Putnam
Europe
Growth
Fund
SEMIANNUAL REPORT
December 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam Europe Growth Fund's attention to capital has made it the star
of the waltz. . . . Investors looking for a European dance partner
can't go wrong here."
-- Morningstar Mutual Funds, November 8, 1996
* "Falling interest rates and profit-boosting corporate restructurings [could]
lift European share prices."
-- Money, January 1997
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
15 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The sustained rise in the domestic stock market has opened the eyes of a
growing number of U.S. investors to the opportunities presented by
foreign equities. Some are shifting assets as a defensive measure
against volatility in the market at home. Others look at the rising
number of companies with multinational businesslines and take a "global
village" approach to diversification of their investment programs.
Whatever their reasons, many of these investors have joined the ranks
of Putnam Europe Growth Fund shareholders. During the first half of
fiscal 1997, your fund's managers once again delivered strong results.
In the following report, they provide a discussion of the fund's
performance and prospects.
I am pleased to announce the appointment of Omid Kamshad to the fund's
management team. Omid joined Putnam's International Equity Group in
early 1996. His prior positions were with Lombard Odier International
Investment Managers and Baring International Investment Ltd. He has 11
years of investment experience.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
February 19, 1997
Report from the Fund Managers
Justin M. Scott
Mark D. Pollard
Omid Kamshad
With Western European markets echoing the U.S. equity rally -- albeit to
a lesser extent -- Putnam Europe Growth Fund turned in a strong
performance in absolute terms over its semiannual period. For the six
months ended December 31, 1996, your fund's class A shares gained 11.95%
at net asset value (NAV) and 5.52% at public offering price (POP).
Although these results slightly lagged the Morgan Stanley Capital
International Europe 14 Index, which rose 13.77% over the same period,
the fund has outpaced the index over time. For returns of other class
shares and longer-term performance, please turn to page 9 of this report.
* EUROPEAN UNION ISSUES AFFECT CONTINENT'S ECONOMY
During the past year, we have carefully monitored the financial and
economic effects of preparations for introduction of the European
Monetary Union (EMU). EMU, a long-discussed plan, will establish a
common currency among European Union member states. In order for EMU to
be in place by its target date of January 1999, participating
governments need to have similar economic profiles: their budget
deficits, bond yields, and inflation rates must be closely correlated.
In the process of convergence, or meeting economic targets, a number of
European Union member states have had to pull back government spending,
raise taxes, and cut inflation. Such policies have impeded economic
growth somewhat across Europe. However, relatively low interest rates
are compensating for decreased government spending and higher taxes,
and have helped to keep European stock markets in fairly strong shape
over the fund's semiannual period.
A more unambiguously positive development for the region's markets has
been the ongoing growth of a European equity culture. In order to
attract equity capital, improve returns to shareholders, and effectively
compete in global markets, a number of European companies have
reorganized to bolster efficiency and profitability. This is not an
entirely new process; a number of the region's leading companies have
long pursued these strategies. But the broader acceptance of such
practices should bode well for stocks -- much as similar reforms enacted
in the late 1980s have served to underpin the U.S. equity rally.
* SELECTED GERMAN AND FRENCH COMPANIES HIGHLY ATTRACTIVE
Over the semiannual period, a number of German companies in your fund's
portfolio performed quite well, despite a fairly modest economic
backdrop. BMW introduced a strong new line of high-performance
automobiles, just as global demand for higher-end cars is rising. Bayer,
a German pharmaceutical and chemicals company, has shown how a renewed
emphasis on return on capital can boost stock prices over the longer term.
During the period, your fund participated in an event that demonstrated
the potential of German markets: the highly successful initial public
offering (IPO) of Deutsche Telekom, Germany's giant telecommunications
provider. Germans have not traditionally been enthusiastic buyers of
equities, but this reluctance appears to be changing -- with potentially
positive long-term effects for the German stock market.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: COUNTRY ALLOCATIONS]
COUNTRY ALLOCATIONS*
United Kingdom 23.9%
The Netherlands 15.8%
France 13.7%
Sweden 9.5%
Germany 9.2%
Footnote reads:
* Based on net assets as of 12/31/96. Allocations will vary over time.
