Putnam
International
Fund
ANNUAL REPORT
August 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
Dear Shareholder:
It is with pleasure that your Trustees bring you this annual report of
Putnam International Fund for the abbreviated fiscal period from
December 28, 1995, through August 31, 1996. As you know, the fund is
still in its incubated period, which means it is open only to certain
employees of Putnam Investments and Trustees of the Putnam funds.
Performance over such a brief period is not generally indicative of a
fund's long-term potential. Therefore, we believe it is more appropriate
to focus here on your fund's objectives and strategies than on the
performance numbers you will find on pages 4 and 5.
The fund seeks to outperform the benchmark Europe, Australia, and Far
East (EAFE) component of the Morgan Stanley Capital International World
Index within tightly controlled risk specifications.
The underlying strategy Fund Manager Justin M. Scott employs in the
quest of these objectives is to make carefully considered stock and
country-weighting decisions, using an optimization program designed to
minimize risk.
The fund enters its first full fiscal year with a portfolio that is well
positioned to meet the objectives set for it.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
October 16, 1996
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 8/31/96, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, including those related to economic instability,
unfavorable political developments, and currency fluctuations, not
present with domestic investments.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP COUNTRY ALLOCATIONS
(8/31/96)*
Japan 38.6%
United Kingdom 11.2%
Netherlands 8.4%
Switzerland 7.2%
France 6.1%
Footnote reads:
*Based on net assets. Country weightings will vary over time.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam International Fund is designed for investors seeking
capital appreciation primarily through common stocks of companies
located outside the United States.
This section provides, at a glance, information about your fund's
performance. 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.
TOTAL RETURN FOR PERIOD ENDED 8/31/96
Consumer MSCI
Price EAFE
NAV POP Index Index
- -----------------------------------------------------------------------
Life of fund
since 12/28/95 0.94% -4.88% 2.48% 1.68%
- -----------------------------------------------------------------------
TOTAL RETURN FOR PERIOD ENDED 9/30/96
(most recent calendar quarter)
NAV POP
- -----------------------------------------------------------------------
Life of fund
since 12/28/95 3.53% -2.44%
- -----------------------------------------------------------------------
Footnote reads:
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Performance data reflect an expense
limitation currently in effect. Without the expense limitation, total
returns would have been lower. The short-term results of a relatively
new fund, such as this fund, are not necessarily indicative of its long-
term prospects. Investment returns and net asset value will fluctuate so
that an investor's shares, when sold, may be worth more or less than
their original cost. POP assumes 5.75% maximum sales charge.
PRICE AND DISTRIBUTION INFORMATION
12/28/95 through 8/31/96
- -----------------------------------------------------------------------
Distributions (number)* 0
- -----------------------------------------------------------------------
Share value: NAV POP
- -----------------------------------------------------------------------
12/28/95 (inception) $8.50 $9.02
- -----------------------------------------------------------------------
8/31/96 8.58 9.10
- -----------------------------------------------------------------------
* The fund made no distributions during the reporting period. It will
make its initial distribution before the end of calendar 1996.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 12/28/95
Starting value (Insert ending Total)
$ 9,425 Fund's shares at POP $9,512
$10,000 Consumer Price Index $10,248
$10,000 MSCI EAFE Index $10,168
(plot points for 8-month total return mountain chart)
Date/year Fund at POP Consumer Price Index MSCI EAFE Index
- --------- ----------- -------------------- ---------------
12/28/95 9,425 10,000 10,000
1/31/96 9,421 10,059 10,041
2/29/96 9,477 10,091 10,075
3/31/96 9,677 10,143 10,289
4/30/96 9,911 10,182 10,588
5/31/96 9,878 10,202 10,393
6/30/96 9,944 10,208 10,452
7/31/96 9,688 10,228 10,146
8/31/96 9,512 10,248 10,168
Footnote reads:
Past performance is no assurance of future results.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
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 maximum 5.75% sales charge.
