Putnam Europe Growth Fund
Annual Report
June 30, 1994
[ARTWORK]
Boston * London * Tokyo
<PAGE>
Performance highlights
For the 12 months ended June 30, 1994, the performance of Putnam Europe
Growth FundOs class A shares at net asset value outperformed two
benchmark indexes -- the S&P 500(R) and the Morgan Stanley Capital
International Europe 14 Index -- as shown on page 9.
According to CDA/Wiesenberger, your fundOs class A shares outperformed
the average international equity fund tracked for 1- and 3-year
performance as of 6/30/94.*
Lipper ranked the fundOs class A shares in the top quartile of European
region funds tracked for 1- and 3-year performance as of 6/30/94.+
Performance should always be considered in light of a fundOs investment
strategy. Putnam Europe Growth Fund seeks capital appreciation by
investing its assets primarily in common stocks and other securities of
European companies.
Fiscal 1994 Results at a Glance
- ------------------------------------------------------------------------
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Class A Class B
Total return: NAV POP NAV CDSC
- ------------------------------------------------------------------------
12 months ended 6/30/94
(change in value during period
plus reinvested distributions) 19.45% 12.58% -- --
- ------------------------------------------------------------------------
Life of Class B (since 2/1/94) -- -- -6.97% -11.62%
- ------------------------------------------------------------------------
Share value: NAV POP NAV
- ------------------------------------------------------------------------
6/30/93 $9.84 $10.44 --
- ------------------------------------------------------------------------
2/1/94 (inception date of class B) -- -- $12.49
- ------------------------------------------------------------------------
6/30/94 11.64 12.35 11.62
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital gains
Long- Short-
Distributions: No. Income term term Total
- ------------------------------------------------------------------------
Class A 1 $0.113 $0.00 $0.00 $0.113
- ------------------------------------------------------------------------
Class B -- -- -- -- --
- ------------------------------------------------------------------------
</TABLE>
Performance data represent past results. For performance over longer
periods, see pages 8 and 9. POP assumes 5.75% maximum sales charge.
CDSC assumes 5% maximum contingent deferred sales charge.
* CDA/Wiesenberger rankings are updated monthly, based entirely on total
return and do not take into account sales charges or fees. The fundOs
class A shares ranked 120 out of 301 international equity funds for 1
year and 71 out of 170 for 3 years as of 6/30/94. Past performance is
not indicative of future results.
+ Lipper Analytical Services is an independent research organization;
rankings vary over time and do not reflect the effects of sales charges.
LipperOs category of European region funds comprise 30 funds for 1 year
and 22 funds for 3 years. Past performance is not indicative of future
results.
<PAGE>
From the Chairman
[PHOTO]
(C) Karsh, Ottawa
Dear Shareholder:
The first six months of 1994 served as a reminder that the worldOs
closely linked financial markets are always shifting, sometimes
dramatically.
This spring, higher interest rates in the United States lessened fears
of inflation and moderated growth while sparking volatility that
affected virtually every sector of the stock and bond markets, at home
and overseas. Conditions now appear more stable. Most of the worldOs
major economies show stronger fundamentals, while Japan and Europe
appear on the brink of recovery.
Yet, apprehension lingers. The markets continue to over anticipate
another rise in U.S. interest rates and discount the generally good
economic news. Meanwhile, the dollar poses a new concern as it loses
ground to other currencies.
Most stocks, domestic and foreign, joined other investments in losing
value at some point during the past five months. However it is important
to remember that market declines have traditionally paved the way for
longer-term gains that more than made up for the downturns.
In the report that follows, Fund Manager Justin Scott explains how he
plans to use PutnamOs considerable resources in positioning your fund to
meet the challenges of the coming months.
Respectfully yours,
[SIGNATURE]
George Putnam
Chairman of the Trustees
August 17, 1994
<PAGE>
Report from the fund manager
Justin Scott
Investors in Putnam Europe Growth Fund, who incidentally include your
portfolio manager, have had a good year. The fundOs class A shares
substantially outperformed the U.S. stock market, as represented by the
S&P 500(R), at both NAV and POP while also surpassing the European
markets, as represented by the Morgan Stanley Capital International
Europe 14 Index, at NAV. As of June 30, 1994, the fundOs net asset value
rose by more than 19% since the beginning of the fiscal year.
Performance of class B shares, which the fund began offering on February
1, 1994, is shown on pages 2 and 9.
A shift in the forces driving stock market performance
European stock markets lost ground steadily relative to the U.S. market
during 1991 and 1992. The under performance at that time was largely a
reflection of the strength of the U.S. market rather than any
significant weakness in European markets. The end of 1992 marked the
turn of such relative under performance.
During 1993, including the first six months of your fundOs fiscal year,
European markets were driven by falling interest rates. Throughout the
first three years of the decade, interest rates had remained stubbornly
high despite slowing economies and increasing unemployment -- a peculiar
effect of the reunification of the German economy and the importance of
the deutsche mark within the European Monetary System. The breakdown of
the European Monetary System in the latter part of 1992, combined with a
sudden slowdown in the German economy, changed this. The artificial
restraints on interest rates were removed and rates dropped across the
Continent, providing the impetus for a bull market in both bonds and
stocks.
