Putnam
Europe
Growth
Fund
ANNUAL REPORT
June 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* According to Lipper Analytical Services, Putnam Europe Growth Fund's
class A share total return at net asset value for the year ended June 30,
1997, ranked fifth out of 65 European region funds, placing the shares in
the top 8% in this category. *
* "Thanks to its conservative, value-conscious style . . . this fund
is an excellent choice for investors looking for exposure to Europe."
-- Morningstar Mutual Funds, March 28, 1997
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
17 Financial statements
28 Results of February 6, 1997, Shareholder meeting
* Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. These rankings vary over time
and do not reflect the effects of sales charges. For periods ended
6/30/97, class A shares ranked 4 out of 29 and 2 out of 17 funds for 3-
and 5-year performance, respectively; class B and class M shares ranked 12
and 10, respectively, out of 65 funds for 1-year performance, and class B
shares ranked 8 of 29 funds for 3-year performance. Class B and class M
shares were not ranked over longer periods. Past performance is not
indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Europe Growth Fund continued to deliver positive performance during the
fiscal year ended June 30, 1997, even as the region dealt with uncertainties
over European Monetary Union, hesitant economic recovery, and political risk
in the United Kingdom and France.
Your fund continues to make a name for itself within its universe of European
region funds. As the accolades on the facing page demonstrate, this reputation
rests on both performance and consistent pursuit of a conservative
value-oriented investment style. While future results can never be assured,
Putnam Management remains firm in its resolve to maintain the fund's
heretofore successful investment style.
In the following report, your fund's managers review performance for the
fiscal year that has just concluded, and discuss prospects for the year ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
August 20, 1997
Report from the Fund Managers
Mark D. Pollard
Justin M. Scott
Omid Kamshad
Putnam Europe Growth Fund continued to execute its conservative value-oriented
style effectively during the fiscal year ended June 30, 1997, as demonstrated
by the inclusion of its class A shares among the top 8% of the Europe region
funds ranked by Lipper Analytical Services for the period. The fund's class B
and class M shares were included among the top 20%. Lipper rankings are based
on total return at net asset value. Rankings over other periods are shown on
page 2.
The fund closed the fiscal year with a total return of 28.49% for class A
shares at net asset value, 21.10% at public offering price. These results
compared with the 29.99% return for the MSCI Europe Index. For performance of
other share classes and returns over longer periods, please turn to pages 9
and 10 of this report.
An important contributor to your fund's strong performance was its ongoing
focus on Continental Europe and relatively moderate exposure to the United
Kingdom. Early in the fund's fiscal year, we identified three factors that
favored the markets and companies on the Continent. On the macroeconomic
level, we anticipated that sluggish economic growth, restrictive fiscal
policies, and low inflation would exert downward pressure on interest rates,
creating a positive environment for equities. The pattern of generally weak
European currencies, which helped boost the competitiveness and profits of
European companies, was another trend that boded well for stocks. Finally,
across Europe, we saw evidence of massive and ongoing restructuring, with an
increasing proportion of these profits accruing to shareholders. All three
developments have positively affected the performance of stocks throughout the
region, and we are optimistic that this positive environment will persist in
the months ahead.
* UNITED KINGDOM OUT OF STEP WITH REST OF EUROPE
Over your fund's fiscal year, the United Kingdom diverged sharply from
Continental Europe politically, economically, and financially. Most important,
in our view, has been Britain's decision to opt out of the first round of
European Monetary Union (EMU). The plan to create a common European currency
by January 1, 1999, has caused the currency weakness that we mentioned
earlier, as it is generally expected that the common European currency, called
the euro, will likely be weaker than some of the national currencies it is
intended to replace. With Britain's decision not to participate in EMU, the
British pound soared, dampening profits for British exporters whose goods
became less competitive in global markets. In addition, the U.K. economy has
been much stronger than others in Europe, necessitating increases in interest
rates to preempt inflation pressures and creating a less supportive
environment for equity valuations. Furthermore, the corporate re-engineering
process -- which is unleashing so much value on the Continent -- is already
well advanced in Britain, having commenced several years ago under the
Thatcher government.
