Putnam
Europe
Growth
Fund
[picture of money]
ANNUAL REPORT
June 30, 1995
[scales logo]
B O S T O N [bullet] L O N D O N [bullet] T O K Y O
<PAGE>
Performance highlights
> Putnam Europe Growth Fund continued its record of strong performance over
the 12 months ended June 30, 1995. The fund's class A and class B share
total returns at net asset value placed fifth and seventh, respectively,
out of the 38 European region funds tracked by Lipper Analytical Services
during the period.*
> "The fund has stayed at the top in a variety of market conditions. It's one
of the best vehicles available for exposure to Europe."
-- Morningstar Mutual Funds, June 23, 1995+
FISCAL 1995 RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Class A Class B Class M
Total return NAV POP NAV CDSC NAV POP
<S> <C> <C> <C> <C> <C> <C>
(change in value during
period plus reinvested
distributions)
12 months ended 6/30/95 20.84% 13.89% 19.92% 14.92% -- --
Life of Class M -- -- -- -- 14.06% 10.05%
Class A Class B Class M
Share value: NAV POP NAV NAV POP
6/30/94 $11.64 $12.35 $11.62 -- --
12/1/94
(inception of class
M shares) -- -- -- $12.35 $12.80
6/30/95 13.88 14.73 13.75 13.90 14.40
Capital gains
Distributions: No. Income Short-term Long-term Total
Class A 1 -- $0.1160 $0.0460 $0.1620
Class B 1 -- 0.1160 0.0460 0.1620
Class M 1 -- 0.1160 0.0460 0.1620
</TABLE>
Performance data represent past results and will differ for each share class.
For performance over longer periods, see pages 8 and 9. POP assumes 5.75%
maximum sales charge for class A shares and 3.50% for class M shares, which
became effective 12/1/94. CDSC assumes 5.00% maximum contingent deferred
sales charge.
*Rankings by Lipper Analytical Services, an independent mutual-fund industry
research organization, are based on total return performance, vary over
time, and do not reflect the effects of sales charges. The fund's class A
shares ranked 2 out of 22 European region funds for the three-year period
ended 6/30/95. The fund's class B shares were not ranked over longer time
periods.
+Morningstar, Inc. is an independent mutual-fund industry research
organization.
Past performance is not indicative of future results.
2
<PAGE>
From the Chairman
[photo of George Putnam]
(c)Karsh, Ottawa
Dear Shareholder:
Following the U.S. stock market's lead, many European equity markets
demonstrated more vitality during the first half of calendar 1995. Putnam
Europe Growth Fund clearly was among the beneficiaries of this increased
vigor during the fiscal year ended June 30, 1995.
Probably the most significant developments in recent months were the
stabilization of European bond markets and the strength in corporate earnings
that has finally begun to fuel the stock markets' advance.
Fund Manager Justin Scott expects Europe's economic recovery to continue, but
at a slower pace than many forecasters had expected. He believes European
stock markets will continue to be driven by strong corporate earnings, with
support from stable bond markets.
In the report that follows, Justin reviews the stock market environment in
the context of your fund's performance in fiscal 1995 and what he sees as its
prospects for fiscal 1996.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
August 16, 1995
3
<PAGE>
Report from the Fund Manager
Justin M. Scott
We are pleased to report that Putnam Europe Growth Fund posted market-beating
results for its fiscal year ended June 30, 1995. The fund's 20.84% and 19.92%
total returns at net asset value for class A and class B shares,
respectively, surpassed the 18.78% return measured by Morgan Stanley Capital
International's Europe Index, the fund's market standard.
In our semiannual report to shareholders dated December 31, 1994, we noted
that despite rising corporate earnings, the performance of European equity
markets was restrained by weak bond markets during the fiscal year's first
half. We also asserted that the greatest need was for European bond markets
to stabilize.
Such stability and improved performance did indeed return to Europe's
fixed-income markets during the fund's fiscal second half. This welcome
development, along with the continuation of solid corporate results and
strong stock selection, enabled your fund to complete another period of
successful performance.
> MARKET OVERVIEW: EXPECTATIONS OF SLOWER GROWTH PROVE CORRECT
Entering calendar 1995, we expected economic growth throughout Europe to
progress more slowly than the optimistic forecasts of many other observers.
Moreover, we expected slower growth to be beneficial for European equity
markets. As the early months of 1995 unfolded, it became increasingly clear
that we would be proved right on both counts: the pace of economic growth
failed to accelerate and the corresponding fear of rising inflation subsided.