As we moved into the latter half of your fundOs fiscal year, the period
between December 31 and June 30, the forces driving the stock markets
changed. Rising interest rates in the U.S. and resulting decline in bond
prices caused turmoil in European bond markets, distracting investorsO
attention from what we believe will be the impetus to European stock
market performance in 1994 and 1995 -- corporate earnings growth.
corporate earnings growth expected to drive the markets
Initially, we anticipate that earnings growth will reflect the
substantial cost-cutting that many European corporations are undergoing
and then, eventually, the economic recovery.
The extent of the current cost-cutting and corporate restructuring is
dramatic. Management and labor are embarking on programs of a scale not
witnessed in Europe for 20 years. A political shift to the right, a
prolonged recession, and the new challenge of a skilled and inexpensive
workforce in Eastern Europe, have combined to provide company management
with the will, as well as the means, to attack costs.
DIVERSIFICATION BY COUNTRY*
<TABLE>
<S> <C>
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Austria 3.7%
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Belgium 2.0%
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Denmark 5.8%
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Finland 1.7%
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France 14.3%
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Germany 5.8%
- ------------------------------------------------------------------------
Greece 1.7%
- ------------------------------------------------------------------------
Ireland 4.8%
- ------------------------------------------------------------------------
Italy 4.2%
- ------------------------------------------------------------------------
Netherlands 12.9%
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Norway 1.5%
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Portugal 1.6%
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Spain 3.2%
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Sweden 4.3%
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Switzerland 9.6%
- ------------------------------------------------------------------------
United Kingdom 16.9%
- ------------------------------------------------------------------------
</TABLE>
* Based on net assets on 6/30/94.
These measures have taken effect and we believe they will gain momentum
at the same time that European economies begin to recover. In our last
report, we wrote that the economic recession in Europe was abating but
that a recovery was unlikely before yearOs end. Since then, the early
signs of recovery have strengthened considerably and the economy is
picking up sooner than expected. We believe the combined effects will
create a stronger environment for European stocks over the next 2 to 3
years.
FUND POSITIONED TO BENEFIT FROM CHANGING TRENDS
Over the past 12 months, the nature of portfolio holdings has shifted.
The interest-rate-sensitive stocks, such as financial institutions and
utility companies, that composed a large part of the portfolio in fiscal
1993 and early fiscal 1994 have been replaced, to some extent, by
cyclical companies -- those that tend to perform well in times of
economic recovery.
When selecting cyclicals, we look for companies that have maintained, or
increased their market share, maintained their capital equipment, taken
effective cost-cutting measures early on, and attractive valuations.
The one development that surprised markets is on the currency front.
Over the last six months, against consensus expectations, the dollar has
been weak against European currencies. Hindsight shows why. The U.S.
economy has strengthened and foreign markets have become disenchanted
with the Clinton administrationOs tacit support of a weaker dollar to
reduce trade deficits. With a weaker dollar, we phased out the currency
hedges we had in place at midyear and positioned the fund to benefit
from stronger overseas currencies.
OUTLOOK
As the fund enters fiscal 1995, our outlook for European stocks is
optimistic, for several reasons.
* Despite strong performance, European stock markets have only partially
recovered their previous under performance against the U.S. market.
Valuations, in our opinion, remain attractive relative to other parts of
the world.
* Leading indicators point to relatively strong corporate profits over
the next few years.
* Inflation is still low while unemployment remains high. It is unlikely
that there will be a substantial rise in interest rates.
* The marketOs concerns about election results and a potential political
shift to the left have diminished.
In selecting stocks, we will continue to use our valuation techniques,
looking at the price that we as investors have to pay for corporate
assets and comparing it to the return that we expect to earn. We apply
this valuation technique to growth companies, cyclical companies, and to
companies that are downsizing. We strive to find stocks that we believe
are mispriced, selling significantly below what we believe to be a
companyOs true worth.
Performance summary
This section provides, at a glance, information about your fundOs
performance. Total return shows how the value of the fundOs shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions back into the fund. We show
total return in two ways: on a cumulative long-term basis and on average
how the fund might have grown each year over varying periods. For
comparative purposes, we show how the fund performed relative to
appropriate indexes and benchmarks.
Total return for periods ended 6/30/94
- ------------------------------------------------------------------------
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Morgan
Stanley
Capital
Inter-
Standard national
Class A Class B & PoorOs(R) Europe
NAV POP NAV CDSC 500 Index 14 Index
- ------------------------------------------------------------------------
1 year 19.45% 12.58% -- -- 1.40% 15.87%
- ------------------------------------------------------------------------
3 years 43.25 35.06 -- -- 30.62 38.39
Annual average 12.73 10.54 -- -- 9.31 11.44
- ------------------------------------------------------------------------
Life of class A
9/7/90 48.85 40.27 -- -- 54.66 28.96
Annual average 10.97 9.26 -- -- 12.05 6.86
- ------------------------------------------------------------------------
Life of class B
2/1/94 -- -- -6.97 -11.62 -6.56 -7.52
- ------------------------------------------------------------------------
</TABLE>
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions or, for class A shares, distribution
fees prior to implementation of the class A distribution plan in 1990.
Effective 2/1/94 the fund began offering class B shares. Performance of
share classes will differ. Performance data represent past results.
Investment returns and net asset value will fluctuate so an investorOs
shares, when sold, may be worth more or less than their original cost.
<PAGE>
GROWTH OF A $10,000 INVESTMENT
[MOUNTAIN CHART]
Past performance is no assurance of future results. A $10,000 investment
in the fundOs class B shares at inception 2/1/94 would have been valued
at $9,303 by 6/30/94 ($8,838 with a redemption at the end of the
period).