We have nevertheless begun to see signs of increasingly attractive valuations
in certain U.K. stocks. Burmah Castrol, a global lubricants and specialty
chemicals group in the fund's portfolio, now appears to offer outstanding
value that should be unleashed when the British pound's strength comes to an
end, as it surely will. In a nutshell, while the fundamental backdrop to the
U.K. market still contains many uncertainties, the fund is likely to take this
opportunity to add to its U.K. positions. Please note that while these
holdings, along with others discussed in this report, were viewed favorably at
the end of the fiscal period, all are subject to review and adjustment in
accordance with the fund's investment strategy and may vary in the future.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP COUNTRY ALLOCATIONS]
TOP COUNTRY ALLOCATIONS*
United Kingdom 25.4%
France 16.0%
Switzerland 13.6%
The Netherlands 12.8%
Germany 10.0%
Footnote reads:
* Based on net assets as of 6/30/97. Allocations will vary over time.
* STRONG RESULTS IN SWITZERLAND AND THE NETHERLANDS
An extremely positive investment climate lifted share prices of a number of
fund holdings based in Switzerland and the Netherlands. Philips Electronics, a
Netherlands-based electronics firm has been a standout. The company has long
provided sophisticated consumer electronics products to the global
marketplace. However, it has not always been run with shareholders in mind --
a situation that is gradually changing. New senior management has refocused
not only on strengthening operations but on improving capital efficiency, an
emphasis that should continue to drive corporate performance and hence the
company's share price in the months and years ahead. Also in the Netherlands,
we have seen similar changes at Vendex International, a leading retailer.
There, new management not only has focused on margin improvements within the
competitive Dutch retailing business but has divested extraneous investments,
businesses, and properties. In both examples, the renewed emphasis on
achieving capital efficiency has been the driving force behind improved share
prices.
A number of Swiss companies have also enjoyed a highly profitable year.
Novartis, a pharmaceutical giant with global market share, is the result of a
merger between Ciba-Geigy and Sandoz. The substantial benefits of that merger
appear to be accruing ahead of schedule, and while Novartis's stock price has
risen quite sharply, its valuation still appears modest relative to other
global pharmaceutical groups. Elsewhere in Switzerland, we have added holdings
in Union Bank of Switzerland, which has moved away from pure domestic
operations and expanded into more profitable international fee-based
businesses such as investment banking.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Philips Electronics N.V. (Netherlands)
Electronics and electrical equipment
Total Corp. ADR class B (France)
Oil and gas
International Nederlanden Groep (Netherlands)
Insurance and finance
Swiss Reinsurance Co. (Switzerland)
Insurance and finance
Deutsche Telekom AG (Germany)
Telecommunications
Union Bank of Switzerland (Switzerland)
Insurance and finance
Vodafone Group PLC (United Kingdom)
Telecommunications
Ente Nazionale Idrocarburi SPA ADR (Italy)
Oil and gas
Elf Aquitane S.A. (France)
Oil and gas
Scottish Power PLC (United Kingdom)
Utilities
Footnote reads:
These holdings represent 25.9% of the fund's net assets as of 6/30/97.
Portfolio holdings will vary over time.
* SELECTED FRENCH, GERMAN COMPANIES DEFY GENERAL ECONOMIC WEAKNESS
The past year has been difficult for the French and German economies,
expectations of EMU participation have forced government spending down despite
the tensions caused by the highest unemployment levels since the end of World
War II. This has led to growing political pressures in both countries,
particularly France where a Socialist coalition won a surprise election
victory in June. Despite, or perhaps because of, this seemingly uninspiring
backdrop, the stocks of many companies in France and Germany have performed
very well. Recently, we have seen strength in newly privatized Deutsche
Telekom (DT). The company has now completed an extended period of massive
capital expenditures, thankfully financed by the German taxpayer. Now that DT
is subject to the rigors of global equity markets, new management has slimmed
down and refocused this spending program. We believe it can now look forward
to far stronger cash flows in the periods ahead.