COMPARATIVE BENCHMARKS
Europe, Australia and the Far East (EAFE) component of the Morgan
Stanley Capital International World Index is an unmanaged list of
international equity securities, excluding U.S., with all values
expressed in U.S. dollars. The index assumes reinvestment of all
distributions and interest payments and does not take in account
brokerage fees or taxes. Securities in the fund do not match those in
the index and performance of the fund will differ. It is not possible to
invest directly in an index.
Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
August 31, 1996
To the Trustees and Shareholders of
Putnam International Fund
We have audited the accompanying statement of assets and liabilities of
Putnam International Fund, including the portfolio of investments owned,
as of August 31, 1996, and the related statement of operations, the
statement of changes in net assets and the financial highlights for the
period December 28, 1995 (commencement of operations) to August 31,
1996. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of August 31, 1996, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam International Fund as of August 31, 1996,
and the results of its operations, the changes in its net assets and the
financial highlights for the period December 28, 1995 (commencement of
operations) to August 31, 1996 in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 15, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
August 31, 1996
<S> <C> <C> <C>
COMMON STOCKS (95.1%) *
NUMBER OF SHARES VALUE
Australia (1.9%)
- -------------------------------------------------------------------------------------------------------------------
25,000 Goodman Fielder Ltd. ADR $ 25,873
7,000 Westpac Banking Corp. 34,341
----------
60,214
Austria (1.2%)
- -------------------------------------------------------------------------------------------------------------------
300 VA Technolgies AG 38,316
Denmark (1.6%)
- -------------------------------------------------------------------------------------------------------------------
900 Danisco A/S 50,710
France (6.1%)
- -------------------------------------------------------------------------------------------------------------------
200 Chargeurs S.A. 7,199
700 Credit Locale de France S.A. 57,572
400 Lafarge Coppee 22,090
300 Peugeot Citroen S.A. 34,318
750 Societe Nationale Elf Aquitaine 54,554
400 Total Corp. ADR 14,850
----------
190,583
Germany (5.0%)
- -------------------------------------------------------------------------------------------------------------------
500 Bayer AG ADR 17,848
100 Bayerische Motoren Werke (BMW) AG 57,895
100 Preussag AG 23,617
1,100 Veba (Vereinigte Elektrizitaets Bergwerks) AG 57,635
----------
156,995
Hong Kong (2.5%)
- -------------------------------------------------------------------------------------------------------------------
3,000 Amoy Properties Ltd. 3,492
1,000 Guoco Group Ltd. 4,747
3,000 Hutchison Whampoa, Ltd. 18,158
4,000 Sun Hung Kai Properties Ltd. 39,058
1,500 Swire Pacific Ltd. Class A 13,337
----------
78,792
Ireland (3.7%)
- -------------------------------------------------------------------------------------------------------------------
11,000 Allied Irish Banks PLC 61,740
2,046 Bank of Ireland 14,894
4,048 CRH PLC 39,941
----------
116,575
Japan (38.6%)
- -------------------------------------------------------------------------------------------------------------------
3,000 Bridgestone Corp. 49,040
4,000 Cosmo Oil Co. Ltd. 23,143
2,000 Dai Nippon Printing Co., Ltd. 35,081
2,000 Daikin Industries Ltd. 19,653
4,000 Daiwa Securities Co. 45,183
10 East Japan Railway Co. 46,653
3,000 Hokuriku Electric Power Co. 64,744
1,000 Ito-Yokado Co., Ltd. 52,622
2,000 KAO Corp. 23,694
2,000 Komori Corp. 44,265