TERMS AND DEFINITIONS
Class A shares may be subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Net asset value (NAV) is the value of all your fundOs assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charges.
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.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of shares and assumes redemption at the end of the
period. Your fundOs CDSC declines from a 5% maximum during the first
year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
COMPARATIVE BENCHMARKS
Morgan Stanley Capital International Europe 14 Index (MSCI) is an
unmanaged list of approximately 627 equity securities originating in one
of 14 European countries, with all values expressed in U.S. dollars.
Performance figures reflect changes in market prices and reinvestment of
distributions net of withholding taxes. The securities in the index may
change over time to maintain representiveness. Because the fund is a
managed portfolio investing in a wide variety of foreign and domestic
securities, the securities it owns will not match those in the index.
Standard & Poor's 500 Index is an unmanaged list of large-capitalization
common stocks and assumes reinvestment of all distributions. The index
is a widely used measure of stock market performance and does not take
into account brokerage commissions or other costs. The fundOs portfolio
contains securities that do not match those in the index.
Consumer Price Index is a commonly used measure of inflation; it does
not represent an investment return.
The Putnam Fund Selector(TM)
The Putnam Fund Selector shows the many opportunities for investors
within every investment strategy. All investors should first accumulate
a base of conservative, cash-equivalent investments. Then, with the help
of your investment advisor, diversify your portfolio by investing in the
Putnam Family of Funds.
[TRIANGLE ARTWORK]
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Fund
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH
AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments to help maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS+
Putnam money market funds:
California Tax Exempt Money Market Fund
Daily Dividend Trust
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts++
* Not available in all states.
+ Relative to above.
++ Not offered by Putnam Investments. Certificates of deposit offer a
fixed rate of return and may be insured, up to certain limits, by
federal/state agencies. Savings accounts may also be insured up to
certain limits.
Please call your financial advisor or Putnam to obtain a prospectus for
any Putnam fund. It contains more complete information, including
charges and expenses. Read it carefully before you invest or send money.
<PAGE>
Report of Independent Accountants
for the fiscal year ended June 30, 1994
To the Trustees and Shareholders of
Putnam Europe Growth Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, 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 Europe Growth Fund (the OfundO) at June 30, 1994, 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 Ofinancial statementsO) are the
responsibility of the fundOs 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 June 30,
1994 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
August 16, 1994
<PAGE>
[CAPTION]<TABLE>
Portfolio of investments owned
June 30, 1994
<C> <S> <C>
COMMON STOCKS (93.2%)(a)(b)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------
United Kingdom (16.9%)
30,000 Argyll Group PLC $ 106,503
125,100 Associated British Ports PLC 478,870
95,000 BAT Industries PLC 586,530
371,000 British Steel PLC 813,158
107,500 Burmah Castrol PLC 1,436,920
27,500 East Midlands Electric PLC 255,101
240,000 General Electric Co. (The) PLC 1,042,800
55,000 Guinness PLC 370,980
190,700 Molins PLC 1,677,779
115,000 North West Water Group PLC 841,363
85,000 Pearson PLC 768,817
114,000 Rothmans International PLC Units 638,731
149,000 Royal Insurance Holdings PLC 570,357
230,000 Sears PLC 406,479
30,000 Securicor Group PLC Class A 363,495
50,500 Security Services PLC 473,917
355,000 Senior Engineering Group PLC 664,383
45,000 Shell Transportation & Trading Co. PLC 472,311
93,528 Siebe PLC 795,428
16,000 South Wales Electricity PLC 155,586
45,500 South Western Electric PLC 431,909
23,000 Southern Electric PLC 209,098
226,000 Tate & Lyle PLC 1,426,715
-----------
14,987,230
France (14.2%)
- ------------------------------------------------------------------------
21,000 Compagnie UAP 544,887
15,000 Credit Local de France 1,028,871
5,000 Docks de France 586,613
27,000 Elf Aquitaine 1,884,738
15,000 Essilor ADP 1,475,727
1,260 Financiere et Industrielle Gaz et Eaux 451,821
33,000 Michelin Class B (c) 1,371,460
18,700 Pechiney International 520,973
4,775 Remy Cointreau 186,153
5,000 Societe Generale DOEnterprises S.A. 191,707
15,500 Societe General 1,593,326
3,130 Sommer-Allibert 1,073,455
12,000 Sovac 1,178,375
1,220 Zodiac S.A. 492,442
-----------
12,580,548
Netherlands (12.9%)
- ------------------------------------------------------------------------
23,460 ABN AMRO Holding N.V. 776,988
15,000 Aegon N.V. 770,075
17,600 Akzo N.V. 1,890,238
3,000 DSM N.V. 213,563
3,900 Elsevier N.V. 335,526
57,500 Getronics N.V. 1,409,693
914 Hollandsche Beton Group N.V. 151,871
25,000 IHC Caland N.V. 511,695
49,000 Randstad Holdings (c) 2,198,718
35,500 Royal Ptt Nederland N.V. (c) 994,096
2,525 Unilever N.V. 257,270
32,700 Wolters Kluwer N.V. 1,939,862
-----------
11,449,595
Switzerland (9.6%)
- ------------------------------------------------------------------------
824 BBC Brown Boveri AG (Bearer) 725,605
700 Baer Holding AG 735,074
700 Baer Holding AG Rights 28,352
8,850 C S Holdings (Bearer) 720,240
1,300 Georg Fischer (Bearer) (c) 1,340,759
6,500 Georg Fischer (Registered) (c) 1,267,627
208 Nestle S.A. (Registered) 175,205
1,400 Nestle S.A. (Registered) ADR 58,713
40 Nestle S.A. (Registered) ADR (d) 1,678
375 Rieter Holding AG 82,977
915 Rieter Holding AG (Registered) 1,135,857
345 Sandoz AG (Registered) 179,590
450 Societe Generale de Surveillance Holdings S.A.
(Bearer) 671,692
1,250 Societe Generale de Surveillance Holdings S.A.