Many of your fund's French holdings have been quite strong throughout the
fiscal year, despite market volatility following the June elections, and we
remain optimistic about their prospects. Fund holding Compagnie Generale des
Eaux, a major water and telecommunications provider, has an exceptional new
management team with a newfound commitment to efficient use of capital and an
emphasis on improved returns to shareholders. The fund also owns shares in the
two French oil and gas groups, although each offers quite different
attractions. Total is a story about exploration success and earnings growth.
Elf Aquitaine represents the now familiar tale of corporate restructuring and
the divestment of nonperforming assets. Each company, we believe, is well
positioned for the future and continues to offer attractive valuation.
* OUTLOOK: CAUSE FOR OPTIMISM DESPITE SOME UNCERTAINTY
At the beginning of this report, we identified three trends that have been
supporting European equities: economic and fiscal environment conducive to
equity investment, relatively weak currencies that have contributed to
enhanced corporate profitability and competitiveness, and continued
restructuring at the corporate level with positive implications for
shareholders. We believe these factors will continue to benefit the region's
stocks. Nevertheless, there are some less positive scenarios, which include
the prospect of currency appreciation against the yen and U.S. dollar if EMU
falls apart or an easing in the resolve to continue the process of corporate
restructuring as European economies gradually recover. Overall, however, we
remain upbeat about many European markets and companies as your fund enters
its new fiscal year.
Overriding all of the foregoing is the investment strategy we have pursued
since the fund's inception, that of seeking out undervalued European companies
by focusing on their long-term underlying worth. Our commitment to this
strategy remains as clear as ever as the fund embarks on its new fiscal year.
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 6/30/97, there is no guarantee the fund will continue to hold
these securities in the future. International investing involves certain
risks, such as currency fluctuations, economic instability, and political
developments, not present with domestic investments. Funds that invest in a
particular region involve more risk than diversified funds.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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 JUNE 30, 1997
Class A Class B Class M
(inception date) (9/7/90) (2/1/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 28.49% 21.10% 27.51% 22.51% 27.91% 23.40%
- ------------------------------------------------------------------------------
5 years 120.02 107.29 112.25 110.25 115.80 108.26
Annual average 17.08 15.70 16.24 16.02 16.63 15.80
- ------------------------------------------------------------------------------
Life of fund 172.29 156.59 158.49 158.49 164.02 154.64
Annual average 15.85 14.84 14.96 14.96 15.32 14.71
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/97
MSCI Europe Consumer
Index Price Index
- ------------------------------------------------------------------------------
1 year 29.99% 2.30%
- ------------------------------------------------------------------------------
5 years 100.03 14.34
Annual average 14.88 2.72
- ------------------------------------------------------------------------------
Life of fund 128.36 21.81
Annual average 12.85 2.93
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% for class A shares and 3.50% for class M shares.
Class B share returns for the 1-year, 5-year and life of fund periods
reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year, declining to 1% in the sixth year, and eliminated
thereafter. Returns shown for class B and class M shares for periods prior
to their inception are derived from the historical performance of class A
shares, adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and, in the case of class B and class M
shares, the higher operating costs applicable to such shares. Fund
performance data do not take into account any adjustments for taxes
payable on reinvested distributions and reflect an expense limitation in
effect during the periods, where applicable. Without the limitation,
results would have been lower. All returns assume reinvestment of
distributions at NAV and represent past performance; they do not guarantee
