Putnam
Japan
Fund
SEMIANNUAL REPORT
February 29, 1996
[Putnam Scales Logo]
The following report contains a list of your fund's portfolio
holdings and complete financial statements for the period
from December 28, 1995 (commencement of operations) to February 29,
1996. Once the fund has been in operation for a longer period, we
expect to provide additional details, including fund strategy,
performance, and managers' outlook.
<TABLE>
<CAPTION>
Portfolio of investments owned
February 29, 1996 (Unaudited)
COMMON STOCKS (98.2%)*
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (2.8%)
- ---------------------------------------------------------------------------------
11,000 Mitsubishi Heavy Industries, Ltd. $89,000
Automotive (11.6%)
- ---------------------------------------------------------------------------------
2,000 Bridgestone Corp. 31,185
22,000 Fugi Heavy Industries, Inc. + 89,732
17,000 Kayaba Industry Co., Ltd. 94,714
16,000 Nissan Diesel Motor Co. + 80,167
6,000 Suzuki Motor Co., Ltd. 70,165
--------------
365,963
Basic Industrial Products (3.7%)
- ---------------------------------------------------------------------------------
23,000 Sumitomo Heavy Industries Ltd. + 85,501
1,000 Toyo Seikan Kaisha 31,090
--------------
116,591
Building and Construction (9.7%)
- ---------------------------------------------------------------------------------
2,000 Daito Trust Construction Co., Ltd. 22,628
7,000 Mitsui-Soko Co. 54,839
6,000 Nishimatsu Construction Co. 66,743
7,000 Sanwa Shutter Corp. 57,036
6,000 Sekisui House, Ltd. 74,729
1,000 Tostem Corp. 30,709
--------------
306,684
Chemicals (2.4%)
- ---------------------------------------------------------------------------------
14,000 Toa Gosei Co., Ltd. 75,604
Consumer Non Durables (6.1%)
- ---------------------------------------------------------------------------------
10 Japan Tobacco, Inc. 94,124
2,000 KAO Corp. + 25,100
7,000 Kuraray Co., Ltd. 73,873
--------------
193,097
Electronics and Electrical Equipment (7.5%)
- ---------------------------------------------------------------------------------
7,000 Hitachi, Ltd. 70,546
13,000 Mitsubishi Electric Corp. 95,170
6,000 NEC Corp. 71,306
--------------
237,022
Food and Beverages (3.1%)
- ---------------------------------------------------------------------------------
6,000 Kirin Brewery Co., Ltd. $69,595
2,000 Yakult Honsha Co., Ltd. 26,811
--------------
96,406
Insurance and Finance (13.4%)
- ---------------------------------------------------------------------------------
12,000 Akita Bank Ltd. 87,279
5,000 Hitachi Credit Corp. 89,846
13,000 Mitsui Marine & Fire Insurance Co., Ltd. (The) 94,552
2,000 Orix Corp. 78,722
6,000 Tokio Marine & Fire Insurance Co., Ltd. (The) 72,447
--------------
422,846
Metals and Mining (4.6%)
- ---------------------------------------------------------------------------------
4,000 Hitachi Metals Ltd. 48,298
24,000 Kobe Steel Ltd. + 69,595
6,000 Nippon Yankin Kogyo Co. + 26,526
--------------
144,419
Oil and Gas (2.4%)
- ---------------------------------------------------------------------------------
8,000 Showa Shell Sekiyu 73,778
Paper and Forest Products (2.7%)
- ---------------------------------------------------------------------------------
12,000 Nippon Paper Industries Co., Ltd. 86,138
Pharmaceuticals (7.1%)
- ---------------------------------------------------------------------------------
2,000 Daiichi Pharmaceutical Co., Inc. 30,804
4,000 Kaken Pharmaceutical Co. 33,847
3,000 Sankyo Co., Ltd. 69,025
3,000 Shionogi & Co., Ltd. 24,615
4,000 Takeda Chemical Industries Ltd. 64,271
--------------
222,562
Publishing (2.5%)
- ---------------------------------------------------------------------------------
6,000 Toppan Printing Co., Ltd. 78,152
Retail (6.2%)
- ---------------------------------------------------------------------------------
1,000 Aoki International Co., Ltd. 21,107
1,100 FamilyMart 43,925
1,000 Ito-Yokado Co., Ltd. 55,904
3,000 Jusco Co. 75,299
--------------
196,235
Transportation (6.8%)
- ---------------------------------------------------------------------------------
18 East Japan Railway Co. $91,900
7,000 Kamigumi Co., Ltd. 67,884
6,000 Nippon Express Co., Ltd. 55,048
--------------
214,832
Utilities (5.6%)
- ---------------------------------------------------------------------------------
4,000 Kyushu Electric Power Inc. 92,032
11 Nippon Telegraph and Telephone Corp. 83,666
--------------
175,698
--------------
Total Common stocks (cost $3,127,114)*** $3,095,027
- ---------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $3,151,026.
+ Non-income-producing security.