As a result, the bond markets responded favorably, allowing the equity
markets to benefit from improving corporate earnings.
The fund outperformed its benchmark index, although one investment decision
may have detracted slightly from performance. We chose to maintain dollar
hedges on a portion of the portfolio in order to protect the fund against the
possibility of weak European currencies and a strong U.S. dollar.
4
<PAGE>
In fact, the dollar remained weak for most of the period and the cost
associated with maintaining the hedges had a negative impact on total return.
However, had the hedges not been in place and had the dollar strengthened,
the negative impact might have been far greater than the cost of the hedges.
> INDIVIDUAL STOCK SELECTION MORE INFLUENTIAL THAN COUNTRY WEIGHTINGS
During the recent fiscal year, the fund's returns were influenced more by
stock selection than by country weighting decisions. Our approach to stock
selection is founded on the comparison of price with payback. When assessing
any investment opportunity, we always investigate the price we are being
asked to pay for a corporation's assets and the likely long-term payback from
owning the assets. We try to pay less for each investment and earn more from
it than the average investor, and we seek to do this consistently over a long
period of time.
The long-term return (or payback) to a shareholder in any corporation is a
combination of the change in value of the corporation's assets and the
dividends distributed by the corporation. The greater the corporate payback,
the greater the long-term value of the corporation. Our goal is to invest in
companies whose stock is selling at prices that are significantly below our
determination of the corporation's long-term value.
This method of comparing price to payback applies equally to growth
companies, cyclical companies, and even companies that are downsizing. We
will invest in any type of company, provided the potential payback more than
justifies its stock price. Our approach will steer us toward growth stocks
when, in our opinion, they offer the best value, and likewise toward cyclical
stocks when we believe they offer the best value. Moreover, our commitment to
this method offsets any temptation to follow the latest market sentiment.
TOP 5 HOLDINGS (6/30/95)*
Repsol S.A. (Spain)
Integrated oil refiner and marketer
Austria Mikro Systeme International (Austria)
Specialized semiconductor manufacturer
Argyll Group PLC (United Kingdom)
Major food distributor
Randstad Holdings (Netherlands)
International temporary-employment provider
Molins PLC (United Kingdom)
Tobacco machinery manufacturer
*These holdings represent 12.9% of the fund's net assets. Portfolio holdings
will vary over time.
5
<PAGE>
In 1995, we consistently applied this philosophy, paying as little as we
could to earn as much as we could. In contrast, many other European investors
shifted assets frequently in search of elusive market themes.
> COUNTRY ALLOCATIONS: HOLDINGS IN SPAIN INCREASED; PROFITS TAKEN IN THE
NETHERLANDS
Although changes in country allocations have been relatively small since our
midyear report, two shifts are worth noting.
Perhaps the most significant change was an increase of 3.2% in the fund's
allocation to the Spanish market. Spain has lagged other European countries
in the region's economic recovery. However, its economy has recently begun to
improve. Spanish interest rates have fallen, which is particularly beneficial
for a market dominated by such interest-sensitive industries as public
utilities and financial services. Consequently, stock values are quite
attractive in the country and we are finding many opportunities that meet our
value criteria.
We reduced the fund's weighting in the Netherlands by 2.8%, taking profits on
many of our Dutch holdings, which had performed extremely well. Normally,
when investments in a particular market advance markedly -- reaching price
levels that we believe represent full value -- we will take profits and
redeploy those assets into opportunities that appear to be undervalued.
One standout Dutch investment that we continue to hold is Randstad, which was
the fund's fourth-largest holding at the fiscal year's end. Randstad is a
small temporary-employment services company that was recently awarded the
contract to supply temporary employees for the 1996 summer Olympics in
Atlanta, Georgia.
> OUTLOOK FOR EUROPEAN MARKETS REMAINS
ATTRACTIVE
For the remainder of 1995, we believe the European equity
markets can continue their solid performance, supported by
generally strong corporate earnings, the continuing economic recovery, and
stable bond markets.
6
<PAGE>
TOP 10 COUNTRY ALLOCATIONS (6/30/95)*
<TABLE>
<CAPTION>
Percentage Percentage change
of portfolio since 12/31/94
<S> <C> <C>
.........................................................................
United Kingdom 22.4% 1.2%
.........................................................................
France 17.1 0.5
.........................................................................
Netherlands 11.1 -2.8
.........................................................................
Switzerland 9.5 1.4
.........................................................................
