Putnam
International
Fund
ANNUAL REPORT
August 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
Dear Shareholder:
It is with great pleasure that your Trustees bring you this annual report of
Putnam International Fund for the year ended August 31, 1997. As you know,
this fund is still in its incubation period, which means it is only open to
Putnam employees and their families who are Massachusetts residents.
This fund uses the same stock selection style and country selection analysis
as Putnam International Growth Fund but combines these with a quantitative
risk management overlay in order to control downside fluctuation of returns
when compared to the Morgan Stanley Capital International European, Australia,
and the Far East (EAFE) Index. The fund seeks to outperform this index without
undue risk. Your management team has met this objective, surpassing the EAFE
by more than 5% at NAV over the past year within tightly controlled risk
parameters. For more performance information, please see pages 4 and 5.
As the fund enters its new fiscal year, Fund Manager Justin M. Scott believes
the portfolio is well positioned to meet its objective.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 15, 1997
International investing involves certain risks, such as currency fluctuations,
economic instability and political developments, not present with domestic
investments.
[GRAPHIC OMITTED: horizontal bar chart COUNTRY ALLOCATIONS]
COUNTRY ALLOCATIONS*
Japan 24.5%
United Kingdom 22.9%
Germany 11.1%
Switzerland 9.8%
France 8.0%
Footnote reads:
*Based on net assets as of 8/31/97. Country weightings will vary over time.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
International Fund is designed for investors seeking long-term capital
appreciation primarily through common stocks of companies located outside
the United States.
TOTAL RETURN FOR PERIODS ENDED 8/31/97
NAV POP
- ------------------------------------------------------------------------------
1 year 14.43% 7.89%
- ------------------------------------------------------------------------------
Life of fund (since 12/28/95 15.50 8.85
Annual average 8.96 5.18
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/97
MSCI
EAFE Consumer
Index Price Index
- ------------------------------------------------------------------------------
1 year 9.05% 2.23%
- ------------------------------------------------------------------------------
Life of fund (since 12/28/95 10.89 4.76
Annual average 6.40 2.83
- ------------------------------------------------------------------------------
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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 12/28/95
Plot points read:
Date/year Fund at POP MSCI EAFE
Index CPI
12/28/95 $9,425 $10,000 $10,000
2/29/96 $9,477 $10,075 $10,091
5/31/96 $9,878 $10,393 $10,202
8/31/96 $9,555 $10,166 $10,248
11/30/96 $10,122 $10,743 $10,398
2/28/97 $9,974 $10,401 $10,430
5/31/97 $10,887 $11,177 $10,476
8/31/97 $10,885 $11,089 $10,476
Footnote reads:
Past performance is no assurance of future results.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 8/31/97
- ------------------------------------------------------------------------------
Distributions (number) 1
- ------------------------------------------------------------------------------
Income $0.085
- ------------------------------------------------------------------------------
Short term cap gains 0.131
- ------------------------------------------------------------------------------
Long term cap gains --
- ------------------------------------------------------------------------------
Total distributions $0.216
- ------------------------------------------------------------------------------
Share value: NAV POP
- ------------------------------------------------------------------------------
8/31/96 $8.58 $9.10
- ------------------------------------------------------------------------------
8/31/97 9.58 10.16
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
NAV POP
- ------------------------------------------------------------------------------
1 year 20.42% 13.46%
- ------------------------------------------------------------------------------
Life of fund (since 12/28/95) 24.67 17.48
Annual average 13.35 9.59
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. Investment returns and principal value will fluctuate so that
an investor's shares when sold may be worth more or less than their
original cost.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the 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 equity
securities listed on the stock exchanges of Europe, Australia, and the Far
East, with all values expressed in U.S. dollars.
Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Report of independent accountants
For the fiscal year ended August 31, 1997
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, 1997, and the related statement of operations for the year then ended, and
the statements of changes in net assets, and the financial highlights for the
year ended August 31, 1997 and 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 audits.