As with Germany's exchange, the French stock market moved upward during
the past six months in spite of high unemployment and reduced government
expenditures. France's Elf Aquitaine, an oil company, has been fully
privatized and has ambitious plans for reorganization. Total, another
energy company, also performed well. A standout among French companies
has been SGS-Thomson, a leading global semiconductor company. The
company's sales have been strong during this difficult year for many
chip makers: SGS-Thomson benefits from a well-cultivated network of
relationships with other businesses across Europe, and a focus on
products specially designed to meet its clients needs. While these
stocks, along with others discussed in this report, were viewed
favorably at the end of the fiscal period, all portfolio holdings are
subject to review and adjustment in accordance with the fund's
investment strategy and may vary in the future.
Elsewhere in Europe, the Netherlands market experienced solid returns.
There, Vendex, a retailer, and Philips, the leading electronics firm,
were both highly positive holdings for the fund. Sweden has had an
exceptionally vibrant stock market -- one of the strongest in Europe
during 1996. We believe that Sweden's globally competitive
pharmaceutical company Pharmacia & Upjohn, a large fund holding, has
exceptional potential. On a less positive note, your fund prematurely
reduced its exposure to Spain's thriving stock market, which rose
sharply in response to a dramatic fall in bond yields over the
semiannual period. Finally Switzerland's Novartis, a pharmaceutical and
specialty chemicals company, and the result of a merger between Ciba-
Geigy and Sandoz, showed the benefits of consolidation and cost-cutting for
stock prices.
* U.K. ECONOMY, MARKETS APPEAR POISED FOR STRENGTH
We are optimistic about prospects for U.K. equities in the coming year.
Significantly, Britain's ruling Conservative party is skeptical about
joining EMU, and the government has not strained to meet the criteria
for convergence. This has helped the economy; throughout 1996 the United
Kingdom experienced a slew of good news, including falling unemployment
and positive retail sales. With the U.K.'s gross domestic product (GDP)
predicted to rise more than 3% in 1997 -- a solid increase -- and the
British pound rising sharply in value, the United Kingdom's economy
appears to be diverging from the rest of Europe. While we are watching
carefully to see the possible effect of robust economic growth on
inflation and interest rates, we consider it timely to increase the
fund's U.K. weighting to 23.9% of net assets.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Novartis AG (Switzerland)
Pharmaceuticals and chemicals
SGS-Thomson (France)
Semiconductors
Total (France)
Petroleum
Pharmacia & Upjohn AB (Sweden)
Pharmaceuticals and chemicals
BAT Industries (United Kingdom)
Tobacco and financial services
Burmah Costral PLC (United Kingdom)
Petroleum and chemicals
Philips Electronics N.V. (Netherlands)
Consumer products
Bayer AG (Germany)
Health care products and agro-chemicals
CRH PLC (Ireland)
Building and construction
Veba AG (Germany)
Electric utility
Footnote reads:
These holdings represent 24.0% of the fund's net assets as of 12/31/96.
Portfolio holdings will vary over time.
Ireland also had another strong year, posting the highest economic
growth rate in the EU, and it appears to have more room for growth in
the coming months. One longtime Irish fund holding is CRH, an
international construction firm. In addition to dominating its strong
local market, CRH has reinvested its cash intelligently by developing a
number of highly regarded building operations outside of Ireland.
* OUTLOOK: CAUSE FOR OPTIMISM
Our overriding investment strategy is to find undervalued European
stocks by focusing on their long-term underlying worth. In the coming
months, we have weighted the fund's portfolio toward the so-called core
hard-currency markets: France, Germany, Switzerland, and the
Netherlands, where we see the greatest evidence of sound investing
conditions. Over time, we think that although there remain uncertainties
regarding EMU, the growing equity culture among many European
corporations will have a positive effect on the region's markets.
Footnote reads:
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 12/31/96, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks including currency fluctuations, political
developments and economic instability. Funds that invest in a particular
region involve more risk than diversified funds.