future results. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 9/7/90
PLOT POINTS
Fund's class A MSCI Europe Consumer Price
Date shares at POP Index Index
- ------ -------------- -------------- --------------
9/7/90 9,425 10,000 10,000
6/30/91 9,792 9,318 10,334
6/30/92 11,662 11,416 10,653
6/30/93 11,743 11,129 10,973
6/30/94 14,027 12,896 11,246
6/30/95 16,950 15,318 11,588
6/30/96 19,970 17,567 11,907
6/30/97 25,659 22,836 12,181
Past performance is no assurance of future results. At the end of the same
period, a $10,000 investment in the fund's class B shares would have been
valued at $25,849, with or without a redemption at the end of the period, and
a $10,000 investment in the fund's class M shares would have been valued at
$26,402 ($25,464 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 6/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.208 $0.127 $0.172
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.204 0.204 0.204
- ------------------------------------------------------------------------------
Short-term 0.852 0.852 0.852
- ------------------------------------------------------------------------------
Total $1.264 $1.183 $1.228
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
6/30/96 $15.91 $16.88 $15.64 $15.86 $16.44
- ------------------------------------------------------------------------------
6/30/97 18.96 20.12 18.56 18.85 19.53
- ------------------------------------------------------------------------------
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
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 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 (MSCI) Europe Index is an unmanaged
list of approximately 627 equity securities originating in one of the 14
European countries, with all values expressed in U.S. dollars. This index
assumes reinvestment of all distributions and interest payments and does
not take into account brokerage fees or taxes. Securities in the fund do
not match those in the index and performance of the fund will differ. It
is not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
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 "fund") at June 30, 1997, 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, 1997 by correspondence with the
custodian and the application of alternative auditing procedures where
investments were not yet received by the custodian, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
August 13, 1997
Portfolio of investments owned
June 30, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (98.3%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
Austria (2.0%)
- ------------------------------------------------------------------------------------------------------------
169,400 Mayr-Melnhof Karton AG 144A ADS $ 2,138,675
53,526 VA Technolgies AG 9,799,373
--------------
11,938,048
Denmark (0.7%)
- ------------------------------------------------------------------------------------------------------------
63,515 Danisco A/S 3,885,646
Finland (2.1%)
- ------------------------------------------------------------------------------------------------------------
168,574 Oy Nokia AB Class A 12,596,532
France (16.0%)
- ------------------------------------------------------------------------------------------------------------
98,543 Compagnie Generale des Eaux 12,629,202
93,789 Credit Locale de France S.A. 9,130,680
124,770 Elf Aquitaine S.A. 13,463,395
20,000 Elf Aquitane S.A. ADR 1,088,750
147,421 Lafarge Coppee 9,170,688
209,226 Michelin Corp. Class B 12,566,736
164,247 Scor 6,614,048
100,874 SGS Thomson Microelectronics 7,966,222
73,445 SGS-Thomson Microelectronics ADR + 5,875,600
160,495 Total Corp. ADR Class B 16,225,688
--------------
94,731,009
Germany (10.0%)
- ------------------------------------------------------------------------------------------------------------
282,260 Bayer AG ADR 10,850,052
15,904 Bayerische Motoren Werke (BMW) AG 13,162,875
481,532 Deutsche Telekom AG 11,599,853
142,814 Deutsche Telekom AG ADR 3,445,388
190,110 Dresdner Bank AG 6,575,069
239,004 Veba (Vereinigte Elektrizitaets Bergwerks) AG 13,434,122
--------------
59,067,359
Ireland (5.0%)
- ------------------------------------------------------------------------------------------------------------
1,260,704 Allied Irish Banks PLC 9,672,958
416,256 Bank of Ireland 4,564,809
1,028,172 CRH PLC 10,762,074
797,695 Greencore Group PLC 3,921,429
--------------
28,921,270
Italy (2.5%)
