Putnam
International
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam International Fund's goal is to provide long-term capital
appreciation while maintaining tight controls on the fund's risk exposure.
Portfolio managers Justin Scott and Geir Lode use a combination of
quantitative investment methodologies and proprietary fundamental insights
to construct the portfolio. These strategies resulted in the following
performance over the reporting period:
Total return for 12 months ended 8/31/99
Net asset value Public offering price
- ----------------------------------------------------------------
30.76% 23.18%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 4.
The target tracking error (measure of risk) for the fund is currently in
the range of 100 to 200 basis points relative to the fund's benchmark (the
MSCI/EAFE Index). During the past fiscal year, international markets
witnessed a series of unusual events and major dislocations, including a
major widening in credit spreads and risk premiums following the Russian
debt crisis and the rescue of long-term credit, which led to a higher than
anticipated tracking error. However, over the period, the investment
process continued to generate a positive information ratio (the active
return relative to the risk) and a total return that outperformed the
MSCI/EAFE Index.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
British Petroleum Co. PLC
United Kingdom
Nippon Telegraph and Telephone Corp.
Japan
Yamanouchi Pharmaceutical Co., Ltd.
Japan
Fujitsu Ltd.
Japan
Elf Aquitaine S.A.
France
Promise Co., Ltd.
Japan
Shin-Etsu Chemical Co.
Japan
Murata Manufacturing Co. Ltd.
Japan
Ente Nazionale Idrocarburi (ENI) SPA
Italy
Mannesmann AG
Germany
Footnote reads:
These holdings represent 16.6% of the fund's net assets as of 8/31/99.
Portfolio holdings will vary over time.
It is reassuring that during periods of market dislocation and
fluctuations in tracking error that our investment insight and number of
decisions have proven effective. While this may be pleasing to
shareholders in the short term, it is important to note that over time we
should expect returns more in line with traditional performance.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 20, 1999
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 8/31/99, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, including economic instability, political
developments, and currency fluctuations, not present with U.S.
investments.
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 8/31/99
MSCI EAFE Consumer
NAV POP Index price index
- ---------------------------------------------------------------------
1 year 30.76% 23.18% 25.67% 2.33%
- ---------------------------------------------------------------------
Life of fund
(since 12/28/95) 59.01 49.85 39.16 8.93
Annual average 13.47 11.65 9.43 2.36
- ---------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost. Performance data reflect an expense limitation
currently in effect. Without the expense limitation, total returns would
have been lower.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/99
- ---------------------------------------------------------------------
Distributions (number) 1
- ---------------------------------------------------------------------
Income $0.055
- ---------------------------------------------------------------------
Capital gains
Long-term 0.387
- ---------------------------------------------------------------------
Short-term --
- ---------------------------------------------------------------------
Total $0.442
- ---------------------------------------------------------------------
Share value: NAV POP
- ---------------------------------------------------------------------
8/31/98 $9.92 $10.53
- ---------------------------------------------------------------------
8/31/99 12.45 13.21
- ---------------------------------------------------------------------
[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
Fund's shares MSCI/EAFE Consumer price
Date at POP Index index
12/28/95 9,425 10,000 10,000
6/30/96 9,900 10,452 10,208
12/31/96 10,067 10,605 10,332
6/30/97 11,350 11,793 10,443
12/31/97 11,021 10,793 10,508
6/30/98 12,869 12,512 10,619
12/31/98 13,095 12,952 10,697
6/30/99 14,383 13,465 10,827
8/31/99 $14,985 $13,916 $10,893
Footnote reads:
Past performance is no assurance of future results. See first page of
performance section for performance calculation method.
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
NAV POP
- ----------------------------------------------------------------------
1 year 37.00% 29.06%
- ----------------------------------------------------------------------
Life of fund 61.06 51.77
(since 12/28/95)
Annual average 13.51 11.73
- ----------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed 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 5.75% maximum sales charge.