Performance summary
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
(inception date) (9/7/90) (2/1/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 11.95% 5.52% 11.57% 6.57% 11.76% 7.82%
- ------------------------------------------------------------------------------
1 year 22.67 15.58 21.77 16.77 22.16 17.85
- ------------------------------------------------------------------------------
5 years 104.68 92.85 -- -- -- --
Annual average 15.4 14.04 -- -- -- --
- ------------------------------------------------------------------------------
Life of class 137.24 123.57 45.58 42.58 49.5 44.24
Annual average 14.65 13.58 13.72 12.92 21.22 19.16
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/96
MSCI Europe 14 Consumer
Index Price Index
- ------------------------------------------------------------------------------
6 months 13.77% 1.21%
- ------------------------------------------------------------------------------
1 year 21.09 3.32
- ------------------------------------------------------------------------------
5 years 85.57 15.01
Annual average 13.16 2.84
- ------------------------------------------------------------------------------
Life of class A 99.87 20.52
Annual average 11.55 3.00
- ------------------------------------------------------------------------------
Life of class B 43.33 8.48
Annual average 13.14 2.83
- ------------------------------------------------------------------------------
Life of class M 48.1 5.94
Annual average 20.71 2.80
- ------------------------------------------------------------------------------
Footnote reads:
Performance data represent past results, do not reflect future performance,
and will differ for each share class. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment returns
and principal value will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost. POP assumes 5.75% maximum
sales charge for class A shares and 3.50% for class M shares. CDSC for class B
shares assumes the applicable sales charge, with the maximum being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 12/31/96
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.208 $0.127 $0.172
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.852 0.852 0.852
- ------------------------------------------------------------------------------
Short-term 0.204 0.204 0.204
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
12/31/96 16.52 17.53 16.24 16.47 17.07
- ------------------------------------------------------------------------------
TERMS AND DEFINITIONS
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 14 European
countries, with all values expressed in U.S. dollars.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
Footnote reads:
* Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in the
fund do not match those in the indexes and performance of the fund will
differ. It is not possible to invest directly in an index.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread
your money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor guaranteed by
the U.S. government. These funds are managed to maintain a price of $1.00
per share, although there is no assurance that this price will be maintained
in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of deposit
offer a fixed rate of return and may be insured up to certain
limit by federal/state agencies. Savings accounts may also
be insured up to certain limits. Please call your financial
advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully
before you invest or send money.
WELCOME TO
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investing and retirement planning, and access market news and an economic
outlook from Putnam experts - with just a few clicks of the mouse!
VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
* the benefits of investing with Putnam
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You can also read Dr. Robert Goodman's economic commentary and Putnam's
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The site can be accessed through any of the major online services (America
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New features will be added to the site on an ongoing basis. So, visit us
at http: //www.putnaminv.com - often!
Portfolio of investments owned
December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (96.6%) *
NUMBER OF SHARES VALUE
Austria (2.6%)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
180,600 Mayr-Melnhof Karton AG 144A ADS + $ 2,167,200
41,933 VA Technolgies AG 6,583,993
--------------
8,751,193
Belgium (0.6%)
- ---------------------------------------------------------------------------------------------------------
3,400 Solvay S.A. 2,081,206
Denmark (1.0%)
- ---------------------------------------------------------------------------------------------------------
53,015 Danisco A/S 3,220,664
France (13.7%)