Spain 8.5 3.2
.........................................................................
Sweden 6.8 2.3
.........................................................................
Ireland 5.3 0.5
.........................................................................
Germany 5.0 -2.2
.........................................................................
Austria 4.4 0.9
.........................................................................
Denmark 2.8 -1.8
</TABLE>
*Based on percentage of net assets. Allocations will vary over time.
We continue to be concerned about a period of sustained strengthening for the
U.S. dollar. Consequently, we plan to maintain dollar hedges on holdings
denominated in currencies we consider to be the most risky, such as the
French franc. As of June 30, approximately 14% of the fund's 17% weighting in
France was hedged back into U.S. dollars.
Overall, we are heartened that the bond markets no longer hinder stock prices
as they did at the midpoint of the fiscal year. While there can be no
guarantees, we believe stable bond markets may continue to help European
stocks extend their advance in the months to come.
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 6/30/95, there is no guarantee the fund will continue to hold
these securities in the future. Investments in non-U.S. securities may be
subject to certain risks associated with currency fluctuations and political
developments not present with domestic investments.
7
<PAGE>
Performance summary
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares changed
over time, assuming you held the shares through the entire period and
reinvested all distributions back into the fund.
Performance should always be considered in light of a fund's investment
strategy. Putnam Europe Growth Fund is designed for investors seeking capital
appreciation through investments primarily in common stocks and other
securities of European companies.
TOTAL RETURN FOR PERIODS ENDED 6/30/95
<TABLE>
<CAPTION>
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 20.84% 13.89% 19.92% 14.92% -- --
- -----------------------------------------------------------------------------
3 years 45.35 36.94 -- -- -- --
Annual average 13.28 11.05 -- -- -- --
- -----------------------------------------------------------------------------
Life of class A 79.87 69.50 -- -- -- --
Annual average 12.95 11.57 -- -- -- --
- -----------------------------------------------------------------------------
Life of class B -- -- 11.57 7.57 -- --
Annual average -- -- 8.01 5.27 -- --
- -----------------------------------------------------------------------------
Life of class M -- -- -- -- 14.06% 10.05%
- -----------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIOD ENDED 6/30/95
<TABLE>
<CAPTION>
Standard & Poor's Morgan Stanley Capital
500 Index International Europe Index
<S> <C> <C>
- ------------------------------------------------------------------------------
1 year 26.03% 18.78%
- ------------------------------------------------------------------------------
3 years 45.21 34.18
Annual average 13.25 10.30
- ------------------------------------------------------------------------------
Life of class A 95.11 53.18
Annual average 14.84 9.23
- ------------------------------------------------------------------------------
Life of class B 17.77 9.85
Annual average 12.30 6.89
- ------------------------------------------------------------------------------
Life of class M 21.97 13.51
- ------------------------------------------------------------------------------
</TABLE>
The fund began investment operations on 9/7/90 offering shares now known as
class A shares. Effective 2/1/94, the fund began offering class B shares and
on 12/1/94, class M shares. Fund performance data do not take into account
any adjustment for taxes payable on reinvested distributions. Performance
data represent past results and differ for each share class. Investment
returns and net asset value will fluctuate so an investor's shares, when
sold, may be worth more or less than their original cost.
8
<PAGE>
GROWTH OF $10,000 COMPARED
Cumulative total return of a $10,000
Investment since inception (8/31/90 for MSCI Europe)
[Plot Points]
9/7/90 6/30/91 6/30/92 6/30/93 6/30/94 6/30/95
Fund's class A
shares at POP 9425 9792 11662 11743 14027 16950
MSCI Europe Index* 10000 9318 11416 11129 12896 15318
Consumer Price Index 10000 10334 10653 10973 11246 11588
Past performance is no assurance of future results. A $10,000 investment in
the fund's class B shares at inception on 2/1/94 would have been valued at
$11,157 on 6/30/95 ($10,757 with a redemption at the end of the period). A
$10,000 investment in the fund's class M shares at inception on 12/1/94 would
have been valued at $11,406 at net asset value on 6/30/95, and $11,005 at the
maximum applicable 3.50% sales charge.
TERMS AND DEFINITIONS Font
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 5.75% sales charge for class A shares and 3.50%
for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's 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 Index* is an unmanaged list of
approximately 627 equity securities originating in one of the 13 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.
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 U.S. stock market performance.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
*Performance of the indexes assumes reinvestment of all distributions and
does not take into account brokerage commissions or other costs. Securities
in the fund's portfolio differ from those in the indexes.