- ------------------------------------------------------------------------------------------------------------
2,625,959 Ente Nazionale Idrocarburi SPA ADR 14,889,424
Netherlands (12.8%)
- ------------------------------------------------------------------------------------------------------------
460,904 ABN AMRO Holding N.V. 8,600,542
70,577 Akzo-Nobel N.V. 9,679,419
56,820 IHC Caland N.V. 3,108,385
331,801 Internationale Nederlanden Groep 15,309,468
197,758 K.L.M.-Royal Dutch Airlines 6,099,908
248,858 Philips Electronics N.V. 17,839,010
24,281 Unilever N.V. 5,115,178
180,339 Vendex International N.V. + 9,883,982
--------------
75,635,892
Poland (0.2%)
- ------------------------------------------------------------------------------------------------------------
94,600 Bank Handlowy 144A + 1,007,915
Portugal (2.1%)
- ------------------------------------------------------------------------------------------------------------
42,200 Electricidade de Portugal S.A. 774,906
283,309 Portugal Telecom S.A. 11,435,443
--------------
12,210,349
Spain (0.6%)
- ------------------------------------------------------------------------------------------------------------
55,000 Mapfre Vida Seguros 3,565,854
Sweden (5.3%)
- ------------------------------------------------------------------------------------------------------------
365,176 Astra AB 6,817,313
67,479 Electrolux AB 4,881,478
87,707 Pharmacia & Upjohn, Inc. 2,967,722
84,960 Sandvik AB Class B 2,417,673
39,080 Sandvik Forsakings AB 1,112,084
429,096 Svenska Cellulosa AB Class B 9,151,007
103,710 Telefonaktiebolaget LM Ericsson Class B 4,094,081
--------------
31,441,358
Switzerland (13.6%)
- ------------------------------------------------------------------------------------------------------------
8,022 ABB AG 12,135,410
95,365 Ciba Specialty Chemicals AG + 8,812,564
1,416 Julius Baer Holdings AG 2,166,308
10,288 Nestle S.A. 13,563,343
8,612 Novartis AG ADR 13,758,921
10,746 Swiss Reinsurance Co. 15,189,602
13,102 Union Bank of Switzerland 14,977,302
--------------
80,603,450
United Kingdom (25.4%)
- ------------------------------------------------------------------------------------------------------------
5,024,049 Avis Europe PLC 144A ADR + 11,414,168
1,586,153 B A T Industries PLC 14,189,963
1,047,975 British Petroleum Co. PLC 13,020,823
794,423 Burmah Castrol PLC 13,453,768
1,926,220 General Electric Co. PLC 11,509,542
445,777 HSBC Holdings PLC 13,714,969
206,649 Molins PLC 1,754,128
466,400 Norwich Union PLC 144A + 2,476,321
718,273 Rio Tinto PLC 12,510,840
2,203,070 Scottish Power PLC 14,337,148
854,798 Securicor Group PLC Class A 4,054,769
1,376,079 Shell Transportation & Trading 9,378,966
309,282 Smiths Industries PLC 3,961,147
2,190,593 Tomkins PLC 9,479,660
3,058,650 Vodafone Group PLC 14,890,640
--------------
150,146,852
--------------
Total Common Stocks (cost $489,038,387) $ 580,640,958
WARRANTS (--%) * (cost $21,771) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
France (--%)
- ------------------------------------------------------------------------------------------------------------
36,340 Compagnie Generale des Eaux 5/2/01 $ 21,771
SHORT-TERM INVESTMENTS (6.8%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$20,000,000 Interest in $750,000,000 joint repurchase agreement
dated June 30, 1997 with Goldman, Sachs. Co. due
July 1, 1997 with respect to various U.S. Treasury
obligations -- maturity value of $20,003,264 for
an effective yield of 5.875% $ 20,003,264
20,384,000 Interest in $200,289,000 joint repurchase agreement
dated June 30, 1997 with Morgan (J.P.) Sec. Inc., Co.
due July 1, 1997 with respect to various U.S. Treasury
obligations -- maturity value of $20,387,369 for an
effective yield of 5.95% 20,387,369
--------------
Total Short-Term (cost $40,390,633) $ 40,390,633
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $529,450,791) *** $ 621,053,362
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $590,757,248.
*** The aggregate identified cost on a tax basis is $529,923,730, resulting in gross unrealized appreciation
and depreciation of $96,594,585 and $5,464,953, respectively, or net unrealized appreciation of
$91,129,632.
+ Non-income-producing security.
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.
ADR or ADS, after the name of a foreign holding stands for American Depository Receipts or American
Depository Shares respectively, representing ownership of foreign securities on deposit with a domestic
custodian bank.