We conducted our audits 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, 1997, 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 audits provide 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, 1997, and the results of its
operations for the year then ended and the changes in its net assets and the
financial highlights for the year ended August 31, 1997 and 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 10, 1997
Portfolio of investments owned
August 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (97.1%) *
NUMBER OF SHARES VALUE
Australia (1.0%)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
10,000 Goodman Fielder Ltd. $ 14,264
4,000 Westpac Banking Corp. 23,086
--------------
37,350
Austria (1.0%)
- ------------------------------------------------------------------------------------------------------------
200 VA Technolgies AG 36,566
Denmark (0.3%)
- ------------------------------------------------------------------------------------------------------------
200 Danisco A/S 10,821
Finland (0.8%)
- ------------------------------------------------------------------------------------------------------------
400 Oy Nokia AB Class A 30,843
France (8.0%)
- ------------------------------------------------------------------------------------------------------------
100 Cetelem Group 10,062
100 Compagnie Generale des Eaux 11,129
600 Credit Locale de France S.A. 51,609
600 Elf Aquitaine S.A. 66,481
400 Lafarge Coppee 25,739
1,414 Michelin Corp. Class B 79,149
103 Societe Generale 12,748
400 Total Corp. ADR 18,950
200 Total Corp. Class B 18,680
--------------
294,547
Germany (11.1%)
- ------------------------------------------------------------------------------------------------------------
500 Altana AG 37,403
2,000 Bayer AG ADR 73,381
100 Bayerische Motoren Werke (BMW) AG 70,718
1,000 Deutsche Bank AG 58,287
2,500 Deutsche Telekom AG 49,724
100 Mannesmann AG 46,188
100 Preussag AG 27,983
800 Veba (Vereinigte Elektrizitaets Bergwerks) AG 43,315
--------------
406,999
Hong Kong (1.4%)
- ------------------------------------------------------------------------------------------------------------
3,000 Amoy Properties Ltd. 3,020
1,000 Cheung Kong Holdings Ltd. 10,582
2,000 Dao Heng Bank Group Ltd. 8,517
1,000 Guoco Group Ltd. 3,884
2,000 Hong Kong and China Gas Co., Ltd. 3,717
2,000 Hutchison Whampoa Ltd. 16,647
500 Swire Pacific Ltd. Class A 3,823
--------------
50,190
Ireland (2.3%)
- ------------------------------------------------------------------------------------------------------------
4,156 Allied Irish Banks PLC 34,903
2,146 Bank of Ireland 24,299
1,019 CRH PLC 10,992
3,000 Greencore Group PLC 14,155
--------------
84,349
Italy (2.4%)
- ------------------------------------------------------------------------------------------------------------
12,800 Ente Nazionale Idrocarburi SPA ADR 71,272
5,000 Telecom Italia Mobile SPA 17,241
--------------
88,513
Japan (24.5%)
- ------------------------------------------------------------------------------------------------------------
3,000 Bridgestone Corp. 66,363
2,000 Canon, Inc. 55,178
1,000 Dai Nippon Printing Co., Ltd. 20,878
5,000 Daikin Industries Ltd. 36,123
2,000 Fuji Photo Film Co. 76,885
1,000 Ito-Yokado Co., Ltd. 53,853
1,000 KAO Corp. 14,747
16,000 Kawasaki Steel Corp. 39,635
1,000 Kurita Water Industries Ltd. 26,346
1,000 Matsushita Electric Works 10,771
7,000 Mitsui & Co. Ltd. 57,067
5,000 NEC Corp. 55,924
16,000 Nippon Steel Corp. 40,563