(Registered) 361,911
4,000 Swiss Bank Corp. (Registered) 583,558
1,193 Swiss Reinsurance Co. (Registered) 501,110
-----------
8,569,948
Denmark (5.8%)
- ------------------------------------------------------------------------
15,750 Danisco 2,325,283
4,200 International Service System, Ser. B 145,583
10,000 NKT Holding A/S 465,378
89,600 Tele Danmark A/S ADR (c) 2,206,400
-----------
5,142,644
Germany (5.8%)
- ------------------------------------------------------------------------
12,100 BASF AG $002,326,923
2,150 Spar Handels AG 494,798
7,300 VEBA AG 2,303,689
-----------
5,125,410
Ireland (4.8%)
- ------------------------------------------------------------------------
400,000 Allied Irish Bank PLC 1,451,880
70,000 Bank of Ireland 275,436
300,000 CRH PLC 1,486,980
197,000 Greencore PLC 1,006,493
-----------
4,220,789
Sweden (4.3%)
- ------------------------------------------------------------------------
61,000 Arjo AB (c) 1,043,850
90,000 Autoliv AB (c) 2,045,646
55,000 Svenska Cellulosa AB 783,118
-----------
3,872,614
Italy (4.2%)
- ------------------------------------------------------------------------
420,000 Banca Commerciale Italiana 1,215,774
136,400 Credito Italiano S.P.A. 176,446
77,000 Danieli & Co. 546,862
130,000 Danieli & Co. (Savings Shares) 486,369
338,100 Fiat Privilege S.P.A. 843,627
70,000 Istituto Mobiliare Italiano 474,068
-----------
3,743,146
Austria (3.7%)
- ------------------------------------------------------------------------
20,000 Austria Mikro Systeme Intl. 1,153,156
42,500 Mayr-Melnhof Karton AG ADS (c)(d) 637,500
18,000 VA Technologie AG (c) 1,484,935
-----------
3,275,591
Spain (3.2%)
- ------------------------------------------------------------------------
26,000 Argentaria 1,012,214
10,000 Hidrolectrica del Cantabrico 297,710
52,000 Repsol S.A. 1,500,460
-----------
2,810,384
Belgium (2.0%)
- ------------------------------------------------------------------------
2,415 Bekaert S.A. 1,775,627
Greece (1.7%)
- ------------------------------------------------------------------------
27,000 Credit Bank of Athens 1,071,427
40,000 Greek Progress Fund 412,700
-----------
1,484,127
Portugal (1.6%)
- ------------------------------------------------------------------------
15,600 Banco Commercial Portugues, S.A.
ADR (Registered) 192,970
9,100 Banco Commercial Portugues, S.A.
(Registered) 110,338
62,300 Banco Totta and Acores (BTA)
Nationalisert (Registered) 1,134,981
-----------
1,438,289
Norway (1.5%)
- ------------------------------------------------------------------------
37,500 Christiana Bank OG Kreditkass ADR (c)(d) 693,750
365,000 Christiana Bank OG Kreditkass (c) 680,213
-----------
1,373,963
Finland (1.0%)
- ------------------------------------------------------------------------
40,000 Effjohn Oy Ser. A (Bearer) 620,672
93,333 Tampella AB 287,876
-----------
908,548
Total Common Stocks (cost $80,417,336) $82,758,453
- ------------------------------------------------------------------------
FOREIGN BONDS AND NOTES (0.7%)(a)(b) (cost $681,044)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------
Finland
- ------------------------------------------------------------------------
FIM3,500,000 Effjohn OyDAB Conv. Bond 7s, 2004 $ 622,564
- ------------------------------------------------------------------------
<C> <S> <C> <C>
WARRANTS (0.1%)(a)(b)(c)
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ------------------------------------------------------------------------
France (0.1%)
- ------------------------------------------------------------------------
6,000 Schneider S.A. 06/30/97 $ 54,064
8,000 Remy Cointreau 03/31/95 48,547
-----------
102,611
Switzerland (--%)
- ------------------------------------------------------------------------
8,850 C S Holdings 12/16/94 13,276
- ------------------------------------------------------------------------
Total Warrants (cost $72,962) $ 115,887
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (5.7%)(a) (cost $5,114,604)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------
$5,114,000 Interest in $410,000,000 joint
repurchase agreement dated June 30, 1994
with Goldman Sachs & Co., due July 1, 1994
with respect to various U.S. Treasury
obligations--maturity value of $5,114,604
for an effective yield of 4.25% $ 5,114,604
Total Investments (cost $86,285,946) $88,611,508
- ------------------------------------------------------------------------
</TABLE>
(a) Percentages indicated are based on total net assets of $88,838,561,
which correspond to a net asset value per class A and class B shares of
$11.64 and $11.62, respectively.
(b) Value is determined or significantly influenced by trading on
exchanges not in the United States or Canada. ADR or ADS after the name
of a foreign holding stands for American Depository Receipt or American
Depository Shares, respectively, representing ownership of securities on
deposit with a domestic custodian bank.