Comparative benchmarks
Europe, Australasia, and the Far East (EAFE) component of the Morgan
Stanley Capital International World Index (MSCI) is an unmanaged list of
equity securities listed on the stock exchanges of Europe, Australasia,
and the Far East, with all values expressed in U.S. dollars. The index
assumes reinvestment of all distributions and interest payments and does
not take into 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net investment
income or realized capital gains) over the current reporting period and the
most recent fiscal year-end. The distributions listed here may not match the
sources listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended August 31, 1999
To the Trustees of Putnam Investment Funds and
Shareholders of Putnam International Fund
(a series of Putnam Investment Funds)
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam International
Fund (the "fund") at August 31, 1999, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of investments owned at
August 31, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 8, 1999
<TABLE>
<CAPTION>
The fund's portfolio
August 31, 1999
COMMON STOCKS (99.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Australia (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,000 AMP Ltd. $ 19,973
5,079 Coles Myer Ltd. 28,404
1,000 Commonwealth Bank of Australia 15,775
1,000 National Australia Bank, Ltd. 15,157
400 News Corp. Ltd. ADR (NON) 11,725
6,000 Pioneer International Ltd. 15,355
1,000 Rio Tinto Ltd. 17,211
4,085 Westpac Banking Corp. 24,829
--------------
148,429
Austria (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
200 VA Technologie AG 17,662
Belgium (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
50 Electrabel S.A. 16,726
Canada (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
587 Laurasia Resources Ltd. 13,186
Denmark (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
300 Danisco A/S 12,813
400 Tele Danmark A/S 22,665
--------------
35,478
Finland (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
900 Oy Nokia AB, Class A 75,195
700 Sampo Insurance Co., Ltd. Class A 22,950
1,000 Sonera Group OYJ 24,272
--------------
122,417
France (10.4%)
- --------------------------------------------------------------------------------------------------------------------------
200 Axa S.A. 24,917
300 Banque Nationale de Paris 22,971
200 Bouygues S.A. 55,207
100 Carrefour Supermarche S.A. 16,287
220 Compagnie Financiere de Paris 23,430
500 Elf Aquitaine S.A. 87,781
300 France Telecom S.A. 23,384
200 Groupe Danone 49,538
100 L'OREAL 64,672
201 Lafarge Coppee 21,619
314 Michelin Corp. Class B 13,619
10 Promodes 9,444
200 Rhone-poulenc S.A. ORD, Class A 9,713
600 Sanofi-Synthelabo S.A. (NON) 25,002
100 Schneider S.A. 6,716
113 Societe Generale 22,145
200 Total Fina S.A. ADR (NON) 13,013
900 Vivendi 69,580
--------------
559,038
Germany (9.3%)
- --------------------------------------------------------------------------------------------------------------------------
50 Allianz Versicherungs AG 13,183
100 BASF AG 4,537
1,200 Bayer AG 52,224
1,300 Bayerische Motoren Werke (BMW) AG 41,315
400 DaimlerChrysler AG 30,205
855 Deutsche Bank AG 58,505
1,000 Deutsche Telekom AG 44,313
1,500 Hoechst AG 63,456
500 Mannesmann AG 76,782
40 SAP AG 14,045
400 Siemens AG 33,674
700 Veba (Vereinigte Elektrizitaets Bergwerks) AG 44,641
400 Volkswagen AG 24,156
--------------
501,036
Hong Kong (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 Bank of East Asia, Ltd. 23,053
7,000 Cathay Pacific Airways 11,900
3,000 Henderson Land Development Co. Ltd. (R) 15,879
11,000 Hong Kong and China Gas Co., Ltd. 15,441
4,155 Hong Kong Electric Holdings Ltd. 13,671
2,048 Sun Hung Kai Properties Ltd. 17,540
--------------
97,484
Ireland (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,211 Allied Irish Banks PLC 28,598
1,177 Bank of Ireland 10,664
1,028 CRH PLC 23,049
--------------
62,311
Italy (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,400 Alleanza Assicurazioni SPA 14,614
3,000 Banca Intesa SPA 12,691
1,200 Banca Popolare di Milano 8,706
12,800 Ente Nazionale Idrocarburi (ENI) SPA 77,027
200 La Rinascente SPA 1,599
1,000 Mediaset SPA 8,842
5,000 Telecom Italia Mobile SPA 29,137
2,000 Telecom Italia SPA 20,158
--------------
172,774
Japan (26.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,000 Canon, Inc. 29,229
2,000 Dai Nippon Printing Co., Ltd. 32,700
3 DDI Corp. 18,908
1,000 Eisai Co. Ltd. 23,109
3,000 Fujitsu Ltd. 87,961
3,000 Hitachi Ltd. ORD 30,444
1,000 Honda Motor Co., Ltd. 40,190
1,000 Ito-Yokado Co., Ltd. 73,621
2,000 KAO Corp. 56,814
1,000 Kurita Water Industries Ltd. 18,140
3,000 Matsushita Electric Industrial Co. 59,190
2,000 Mitsubishi Trust and Banking Corp. 21,008
4,000 Mitsui Fudoscan Co., Ltd. 28,170
1,000 Murata Manufacturing Co. Ltd. 80,380
7,000 Nikko Securities Co. Ltd. 60,614
9 Nippon Telegraph and Telephone Corp. 101,114
50 Nippon Television Network Corp. 27,402
4 NTT Mobile Communications Network, Inc. (NON) 66,131
1 NTT Mobile Network, Inc. Communications 16,624
1,000 Promise Co., Ltd. 83,120
2,000 Shin-Etsu Chemical Co. 81,476
3,000 Shiseido Co., Ltd. 41,925
500 Sony Corp. 64,761