The fund had the following industry concentrations greater than 10% at June 30, 1997 (as a percentage of
net assets) (Unaudited):
Insurance and Finance 19.2%
Oil and Gas 13.6
Building and Construction 10.6
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at June 30,1997
(aggregate face value $31,049,374)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
French Francs $ 30,552,265 $ 31,049,374 8/13/97 $ 497,109
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
June 30, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $529,450,791) (Note 1) $ 621,053,362
- ---------------------------------------------------------------------------------------------------
Cash 554
- ---------------------------------------------------------------------------------------------------
Dividends and other receivables 1,981,045
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 9,491,629
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 9,959,128
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 497,109
- ---------------------------------------------------------------------------------------------------
Total assets 642,982,827
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 36,470,976
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 13,155,768
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,024,699
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 162,833
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,785
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,171
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 402,327
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 793,632
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 202,388
- ---------------------------------------------------------------------------------------------------
Total liabilities 52,225,579
- ---------------------------------------------------------------------------------------------------
Net assets $ 590,757,248
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 466,455,123
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 11,565,812
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment and
foreign currency transactions (Note 1) 20,658,523
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 92,077,790
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 590,757,248
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($313,491,602 divided by 16,537,477 shares) $18.96
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $18.96)* $20.12
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($261,454,161 divided by 14,084,174 shares)** $18.56
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($15,811,485 divided by 839,024 shares) $18.85
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $18.85)* $19.53
- ---------------------------------------------------------------------------------------------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended June 30, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $888,888) $ 9,186,322
- --------------------------------------------------------------------------------------------------
Interest 1,126,026
- --------------------------------------------------------------------------------------------------
Total investment income 10,312,348
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 2,875,190
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,065,620
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 27,591
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,457
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 493,139
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,534,194
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 67,386
- --------------------------------------------------------------------------------------------------
Reports to shareholders 71,992
- --------------------------------------------------------------------------------------------------
Registration fees 88,540
- --------------------------------------------------------------------------------------------------
Auditing 26,899
- --------------------------------------------------------------------------------------------------
Legal 11,574
- --------------------------------------------------------------------------------------------------
Postage 117,942
- --------------------------------------------------------------------------------------------------
Other 44,472
- --------------------------------------------------------------------------------------------------
Total expenses 6,432,996
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (217,333)
- --------------------------------------------------------------------------------------------------
Net expenses 6,215,663
- --------------------------------------------------------------------------------------------------
Net investment income 4,096,685
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 26,382,334
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Notes 1 and 3) 8,598,519
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 282,263
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 62,499,738
- --------------------------------------------------------------------------------------------------
Net gain on investments 97,762,854
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $101,859,539
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended June 30
----------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 4,096,685 $ 2,389,202
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 34,980,853 19,056,693
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 62,782,001 6,789,321
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 101,859,539 28,235,216
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (2,225,968) --
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,016,631) --
- ----------------------------------------------------------------------------------------------------------------------
Class M (79,263) --
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (11,300,291) (2,656,313)
- ----------------------------------------------------------------------------------------------------------------------
Class B (8,451,546) (1,668,837)
- ----------------------------------------------------------------------------------------------------------------------
Class M (486,635) (45,021)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 290,304,737 61,389,284
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 368,603,942 85,254,329
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 222,153,306 136,898,977
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $11,565,812 and
$2,543,011, respectively) $ 590,757,248 $222,153,306
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- --------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended June 30
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.91 $13.88 $11.64 $9.84 $10.10
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income .24 (c) .24 (c) .18 .18 .18
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 4.07 2.19 2.22 1.73 (.14)