(c) Non-income-producing security.
(d) Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
June 30,1994 these securities amounted to $1,332,928 or 1.5% of net
assets.
(e) The aggregate identified cost on a tax basis is $86,823,329,
resulting in gross unrealized appreciation and depreciation of
$6,422,860 and $4,634,681, respectively, or net unrealized appreciation
of $1,788,179.
Percentage of net assets invested in foreign countries at June 30, 1994:
United Kingdom 16.9%
France 14.3
Netherlands 12.9
Switzerland 9.6
Denmark 5.8
Germany 5.8
Ireland 4.8
Sweden 4.3
Italy 4.2
Austria 3.7
Spain 3.2
Belgium 2.0
Finland 1.7
Greece 1.7
Portugal 1.6
Norway 1.5
<PAGE>
Statement of assets and liabilities
June 30, 1994
<TABLE><CAPTION>
<S> <C>
Assets
- ------------------------------------------------------------------------
Investments in securities, at value
(identified cost $86,285,946) (Note 1) $88,611,508
- ------------------------------------------------------------------------
Cash 87
- ------------------------------------------------------------------------
Dividends, interest and foreign tax receivables 337,269
- ------------------------------------------------------------------------
Receivable for securities sold 296,749
- ------------------------------------------------------------------------
Receivable for shares of the fund sold 585,224
- ------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 8,034
- ------------------------------------------------------------------------
Total assets 89,838,871
- ------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------
Payable for securities purchased 587,805
- ------------------------------------------------------------------------
Payable for shares of the fund repurchased 105,664
- ------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 164,418
- ------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 32,417
- ------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,635
- ------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,206
- ------------------------------------------------------------------------
Payable for distribution fees (Note 2) 57,869
- ------------------------------------------------------------------------
Other accrued expenses 49,296
- ------------------------------------------------------------------------
Total liabilities 1,000,310
- ------------------------------------------------------------------------
Net assets $88,838,561
- ------------------------------------------------------------------------
Represented by
- ------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $86,223,197
- ------------------------------------------------------------------------
Distributions in excess of net investment income
(Notes 1 and 5) (186,119)
- ------------------------------------------------------------------------
Accumulated net realized gain on investment
transactions (Notes 1 and 5) 466,625
- ------------------------------------------------------------------------
Net unrealized foreign currency translation gain 9,296
- ------------------------------------------------------------------------
Net unrealized appreciation of investments 2,325,562
- ------------------------------------------------------------------------
Total -- Representing net assets applicable
to capital shares outstanding $88,838,561
- ------------------------------------------------------------------------
Computation of net asset value and offering price
- ------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($67,470,802 divided by 5,797,997 shares) $11.64
- ------------------------------------------------------------------------
Offering price per share (100/94.25 of $11.64)* $12.35
- ------------------------------------------------------------------------
Net asset value and offering price of class B shares
($21,367,759 divided by 1,838,808 shares)+ $11.62
- ------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
+ Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
<PAGE>
Statement of operations
Year ended June 30, 1994
</TABLE>
<TABLE><CAPTION>
<S> <C>
Investment income:
- ------------------------------------------------------------------------
Interest $ 99,115
- ------------------------------------------------------------------------
Dividends (net of foreign tax of $117,625) 1,225,440
- ------------------------------------------------------------------------
Total investment income $1,324,555
- ------------------------------------------------------------------------
Expenses:
- ------------------------------------------------------------------------
Compensation of Manager (Note 2) $382,767
- ------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 108,380
- ------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,361
- ------------------------------------------------------------------------
Reports to shareholders 25,664
- ------------------------------------------------------------------------
Auditing 16,054
- ------------------------------------------------------------------------
Legal 9,538
- ------------------------------------------------------------------------
Postage 11,505
- ------------------------------------------------------------------------
Distribution fees--class A (Note 2) 105,755
- ------------------------------------------------------------------------
Distribution fees--class B (Note 2) 53,189
- ------------------------------------------------------------------------
Administrative services (Note 2) 3,459
- ------------------------------------------------------------------------
Registration fees 22,627
- ------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 6,913
- ------------------------------------------------------------------------
Other 5,464
- ------------------------------------------------------------------------
Total expenses 757,676
- ------------------------------------------------------------------------
Net investment income 566,879
- ------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 905,282
- ------------------------------------------------------------------------
Net realized loss on foreign currency (Note 1) (3,357)
- ------------------------------------------------------------------------
Net realized loss on forward currency
contracts (Notes 1 and 3) (399,577)
- ------------------------------------------------------------------------
Net unrealized foreign currency translation
gain during the year 14,023
- ------------------------------------------------------------------------
Net unrealized appreciation of investments and
foreign currency contracts during the year 1,085,294
- ------------------------------------------------------------------------
Net gain on investments 1,601,665
- ------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,168,544
- ------------------------------------------------------------------------
</TABLE>
<PAGE>
Statement of changes in net assets
<TABLE><CAPTION>
<S> <C> <C>
Year ended June 30
- ------------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------------
Increase in net assets
- ------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------
Net investment income $ 566,879 $ 157,731
- ------------------------------------------------------------------------
Net realized gain (loss) on investments 905,282 (464,421)
- ------------------------------------------------------------------------
Net realized loss on foreign currency contracts (3,357) (4,319)
- ------------------------------------------------------------------------
Net realized gain (loss) on forward
currency contracts (399,577) 217,804
- ------------------------------------------------------------------------
Net realized foreign currency
translation gains (loss) 14,023 (6,699)