1,100 Kurita Water Industries Ltd. 22,931
3,000 Marui Co., Ltd. 58,683
4,150 Mitsubishi Bank Ltd. 84,227
3,000 Mitsubishi Motors Corp. 24,410
2,000 Mitsui Petrochemical Industries 13,445
7,000 Mitsui & Co. Ltd. 58,949
7,000 Nippon Shinpan Co. 44,614
5 Nippon Telegraph and Telephone Corp. 35,403
1,000 Nippondenso Co., Ltd. 20,571
3,000 Obayashi Corp. 24,851
2,000 Omron Corp. 36,551
1,000 Onward Kashiyama Co. Ltd. 13,775
1,100 Santen Pharmaceutical 23,841
5,000 Sharp Corp. 78,979
7,000 Toda Construction Co. 61,071
7,000 Tokio Marine & Fire Insurance Co. Ltd. (The) 79,713
9,000 Toray Industries Inc. 55,956
2,000 Yamaguchi Bank Ltd. 30,306
1,000 Yamanouchi Pharmaceutical Co. Ltd. 20,571
2,000 Yamato Transport Co. Ltd. 21,673
----------
1,214,598
Malaysia (0.5%)
- -------------------------------------------------------------------------------------------------------------------
1,000 Sungei Way Holdings Berhad 5,054
1,000 Malayan Banking Berhad 9,507
----------
14,561
Netherlands (8.4%)
- -------------------------------------------------------------------------------------------------------------------
1,200 ABN AMRO Holding N.V. 65,527
300 Akzo-Nobel N.V. 34,840
1,750 Internationale Nederlanden Groep 54,470
1,500 K.L.M.-Royal Dutch Airlines 41,270
500 Philips Electronics N.V. 16,887
600 Royal PTT 21,023
200 Unilever N.V. 28,718
----------
262,735
Norway (0.6%)
- -------------------------------------------------------------------------------------------------------------------
1,500 Christiana Bank & Trust 3,763
1,000 Saga Petroleum ASA Class B 13,791
----------
17,554
Singapore (0.6%)
- -------------------------------------------------------------------------------------------------------------------
1,000 Development Bank of Singapore Ltd. 11,735
1,000 Overseas Union Bank Ltd. 6,970
----------
18,705
Spain (1.4%)
- -------------------------------------------------------------------------------------------------------------------
700 Repsol S.A. 22,720
500 Tabacalera S.A. 20,361
----------
43,081
Sweden (4.6%)
- -------------------------------------------------------------------------------------------------------------------
1,500 Astra AB 63,380
50 Electrolux AB 2,905
2,000 Sandvik AB Class A 45,573
1,600 Svenska Cellulosa AB Class B 33,923
----------
145,781
Switzerland (7.2%)
- -------------------------------------------------------------------------------------------------------------------
50 ABB AG 61,543
10 Baer Holdings AG 11,085
50 Ciba-Geigy AG 63,041
60 Nestle S.A. 70,156
20 Swiss Reinsurance Co. 21,588
----------
227,413
United Kingdom (11.2%)
- -------------------------------------------------------------------------------------------------------------------
7,500 B A T Industries PLC 50,385
3,500 Burmah Oil PLC 57,266
8,900 General Electric Co. PLC 53,540
5,700 Guinness PLC 42,562
2,500 HSBC Holdings PLC 43,831
2,500 Safeway PLC 13,303
6,612 Scottish Power PLC 31,625
2,000 Tate & Lyle PLC 14,388
12,000 Vodafone Group PLC 45,224
----------
352,124
----------
Total Common Stocks (cost $3,036,967) 2,988,737
SHORT-TERM INVESTMENTS (4.9%)* (cost $155,045)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 155,000 Interest in $883,204,000 joint repurchase agreement dated August 30,1996
with Goldman, Sachs and Co. due September 3, 1996 with respect to U.S.
Treasury obligations-- maturity value of $155,090 for an effective yield of 5.26% $155,045
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,192,012)*** $3,143,782
- -------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $3,144,076.
*** The aggregate identified cost on a tax basis is
$3,194,146, resulting in gross unrealized appreciation and
depreciation of $116,227 and $166,591, respectively,
or net unrealized depreciation of $50,364.
