Putnam
Europe
Growth
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
12-31-98
[LOGO: BOSTON * LONDON * TOKYO]
* Morningstar, an independent rating agency, gave the fund's class A
shares the highest ranking of 5 stars for overall performance as of
December 31, 1998 (based on the fund's average annual returns for the 3-
and 5-year periods). This rating put the fund among 10% of the 862
international equity funds rated.*
* Putnam Europe Growth Fund's class A shares were ranked in the top 25% by
Lipper Analytical Services for the 5-year period ended December 31, 1998.
The fund ranked 6 out of 23 European funds ranked.+
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
16 Financial statements
* Morningstar ratings reflect risk-adjusted performance through 12/31/98
and are subject to change every month. Morningstar ratings are calculated
from a fund's 3-, 5-, and 10-year returns (with fee adjustments) in excess
of 90-day Treasury bill returns and a risk factor that reflects
performance below 90-day Treasury bill returns. For both 3- and 5-year
performance, the fund received 5 stars. There were 862 and 407
international equity funds rated, respectively. 10% of the funds in an
investment category receive 5 stars. Performance of other share classes
will vary. Past performance is not indicative of future results.
+ Lipper is an industry research firm whose rankings are based on total
return performance, vary over time, and do not reflect the effects of
sales charges. The fund's class A shares ranked 45 out of 95 European
funds for 1-year performance as of 12/31/98. Performance of other share
classes will vary. 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 began fiscal 1999 just as the world's equity
investors were hastily shifting assets from stocks to high-quality bonds
in the aftermath of a global financial crisis. During the period, capital
markets experienced extraordinary mood swings. However, by the time the
fund's fiscal year reached its midpoint on December 31, 1998, a more
positive tone prevailed, and European equities had recovered much of the
ground lost during the summer.
It seems unlikely, however, that all uncertainties are behind us.
Investors are still nervously watching developments in Brazil, China, and
Japan. They are also keeping a close eye on Europe's economic situation
following the introduction of the euro, lest events touch off new worries
or lead to new reasons for optimism.
I am pleased to announce the addition of Nigel P. Hart to your fund's
management team. Nigel, who joined Putnam's Core International Equity
Group in 1997, was formerly with IAI International and Commercial Union
Asset Management. He has 9 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
February 17, 1999
Report from the Fund Managers
Mark D. Pollard
Omid Kamshad
Nigel P. Hart
The advent of a new currency, a significant market correction, and a
subsequent rally in global markets all combined to provide a challenging
environment for the first half of Putnam Europe Growth Fund's fiscal year.
For the semiannual period ended December 31, 1998, the fund had a total
return of -2.86% at net asset value (-8.43% at public offering price),
compared with the 1.61% return of the Morgan Stanley Capital International
Europe Index. Results for other share classes and longer periods can be
found on page 9.
* EUROPEAN EQUITY MARKETS SLUMP, THEN RALLY
European equity markets have experienced extraordinary volatility over the
past six months. First, there were abrupt declines as many of the trends
that had propelled equities during your fund's prior fiscal year reversed
themselves with a vengeance. The dollar, which had been strong, weakened;
oil and commodity prices, which had been weak, strengthened; and
economically sensitive sectors such as financials that had performed well
significantly underperformed. Most important of all, European stocks
proved to be as vulnerable to these developments as stocks elsewhere in
the more troubled regions of the world.
In August, unprecedented stock market intervention by the Hong Kong
Monetary Authority was accompanied by the collapse of the Russian ruble.
The ensuing damage to hedge funds and banks destabilized world markets. As
these leveraged players attempted to unwind their positions, they sparked
a wave of heavy selling. Japanese, U.S., and European investors all looked
to European markets as the most obvious place to harvest profits when the
correction came. As the selling drove prices down, European stocks that
had been strong performers during the first half of 1998 experienced
dramatic reversals, often without any fundamental justification.
As we searched through the debris in September and October, we concluded
that some economically sensitive stocks needed to be carefully reexamined
in light of lower growth expectations. However, on the whole, we believed
the scale of the correction and the indiscriminate nature of the markdowns
was unwarranted. By way of illustration, one quarter of all European
stocks fell by more than half from their midsummer highs. Amid these
castoffs, we found numerous compelling investment opportunities.
