2005 and June 30,
2004, respectively. These fees were reimbursed to the fund by Putnam.
For the fiscal years ended June 30, 2005 and June 30, 2004, the fund's
independent auditors billed aggregate non-audit fees in the amounts of $
215,922 and $ 154,641 respectively, to the fund, Putnam Management and any
entity controlling, controlled by or under common control with Putnam
Management that provides ongoing services to the fund.
Audit Fees represents fees billed for the fund's last two fiscal years.
Audit-Related Fees represents fees billed in the fund's last two fiscal
years for services traditionally performed by the fund's auditor, including
accounting consultation for proposed transactions or concerning financial
accounting and reporting standards and other audit or attest services not
required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years for tax
compliance, tax planning and tax advice services. Tax planning and tax
advice services include assistance with tax audits, employee benefit plans
and requests for rulings or technical advice from taxing authorities.
All Other Fees Fees represent fees billed for services relating to an
analysis of recordkeeping fees and fund expense processing.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit and
Pricing Committee of the Putnam funds has determined that, as a matter of
policy, all work performed for the funds by the funds' independent auditors
will be pre-approved by the Committee and will generally not be subject to
pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee believes that
it may be appropriate for Putnam Investment Management, LLC ("Putnam
Management") and certain of its affiliates to engage the services of the
funds' independent auditors, but only after prior approval by the Committee.
Such requests are required to be submitted in writing to the Committee and
explain, among other things, the nature of the proposed engagement, the
estimated fees, and why this work must be performed by that particular audit
firm. The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors for the
funds, Putnam Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing services to the
fund was pre-approved by the Committee or a member of the Committee pursuant
to the pre-approval policies discussed above. Prior to that date, the
Committee had a general policy to pre-approve the independent auditor's
engagements for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with Putnam
Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal auditor for
services required to be approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X.
Total
Fiscal year ended Audit-Related Fees Tax Fees All Other Fees Non-Audit Fees
- ------------------ ------------------ ---------- -------------- --------------
June 30, 2005 $-- $-- $-- $--
June 30, 2004 $-- $-- $-- $--
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) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
- -------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934
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: August 29, 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: August 29, 2005
By (Signature and Title): /s/Steven D. Krichmar
-----------------------------
Steven D. Krichmar
Principal Financial Officer
Date: August 29, 2005