ADR after the name of a foreign holding stands for American Depository Receipt,
representing ownership of foreign securities on deposit with a domestic custodian
bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1996
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $3,192,012) (Note 1) $3,143,782
- -----------------------------------------------------------------------------------------------------------
Cash 179
- -----------------------------------------------------------------------------------------------------------
Dividends and other receivables 9,161
- -----------------------------------------------------------------------------------------------------------
Receivable from Manager (Note 2) 13,150
- -----------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 3,639
- -----------------------------------------------------------------------------------------------------------
Total assets 3,169,911
Liabilities
- -----------------------------------------------------------------------------------------------------------
Payable for organizational expenses (Note 1) 3,662
- -----------------------------------------------------------------------------------------------------------
Other accrued expenses 22,173
- -----------------------------------------------------------------------------------------------------------
Total liabilities 25,835
- -----------------------------------------------------------------------------------------------------------
Net assets $3,144,076
Represented by
- -----------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $3,115,807
- -----------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 30,424
- -----------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions (Note 1) 45,974
- -----------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and liabilities in foreign currencies (48,129)
- -----------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $3,144,076
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share ($3,144,076 divided by 366,451 shares) $8.58
- -----------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $8.58)* $9.10
- -----------------------------------------------------------------------------------------------------------
* 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 August 31, 1996
<S> <C>
Investment Income:
- --------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $6,755) $53,489
- --------------------------------------------------------------------------------------------
Interest 6,916
- --------------------------------------------------------------------------------------------
Total investment income 60,405
Expenses:
- --------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 17,083
- --------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,677
- --------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 389
- --------------------------------------------------------------------------------------------
Administrative services (Note 2) 17
- --------------------------------------------------------------------------------------------
Reports to shareholders 3,593
- --------------------------------------------------------------------------------------------
Auditing 16,306
- --------------------------------------------------------------------------------------------
Legal 5,667
- --------------------------------------------------------------------------------------------
Postage 357
- --------------------------------------------------------------------------------------------
Registration fees 1,093
- --------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 23
- --------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (17,218)
- --------------------------------------------------------------------------------------------
Total expenses 30,987
- --------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,071)
- --------------------------------------------------------------------------------------------
Net expenses 29,916
- --------------------------------------------------------------------------------------------
Net investment income 30,489
- --------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 45,974
- --------------------------------------------------------------------------------------------
Net realized loss on foreign currency translation (Note 1) (166)
- --------------------------------------------------------------------------------------------
Net unrealized appreciation on foreign currency translation during the period 100
- --------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (48,229)
- --------------------------------------------------------------------------------------------
Net loss on investments (2,321)
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $28,168
- --------------------------------------------------------------------------------------------
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
August 31, 1996
<S> <C>
- --------------------------------------------------------------------------------------------------------
Increase in net assets
- --------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------
Net investment income $30,489
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 45,808
- --------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and liabilities in foreign currencies (48,129)
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 28,168
- --------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 115,908
- --------------------------------------------------------------------------------------------------------
Total increase in net assets 144,076
- --------------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 3,000,000
- --------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $30,424) $3,144,076
- --------------------------------------------------------------------------------------------------------
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 August 31
1996
----------------
<S> <C>
Net asset value, beginning of period $8.50
- ---------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------
Net investment income .08(c)
- ---------------------------------------------------------------------------------
Net realized and unrealized gain on investments --
- ---------------------------------------------------------------------------------
Total from investment operations .08
- ---------------------------------------------------------------------------------
Net asset value, end of period $8.58
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%) (a) 0.94(d)
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $3,144
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (b) .98(c)(d)
- ---------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) .96(c)(d)
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 48.18(d)
- ---------------------------------------------------------------------------------
Average commission rate paid $.0538
- ---------------------------------------------------------------------------------
(a) Total investment return does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements and brokerage service
arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period (Note 2). As a result of
such limitation, expenses for the fund reflect a reduction of $0.05 per share.
(d) Not annualized.