Once begun, the rally was boosted by renewed, strong merger activity.
Coming on the heels of the completion of the Daimler Benz/Chrysler merger,
U.K.-based engineering group Siebe announced merger plans with BTR, one of
the U.K.'s largest industrial manufacturers, while Deutsche Bank initiated
a $9.2 billion takeover of U.S.-based Bankers Trust. At the same time,
Total of France announced its intention to buy Petrofina of Belgium, and
the BP Amoco merger moved nearer to completion, continuing the oil
industry consolidation touched off by the merger of Exxon and Mobil. The
strong recovery was also helped as several European central banks lowered
interest rates to 3% in advance of the introduction of the euro.
* TELECOMS AND FINANCIALS HELP BOOST PERFORMANCE
A factor that has affected your fund over the past year -- and we believe
should persist for a while -- is the impact of global deflationary forces
on the industrial sector of Europe. A weakening global economy, increased
export competitiveness in the Far East, and greater price transparency
caused by the advent of the euro and growth in usage of the Internet have
combined to create a complete absence of pricing power for many industrial
corporations. At both the asset allocation and stock selection stages,
this has led us to look for investments that are insulated from the
ravages of global deflationary forces. Examples include Swisscom, which
dominates the public telecommunications networks in Switzerland and turned
in a strong performance during the period. Also, Mannesmann, which is
successfully restructuring itself from a German engineering group to a
fixed and mobile telecom operator. Vivendi (formerly Generale des Eaux)
has streamlined itself to realize an increasing amount of value from its
fast-growing fixed and mobile telecom operations in France. While these
holdings, along with others discussed in this report, were viewed
favorably at the end of the period, all are subject to review and
adjustment in accordance with the fund's investment strategy and may vary
in the future.
[GRAPHIC OMITTED: horizontal bar chart of TOP COUNTRY ALLOCATIONS]
TOP COUNTRY ALLOCATIONS*
United Kingdom 25.6%
France 15.7%
Switzerland 10.2%
Netherlands 9.9%
Germany 9.3%
Footnote reads:
*Based on net assets as of 12/31/98. Holdings will vary over time.
In the financial services sector, strong performers included Banque
Nationale de Paris, a French bank and potential merger candidate; United
Bank of Switzerland, itself a product of the merger of UBS and Swiss Bank
Corporation; Allied Zurich, a Swiss-controlled insurance company; and the
two main Irish banks: Allied Irish Bank and Bank of Ireland.
* ADVENT OF EURO
On January 1, 1999, we saw the introduction of the euro for the 11
participating countries in Europe. The introduction went smoothly and
indeed passed almost without incident. However, over the longer term, a
number of euro-related issues remain unresolved, including how and when to
incorporate the British pound and other smaller currencies into the euro
zone. Additional challenges will occur when euro notes and coins come into
effect with the second phase of the introduction of the euro, slated for
January 1, 2002.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Novartis AG ADR (Switzerland)
Pharmaceuticals
Allied Irish Banks PLC (Ireland)
Insurance and finance
Vivendi (France)
Telecommunications
Internationale Nederlanden Groep (Netherlands)
Insurance and finance
Union Bank of Switzerland AG (Switzerland)
Banking
Nestle S.A. (Switzerland)
Food and beverages
CRH PLC (Ireland)
Building and construction
Akzo-Nobel N.V. (Netherlands)
Chemicals
Swisscom AG (Switzerland)
Telecommunications
Bass PLC (United Kingdom)
Food and beverages
Footnote reads:
These holdings represent 20.5% of the fund's net assets as of 12/31/98.
Portfolio holdings will vary over time.
However, we believe that the biggest test will come with the next economic
downturn in Europe. Thus far we have witnessed convergence of inflation
rates and interest rates, which is a significant achievement. However, we
have seen no progress with respect to convergence of tax rates, pay
structures, labor laws, or corporate laws. In the United States, labor is
relatively mobile. There are federal tax mechanisms in place that enable
economic growth to be redistributed to the appropriate parts of the
country. Europe offers less labor mobility than the United States because
of cultural and language differences. In the event of an economic downturn
in Europe, in which some regions experience rising unemployment while
other areas remain robust, a one-size-fits-all interest-rate policy may be
inappropriate. For the moment, the economic environment is benign so there
are longer-term concerns. However, there can be little doubt that the real
test for the euro will come with the next economic downturn in Europe.