1,000 Takeda Chemical Industries 50,237
2,000 Tokyo Electric Power Co. 46,584
6,000 Toshiba Corp. 53,325
1,000 Toyota Motor Corp. 29,503
2,000 Yamanouchi Pharmaceutical Co., Ltd. 89,149
--------------
1,411,829
Netherlands (5.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,017 ABN AMRO Holding N.V. 49,158
800 Akzo-Nobel N.V. 37,270
100 Heineken N.V. 4,992
1,319 Internationale Nederlanden Groep (ING) 72,399
760 Koninklijke Ahold N.V. 27,248
352 Philips Electronics N.V. 36,315
500 Royal Dutch Petroleum Co. 30,776
200 STMicroelectronics N.V. 13,294
303 TNT Post Group N.V. 7,474
394 Vedior N.V. 6,813
403 Vendex International N.V. 10,570
--------------
296,309
New Zealand (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,300 Telecom Corp. of New Zealand Ltd. 23,775
Norway (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,000 Christiana Bank & Trust 4,249
500 Norsk Hydro ASA (NON) 20,861
200 Norske Skogindustrier ASA (NON) 6,788
100 Tomra Systems ASA 3,515
--------------
35,413
Portugal (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
98 Banco Comercial Portugues, S.A. 2,606
600 Electricidade de Portugal S.A. 10,153
600 Portugal Telecom S.A. 25,122
--------------
37,881
Singapore (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,326 Development Bank of Singapore Ltd. 26,661
2,000 Keppel Land Ltd. 3,076
2,000 Oversea Chinese Banking Corp. 14,016
3,000 United Overseas Bank Ltd. 22,271
--------------
66,024
Spain (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
6 Banco Santander Central Hispano S.A. 65
2,450 Iberdola S.A. 35,239
300 Superdiplo S.A. (NON) 6,679
3,906 Telfonica S.A. (NON) 62,378
--------------
104,361
Sweden (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
400 Electrolux AB 8,059
500 Hennes & Mauritz AB, Class B 12,653
2,500 Investor AB 30,494
700 Pharmacia & Upjohn, Inc. 36,702
950 Skandia Forsakrings AB 19,371
400 Svenska Cellulosa AB (SCA), Class B 11,651
900 Telefonaktiebolaget LM Ericsson, Class B 29,056
200 Volvo AB, Class B 5,607
--------------
153,593
Switzerland (6.4%)
- --------------------------------------------------------------------------------------------------------------------------
10 ABB AG 16,597
20 Cie Finance Richemont 38,057
100 Credit Suisse Group 18,897
20 Julius Baer Holdings AG 61,711
30 Nestle S.A. 59,267
45 Novartis AG ADR 64,817
90 Swisscom AG ADR 29,703
200 United Bank of Switzerland (UBS) AG 56,492
--------------
345,541
United Kingdom (21.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,098 Allied Zurich PLC 25,619
1,000 Anglian Water PLC 11,884
400 Barclays PLC 11,884
2,000 Bass PLC 26,868
1,098 BAT Industries PLC 9,228
500 BG PLC 3,005
1,000 British Airways PLC 6,540
7,008 British Petroleum Co. PLC 129,984
5,000 British Telecommunications PLC ADR 76,527
2,416 Burmah Castrol PLC 45,902
3,000 Cable & Wireless Communications (NON) 31,293
500 Colt Telecom Group PLC (NON) 10,881
3,010 Diageo PLC 30,455
800 Dixons Group PLC 15,045
3,000 EMI Group PLC 25,487
2,000 Glaxo Wellcome PLC 52,548
4,000 Granada Group PLC 35,685
3,702 HSBC Holdings PLC 45,889
2,305 HSBC Holdings PLC 28,481
500 Kingfisher Leisure PLC 6,010
2,200 Marks & Spencer PLC 14,680
700 Molins PLC 1,405
1,500 National Westminster Bancorp Inc. 30,811
500 Next PLC 5,910
500 Orange PLC ADR (NON) 8,423
1,500 Peninsular and Oriental Steam Navigation Co. 24,584
909 Royal & Sun Alliance Insurance Group PLC 7,562
303 Royal PTT 13,587
6,012 Scottish Power PLC 55,276
6,000 Securicor Group PLC 56,612
3,600 Shell Transportation & Trading 28,677
3,000 Siebe PLC 15,297
2,700 Smithkline Beecham PLC ADR 35,145
4,000 Smiths Industries PLC 59,840
8,000 Tesco PLC 23,672
5,000 Tomkins PLC 21,842
3,075 Vodafone Group PLC 61,928
2,000 WPP Group PLC 18,726
957 Zeneca Group PLC (NON) 37,953
--------------
1,151,145
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,209,244) (b) $ 5,372,412
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $5,389,957.
(b) The aggregate identified cost on a tax basis is $4,279,591, resulting in gross unrealized appreciation and
depreciation of $1,266,656 and $173,835, respectively, or net unrealized appreciation of $1,092,821.
(NON) Non-income-producing security.
(R) Real Estate Investment Trust.
ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign
securities on deposit with a domestic custodian bank.
The fund had the following industry group concentrations greater than 10% at August 31, 1999 (as a percentage of
net assets):
Insurance and finance 18.8%
Telecommunications 13.2
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $4,209,244) (Note 1) $5,372,412
- -----------------------------------------------------------------------------------------------
Cash 9,881
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 17,324
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 19,556
- -----------------------------------------------------------------------------------------------
Receivable from manager (Note 2) 1,441
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 972
- -----------------------------------------------------------------------------------------------
Total assets 5,421,586
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 11,559