</TABLE>
Notes to financial statements
August 31, 1996
Note 1
Significant accounting policies
This fund is one of a series of Putnam Investment Funds (the "Trust")
which is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-ended management investment company. The
objective of the fund is to seek long-term capital appreciation by
investing primarily in equity securities of issues which have a
principle place of business located outside of the United States or
whose securities are principally traded on foreign markets.
The following is a summary of significant accounting policies followed
by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and 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 on its principal exchange, 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 following procedures approved by the
Trustees. Foreign securities quoted in foreign currencies are translated
in U.S. dollars at the current exchange rate.
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 and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. 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 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 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) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. 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.
G) 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.
These differences include treatment of organization expenses, unrealized
gain on passive foreign investment companies and realized gains and
losses on foreign currency translation. 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 period ended August 31, 1996, the fund reclassified
$65 to decrease undistributed net investment income and $101 to decrease
paid-in-capital with an increase to accumulated net realized gains of
$166. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
H) 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.
I) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $3,662 . These expenses are being amortized
on projected net asset levels over a five-year period. The fund will
reimburse Putnam Management for the payment of these expenses.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.80% of the
first $500 million of average net assets, 0.70% of the next $500
million, 0.65% of the next $500 million, 0.60% of the next $5 billion,
0.575% of the next $5 billion, 0.555% of the next $5 billion, 0.54% of
the next $5 billion, and 0.53% of any excess thereafter subject, under
current law, to reduction in any year by the amount of certain brokerage
commissions and fees (less expenses) received by affiliates of Putnam
Management on the fund's portfolio transactions.
Putnam Management has agreed to limit its compensation (and, to the
extent necessary, bear other expenses) through December 31, 1996, to the
extent that expenses of a fund (exclusive of brokerage, interest, taxes,
deferred organizational and extraordinary expense credits from Putnam
Fiduciary Trust Company ("PFTC"), a wholly-owned subsidiary of Putnam
Investments, Inc. and payments under the Trust's distribution plan)
would exceed an annual rate of 1.45% of the fund's average net assets.
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
reimburse-ments is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the period December 28, 1995 (commencement of operations) to August
31, 1996, fund expenses were reduced by $1,071 under expense offset
arrangements with PFTC and brokerage service arrangements. Investor
servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested a portion of the
assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $100 and an
additional fee for each Trustee's 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 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 certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the Plan
is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Trustees have approved
payment by the fund at an annual rate of 0.35% of the average net
assets. The fund is not currently making any payments pursuant to the
Plan.
During the period December 28, 1995 (commencement of operations) to
August 31, 1996, Putnam Mutual Funds Corp., acting as underwriter,
received no monies from the sale of shares of
the fund.
Note 3
Purchases and sales of securities
During the period December 28, 1995 (commencement of operations) to
August 31, 1996, purchases and sales of investment securities other than
short-term investments aggregated $4,485,283 and $ 1,494,291,
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 4
Capital shares
At August 31, 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
August 31, 1996
- ----------------------------------------------------
Shares Amount
- ----------------------------------------------------
Shares sold 14,177 $121,749
- ----------------------------------------------------
Shares
repurchased (667) (5,841)
- ----------------------------------------------------
Net increase 13,510 $115,908
- ----------------------------------------------------
Note 5
Initial capitalization and offering 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, less
$3,662 of initial offering expenses, 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 August 31, 1996, Putnam Management owned 352,941 shares of the fund
(96.31% of shares outstanding), valued at $3,028,234.
Federal tax information
(Unaudited)
For the period, dividends from foreign countries were $60,244 or $.164
per share. Taxes paid to foreign countries were $6,755 or $.018 per
share.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
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
INDEPENDENT
ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
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
Tim Ferguson
Vice President
Brett C. Browchuk
Vice President
Anthony W. Regan
Vice President
Justin M. Scott
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
International 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
principal amount invested.
27666-2AX 10/96