* POSITIVE OUTLOOK FOR EUROPEAN MARKETS
We believe that European markets remain attractive in a global context and
continue to expect outperformance relative to other global markets. As was
the case in 1998, reasonable economic growth, modest inflation, low
interest rates, and mergers and acquisitions should support European
equity markets.
We remain leery of investing in the United Kingdom, where growth seems
likely to lag the rest of the region. Conversely we expect countries on
the periphery of EMU, such as Ireland, Spain, and Portugal, to continue to
prosper. Technology stocks in Europe should continue their strong cyclical
recovery and we have positioned your fund accordingly. At the same time,
we remain cautious of heavy industrials and commodities such as chemicals,
steel, and oil. Overall, in our opinion, the outlook for European equities
is encouraging, within the context of an increasingly uncertain global
environment.
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 12/31/98, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, including economic instability, political
developments, and currency fluctuations. Funds investing in a single
sector may be subject to more volatility than those investing in a diverse
group of sectors.
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 12/31/98
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 -2.86% -8.43% -3.16% -7.76% -3.01% -6.40%
- ------------------------------------------------------------------------------
1 year 23.61 16.47 22.77 17.77 23.12 18.82
- ------------------------------------------------------------------------------
5 years 138.63 124.82 130.34 128.34 134.30 126.05
Annual average 19.00 17.59 18.16 17.96 18.56 17.72
- ------------------------------------------------------------------------------
Life of fund 257.65 237.03 236.09 236.09 244.56 232.33
Annual average 16.57 15.74 15.70 15.70 16.05 15.55
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/98
MSCI Europe Consumer
Index Price Index
- ------------------------------------------------------------------------------
6 months 1.61% 0.74%
- ------------------------------------------------------------------------------
1 year 28.53 1.80
- ------------------------------------------------------------------------------
5 years 139.68 12.62
Annual average 19.11 2.41
- ------------------------------------------------------------------------------
Life of fund 218.03 24.77
Annual average 14.89 2.69
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50%, respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is 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 expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 12/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.212 $0.094 $0.202
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.762 0.762 0.762
- ------------------------------------------------------------------------------
Short-term 0.232 0.232 0.232
- ------------------------------------------------------------------------------
Total $1.206 $1.088 $1.196
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
6/30/98 $23.68 $25.12 $23.11 $23.51 $24.36
- ------------------------------------------------------------------------------
12/31/98 21.75 23.08 21.25 21.56 22.34
- ------------------------------------------------------------------------------
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 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 5.75% maximum 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 (MSCI) is an unmanaged
list of approximately 627 equity securities originating in one of the 15
European countries, with all values expressed in U.S. dollars. The index
assumes reinvestment of all distributions and dividend 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 in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
<TABLE>
<CAPTION>
Portfolio of investments owned
December 31, 1998 (Unaudited)
COMMON STOCKS (97.6%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Austria (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