- ------------------------------------------------------------------------
Net unrealized appreciation of investments
and forward currency contracts 1,085,294 354,157
- ------------------------------------------------------------------------
Net increase in net assets resulting
from operations 2,168,544 254,253
- ------------------------------------------------------------------------
Distributions to shareholders from:
- ------------------------------------------------------------------------
Net investment income--class A (330,137) (157,731)
- ------------------------------------------------------------------------
In excess of net investment income--class A -- (120,817)
- ------------------------------------------------------------------------
Net realized gain on investments--class A -- (46,068)
- ------------------------------------------------------------------------
Increase from capital share
transactions (Note 4) 69,448,071 8,004,071
- ------------------------------------------------------------------------
Total increase in net assets 71,286,478 7,933,708
- ------------------------------------------------------------------------
Net Assets:
Beginning of year 17,552,083 9,618,375
- ------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income of
$186,119 and $102,655, respectively) $88,838,561 $17,552,083
- ------------------------------------------------------------------------
</TABLE>
Financial Highlights*
(for a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> For the
period
From February 1, 1994
(commencement of
operations) to
Year ended June 30
- ------------------------------------------------------------------------
1994
- ------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------
Net asset value, beginning of period $12.49
- ------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------
Net investment income .04
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.91)
- ------------------------------------------------------------------------
Total from investment operations (.87)
- ------------------------------------------------------------------------
Distributions to Shareholders from:
- ------------------------------------------------------------------------
Net investment income --
- ------------------------------------------------------------------------
In excess of net investment income --
- ------------------------------------------------------------------------
Net realized gain on investments --
- ------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------
Net asset value, end of period $11.62
- ------------------------------------------------------------------------
Total investment return at net asset value (%) (b) (16.60)(c)
- ------------------------------------------------------------------------
Net assets, end of period (in thousands) $21,368
- ------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.32(c)
- ------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.32(c)
- ------------------------------------------------------------------------
Portfolio turnover (%) 36.73(d)
- ------------------------------------------------------------------------
</TABLE>
<TABLE><CAPTION>
Financial Highlights*--(continued)
<C> <C> <C> <C>
For the period
September 7, 1990
(commencement of
operations) to
Year ended June 30 June 30
- ------------------------------------------------------------------------
1994 1993 1992 1991
- ------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------
$9.84 $10.10 $8.74 $8.50
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
.18 .18 .15(a) .19(a)
- ------------------------------------------------------------------------
1.73 (.14) 1.49 .14
- ------------------------------------------------------------------------
1.91 .04 1.64 .33
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(.11) (.15) (.22) (.09)
- ------------------------------------------------------------------------
-- (.11) -- --
- ------------------------------------------------------------------------
-- (.04) (.06) --
- ------------------------------------------------------------------------
(.11) (.30) (.28) (.09)
- ------------------------------------------------------------------------
$11.64 $9.84 $10.10 $8.74
- ------------------------------------------------------------------------
19.45 0.70 19.10 4.77(c)
- ------------------------------------------------------------------------
$67,471 $17,552 $9,618 $3,369
- ------------------------------------------------------------------------
1.50 1.81 2.14(a) 2.23(a)(c)
- ------------------------------------------------------------------------
1.17 1.38 1.63(a) 2.81(a)(c)
- ------------------------------------------------------------------------
36.73 58.56 54.45 30.83(d)
- ------------------------------------------------------------------------
</TABLE>
* Financial highlights for periods ended through June 30, 1992 have been
restated to conform with requirements issued by the SEC in April, 1993.
(a) Reflects an expense limitation applicable during the period. As a
result of such limitation, net investment income for the year ended June
30, 1992, and the period ended June 30, 1991 reflect expense reductions
of approximately $0.04 and $0.15, respectively.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Annualized.
(d) Not annualized.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
Note 1
Significant accounting policies
- ------------------------------------------------------------------------
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
fund seeks capital appreciation by investing primarily in common stocks
and other securities of European companies.
The fund offers both class A and class B shares. The fund commenced its
public offering of class B shares on February 1, 1994. Class A shares
are sold with a maximum front-end sales charge of 5.75%. Class B shares
do not pay a front-end sales charge, but pay a higher ongoing
distribution fee than class A shares, and may be subject to a contingent
deferred sales charge, if those shares are redeemed within six years of
purchase. Expenses of the fund are borne pro-rata by the holders of both
classes of shares, except that each class bears expenses unique to that
class (including the distribution fees applicable to such class). Each
class votes as a class with respect to its own distribution plan or
other matters on which a class vote is required by law or determined by
the Trustees. Shares of each class should receive their pro-rata share
of the net assets of the fund, if the fund were liquidated. In addition,
the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price on the principal market in which the
securities are traded, or, if no sales are reported -- as in the case of
some securities traded over-the-counter -- the last reported bid price.
Short-term investments having remaining maturities of 60 days or less
are stated at amortized cost, which approximates market value, and other
investments are stated at fair value following procedures approved by
the Trustees.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Gains and losses on securities that arise
from changes in exchange rates are not segregated from gains and losses
that arise from changes in market prices of investments.
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. The order permits the fundOs
cash balance to be deposited into a single joint account, along with
the cash of other registered investment companies managed by Putnam
Investment Management, Inc., (Putnam Management), the fundOs 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.
The fundOs Manager 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
and 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.