800 Nippondenso Co., Ltd. 17,233
2,000 Omron Corp. 37,117
1,000 Sankyo Co., Ltd. 30,323
1,200 Santen Pharmaceutical Co., Ltd 20,878
2,000 Shin-Etsu Chemical Co. 51,036
1,000 Sony Corp. 86,993
2,000 Toyota Motor Corp. 52,196
1,000 Yamanouchi Pharmaceutical Co., Ltd. 23,861
2,000 Yamato Transport Co., Ltd. 24,027
--------------
897,997
Netherlands (5.1%)
- ------------------------------------------------------------------------------------------------------------
2,876 ABN AMRO Holding N.V. 56,403
200 Akzo-Nobel N.V. 30,986
702 Internationale Nederlanden Groep 30,537
400 K.L.M.-Royal Dutch Airlines 12,740
500 Philips Electronics N.V. 35,562
400 Vendex International N.V. + 20,015
--------------
186,243
Norway (0.4%)
- ------------------------------------------------------------------------------------------------------------
1,000 Christiana Bank & Trust 3,406
500 Saga Petroleum ASA Class B 9,617
--------------
13,023
Portugal (0.5%)
- ------------------------------------------------------------------------------------------------------------
500 Portugal Telecom S.A. 18,521
Sweden (4.7%)
- ------------------------------------------------------------------------------------------------------------
2,000 Astra AB 31,766
300 Electrolux AB 21,263
1,000 Sandvik AB Class A 29,933
500 Skandia Forsakrings AB 19,301
1,300 Svenska Cellulosa AB Class B 28,711
1,000 Telefonaktiebolaget LM Ericsson Class B 41,513
--------------
172,487
Switzerland (9.8%)
- ------------------------------------------------------------------------------------------------------------
40 ABB AG + 58,833
53 Ciba Specialty Chemicals AG + 4,568
30 Julius Baer Holdings AG 42,254
60 Nestle S.A. 69,618
55 Novartis AG ADR 77,760
30 Swiss Reinsurance Co. 39,759
30 United Bank of Switzerland 29,678
100 Zurich Versicherungs-Gesellschaft 36,212
--------------
358,682
United Kingdom (22.9%)
- ------------------------------------------------------------------------------------------------------------
8,039 B A T Industries PLC 67,244
7,050 British Petroleum Co. PLC 98,476
3,500 Burmah Castrol PLC 58,355
9,000 General Electric Co. PLC 55,606
3,289 HSBC Holdings PLC 102,269
3,000 Molins PLC 29,030
9,000 Norwich Union PLC + 49,702
3,000 Rio Tinto PLC 47,273
8,012 Scottish Power PLC 56,443
9,000 Securicor Group PLC Class A 38,625
8,600 Shell Transportation & Trading 58,079
4,000 Smiths Industries PLC 53,184
5,000 Tomkins PLC 24,212
750 Unilever PLC 20,752
15,168 Vodafone Group PLC 77,872
--------------
837,122
United States (0.9%)
- ------------------------------------------------------------------------------------------------------------
1,000 Pharmacia & Upjohn, Inc. 33,793
--------------
Total Common Stocks (cost $3,210,001) $ 3,558,046
SHORT-TERM INVESTMENTS (3.0%) * (cost $111,051)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
111,000 Interest in $453,719,000 joint repurchase agreement dated
August 29, 1997 with SBC Warburg Securities due
September 2, 1997 with respect to various U.S. Treasury
obligations -- maturity value of $111,068 for an effective
yield of 5.55% $ 111,051
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,321,052) *** $ 3,669,097
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $3,663,652.
*** The aggregate identified cost on a tax basis is $3,321,398, resulting in gross unrealized appreciation
and depreciation of $459,774 and $112,075, respectively, or net unrealized appreciation of $347,699.
+ Non-income-producing security.