127,654 Erste Bank $ 6,837,634
11,474 EVN Energie-Versorgung Niederoesterreich AG 1,625,851
55,267 VA Technolgies AG 4,793,109
--------------
13,256,594
Canada (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
269,698 Laurasia Resources Ltd. (NON) 6,801,647
Denmark (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
42,471 Sydbank AS 1,815,057
125,220 Unidanmark AS 11,271,368
--------------
13,086,425
Finland (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
229,500 Fortum Corporation (NON) 1,395,958
107,686 Huhtamaki I Free 4,099,104
213,327 Oy Nokia AB Class A 25,951,681
--------------
31,446,743
France (15.7%)
- --------------------------------------------------------------------------------------------------------------------------
233,322 AGF (Assurances Generales de France) 13,935,778
62,542 Alcatel Alsthom CGE S.A. 7,654,504
126,583 Axa S.A. (NON) 18,346,347
332,004 Banque Nationale de Paris 27,338,780
46,424 CNP Assurances (NON) 1,410,488
133,800 CNP Assurances 144A (NON) 4,065,210
111,342 Credit Commercial de France 10,339,882
30,302 Danone 8,675,220
229,748 Elf Aquitaine S.A. (NON) 26,556,660
79,180 France Telecom S.A. 6,290,536
159,268 Lafarge Coppee 15,132,555
351,458 Michelin Corp. Class B 14,055,301
46,855 Peugeot Citroen S.A. 7,252,058
140,369 Renault S.A. (NON) 6,304,260
255,080 SCOR 16,864,756
122,370 Societe Generale 19,815,852
208,681 STMicroelectronics N.V. 16,429,517
72,144 STMicroelectronics N.V. ADR (NON) 5,631,741
582,957 Telfonica S.A. (NON) 517,600
190,581 Total S.A. Class B 19,301,241
39,176 Union des Assurances Federales 5,201,316
157,723 Vivendi 40,921,565
--------------
292,041,167
Germany (9.3%)
- --------------------------------------------------------------------------------------------------------------------------
34,984 Allianz Versicherungs AG (NON) 12,835,660
221,147 Bayer AG ADR (NON) 9,236,038
20,623 Bayerische Motoren Werke (BMW) AG 16,012,454
1 Bayerische Motoren Werke (BMW) 593
234,546 Deutsche Bank AG 13,809,665
553,844 Deutsche Lufthansa AG 12,238,911
470,813 Deutsche Telekom AG 15,493,036
532,784 Hoechst AG 22,107,353
278,727 Mannesmann AG 31,968,328
24,309 Munich Re 11,780,077
144,939 Veba (Vereinigte Elektrizitaets Bergwerks) AG 8,677,366
238,520 Volkswagon AG (NON) 19,049,517
--------------
173,208,998
Greece (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
629,620 Hellenic Telecommunication Organization S.A. 16,743,420
Ireland (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,359,336 Allied Irish Banks PLC 42,205,242
639,306 Bank of Ireland 14,212,188
1,948,405 CRH PLC 33,608,428
1,394,420 Greencore Group PLC 6,427,858
--------------
96,453,716
Italy (5.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,998,856 Banca Commerciale Italiana 20,701,804
315,836 Banca Popolare di Bergamo SPA 7,669,265
227,766 Banca Popolare di Brescia SPA 5,558,296
601,900 Banca Popolare di Milano 5,467,179
3,497,398 Ente Nazionale Idrocarburi (ENI) SPA 22,872,653
3,465,900 Istituto Nazionale delle Assicurazioni 9,161,108
3,205,816 Telecom Italia SPA 27,371,930
--------------
98,802,235
Netherlands (9.9%)
- --------------------------------------------------------------------------------------------------------------------------
446,706 ABN AMRO Holding N.V. 9,388,075
735,596 Akzo-Nobel N.V. 33,462,867
164,483 Gucci Group N.V. 7,997,986
629,764 Internationale Nederlanden Groep 38,365,511
784,016 Koninklijke Ahold N.V. 28,949,567
94,376 Nutreco Holding NV 3,715,788
106,662 Nutreco Holding NV 144A 4,199,515
314,918 Philips Electronics N.V. 21,111,821
540,811 TNT Post Group N.V. 17,408,388
552,721 Vedior NV (NON) 10,880,914
388,817 Vendex International N.V. 9,433,389
--------------
184,913,821
Poland (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
128,055 Bank Handlowy W Warszawie 144A (NON) 1,581,963
295,500 Bank Handlowy W Warszawie 3,650,542
163,804 Bank Handlowy W Warszawie GDR 2,088,501
190,564 Bank Handlowy W Warszawie, 144A, GDR 2,429,691