- ---------------------------------------------------------------------------------------------------------
74,696 Credit Locale de France S.A. 6,507,197
20,000 Elf Aquitane S.A. ADR 905,000
111,204 Lafarge Coppee 6,672,025
62,366 Michelin Corp. Class B 3,366,814
42,159 Peugeot Citroen S.A. 4,745,274
128,200 SGS-Thomson Microelectronics ADR 8,974,000
59,220 Societe Nationale Elf Aquitaine 5,390,692
47,179 Sommer-Allibert 1,409,414
103,890 Total Corp. ADR Class B 8,449,760
--------------
46,420,176
Germany (9.2%)
- ---------------------------------------------------------------------------------------------------------
184,347 Bayer AG ADR 7,515,087
9,859 Bayerische Motoren Werke (BMW) AG 6,867,061
178,983 Deutsche Telekom AG + 3,770,203
120,914 Deutsche Telekom AG ADR + 2,463,623
14,009 Preussag AG 3,169,190
128,613 Veba (Vereinigte Elektrizitaets Bergwerks) AG 7,430,417
--------------
31,215,581
Ireland (6.9%)
- ---------------------------------------------------------------------------------------------------------
1,114,912 Allied Irish Banks PLC 7,394,810
380,864 Bank of Ireland 3,447,657
724,563 CRH PLC 7,478,360
788,085 Greencore Group PLC 5,000,399
--------------
23,321,226
Italy (1.0%)
- ---------------------------------------------------------------------------------------------------------
636,188 Ente Nazionale Idrocarburi SPA (ENI) 3,264,835
Netherlands (15.8%)
- ---------------------------------------------------------------------------------------------------------
97,449 ABN AMRO Holdings N.V. 6,339,430
90,080 Aegon N.V. 5,740,137
21,948 Akzo-Nobel N.V. 2,997,875
29,474 Dutch States Mines N.V. 2,906,800
83,104 Getronics Electric N.V. 2,255,804
60,000 IHC Caland N.V. 3,427,480
188,662 Internationale Nederlanden Groep 6,791,745
141,058 K.L.M.-Royal Dutch Airlines 3,967,715
174,500 New Holland N.V. 3,642,688
189,300 Philips Electronics N.V. 7,669,290
79,648 Royal PTT 3,037,853
14,881 Unilever N.V. 2,632,037
42,037 Vendex International N.V. 1,797,971
--------------
53,206,825
Portugal (1.5%)
- ---------------------------------------------------------------------------------------------------------
176,422 Portugal Telecom S.A. + 5,027,626
Spain (1.9%)
- ---------------------------------------------------------------------------------------------------------
55,000 Mapfre Vida Seguros 3,812,678
59,583 Tabacalera S.A. 2,565,424
--------------
6,378,102
Sweden (9.5%)
- ---------------------------------------------------------------------------------------------------------
91,207 Astra AB 4,494,007
65,600 Autoliv AB 2,867,812
58,696 Electrolux AB 3,398,438
200,995 Pharmacia & Upjohn AB 8,213,773
84,960 Sandvik AB Class B 2,298,063
226,792 Skandia Forsakrings AB 6,399,716
221,096 Svenska Cellulosa AB Class B 4,477,198
--------------
32,149,007
Switzerland (9.0%)
- ---------------------------------------------------------------------------------------------------------
700 Baer Holdings AG 732,364
4,536 ABB AG 5,631,946
6,253 Nestle S.A. 6,700,642
1,493 Novartis AG 1,705,650
6,632 Novartis AG 7,581,548
3,045 Surveillance 1,335,168
6,250 Swiss Reinsurance Co. 6,660,142
--------------
30,347,460
United Kingdom (23.9%)
- ---------------------------------------------------------------------------------------------------------
965,946 B A T Industries PLC 8,012,174
213,774 Barclays Bank PLC 3,661,641
453,179 British Petroleum Co. PLC 5,434,776
415,752 Burmah Castrol PLC 7,836,559
1,041,200 General Electric Co. (The) PLC 6,809,281
144,000 Guinness PLC 1,127,865
287,592 HSBC Holdings PLC 6,430,189
206,649 Molins PLC 3,175,203
455,901 United Utilities PLC 4,846,921
437,906 RTZ Corp. PLC 7,020,894
1,072,773 Scottish Power PLC 6,464,788
634,445 Securicor Group PLC 3,035,845
271,780 Shell Transportation & Trading 4,706,382
1,683,847 Vodafone Group PLC 7,105,969
1,083,562 Weir Group PLC (The) 4,869,528
--------------
80,538,015
--------------
Total Common Stocks (cost $273,043,156) $ 325,921,916
WARRANTS(--%) (COST $-----) *+ EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ----------------------------------------------------------------------------------------------------------
3,750 Danieli & Co. 11/30/99 $3,515
SHORT-TERM INVESTMENTS (7.2%) (cost $24,209,370) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$ 24,205,000 Interest in $378,760,000 joint repurchase agreement
dated December 31, 1996, with Morgan (J.P.) & Co.,
Inc., due January 2, 1997, with respect to various
U.S. Treasury obligations -- maturity value of
$24,213,741 for an effective yield of 6.5% $ 24,209,370
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $297,252,526) *** $ 350,134,801
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Percentages indicated are based on net assets of $337,321,809.
*** The aggregate identified cost on a tax basis is $297,668,629,
resulting in gross unrealized appreciation and depreciation of
$56,525,005 and $4,058,851, respectively, or net unrealized appreciation
of $52,466,154.