9
<PAGE>
Report of Independent Accountants
For the fiscal year ended June 30, 1995
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 at June 30, 1995, 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 June 30, 1995 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
August 18, 1995
10
<PAGE>
Portfolio of investments owned
June 30, 1995
<TABLE>
<CAPTION>
COMMON STOCKS (93.5%)*
NUMBER OF SHARES VALUE
<S> <C> <C>
Austria (4.4%)
--------------------------------------------------------------------
29,000 Austria Mikro Systeme International $ 3,812,067
42,500 Mayr-Melnhof Karton AG 144A ADS+ 610,938
13,000 VA Technologie AG 1,627,420
--------------
6,050,425
Belgium (2.2%)
--------------------------------------------------------------------
2,415 Bekaert S.A. 1,912,821
2,000 Solvay S.A. 1,108,882
--------------
3,021,703
Denmark (1.7%)
--------------------------------------------------------------------
25,000 Danisco A/S 1,070,535
45,000 Tele Danmark A/S ADS 1,260,000
--------------
2,330,535
Finland (0.3%)
--------------------------------------------------------------------
60,000 Effjohn Oy Ser. A+ 421,793
France (15.6%)
--------------------------------------------------------------------
6,700 Chargeurs S.A. 1,307,486
18,660 Credit Local de France S.A. 1,734,022
20,000 Elf Aquitane ADR 745,000
1,623 Financiere et Industrielle Gaz et Eaux 633,448
33,000 Lafarge Coppee (Bearer) 2,570,490
54,000 Michelin Corp. Class B (Registered)+ 2,396,407
18,700 Pechiney International 473,051
67,000 Sgs-Thomson Microelectronics ADR+ 2,721,875
6,500 Societe Generale Paris 761,074
24,000 Societe Nationale Elf Aquitaine (Bearer) 1,776,768
9,293 Societe Television Francaise 916,346
5,000 Sommer-Allibert 1,843,056
16,200 Sovac 1,438,513
19,000 Ugine S.A. (Bearer) 1,337,945
4,948 Zodiac S.A. 618,181
--------------
21,273,662
Germany (5.0%)
--------------------------------------------------------------------
8,000 Jungheinrich Prior 1,620,488
41,500 SGL Carbon AG+ 1,855,386
15,000 Schering AG 1,049,338
6,000 VEBA AG 2,356,941
--------------
6,882,153
11
<PAGE>
Ireland (5.3%)
--------------------------------------------------------------------
530,001 Allied Irish Banks $ 2,503,301
422,000 CRH PLC 2,823,686
252,231 Greencore Group PLC 1,902,831
--------------
7,229,818
Italy (0.8%)
--------------------------------------------------------------------
77,000 Danieli & Co. 495,328
200,000 Danieli & Co. (Savings Shares) 609,587
--------------
1,104,915
Netherlands (11.1%)
--------------------------------------------------------------------
40,000 ABN AMRO Holding N.V. 1,545,416
39,065 Aegon N.V. 1,352,813
15,000 Akzo-Nobel N.V. 1,794,806
52,776 Getronics Electric N.V. 2,587,995
60,000 IHC Caland N.V. 1,705,647
20,730 K.L.M.-Royal Dutch Airlines+ 673,678
28,000 Koninklijke PTT Nederland N.V. 1,007,624
45,000 Randstad Holdings 3,186,458
15,220 Wolters Kluwer N.V. 1,344,214
--------------
15,198,651
Portugal (0.7%)
--------------------------------------------------------------------
42,300 Banco Totta and Accores (BTA)
Nationalisert (Registered) 897,536
Spain (8.5%)
--------------------------------------------------------------------
21,000 Argentaria Corp. (Registered) 777,617
40,000 Hidrolectrica del Cantabrico 1,224,659
386,000 Iberdrola S.A. 2,912,966
55,000 Mapfre Vida Seguros 2,707,902
125,000 Repsol S.A. 3,940,835
--------------
11,563,979
Sweden (6.8%)
--------------------------------------------------------------------
44,000 Astra AB Free 1,358,548
56,500 Autoliv AB 3,022,762
217,000 IRO AB+ 2,193,577
150,000 Svenska Cellulosa Ser. B 2,785,036
--------------
9,359,923
Switzerland (9.5%)
--------------------------------------------------------------------
824 BBC Brown Boveri & Cie, AG, Ltd. 854,837
700 Baer Holding AG 822,454
1,400 Ciba Geigy AG (Bearer) 1,027,154
2,850 Ciba-Geigy AG (Registered) 2,093,473
300 Georg Fischer (Bearer) 404,700
6,500 Georg Fischer (Registered) 1,691,471
208 Nestle S.A. (Registered) 217,051
1,400 Nestle S.A. (Registered) ADR 72,800
40 Nestle S.A. 144A (Registered) ADR 2,080