620,404 Wielkopolski Bank Kredytowy S.A. 3,911,820
--------------
13,662,517
Portugal (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
348,566 Cimpor-Cimentos de Portugal, SGPS, S.A. 11,109,917
942,313 Electricidade de Portugal S.A. 20,715,566
422,518 Portugal Telecom S.A. 19,343,066
--------------
51,168,549
Spain (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
36,739 CF Alba Spain S. A. 6,135,680
739,819 Iberdola S.A. 13,841,304
366,376 Inmobiliaria Metropolitana Vasco Central S.A. 10,998,251
184,882 Mapfre Vida Seguros 6,957,014
582,957 Telfonica de Espana 25,921,067
422,100 Vallehermoso SA (NON) 6,038,073
--------------
69,891,389
Sweden (4.7%)
- --------------------------------------------------------------------------------------------------------------------------
330,850 ForeningsSparbanken AB 8,556,466
906,470 LM Ericsson Class B 21,545,408
885,047 Nordbanken Holding AG 5,667,789
284,259 Pharmacia & Upjohn, Inc ADS 15,893,299
596,689 Svenska Cellulosa AB Class B 13,006,644
336,825 Svenska Handelsbanken 14,186,472
417,030 Volvo AB 9,552,658
--------------
88,408,736
Switzerland (10.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,995 Cie Finance Richemont 15,545,897
3,587 Julius Baer Holdings AG 11,921,846
16,886 Nestle S.A. 36,759,476
27,774 Novartis AG ADR 54,597,597
78,583 Swisscom AG ADR 32,897,870
122,687 Union Bank of Switzerland AG 37,694,877
--------------
189,417,563
United Kingdom (25.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,012,074 Allied Zurich AG (NON) 29,900,185
1,196,529 Associated British Ports Holdings PLC 5,553,426
4,111,577 Avis Europe PLC 144A ADR (NON) 17,106,529
2,221,481 Bass PLC 32,220,359
2,126,326 Blue Circle Industries PLC 10,926,254
2,384,347 British Airways PLC 16,016,675
668,734 British Petroleum Co. PLC 9,948,729
1,180,186 Burmah Castrol PLC 16,823,976
1,533,024 Cable & Wireless Communications (NON) 13,950,862
2,007,873 Cable & Wireless PLC 24,595,770
2,924,406 Cookson Group PLC 6,350,219
1,029,541 Dixons Group PLC 14,429,025
936,500 EMI Group PLC (NON) 6,240,416
542,437 Glaxo Wellcome PLC 18,594,289
1,573,075 Granada Group PLC 27,704,997
601,351 HSBC Holdings PLC 16,247,831
1,054,800 Marks & Spencer PLC 7,207,929
791,711 National Westminster Bancorp Inc. 15,210,022
896,200 Orange PLC ADR (NON) 10,376,505
2,069,927 Peninsular and Oriental Steam Navigation Co. 24,378,042
1,703,320 Royal & Sun Alliance Insurance Group PLC 13,855,950
212,608 Royal PTT 10,633,228
2,480,915 Scottish Power PLC 25,393,852
1,738,701 Securicor Group PLC (NON) 14,525,637
4,281,896 Siebe PLC 16,821,480
1,069,800 Smithkline Beecham PLC ADR 14,895,724
1,213,105 Smiths Industries PLC 17,242,977
2,761,674 Storehouse PLC 6,225,741
2,015,000 Thomson Travel Group PLC 144A (NON) 5,477,700
1,335,926 Thomson Travel Group PLC (NON) 3,631,667
5,379,839 Tomkins PLC 25,281,456
--------------
477,767,452
--------------
Total Common Stocks (cost $1,602,139,195) $1,817,070,972
- --------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (2.7%) (a)(cost $49,453,456)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$49,447,000 Interest in $750,000,000 joint tri-party repurchase agreement
dated December 31, 1998, with Goldman Sachs & Co. due
January 4, 1999, with respect to various U.S. Treasury
obligations -- maturity value of $49,472,822 for an
effective yield of 4.70% $ 49,453,456
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,651,592,651) (b) $1,866,524,428
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,862,655,015.
(b) The aggregate identified cost on a tax basis is $1,651,734,849, resulting in gross unrealized appreciation and
depreciation of $309,629,546 and $94,839,967, respectively, or net unrealized appreciation of $214,789,579.
(NON) 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, ADS, or GDR after the name of a foreign holding stands for American Depository Receipts, American
Depository Shares or Global Depository Receipts, respectively, representing ownership of foreign securities on
deposit with a domestic custodian bank.