ADR after the name of a foreign holding stands for American Depository Receipts 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, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,321,052) (Note 1) $3,669,097
- ---------------------------------------------------------------------------------------------------
Cash 58
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 10,071
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 125
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 15,230
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 3,517
- ---------------------------------------------------------------------------------------------------
Total assets 3,698,098
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 8,360
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 478
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 3,662
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 21,939
- ---------------------------------------------------------------------------------------------------
Total liabilities 34,446
- ---------------------------------------------------------------------------------------------------
Net assets $3,663,652
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) 3,256,801
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 23,923
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 34,986
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 347,942
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,663,652
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($3,663,652 divided by 382,457 shares) $9.58
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $9.58)* $10.16
- ---------------------------------------------------------------------------------------------------
* 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
Year ended August 31, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $6,803) $ 69,427
- --------------------------------------------------------------------------------------------------
Interest 467
- --------------------------------------------------------------------------------------------------
Total investment income 69,894
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 27,676
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 6,566
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 2,049
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 40
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 122
- --------------------------------------------------------------------------------------------------
Reports to shareholders 3,889
- --------------------------------------------------------------------------------------------------
Auditing 18,311
- --------------------------------------------------------------------------------------------------
Legal 4,490
- --------------------------------------------------------------------------------------------------
Postage 124
- --------------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (12,982)
- --------------------------------------------------------------------------------------------------
Total expenses 50,285
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (6,113)
- --------------------------------------------------------------------------------------------------
Net expenses 44,172
- --------------------------------------------------------------------------------------------------
Net investment income 25,722
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 37,152
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (409)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (204)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 396,275
- --------------------------------------------------------------------------------------------------
Net gain on investments 432,814
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $458,536
- --------------------------------------------------------------------------------------------------
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
Year ended of operation) to
August 31 August 31
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 25,722 $ 30,489
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 36,743 45,808
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in foreign currencies 396,071 (48,129)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 458,536 28,168
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (31,476) --
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (48,509) --
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 141,025 115,908
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 519,576 144,076
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 3,144,076 3,000,000
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $23,923 and $30,424, respectively) $3,663,652 $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
Per-share Year ended Dec. 28, 1995+
operating performance August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $8.58 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .07 .08
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.15 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.22 .08
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.13) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.58 $8.58
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and suplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 14.43 0.94 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,664 $3,144
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.45 .98 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) .74 .96 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 76.09 48.18 *
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid $.0413 $.0538
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset 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 for the period ended August 31, 1997, and August 31, 1996, reflect a
reduction of $0.03, and $0.05 per share, respectively.
</TABLE>
Notes to financial statements
August 31, 1997
Note 1
Significant accounting policies
Putnam International Fund (the "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, 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 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
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 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.
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 losses on wash sale transactions, post
October loss deferrals, organization expenses, realized gains and losses on
passive foreign investment companies and gains and losses on foreign currency.
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, 1997, the fund
reclassified $747 to decrease undistributed net investment income and $31 to
decrease paid-in-capital, with an increase to accumulated net realized gain on
investments of $778. 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% thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through December 31, 1997, to the extent that
expenses of the 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
reimbursements 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 year ended August 31, 1997, fund expenses were reduced by $6,113 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 $108 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 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 in the fund and are
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
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
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 Plan provides for payment by the fund to
Putnam Mutual Funds Corp. at an annual rate of up to 0.35% of the fund's
average net assets. The fund is not currently making any payments pursuant to
the Plan.
During the year ended August 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter, received no monies from net commissions from the sale of shares
of the fund.
Note 3
Purchase and sales of securities
During the year ended August 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $2,671,147 and
$2,535,265, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
August 31, 1997
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 8,856 $ 80,064
- ------------------------------------------------------------
Shares issued in
connection with
distributions 9,185 79,985
- ------------------------------------------------------------
18,041 160,049
Shares
repurchased (2,035) (19,024)
- ------------------------------------------------------------
Net increase 16,006 $141,025
- ------------------------------------------------------------
For the period
December 28, 1995
(commencement of
operations) to
August 31, 1996
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 14,177 $121,749
- ------------------------------------------------------------
Shares issued in
connection with
distributions -- --
- ------------------------------------------------------------
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, 1997, Putnam Management owned 361,704 shares of the fund (94.58%
of shares outstanding), valued at $3,465,124.
Federal tax information
(Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the fund hereby
designates $35,308 (or if different, the amount necessary to offset net
capital gain earned by the fund) as capital gain dividends for its taxable
year ended August 31, 1997.
For the period, interest and dividends from foreign countries were $75,866 or
$.198 per share. Taxes paid to foreign countries were $6,803 or $.0178 per
share.
The Form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
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
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
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. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
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.
36566-10/97