6,000 Rieter Holding AG (Registered) 1,801,567
2,750 Surveillance (Registered) 885,553
1,413 Swiss Reinsurance (Registered) 1,090,802
12
<PAGE>
Switzerland (continued)
--------------------------------------------------------------------
2,000 Union Bank of Switzerland (Bearer) $ 2,076,588
--------------
13,040,530
United Kingdom (21.6%)
--------------------------------------------------------------------
679,462 Argyll Group PLC 3,636,807
252,315 BAT Industries PLC 1,933,321
187,710 Burmah Oil PLC 2,724,091
240,000 General Electric Co. (The) PLC 1,173,722
205,000 Guinness PLC 1,544,652
290,700 Molins PLC 3,093,408
279,067 North West Water Group PLC 2,467,273
85,000 Pearson PLC 805,660
153,382 Royal Insurance Holdings PLC 755,003
1,350,000 Sears PLC 2,139,797
40,000 Securicor Group PLC Class A 618,084
109,000 Security Services PLC 1,554,051
45,000 Shell Transportation & Trading Co. PLC 538,354
185,472 Siebe PLC 1,849,560
373,892 Tate & Lyle PLC 2,531,342
224,300 Vodafone Group PLC 834,319
345,000 Weir Group PLC (The) 1,395,946
--------------
29,595,390
--------------------------------------------------------------------
Total Common Stocks
(cost $106,529,143) $127,971,013
-------------------------------------------------------------------
Preferred Stocks (1.5%)* (cost $1,230,039)
NUMBER OF SHARES VALUE
France (1.5%)
--------------------------------------------------------------------
15,000 Essilor International ADP $ 2,013,423
--------------------------------------------------------------------
Convertible Bonds and Notes (1.4%)*
PRINCIPAL AMOUNT VALUE
Denmark (1.1%)
--------------------------------------------------------------------
DKK 8,000,000 Danisco Cv. Bond 5s, 2004 $1,434,795
Finland (0.3%)
--------------------------------------------------------------------
FIM 3,500,000 Effjohn Oy--AB Cv. Bond 7s, 2004 410,076
--------------------------------------------------------------------
Total Convertible Bonds and Notes
(cost $1,866,839) $ 1,844,871
--------------------------------------------------------------------
UNITS (0.8%)* (cost $750,368)
NUMBER OF UNITS VALUE
United Kingdom (0.8%)
--------------------------------------------------------------------
114,000 Rothmans International Units PLC $ 1,124,116
--------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Warrants (--%)*+
EXPIRATION
NUMBER OF WARRANTS DATE VALUE
<S> <C> <C> <C>
Switzerland (--%)
--------------------------------------------------------------------------------
6,000 Rieter Holding 3/13/96 $ 19,843
Italy (--%)
--------------------------------------------------------------------------------
51,750 Danieli & Co. 11/30/99 36,460
--------------------------------------------------------------------------------
Total Warrants (cost $--) $ 56,303
--------------------------------------------------------------------------------
Short-Term Investments (1.2%)* (cost $1,709,295)
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
$1,709,000 Interest in $453,426,000 joint
repurchase agreement dated June 30,
1995 with Lehman Brothers, Inc. due
July 3, 1995 with respect to various
U.S. Treasury obligations--maturity
value of $1,709,885 for an effective
yield of 6.22% $ 1,709,295
--------------------------------------------------------------------------------
Total Investments
(cost $112,085,684)*** $134,719,021
--------------------------------------------------------------------------------
</TABLE>
*Percentages indicated are based on net assets of $136,898,977, which
correspond to a net asset value per class A, class B, and class M share of
$13.88, $13.75, and $13.90, respectively.
+ Non-income-producing security.
***The aggregate identified cost for federal income tax purposes is
$112,582,140, resulting in gross unrealized appreciation and depreciation
of $24,507,714 and $2,370,833, respectively, or net unrealized
appreciation of $22,136,881.
ADR or ADS after the name of a foreign holding stands for American Depository
Receipt or American Depository Shares, respectively, representing ownership
of foreign securities on deposit with a domestic custodian bank.