Foreign currency-denominated receivables and payables are Omarked-to-
marketO using the current exchange rate. The fluctuation between the
original exchange rate and the current exchange rate is recorded as
unrealized translation gain or loss. Upon receipt or payment, the fund
realizes a gain or loss on foreign currencies amounting to the
difference between the original value and the ending value of the
receivable or payable.
E) Forward currency contracts A forward currency contract (OcontractO)
is an agreement between two parties to buy and sell a currency at a set
price on a future date. The market value of the contract will fluctuate
with changes in currency exchange rates. The contract is Omarked-to-
marketO daily and the change in market value is recorded by the fund as
an unrealized gain or loss. When the contract is closed, the fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed. The maximum potential loss from such contracts is
the aggregate face value in U.S. dollars at the time the contract was
opened; however, management of the fund believes the likelihood of such
loss to be remote.
The fund may enter into forward foreign currency contracts in connection
with planned purchases or sales of securities or to hedge the U.S.
dollar value of portfolio securities denominated in a particular
currency. The fund will not enter into contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the fund to deliver an amount of foreign currency in excess of
the value of the fundOs securities or other assets denominated in that
currency.
F) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation of securities held and 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. The differences include
treatment of losses on wash sales transactions, realized and unrealized
gains and losses on forward foreign currency contracts, post-October
loss deferrals, organization expenses, foreign taxes and utilization of
capital loss carryover. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the
year ended June 30, 1994, the Fund reclassified $551,258 to increase
distributions in excess of net investment income, $558,110 to increase
accumulated net realized gain on investments, and $6,852 to decrease
paid-in capital.
H) 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 $34,512. These expenses are being amortized
on a straight-line basis over a five-year period.
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
for the quarter. Such fee is an annual rate of 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, and 0.60% of any amount over $1.5 billion. The
fee is subject to reduction in any year to the extent that expenses
(exclusive of distribution fees, brokerage, interest, taxes and
extraordinary expenses) of the fund exceed 2.5% of the first $30 million
of average net assets, 2% of the next $70 million and 1.5% of any amount
over $100 million and by the amount of certain brokerage commissions and
fees (less expenses) received by affiliates of the Manager on the fundOs
portfolio transactions.
The fund also reimburses the Manager 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. For the year
ended June 30, 1994, the fund paid $3,459 for these services.
Trustees of the fund receive an annual TrusteeOs fee of $650 and an
additional fee for each TrusteesO meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the
Trustees receive additional fees for attendance at certain committee
meetings. For the year ended June 30, 1994 the Fund paid $6,361 for
these services.
Custodial functions for the fundOs assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC. Fees paid for these investor servicing and
custodian functions for the year ended June 30, 1994 amounted to
$118,923.
Investor servicing and custodian fees reported in the Statement of
operations for the year ended June 30, 1994 have been reduced by credits
allowed by PFTC.
The fund has adopted a distribution plan with respect to its class A
shares (the OClass A PlanO) pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Class A 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 class A shares. The Trustees have approved payment by the
fund to Putnam Mutual Funds Corp. at an annual rate of 0.25% of the
fundOs average net assets attributable to class A shares. For the year
ended June 30, 1994, the fund paid $102,520 in distribution fees for
class A shares.
During the year ended June 30, 1994, Putnam Mutual Funds Corp., acting
as an underwriter, received net commissions of $102,520 from the sale of
class A shares of the fund.
A deferred sales charge of up to 1% is assessed on certain redemptions
of class A shares purchased as part of an investment of $1 million or
more. For the year ended June 30, 1994, Putnam Mutual Funds Corp.,
acting as underwriter, received $1,609 on such redemptions.
On February 1, 1994, the fund has adopted a separate distribution plan
with respect to its class B shares (the "Class B Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the Class
B Plan is to compensate Putnam Mutual Funds Corp. for services provided
and expenses incurred by it in distributing class B shares. The Class B
Plan provides for payments by the fund to Putnam Mutual Funds Corp. at
an annual rate of 1.00% of the funds average net assets attributable to
class B shares. For the year ended June 30, 1994, the fund incurred fees
of $53,189 for class B shares.
Putnam Mutual Funds Corp. also receives the proceeds of contingent
deferred sales charges levied on class B share redemptions within six
years of purchase. The charge is based on declining rates, which begin
at 5.0% of the net asset value of the redeemed shares. Putnam Mutual
Funds Corp. received contingent deferred sales charges of $15,983 from
such redemptions for the year ended June 30, 1994.
Note 3
Purchases and sales of securities
- ------------------------------------------------------------------------
During the year ended June 30, 1994, purchases and sales of investment
securities other than short-term investments aggregated $78,564,830 and
$14,035,237, respectively. There were no purchases or sales of U.S.