*** The aggregate identified cost on a tax basis is $3,127,293, resulting in gross unrealized
appreciation and depreciation of $50,653 and $82,919, respectively, or net unrealized
depreciation of $32,266.
<CAPTION>
Forward Currency Contracts to Sell Outstanding at February 29, 1996
Market Aggregate Delivery Unrealized
Value Face Value Date Appreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $629,071 $631,228 7/17/96 $2,157
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 29, 1996 (Unaudited)
Assets
- ----------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $ 3,127,114)(Note 1) $3,095,027
- ----------------------------------------------------------------------------
Cash 59,433
- ----------------------------------------------------------------------------
Dividends and interest receivable 1,172
- ----------------------------------------------------------------------------
Receivable for open forward currency contracts 2,157
- ----------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 3,616
- ----------------------------------------------------------------------------
Receivable from Manager (Note 3) 3,626
- ----------------------------------------------------------------------------
Total assets 3,165,031
Liabilities
- ----------------------------------------------------------------------------
Payable for shares of the fund repurchased 250
- ----------------------------------------------------------------------------
Payable for compensation of Trustees (Note 3) 311
- ----------------------------------------------------------------------------
Payable for administrative services (Note 3) 7
- ----------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 3) 3,131
- ----------------------------------------------------------------------------
Payable for organizational expenses (Note 1) 3,662
- ----------------------------------------------------------------------------
Other accrued expenses 6,644
- ----------------------------------------------------------------------------
Total liabilities 14,005
- ----------------------------------------------------------------------------
Net assets $3,151,026
Represented by
- ----------------------------------------------------------------------------
Paid-in-capital $3,175,758
- ----------------------------------------------------------------------------
Accumulated net investment loss (845)
- ----------------------------------------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions 6,031
- ----------------------------------------------------------------------------
Net unrealized depreciation of investments
and assets and liabilities in foreign currencies (29,918)
- ----------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding 3,151,026
Computation of net asset value and offering price
- ----------------------------------------------------------------------------
Net asset value and redemption price per share
($3,151,026 divided by 373,537) $8.44
- ----------------------------------------------------------------------------
Offering price per share (100/94.25 of $8.44)* $8.95
- ----------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period December 28, 1995 (commencement of operations) to February 29, 1996
(Unaudited)
Investment Income
- ----------------------------------------------------------------------------
<S> <C>
Interest $4,508
- ----------------------------------------------------------------------------
Dividends (net of foreign tax of $205) 1,161
- ----------------------------------------------------------------------------
Total investment income 5,669
Expenses:
- ----------------------------------------------------------------------------
Compensation of Manager (Note 3) 4,486
- ----------------------------------------------------------------------------
Investor servicing and custodian fees (Note 3) 4,401
- ----------------------------------------------------------------------------
Compensation of Trustees (Note 3) 311
- ----------------------------------------------------------------------------
Reports to shareholders 156
- ----------------------------------------------------------------------------
Auditing 2,814
- ----------------------------------------------------------------------------
Legal 3,365
- ----------------------------------------------------------------------------
Postage 103
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Registration Fees 207
- ----------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 46
- ----------------------------------------------------------------------------
Administrative services (Note 3) 7
- ----------------------------------------------------------------------------
Fees waived by Manager (Note 3) (8,112)
- ----------------------------------------------------------------------------
Total expenses 7,784
- ----------------------------------------------------------------------------
Expense reduction (Note 3) (1,270)
- ----------------------------------------------------------------------------
Net expenses 6,514
- ----------------------------------------------------------------------------
Net investment loss (845)
- ----------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 4) 6,031
- ----------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and
foreign currency transactions 2,169
- ----------------------------------------------------------------------------
Net unrealized depreciation on investments during the period (32,087)
- ----------------------------------------------------------------------------
Net loss on investments (23,887)
- ----------------------------------------------------------------------------
Net decrease in net assets resulting from operations ($24,732)
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
December 28 1995
(commencement of
operations) to
February 29
1996*
- -----------------------------------------------------------------------------
<S> <C>
Increase in net assets
- -----------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------
Net investment loss ($845)
- -----------------------------------------------------------------------------
Net realized gain on investments 6,031
- -----------------------------------------------------------------------------
Net unrealized depreciation of investments and assets
and liabilities in foreign currencies (29,918)
- -----------------------------------------------------------------------------
Net decrease in net assets resulting from operations (24,732)
- -----------------------------------------------------------------------------
Increase from capital share transactions 175,758
- -----------------------------------------------------------------------------
Total increase in net assets 151,026
- -----------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------
Beginning of year 3,000,000
- -----------------------------------------------------------------------------
End of year (accumulated net investment loss of $845) $3,151,026
- -----------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
December 28, 1995
(commencement
of operations)
to February 29,
- -------------------------------------------------------------------------
1996*
- -------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $8.50
- -------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------
Net investment loss --(c)
- -------------------------------------------------------------------------
Net realized and unrealized loss on investments (.06)
- -------------------------------------------------------------------------
Total from investment operations (.06)
- -------------------------------------------------------------------------
Net asset value, end of period $8.44
- -------------------------------------------------------------------------
Total investment return at net asset value (%) (a) .24(d)
- -------------------------------------------------------------------------
Net assets, end of period (in thousands) $3,151
- -------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .25(c)(d)
- -------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) (.03)(c)(d)
- -------------------------------------------------------------------------
Portfolio turnover (%) 3.92(d)
- -------------------------------------------------------------------------
* Unaudited
(a) Total investment return does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period December 28,
1995 (commencement of operations) to February 29, 1996 includes amounts
paid through expense offset arrangements. (See Note 3).