144A after the name of a security represents those 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.
Forward Currency Contracts to Sell at June 30, 1995
<TABLE>
<CAPTION>
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date (Depreciation)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pounds $
$ 3,579,053 3,598,560 9/6/95 $ 19,507
Deutschemarks 2,538,715 2,572,395 9/6/95 33,680
French Francs 11,235,839 10,923,595 9/6/95 (312,244)
French Francs 6,648,731 6,702,900 9/6/95 54,169
French Francs 1,958,541 1,957,972 9/6/95 (569)
Netherland
Guilders 3,111,247 3,148,780 9/6/95 37,533
Netherland
Guilders 9,074,469 8,957,707 9/6/95 (116,762)
Swiss Francs 1,749,735 1,786,193 9/6/95 36,458
Swiss Francs 3,936,905 4,037,323 9/6/95 100,418
---------------------------------------------------------------------------
Total Forward
Currency Contracts
to Sell $43,833,235 $43,685,425 $ (147,810)
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
Statement of assets and liabilities
June 30, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets
------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$112,085,684) (Note 1) $134,719,021
------------------------------------------------------------------------------------------------
Cash 573
------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 891,300
------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 281,765
------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,265,299
------------------------------------------------------------------------------------------------
Receivable for securities sold 1,034,730
------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 1,118
------------------------------------------------------------------------------------------------
Total assets 138,193,806
------------------------------------------------------------------------------------------------
Liabilities
------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 388,502
------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 259,205
------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 67,620
------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,543
------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,462
------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 93,886
------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 429,575
------------------------------------------------------------------------------------------------
Other accrued expenses 52,036
------------------------------------------------------------------------------------------------
Total liabilities 1,294,829
------------------------------------------------------------------------------------------------
Net assets $136,898,977
------------------------------------------------------------------------------------------------
Represented by
------------------------------------------------------------------------------------------------
Paid-in capital (Note 1 and 4) $114,743,946
------------------------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (3,072,474)
------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions (Note 1) 2,721,037
------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, forward currency contracts and
foreign currency translation 22,506,468
------------------------------------------------------------------------------------------------
Total--Representing net assets applicable to capital shares outstanding $136,898,977
------------------------------------------------------------------------------------------------
Computation of net asset value and offering price
------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($90,420,445 divided by 6,516,395 shares) $13.88
------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.88)* $14.73
------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($45,732,635 divided by 3,325,979 shares)+ $13.75
------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($745,897 divided by 53,673 shares) $13.90
------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.5 of $13.90)* $14.40
------------------------------------------------------------------------------------------------
</TABLE>
*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.
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
Statement of operations
June 30, 1995
<TABLE>
<CAPTION>
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------------
Interest $ 292,485
-------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $325,640) 3,055,060
-------------------------------------------------------------------------------------------------
Total investment income 3,347,545
Expenses:
-------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 943,507
-------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 205,374
-------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,125
-------------------------------------------------------------------------------------------------
Reports to shareholders 38,660
-------------------------------------------------------------------------------------------------
Auditing 24,786
-------------------------------------------------------------------------------------------------
Legal 13,901
-------------------------------------------------------------------------------------------------
Postage 37,614
-------------------------------------------------------------------------------------------------
Distribution fees--class A (Note 2) 203,275
-------------------------------------------------------------------------------------------------
Distribution fees--class B (Note 2) 364,453
-------------------------------------------------------------------------------------------------
Distribution fees--class M (Note 2) 1,371
-------------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,997
-------------------------------------------------------------------------------------------------
Registration fees 22,388
-------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 6,916
-------------------------------------------------------------------------------------------------
Other 13,178
-------------------------------------------------------------------------------------------------
Total expenses 1,896,545
-------------------------------------------------------------------------------------------------
Net investment income 1,451,000
-------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 3,824,548
-------------------------------------------------------------------------------------------------
Net realized loss on forward currency contracts and foreign currency (Notes 1 and 3) (4,436,055)
-------------------------------------------------------------------------------------------------
Net unrealized loss on forward currency contracts and foreign
currency translation during the year (136,165)
-------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 20,307,775
-------------------------------------------------------------------------------------------------
Net gain on investments 19,560,103
-------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $21,011,103
-------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
Year ended June 30
--------------------------
1995 1994
-------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $ 1,451,000 $ 566,879