- --------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.31 2.43 2.40 1.91 .04
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) -- -- (.11) (.15)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- (.11)
- --------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.06) (.40) (.16) -- (.04)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.26) (.40) (.16) (.11) (.30)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.96 $15.91 $13.88 $11.64 $9.84
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 28.49 17.82 20.84 19.45 0.70
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $313,492 $127,980 $90,420 $67,471 $17,552
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.45 1.47 1.38 1.50 1.81
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.43 1.59 1.45 1.17 1.38
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 55.45 38.85 44.33 36.73 58.56
- --------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0435
- --------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended June 30, 1996 and thereafter, includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude
these amounts. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Average commission rate paid on security trades is requuired for fiscal periods beginning on or after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Feb. 1, 1994+
operating performance Year ended June 30 to June 30
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $15.64 $13.75 $11.62 $12.49
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .13 (c) .14 (c) .08 .04
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.97 2.15 2.21 (.91)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.10 2.29 2.29 (.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.06) (.40) (.16) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.18) (.40) (.16) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.56 $15.64 $13.75 $11.62
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 27.51 16.95 19.92 (6.97)*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $261,454 $90,126 $45,733 $21,368
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.20 2.23 2.13 .95 *
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .76 .96 .74 .54 *
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 55.45 38.85 44.33 36.73
- ---------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0435
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended June 30, 1996 and thereafter, includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Average commission rate paid on security trades is requuired for fiscal periods beginning on or after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 1, 1994+
operating performance Year ended June 30 to June 30
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $15.86 $13.90 $12.35
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .19 (c) .24 (c) .09
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 4.03 2.12 1.62
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.22 2.36 1.71
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.17) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.06) (.40) (.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.23) (.40) (.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.85 $15.86 $13.90
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 27.91 17.28 14.06 *
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $15,811 $4,047 $746
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.95 2.02 1.08 *
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.10 1.59 1.61 *
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 55.45 38.85 44.33
- ---------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0435
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended June 30, 1996 and thereafter, includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Average commission rate paid on security trades is requuired for fiscal periods beginning on or after September 1, 1995.
</TABLE>
Notes to financial statements
June 30, 1997
Note 1
Significant accounting policies
Putnam Europe Growth Fund ("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, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.50% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares.
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
only 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 would 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
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price on 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. All 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 along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or losses
on closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized appreciation and depreciation of
assets and liabilities in foreign currencies arise from changes in the value
of open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange rate.
F) 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 U.S. dollar value of
forward currency contracts is determined using forward currency exchange rates
supplied by a quotation service. 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, 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.
G) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences include treatment
of realized gains and losses on foreign currency. Reclassifications are made
to the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended June 30, 1997, the fund reclassified
$8,247,978 to increase undistributed net investment income and $372,156 to
increase paid-in-capital, with a decrease to accumulated net realized gain on
investments of $8,620,134. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is 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 the next $5 billion, 0.575% of the next $5 billion, 0.555% of the
next $5 billion, 0.54% of the next $5 billion and 0.53% of any excess
thereafter. Prior to October 21, 1996 any amount over $1.5 billion was at an
annual rate of 0.60%.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended June 30, 1997, fund expenses were reduced by $217,333 under
expense offset arrangements with PFTC and brokerage service arrangements.
Investor servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested a portion of the assets
utilized in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $1,060 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable on
or after July 1, 1995. The deferred fees remain in the fund and invested in
certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted 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 Mutual Funds
Corp. at an annual rate up to 0.35%, 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 0.25%, 1.00%
and 0.75% of the average net assets attributable to class A, class B and class
M shares, respectively.
For the year ended June 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $403,569 and $18,298 from the sale of
class A and class M shares, respectively and $174,565 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 shares. For the year
ended June 30, 1997, Putnam Mutual Funds Corp., acting as underwriter received