- -----------------------------------------------------------------------------------------------
Payable to subcustodian -- foreign currency (Note 2) 9,843
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,013
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,567
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 3,662
- -----------------------------------------------------------------------------------------------
Other accrued expenses 3,978
- -----------------------------------------------------------------------------------------------
Total liabilities 31,629
- -----------------------------------------------------------------------------------------------
Net assets $5,389,957
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,795,629
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 35,445
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions (Note 1) 395,702
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 1,163,181
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $5,389,957
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($5,389,957 divided by 432,929 shares) $12.45
- -----------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $12.45)* $13.21
- -----------------------------------------------------------------------------------------------
* 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, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $8,766) $75,111
- -----------------------------------------------------------------------------------------------
Interest 57
- -----------------------------------------------------------------------------------------------
Total investment income 75,168
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 37,031
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 8,562
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 2,478
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 40
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses 1,895
- -----------------------------------------------------------------------------------------------
Registration fees 160
- -----------------------------------------------------------------------------------------------
Reports to shareholders 3,900
- -----------------------------------------------------------------------------------------------
Auditing 32,539
- -----------------------------------------------------------------------------------------------
Legal 3,625
- -----------------------------------------------------------------------------------------------
Other 87
- -----------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (21,331)
- -----------------------------------------------------------------------------------------------
Total expenses 68,986
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (4,236)
- -----------------------------------------------------------------------------------------------
Net expenses 64,750
- -----------------------------------------------------------------------------------------------
Net investment income 10,418
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 424,509
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 25
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 437
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 790,650
- -----------------------------------------------------------------------------------------------
Net gain on investments 1,215,621
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,226,039
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
-------------------------------
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 10,418 $ 16,078
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 424,534 150,512
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 791,087 24,152
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,226,039 190,742
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (21,375) (24,481)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments (150,404) (35,574)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 477,478 63,880
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,531,738 194,567
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 3,858,219 3,663,652
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $35,445 and $15,391, respectively) $5,389,957 $3,858,219
- ---------------------------------------------------------------------------------------------------------------
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 Dec. 28, 1995+
operating performance Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.92 $9.58 $8.58 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) .03(a) .04 .07 .08
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.95 .45 1.15 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.98 .49 1.22 .08
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.06) (.06) (.09) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.39) (.09) (.13) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.15) (.22) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.45 $9.92 $9.58 $8.58
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and suplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 30.76 5.29 14.43 .94*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,390 $3,858 $3,664 $3,144