-------------------------------------------------------------------------------
Net realized gain (loss) on investments, forward
foreign currency contracts and foreign currency
translation (611,507) 502,348
-------------------------------------------------------------------------------
Net unrealized appreciation of investments,
forward currency contracts and foreign currency
translation 20,171,610 1,099,317
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 21,011,103 2,168,544
-------------------------------------------------------------------------------
Distributions to shareholders from:
-------------------------------------------------------------------------------
Net investment income--class A -- (330,137)
-------------------------------------------------------------------------------
Net realized gain on investments--class A (1,071,976) --
-------------------------------------------------------------------------------
Net realized gain on investments--class B (505,129) --
-------------------------------------------------------------------------------
Net realized gain on investments--class M (599) --
-------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 28,627,017 69,448,071
-------------------------------------------------------------------------------
Total increase in net assets 48,060,416 71,286,478
Net assets
-------------------------------------------------------------------------------
Beginning of year 88,838,561 17,552,083
-------------------------------------------------------------------------------
End of year (including accumulated net investment
loss and (distributions in excess of net
investment income) of $3,072,474 and $(186,119),
respectively) $136,898,977 $88,838,561
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
Financial highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the Period For the Period
December 1, 1994 February 1, 1994
(commencement (commencement of
of operations) to Year ended operations) to
June 30 June 30 June 30
-------------------- ------------- ----------------------
1995 1995 1994
-------------------- ------------- ----------------------
Class M Class B
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $12.35 $ 11.62 $ 12.49
- --------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) .09 .08 .04
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.62 2.21 (.91)
- --------------------------------------------------------------------------------------------------------
Total from investment operations 1.71 2.29 (.87)
- --------------------------------------------------------------------------------------------------------
Less distributions
- --------------------------------------------------------------------------------------------------------
From net investment income -- -- --
- --------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- --------------------------------------------------------------------------------------------------------
From net realized gain on investments (.16) (.16) --
- --------------------------------------------------------------------------------------------------------
Total distributions (.16) (.16) --
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.90 $ 13.75 $ 11.62
- --------------------------------------------------------------------------------------------------------
Total investment return at net asset
value (%) (b) 14.06(c) 19.92 (6.97)(c)
- --------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 746 $45,733 $21,368
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.08(c) 2.13 .95(c)
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 1.61(c) .74 .54(c)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.33 44.33 36.73
- --------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
For the Period
September 7, 1990
(commencement of
operations) to
Year ended June 30 June 30
------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 11.64 $ 9.84 $ 10.10 $ 8.74 $ 8.50
- ---------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------
Net investment income (loss) .18 .18 .18 .15(a) .19(a)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.22 1.73 (.14) 1.49 .14
- ---------------------------------------------------------------------------------------------------
Total from investment
operations 2.40 1.91 .04 1.64 .33
- ---------------------------------------------------------------------------------------------------
Less distributions
- ---------------------------------------------------------------------------------------------------
From net investment income -- (.11) (.15) (.22) (.09)
- ---------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- (.11) -- --
- ---------------------------------------------------------------------------------------------------
From net realized gain on
investments (.16) -- (.04) (.06) --
- ---------------------------------------------------------------------------------------------------
Total distributions (.16) (.11) (.30) (.28) (.09)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 13.88 $ 11.64 $ 9.84 $10.10 $ 8.74
- ---------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (b) 20.84 19.45 0.70 19.10 3.91(c)
- ---------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $90,420 $67,471 $17,552 $9,618 $3,369
- ---------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.38 1.50 1.81 2.14(a) 1.81(a)(c)
- ---------------------------------------------------------------------------------------------------
Ratio of net investment
income to average net assets
(%) 1.45 1.17 1.38 1.63(a) 2.28(a)(c)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.33 36.73 58.56 54.45 30.83(c)
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects an expense limitation in effect 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) Not annualized.
19
<PAGE>
Notes to financial statements
June 30, 1995
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 class A, class B and class M shares. 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. Class M shares commenced
operations December 1, 1994 and pay a higher ongoing distribution fee than
class A shares, and are sold with a maximum front-end sales charge of 3.50%.
Expenses of the fund are borne pro-rata by the holders of each class 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.
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 fund's 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 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. The fund's
20
<PAGE>
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.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign
currencies and the difference between the amount of investment income and
foreign withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline in
value relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The market value of the
contract will fluctuate with changes in currency exchange rates. The contract
is "marked to market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The fund could be exposed to risk if the value of the currency changes
unfavorably. In addition, the fund could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position. The
maximum potential loss from forward currency contracts is the aggregate face
value in U.S. dollars at the time the contract was opened; however,
management believes the likelihood of such a loss to be remote.
G) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
21
<PAGE>
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid
annually.
The amount and character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. 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, and
organization expenses. 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, 1995, the fund reclassified $4,337,355 to decrease undistributed net
investment income $4,443,623 to decrease accumulated net realized loss on
investments, and $106,268 to decrease paid-in capital.
I) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering
of its shares were $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 fund's 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.
Trustees of the fund receive an annual Trustee's fee of $930 and an
additional fee for each Trustees' 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.
Custodial functions for the fund's 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.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended June 30, 1995 have been reduced by credits allowed by
PFTC.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans 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 Plans provide for payments by the fund to Putnam
22
<PAGE>
Mutual Funds Corp. at an annual rate up to .35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class M shares,
respectively. The Trustees have approved payment by the fund at an annual
rate of .25%, 1.00% and .75% of the average net assets attributable to class
A, class B and class M shares, respectively.
For the year ended June 30, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $81,810 from the sale of class A
shares and $1,607 for the sale of class M shares and received $49,319 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of class
A or class M shares purchased as part of an investment of $1 million or more.
For the year ended June 30, 1995, Putnam Mutual Funds Corp., acting as
underwriter received $31,279 on class A redemptions, and received no monies
on class M redemptions.
Note 3
Purchases and sales of securities
During the year ended June 30, 1995, purchases and sales of investment
securities other than short-term investments aggregated $75,030,350 and
$49,643,146, respectively. There were no purchases or sales of U.S.
government obligations during the year ended June 30, 1995. In determining
the net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 4
Capital shares
At June 30, 1995, there was an unlimited number of shares of beneficial
interest authorized divided into three classes of capital shares.
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year ended June 30
---------------------------
1995
---------------------------
<S> <C> <C>
Class A Shares Amount
-------------------------------------------------------------
Shares sold 6,207,675 $ 79,375,730
-------------------------------------------------------------
Shares issued in connection
with reinvestment of
distributions 81,382 984,724
-------------------------------------------------------------
6,289,057 80,360,454
Shares repurchased (5,570,659) (71,266,570)
-------------------------------------------------------------
Net increase 718,398 $ 9,093,884
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30
---------------------------
1994
---------------------------
<S> <C> <C>
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
-------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30
---------------------------
1995
---------------------------
<S> <C> <C>
Class B Shares Amount
-------------------------------------------------------------
Shares sold 3,864,840 $ 48,800,205
-------------------------------------------------------------
Shares issued in connection
with reinvestment of
distributions 36,738 442,334
-------------------------------------------------------------
3,901,578 49,242,539
Shares repurchased (2,414,407) (30,401,989)
-------------------------------------------------------------
Net increase 1,487,171 $ 18,840,550
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the period
February 1, 1994
(commencement of
operations) to
June 30,
1994
------------------------
Class B Shares Amount
--------------------------------------------
<S> <C> <C>
Shares sold 2,468,324 $29,611,768
--------------------------------------------
Shares
repurchased (629,516) (7,404,182)
--------------------------------------------
Net increase 1,838,808 $22,207,586
--------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the period
December 1, 1994
(commencement of
operations) to
June 30,
1995
----------------------
Class M Shares Amount
--------------------------------------------------------
<S> <C> <C>
Shares sold 91,188 $1,177,622
--------------------------------------------------------
Shares issued in connection
with reinvestment of
distributions 47 571
--------------------------------------------------------
91,235 1,178,193
Shares repurchased (37,562) (485,610)
--------------------------------------------------------
Net increase 53,673 $ 692,583
--------------------------------------------------------
</TABLE>
24
<PAGE>
Federal tax information
Pursuant to section 852 of the Internal Revenue Code, the Fund hereby
designates $.046 per share (or if different the amount necessary to offset
net capital gain earned by the fund) as capital gain dividends for its
taxable year ended June 30, 1995.
For the period, interest and dividends from foreign countries were $3,382,857
or $.34 per share. Taxes paid to foreign countries were $325,640 or $.03 per
share.
The Form 1099 you receive in January 1996 will show you the tax status of all
distributions paid to your account in calendar year 1995.
25
<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 award's 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 money market 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 the original
cost of the shares.
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.
26
<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 F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Anthony W. Regan
Vice President
Justin M. Scott
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
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 copy of
Putnam's Quarterly Performance Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581.
Shares of mutual funds are not deposits 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.
27
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- -----------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- -----------------
19388-057/234/688