(c) Reflects an expense limitation during the period (See Note 3). As a
result of such limitations, expenses of the Fund reflect a reduction of
less than $0.01 per share.
(d) Not annualized.
</TABLE>
Notes to financial statements
For the period December 28, 1995 (commencement of operations) to
February 29, 1996 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified open-end management investment company. The
fund seeks long-term capital appreciation by investing primarily in
common stocks and other equity securities, including securities
convertible into common stocks or other equity securities, of Japanese
companies.
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 are in conformity
with generally accepted accounting principles and requires management to
make assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported - as in the
case of some securities traded over-the-counter - the last reported bid
price. Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost, which approximates market value, and
other investments are stated at fair value following procedures approved
by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies managed by Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. and certain other accounts. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
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 102% of the resale price, including accrued
interest. 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 accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, 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 accrued 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 fluctuations are included with the net realized
and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign
currencies 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 of amounts actually received or paid. Net unrealized
gains and losses on foreign currency transactions 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.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, 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 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.
G) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid 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.
I) Expenses of the Trust Expenses directly charged or attributable to
any fund will be paid from the assets of that fund. Generally, expenses
of the Trust will be allocated among and charged to the assets of each
fund on a basis that the Trustees deem fair and equitable, which may be
based on the relative assets of each fund or the nature of the services
performed and relative applicability to each fund.
J) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various state and the initial public
offering of its shares aggregated $3,662. These expenses are being
amortized on projected net asset levels over a five-year period. The
fund will reimburse Putnam Management for payment of these expenses.
Note 2
Initial capitalization and offering price of shares
The fund was established as a Massachusetts business trust on October
31, 1994. During the period October 31, 1994 to December 28, 1995, the
fund had no operations other than those related to organizational
matters, including the initial capital contribution of $3,000,000, and
the issuance of 352,941 shares to Putnam Mutual Funds Corp., a wholly-
owned subsidiary of Putnam Investments, Inc. on December 28, 1995.
At February 29, 1996, Putnam Investment Management, Inc. owned 352,941
shares of the fund (94.5% of shares outstanding), valued at $2,978,822.
Note 3
Management fees, administrative services and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average net assets of the fund
for the quarter. 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.
Through July 31, 1996, Putnam Management has agreed to limit it's
compensation to the extent that the expenses of the fund (exclusive of
brokerage, interest, taxes, deferred organizational and extraordinary
expense, payments under the fund's distribution plan and credits from
Putnam Fiduciary Trust Company ("PFTC"), a wholly-owned subsidiary of
Putnam Investments, Inc., in any) exceed an annual rate of 1.45% of the
fund's net assets.
Trustees of the fund receive an annual Trustee's fee of $100 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund reimburses Putnam Management 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.
The fund adopted a Trustee Fee Deferral Plan (the '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 in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services,
Inc., a division of PFTC.
For the period December 28, 1996 (commencement of operations) to
February 29, 1996, fund expenses were reduced by $1,270 under expense
offset arrangements with PFTC. Investor servicing and custodian fees
reported in the Statement of operations exclude these credits. The fund
could have invested the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
The fund has adopted a distribution plan (the 'Plan') pursuant to Rule
12b-1 under the Investment Company Act of 1940, although the fund is not
currently making any payments pursuant to the Plan. The purpose of the
Plan is to compensate Putnam Mutual Funds Corp., for services provided
and expenses incurred by it in distributing shares of the fund.
During the period December 28, 1995 (commencement of operations) to
February 29, 1996, Putnam Mutual Funds Corp., acting as underwriter
received no monies from net commissions from the sale of shares of the
fund.
Note 4
Purchases and sales of securities
During the period December 28, 1995 (commencement of operations) to
February 29, 1996, purchases and sales of investment securities other
than short-term investments aggregated $3,222,483 and $101,363,
respectively. There were no purchases and sales of U.S. government
obligations. In determining the net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
Note 5
Capital shares
At February 29, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
For the period
December 28, 1995
(commencement of
operations) to
February 29, 1996
- ----------------------------------------------------
Shares Amount
- ----------------------------------------------------
Shares sold 56,976 488,055
Shares
repurchased (36,380) (312,297)
- ----------------------------------------------------
Net increase 20,596 175,758
- ----------------------------------------------------
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
J. Peter Grant
Vice President and Fund Manager
Robert Swift
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Japan Fund.
It may also be used as sales literature when preceded or accompanied by
the current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most recent copy
of Putnam's Quarterly Performance Summary. For more information, or to
request a prospectus, call toll free: 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