government obligations during the year. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Transactions in forward currency contracts during the year are
summarized as follows:
<TABLE><CAPTION>
<S> <C>
- ------------------------------------------------------------------------
Sales of Forward Currency Contracts
Aggregate Face Value
- ------------------------------------------------------------------------
Contracts outstanding
at beginning of year $ 4,588,871
- ------------------------------------------------------------------------
Contracts opened 24,441,812
- ------------------------------------------------------------------------
Contracts closed (29,030,683)
- ------------------------------------------------------------------------
Open at end of year $ --
- ------------------------------------------------------------------------
</TABLE>
Note 4
Capital shares
- ------------------------------------------------------------------------
At June 30, 1994, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
<TABLE><CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------
Year ended June 30
- ------------------------------------------------------------------------
1994
- ------------------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------------------
Shares sold 7,296,505 $ 85,591,114
- ------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 24,694 285,705
- ------------------------------------------------------------------------
7,321,199 85,876,819
- ------------------------------------------------------------------------
Shares repurchased (3,306,648) (38,636,334)
- ------------------------------------------------------------------------
Net increase 4,014,551 $ 47,240,485
- ------------------------------------------------------------------------
Year ended June 30
- ------------------------------------------------------------------------
1993
- ------------------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------------------
Shares sold 1,760,011 $ 16,863,113
- ------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 33,679 303,783
- ------------------------------------------------------------------------
1,793,690 17,166,896
- ------------------------------------------------------------------------
Shares repurchased (962,926) (9,162,825)
- ------------------------------------------------------------------------
Net increase 830,764 $008,004,071
- ------------------------------------------------------------------------
From February 1, 1994
(commencement of operations)
to June 30
1994
- ------------------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------------------
Shares sold 2,468,324 $29,611,768
- ------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- --
- ------------------------------------------------------------------------
2,468,324 29,611,768
- ------------------------------------------------------------------------
Shares repurchased (629,516) (7,404,182)
- ------------------------------------------------------------------------
Net increase 1,838,808 $22,207,586
- ------------------------------------------------------------------------
</TABLE>
Note 5
Reclassification of Capital Accounts
- ------------------------------------------------------------------------
Effective July 1, 1993 Putnam Europe Growth Fund adopted the provisions
of the AICPA Statement of Position (SOP) 93-2 ODetermination, Disclosure
and Financial Statement Presentation of Income, Capital Gain and Return
of Capital Distributions by Investment Companies.O The purpose of this
SOP is to report the accumulated net investment income and accumulated
net realized gain (loss) accounts in such a manner as to approximate
amounts available for future distributions (or to offset future realized
capital gains) and to achieve uniformity in the presentation of
distributions by investment companies.
As a result of the SOP, the Fund has reclassified $231,052 to decrease
distributions in excess of net investment income and $213,581 to
decrease accumulated net realized gain and $17,471 to decrease paid-in
capital.
These reclassfications represent the cumulative amounts necessary to
report these balances through June 30, 1993.
These reclassifications which have no impact on the total net asset
value of the fund are primarily attributable to organization expenses
and utilization of capital loss carryover, which are treated differently
in the computation of distributable income and capital gains under
federal income tax rules and regulations versus generally accepted
accounting principles.
<PAGE>
Federal tax information
The distributions shown in the table from Onet investment incomeO
totaling $.113 per share for class A constitute Odividend incomeO for
federal income tax purposes. The fund has designated none of the
investment income as qualifying for the dividends-received deduction for
corporations.
The Form 1099 you receive in January 1995 will show you the tax status
of all distributions paid to your account in calendar year 1994.
If youOre a shareholder in an IRA or other tax-sheltered retirement
plan, this statement is for information only and will serve as a record
of distributions reinvested in your account during the fiscal year.
Money invested in these plans generally is not subject to federal income
tax until you withdraw it.
If you're a shareholder in an IRA or other tax-sheltered retirement
plan, this statement is for information only and will serve as a record
of distributions reinvested in your account during the fiscal year.
Money invested in these plans generally is not subject to federal income
tax until you withdraw it.
As required by law, your fund reports to the Internal Revenue Service on
a calendar basis the amount of distributions paid to each shareholder.
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Net Investment Short-Term Long-Term
Date Paid Income Capital Gains Capital Gains Total Paid
- ------------------------------------------------------------------------
December 30, 1993 $.113 -- -- $.113
- ------------------------------------------------------------------------
</TABLE>
The fund has elected under Section 853 of the Internal Revenue Code to
pass through to its shareholders the opportunity to claim a foreign tax
credit or deduction. Therefore, you will be deemed to have received in
your December 1994 dividend the allocable amount of foreign taxes and to
have paid those taxes directly. When you file your federal income tax
return (Form 1040), you may claim the amount of foreign taxes paid
either as a foreign tax credit or as an itemized deduction but not both.
A foreign tax credit will generally result in a direct reduction in your
U.S. tax liability, subject to the limitations of Section 904 of the
Code. The amount of your foreign tax credit will be reflected on the
Form 1099 that you will receive after December 31, 1994. During the year
ended June 30, 1994, the fund earned $1,343,065 from foreign countries
and paid $117,625 in taxes to those foreign countries.
<PAGE>
Our commitment to quality service
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
every year since the awardOs 1990 inception. DALBAR, an independent
research firm, ran more than 10,000 tests of 38 shareholder service
components. In every category, Putnam outperformed the industry
standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month
from a Putnam fund or from your checking or savings account.*
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change or
termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than their
original cost.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number: 1-800-225-
1581.
* Regular investing, of course, does not guarantee a profit or protect
against a loss in a declining market. Investors should consider their
ability to continue purchasing shares during periods of low price
levels.
<PAGE>
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
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Donald S. Perkins
Robert E. Patterson
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
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Anthony W. Regan
Vice President
Justin Scott
Vice President
and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. OONeil
Vice President
John D. Hughes
Vice President
and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Europe
Growth 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 Putnam Quarterly Performance Summary.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Boston, MA
Permit No. 53749
057-13353
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES
BETWEEN PRINTED AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(4) Because the printed page breaks are not reflected, certain tabular
and columnar headings and symbols are displayed differently in this
filing.
(5) Bullet points and similar graphic signals are omitted.
(6) Page numbering is different.