The fund had the following industry group concentrations greater than 10% at December 31, 1998 (as a
percentage of net assets):
Insurance and Finance 24.0%
Telecommunications 20.1
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,651,592,651) (Note 1) $1,866,524,428
- -----------------------------------------------------------------------------------------------
Cash 444
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $116,956) 116,782
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 4,496,563
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 12,983,629
- -----------------------------------------------------------------------------------------------
Total assets 1,884,121,846
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 2,259,911
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 14,187,077
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,921,479
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 424,961
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 18,790
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,011
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,410,659
- -----------------------------------------------------------------------------------------------
Other accrued expenses 238,943
- -----------------------------------------------------------------------------------------------
Total liabilities 21,466,831
- -----------------------------------------------------------------------------------------------
Net assets $1,862,655,015
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,667,051,640
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (6,907,824)
- -----------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments
and foreign currency transactions (Note 1) (12,426,913)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 214,938,112
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,862,655,015
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($877,778,437 divided by 40,360,945 shares) $21.75
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $21.75)* $23.08
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($772,175,230 divided by 36,341,275 shares)** $21.25
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($212,701,348 divided by 9,864,951 shares) $21.56
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $21.56)* $22.34
- -----------------------------------------------------------------------------------------------
* 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, 1998 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,445,412) $ 7,539,785
- -----------------------------------------------------------------------------------------------
Interest 1,172,052
- -----------------------------------------------------------------------------------------------
Total investment income 8,711,837
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,804,452
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,989,738
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 23,003
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,146
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,021,431
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,390,396
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 514,548
- -----------------------------------------------------------------------------------------------
Reports to shareholders 33,419
- -----------------------------------------------------------------------------------------------
Registration fees 165,673
- -----------------------------------------------------------------------------------------------
Auditing 21,576
- -----------------------------------------------------------------------------------------------
Legal 23,836
- -----------------------------------------------------------------------------------------------
Postage 150,382
- -----------------------------------------------------------------------------------------------
Other 172,900
- -----------------------------------------------------------------------------------------------
Total expenses 13,321,500
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (225,885)
- -----------------------------------------------------------------------------------------------
Net expenses 13,095,615
- -----------------------------------------------------------------------------------------------
Net investment loss (4,383,778)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 8,900,321
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Notes 1 and 3) (626,637)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 22,058
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (55,568,360)
- -----------------------------------------------------------------------------------------------
Net loss on investments (47,272,618)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(51,656,396)
- -----------------------------------------------------------------------------------------------
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
1998* 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (4,383,778) $ 9,920,746
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 8,273,684 86,038,453
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities
in foreign currencies (55,546,302) 178,406,624
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (51,656,396) 274,365,823
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
- ---------------------------------------------------------------------------------------------------------------
Class A (8,081,573) (7,640,645)
- ---------------------------------------------------------------------------------------------------------------
Class B (3,212,251) (4,471,018)
- ---------------------------------------------------------------------------------------------------------------
Class M (2,085,646) (297,933)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
- ---------------------------------------------------------------------------------------------------------------
Class A (37,891,904) (23,126,779)
- ---------------------------------------------------------------------------------------------------------------
Class B (33,967,850) (19,048,225)
- ---------------------------------------------------------------------------------------------------------------
Class M (10,263,030) (1,128,746)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 542,034,161 658,369,779
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 394,875,511 877,022,256
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 1,467,779,504 590,757,248
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess and
undistributed net investment income of $6,907,824
and $10,855,424, respectively) $1,862,655,015 $1,467,779,504
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share December 31
operating performance (Unaudited) Year ended June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $23.68 $18.96 $15.91 $13.88 $11.64 $9.84
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (.02)(c) .31(c) .24(c) .24(c) .18 .18
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.71) 5.91 4.07 2.19 2.22 1.73
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.73) 6.22 4.31 2.43 2.40 1.91
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.37) (.20) -- -- (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.99) (1.13) (1.06) (.40) (.16) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.20) (1.50) (1.26) (.40) (.16) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.75 $23.68 $18.96 $15.91 $13.88 $11.64
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (2.86)* 35.22 28.49 17.82 20.84 19.45
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $877,778 $791,871 $313,492 $127,980 $90,420 $67,471
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .64* 1.32 1.45 1.47 1.38 1.50
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.09)* 1.46 1.43 1.59 1.45 1.17