+ 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 and American Depository Shares, respectively,
representing ownership of foreign securities on deposit with a domestic
custodian bank.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at December 31, 1996
(aggregate face value $70,869,668)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Deutschemarks $20,173,819 $20,536,149 5/12/97 $ 362,330
Dutch Guilders 19,086,599 19,379,077 5/12/97 292,478
French Francs 30,854,263 30,954,442 5/12/97 100,179
- ----------------------------------------------------------------------------------------
$ 754,987
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1996 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $297,252,526) (Note 1) $350,134,801
- ---------------------------------------------------------------------------------------------------
Cash 616
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 981,240
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,645,376
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 369,333
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,034,745
- ---------------------------------------------------------------------------------------------------
Total assets 355,166,111
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 667
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 14,120,891
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,306,901
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 610,202
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 115,869
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 7,331
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,109
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 231,694
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 279,758
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 89,572
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 79,308
- ---------------------------------------------------------------------------------------------------
Total liabilities 17,844,302
- ---------------------------------------------------------------------------------------------------
Net assets $337,321,809
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 281,551,260
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (671,006)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 2,781,458
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 53,660,097
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $337,321,809
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($187,053,733 divided by 11,324,111 shares) $16.52
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $16.52)* $17.53
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($142,020,026 divided by 8,745,790 shares)** $16.24
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($8,248,050 divided by 500,786 shares) $16.47
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $16.47)* $17.07
- ---------------------------------------------------------------------------------------------------
* 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
Six months ended December 31, 1996 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $107,701) $ 2,009,957
- --------------------------------------------------------------------------------------------------
Interest 398,635
- --------------------------------------------------------------------------------------------------
Total investment income 2,408,592
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,088,752
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 363,409
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,878
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,144
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 191,541
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 551,057
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 21,622
- --------------------------------------------------------------------------------------------------
Reports to shareholders 21,982
- --------------------------------------------------------------------------------------------------
Registration fees 32,521
- --------------------------------------------------------------------------------------------------
Auditing 12,985
- --------------------------------------------------------------------------------------------------
Legal 6,045
- --------------------------------------------------------------------------------------------------
Postage 39,080
- --------------------------------------------------------------------------------------------------
Other 20,080
- --------------------------------------------------------------------------------------------------
Total expenses 2,368,096
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (58,960)
- --------------------------------------------------------------------------------------------------
Net expenses 2,309,136
- --------------------------------------------------------------------------------------------------
Net investment income 99,456
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 8,565,374
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 13,482
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (93,356)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 24,364,308
- --------------------------------------------------------------------------------------------------
Net gain on investments 32,849,808
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $32,949,264
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
December 31 June 30
1996* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 99,456 $ 2,389,202
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments
and foreign currency transactions 8,485,500 19,056,693
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 24,364,308 6,789,321
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 32,949,264 28,235,216
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (2,217,709) (2,656,313)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,016,769) (1,668,837)
- ----------------------------------------------------------------------------------------------------------------------
Class M (78,995) (45,021)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (11,303,767) --
- ----------------------------------------------------------------------------------------------------------------------
Class B (8,451,557) --
- ----------------------------------------------------------------------------------------------------------------------
Class M (484,994) --
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 105,773,030 61,389,284
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 115,168,503 85,254,329
- ----------------------------------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 222,153,306 136,898,977
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $671,006 and undistributed
net investment income of $2,543,011, respectively) $337,321,809 $222,153,306
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ---------------------------------------------------------------------------------------------------------------------
For the Period
Six months December 1, 1994
ended (commencement of
December 31 Year ended operation) to
(unaudited) June 30 June 30
-------------------------------------------------------------
1996 1996 1995
-------------------------------------------------------------
Class M
-------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $15.86 $13.90 $12.35
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.01)(c) .24 (c) .09
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.85 2.12 1.62
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.84 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 $16.47 $15.86 $13.90
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 11.76* 17.28 14.06*
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $8,248 $4,047 $746
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .98* 2.02 1.08*
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) (.08)* 1.59 1.61*
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.02* 38.85 44.33
- ---------------------------------------------------------------------------------------------------------------------
Average commission rate paid (e) $.0411
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Six months
ended
December 31 Year ended Year ended
(unaudited) June 30 June 30
- ------------------------------------------------------------------------------------------------------------------
1996 1996 1995
- -----------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $15.64 $13.75 $11.62
- -----------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.03)(c) .14(c) .08
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.82 2.15 2.21
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 1.79 2.29 2.29
- -----------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------
From net investment income (.13) -- --
- -----------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- -----------------------------------------------------------------------------------------------------------------
From net realized gain on investments (1.06) (.40) (.16)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (1.19) (.40) (.16)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.24 $15.64 $13.75