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.49 1.47 1.45 .98*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) .23 .40 .74 .96*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 55.80 38.61 76.09 48.18*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of weighted average number
of shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).
(d) 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, 1999, August 31, 1998, August 31, 1997, and August 31, 1996, reflect a reduction of
$0.05, $0.04, $0.03, and $0.05 per share, respectively.
</TABLE>
Notes to financial statements
August 31, 1999
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 common stocks issued by foreign
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 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 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis. Dividend income 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, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when 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 gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
August 31, 1999, the fund had no borrowings against the line of credit.
G) 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, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
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 at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sales transactions, foreign currency gains and losses, organization costs,
realized gains and losses on passive foreign investment companies and
unrealized gains and losses on passive foreign investment companies.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended August 31,
1999, the fund reclassified $31,011 to increase undistributed net
investment income and $2,507 to decrease paid-in-capital, with a decrease
to accumulated net realized gains of $28,504. The calculation of net
investment income per share in the financial highlights table excludes
these adjustments.
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 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, 1999, to the extent
that expenses of the fund (exclusive of brokerage commissions, 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 an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
As part of the subcustodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At August 31, 1999, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
For the year ended August 31, 1999, fund expenses were reduced by $4,236
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 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.
Each Trustee of the fund receives an annual Trustee fee, of which $100 has
been allocated to the fund, 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
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 currently not making any
payments pursuant to the Plan.
During the year ended August 31, 1999, Putnam Mutual Funds Corp., acting
as underwriter, received no monies from net commissions from the sale of
shares of the fund.
Note 3
Purchases and sales of securities
During the year ended August 31, 1999, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $2,904,241 and $2,543,651, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At August 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Shares Amount
- -----------------------------------------------------------------------------
Shares sold 30,481 $336,359
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 16,267 171,779
- -----------------------------------------------------------------------------
46,748 508,138
Shares
repurchased (2,688) (30,660)
- -----------------------------------------------------------------------------
Net increase 44,060 $477,478
- -----------------------------------------------------------------------------
Year ended August 31, 1998
- -----------------------------------------------------------------------------
Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,111 $25,296
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,415 60,048
- -----------------------------------------------------------------------------
8,526 85,344
Shares
repurchased (2,114) (21,464)
- -----------------------------------------------------------------------------
Net increase 6,412 $63,880
- -----------------------------------------------------------------------------
At August 31, 1999, Putnam Investments Inc., owned 409,561 shares of the
fund (94.6% of shares outstanding), valued at $5,099,034.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the fund
hereby designates $331,065 as capital gain, for its taxable year ended
August 31, 1999.
For the period, interest and dividends from foreign countries were
$83,955. Taxes paid to foreign countries were $8,766.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Fund information
WEB SITE
www.putnamminv.com
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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Geir Lode
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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.
2AX 55085 10/99