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.66* 48.86 55.45 38.85 44.33 36.73
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 Feb. 1, 1994+
operating performance (Unaudited) Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $23.11 $18.56 $15.64 $13.75 $11.62 $12.49
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (.10)(c) .14(c) .13(c) .14(c) .08 .04
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.68) 5.80 3.97 2.15 2.21 (.91)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.78) 5.94 4.10 2.29 2.29 (.87)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.26) (.12) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.99) (1.13) (1.06) (.40) (.16) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.08) (1.39) (1.18) (.40) (.16) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.25 $23.11 $18.56 $15.64 $13.75 $11.62
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (3.16)* 34.26 27.51 16.95 19.92 (6.97)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $772,175 $633,294 $261,454 $90,126 $45,733 $21,368
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.02* 2.07 2.20 2.23 2.13 .95*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.47)* .69 .76 .96 .74 .54*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.66* 48.86 55.45 38.85 44.33 36.73
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 Dec. 1, 1994+
operating performance (Unaudited) Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $23.51 $18.85 $15.86 $13.90 $12.35
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (.08)(c) .20(c) .19(c) .24(c) .09
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.68) 5.89 4.03 2.12 1.62
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.76) 6.09 4.22 2.36 1.71
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.30) (.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.99) (1.13) (1.06) (.40) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.19) (1.43) (1.23) (.40) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.56 $23.51 $18.85 $15.86 $13.90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (3.01)* 34.56 27.91 17.28 14.06*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $212,701 $42,614 $15,811 $4,047 $746
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .89* 1.82 1.95 2.02 1.08*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.35)* .99 1.10 1.59 1.61*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.66* 48.86 55.45 38.85 44.33
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
Notes to financial statements
December 31, 1998 (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. 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). 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 gains
and losses are included with the net realized and unrealized gain or loss
on investments. Net realized gains and losses on foreign currency
transactions represent net 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
current 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) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended December 31, 1998, the fund had no borrowings against the line of
credit.
H) 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.
I) 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.
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.
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%
thereafter.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
For the six months ended December 31, 1998, fund expenses were reduced by
$225,885 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.
Each Trustee of the fund receives an annual Trustee fee, of which $1,640
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted 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 currently limit payment by the fund to 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 six months ended December 31, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $650,045 and $1,683,803
from the sale of class A and class M shares, respectively and $625,123 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 six months ended December 31, 1998, Putnam Mutual
Funds Corp., acting as underwriter received $47,405 on class A
redemptions.
Note 3
Purchase and sales of securities
During the six months ended December 31, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$743,756,492 and $297,399,231, 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, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 32,017,675 $693,745,352
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,995,260 41,780,356
- -----------------------------------------------------------------------------
34,012,935 735,525,708
Shares
repurchased (27,098,295) (581,016,615)
- -----------------------------------------------------------------------------
Net increase 6,914,640 $154,509,093
- -----------------------------------------------------------------------------
Year ended
June 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 54,950,759 $1,141,020,246
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,533,660 27,866,577
- -----------------------------------------------------------------------------
56,484,419 1,168,886,823
Shares
repurchased (39,575,591) (811,313,477)
- -----------------------------------------------------------------------------
Net increase 16,908,828 $ 357,573,346
- -----------------------------------------------------------------------------
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 14,168,811 $307,676,250
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,617,011 32,883,958
- -----------------------------------------------------------------------------
15,785,822 340,560,208
Shares
repurchased (6,852,260) (142,911,826)
- -----------------------------------------------------------------------------
Net increase 8,933,562 $197,648,382
- -----------------------------------------------------------------------------
Year ended
June 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 22,984,899 $477,136,111
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,192,124 21,231,758
- -----------------------------------------------------------------------------
24,177,023 498,367,869
Shares
repurchased (10,853,484) (218,673,987)
- -----------------------------------------------------------------------------
Net increase 13,323,539 $279,693,882
- -----------------------------------------------------------------------------
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 15,802,063 $349,715,703
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 98,561 2,046,149
- -----------------------------------------------------------------------------
15,900,624 351,761,852
- -----------------------------------------------------------------------------
Shares
repurchased (7,848,643) (161,885,166)
- -----------------------------------------------------------------------------
Net increase 8,051,981 $189,876,686
- -----------------------------------------------------------------------------
Year ended
June 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,224,241 $47,334,934
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 74,988 1,356,492
- -----------------------------------------------------------------------------
2,299,229 48,691,426
- -----------------------------------------------------------------------------
Shares
repurchased (1,325,283) (27,588,875)
- -----------------------------------------------------------------------------
Net increase 973,946 $21,102,551
- -----------------------------------------------------------------------------
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Mark D. Pollard
Vice President and Fund Manager
Omid Kamshad
Vice President and Fund Manager
Nigel P. Hart
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
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 the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
SA005-49326 057/234/688 2/99