- -----------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 11.57* 16.95 19.92
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $142,020 $90,126 $45,733
- -----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.10* 2.23 2.13
- -----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) (.18)* .96 .74
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.02* 38.85 44.33
- -----------------------------------------------------------------------------------------------------------------
Average commission rate paid (e) $.0411
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the Period
February 1, 1994 Six months
(commencement of ended
operation) to December 31 Year ended
June 30 (unaudited) June 30
- --------------------------------------------------------------------------------------------------------------
1994 1996 1996
- --------------------------------------------------------------------------------------------------------------
Class B Class A
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.49 $15.91 $13.88
- --------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) .04 .03(c) .24(c)
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.91) 1.85 2.19
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.87) 1.88 2.43
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net investment income -- (.21) --
- --------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- --------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (1.06) (.40)
- --------------------------------------------------------------------------------------------------------------
Total distributions -- (1.27) (.40)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.62 $16.52 $15.91
- --------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) (6.97)* 11.95* 17.82
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $21,368 $187,054 $127,980
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .95* .72* 1.47
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) .54* .20* 1.59
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 36.73 29.02* 38.85
- --------------------------------------------------------------------------------------------------------------
Average commission rate paid (e) $.0411
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended June 30
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $11.64 $9.84 $10.10
- ------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .18 .18 .18
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.22 1.73 (.14)
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.40 1.91 .04
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net investment income -- (.11) (.15)
- ------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (.11)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.16) -- (.04)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.16) (.11) (.30)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.88 $11.64 $9.84
- ------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 20.84 19.45 0.70
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $90,420 $67,471 $17,552
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.38 1.50 1.81
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.45 1.17 1.38
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.33 36.73 58.56
- ------------------------------------------------------------------------------------------------------------------
Average commission rate paid (e)
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued) Year ended
(For a share outstanding throughout the period) June 30
1992
- -----------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $8.74
- -----------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------
Net investment income (loss) .15(d)
- -----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.49
- -----------------------------------------------------------------------------------
Total from investment operations 1.64
- -----------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------
From net investment income (.22)
- -----------------------------------------------------------------------------------
In excess of net investment income --
- -----------------------------------------------------------------------------------
From net realized gain on investments (.06)
- -----------------------------------------------------------------------------------
Total distributions (.28)
- -----------------------------------------------------------------------------------
Net asset value, end of period $10.10
- -----------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 19.10
- -----------------------------------------------------------------------------------
Net assets, end of period (in thousands) $9,618
- -----------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 2.14(d)
- -----------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.63(d)
- -----------------------------------------------------------------------------------
Portfolio turnover (%) 54.45
- -----------------------------------------------------------------------------------
Average commission rate paid (e)
- -----------------------------------------------------------------------------------
* 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 exclued 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) Reflects an expense limitation in effect during the period. As a result
of such limitations, net investment income reflects expense reductions
of approximately $0.04.
(e) Average commission rate paid on security trades is requuired for fiscal periods
beginning on or after September 1, 1995.
</TABLE>
Notes to financial statements
December 31, 1996 (Unaudited)
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 sale price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate. 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 gains and losses on foreign currency
transactions 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. 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
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. 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.
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, 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 amount
over $21.5 billion. 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 period December 31, 1996, fund expenses were reduced by $58,960 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 $970 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
the fund or in other 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 period ended December 31, 1996, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $153,213 and $5,871 from the sale of
class A and class M shares, respectively and $49,135 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 period
ended December 31, 1996, Putnam Mutual Funds Corp., acting as underwriter
received $782 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended December 31, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$159,166,597 and $73,963,282, 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 December 31, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
December 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 11,765,770 $ 192,354,343
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 759,747 12,285,143
- ------------------------------------------------------------
12,525,517 204,639,486
Shares
repurchased (9,247,498) (151,022,492)
- ------------------------------------------------------------
Net increase 3,278,019 $ 53,616,994
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
December 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 5,320,648 $ 85,821,790
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 530,921 8,436,308
- ------------------------------------------------------------
5,851,569 94,259,098
Shares
repurchased (2,869,984) (46,132,230)
- ------------------------------------------------------------
Net increase 2,981,585 $ 48,125,868
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
December 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 261,479 $4,284,277
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 33,254 535,754
- ------------------------------------------------------------
294,733 4,820,031
Shares
repurchased (49,124) (789,863)
- ------------------------------------------------------------
Net increase 245,609 $4,030,168
- ------------------------------------------------------------
Year ended
June 30, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 294,873 $ 4,425,733
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,097 44,144
- ------------------------------------------------------------
297,970 4,469,877
Shares
repurchased (96,466) (1,431,373)
- ------------------------------------------------------------
Net increase 201,504 $ 3,038,504
- ------------------------------------------------------------
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
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
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
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Tim Ferguson
Vice President
Brett C. Browchuk
Vice President
Justin M. Scott
Vice President and Fund Manager
Mark D. Pollard
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.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
30603-057/234/688 2/97