$9,200 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended June 30, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $458,128,291 and $174,724,886, respectively. There were no
purchases and sales of U.S. government obligations. In determining the net
gain or loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At June 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
June 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 42,860,100 $736,786,046
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 760,153 12,291,699
- ------------------------------------------------------------
43,620,253 749,077,745
Shares
repurchased (35,128,868) (606,739,760)
- ------------------------------------------------------------
Net increase 8,491,385 $142,337,985
- ------------------------------------------------------------
Year ended
June 30, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 13,600,473 $204,079,424
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 172,016 2,440,951
- ------------------------------------------------------------
13,772,489 206,520,375
Shares
repurchased (12,242,792) (183,994,466)
- ------------------------------------------------------------
Net increase 1,529,697 $ 22,525,909
- ------------------------------------------------------------
Year ended
June 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 18,005,860 $301,810,768
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 531,337 8,442,924
- ------------------------------------------------------------
18,537,197 310,253,692
Shares
repurchased (10,217,228) (171,957,060)
- ------------------------------------------------------------
Net increase 8,319,969 $138,296,632
- ------------------------------------------------------------
Year ended
June 30, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 6,541,696 $ 96,280,375
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 106,373 1,489,076
- ------------------------------------------------------------
6,648,069 97,769,451
Shares
repurchased (4,209,843) (61,944,580)
- ------------------------------------------------------------
Net increase 2,438,226 $ 35,824,871
- ------------------------------------------------------------
Year ended
June 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,929,111 $ 33,275,091
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 33,373 537,639
- ------------------------------------------------------------
1,962,484 33,812,730
Shares
repurchased (1,378,637) (24,142,610)
- ------------------------------------------------------------
Net increase 583,847 $ 9,670,120
- ------------------------------------------------------------
Year ended
June 30, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 294,873 $ 4,425,967
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,097 43,910
- ------------------------------------------------------------
297,970 4,469,877
Shares
repurchased (96,466) (1,431,373)
- ------------------------------------------------------------
Net increase 201,504 $ 3,038,504
- ------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended,
the Fund hereby designates $0.852 per share (or if different, the
amount necessary to offset net capital gain earned by the Fund)
(for all classes of shares) as capital gain dividends for its taxable
year ended June 30, 1997.
For the period, dividends from foreign countries were $10,075,210 or
$0.320 per share (for all share classes). Taxes paid to foreign countries
were $888,888 or $0.28 per share (for all classes of shares).
The Form 1099 you receive in January 1998 will show the tax status
of all distributions paid to your account in calendar 1997.
Results of February 6, 1997 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on February 6, 1997. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 9,596,723 184,176
Hans H. Estin 9,599,249 181,650
John A. Hill 9,599,732 181,167
R.J. Jackson 9,604,006 176,893
Elizabeth T. Kennan 9,594,900 185,999
Lawrence J. Lasser 9,606,390 174,509
Robert E. Patterson 9,603,613 177,286
Donald S. Perkins 9,597,309 183,590
William F. Pounds 9,599,123 181,776
George Putnam 9,597,640 183,259
George Putnam, III 9,587,536 193,363
Eli Shapiro 9,559,335 221,564
A.J.C. Smith 9,599,318 181,581
W. Nicholas Thorndike 9,587,473 193,426
A proposal to ratify the selection of Price Waterhouse LLP as auditors for the
fund was approved as follows: 9,365,618 votes for, and 85,097 votes against,
with 330,184 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to diversification was approved as follows: 8,400,591 votes for, and 670,047
votes against, with 710,261 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in the securities of a single issuer was approved as follows:
8,103,149 votes for, and 850,983 votes against, with 826,767 abstentions and
broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to making loans was approved as follows: 7,832,371 votes for, and 1,161,899
votes against, with 786,629 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in commodities was approved as follows: 7,971,200 votes for,
and 1,060,951 votes against, with 748,748 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in senior securities was approved as follows: 8,284,139 votes
for, and 663,809 votes against, with 832,951 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in securities of issuers in which management of the
fund or Putnam Investment Management, Inc. owns securities was approved as
follows: 7,897,108 votes for, and 1,071,826 votes against, with 811,965
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to margin transactions was approved as follows: 7,679,517 votes for,
and 1,234,143 votes against, with 867,239 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to short sales was approved as follows: 7,761,743 votes for, and
1,166,945 votes against, with 852,211 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to pledging assets was approved as follows: 7,631,597 votes for, and
1,275,169 votes against, with 874,133 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in restricted securities was approved as follows:
7,766,966 votes for, and 1,147,212 votes against, with 866,721 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in certain oil, gas an mineral interests was approved
as follows: 8,071,424 votes for, and 914,994 votes against, with 794,481
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investing to gain control of a company's management was approved as
follows: 7,982,831 votes for, and 967,077 votes against, with 830,991
abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Mark D. Pollard
Vice President and Fund Manager
Justin M. Scott
Vice President and Fund Manager
Omid Kamshad
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam 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. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of principal amount invested.
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PUTNAM INVESTMENTS
The Putnam Funds
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Putnam
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