Putnam
Europe
Growth
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
6-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The past year was characterized by sharp shifts in investor sentiment and
strong indications of the European stock markets' return to a more
accelerated environment of growth. Furthermore, it was clearly a period
that dramatized the growing globalization of the financial markets.
The impact of the world's equity investors' flight to the safety of U.S.
Treasury securities was still being felt by Europe's stock markets as
Putnam Europe Growth Fund began its fiscal year last summer. In the latter
half of the period, which ended on June 30, 1999, the exit of many of
these investors from U.S. government securities had a rippling effect as
equity investors overcame much of their aversion to risk and began
returning to stocks.
In the following report, your fund's management team provides a review of
fiscal 1999's performance and strategy and discusses prospects for the new
fiscal year.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
August 18, 1999
Report from the Fund Managers
Mark D. Pollard
Omid Kamshad
Nigel Hart
For investors in European equity markets, the year leading up to June 30,
1999, featured a period of relative strength sandwiched between two
challenging market environments. The global financial crisis in late
summer of last year, brought on by collapse of the Russian economy, was
followed by strong market performance in the final quarter of 1998 and a
rebound in investors' optimism heading to 1999. However, for European
markets, that period of solid performance was short lived. While local
currency returns have been reasonably attractive this year, the
deterioration in value of the new European common currency, the euro,
significantly affected U.S. dollar returns during this period.
Nevertheless, in this challenging period, Putnam Europe Growth Fund
continued to offer more than competitive risk-adjusted returns (see page
7). Through disciplined stock selection and asset allocation, we believe
the fund has successfully weathered a difficult market environment and is
well positioned for what, in our opinion, may be a more rewarding future
for European equities.
Total return for 12 months ended 6/30/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------
-2.99% -8.55% -3.66% -8.23% -3.37% -6.74%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 7.
* WEAK EURO DAMPENS RETURNS FOR DOLLAR-BASED INVESTORS
Europe's much-anticipated Economic and Monetary Union (EMU) and its new
euro got off to a smooth start at the beginning of the year. As the year
progressed, however, economic indicators revealed increasing weakness in
the Continent's industrial sectors, and political infighting indicated a
lack of coordination among European policy makers. These trends, together
with a lack of monetary policy direction on the part of the new European
Central Bank and continued economic weakness, all served to drive the
value of the euro down about 15% against the stronger U.S. dollar after
its launch.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY ALLOCATIONS]
TOP COUNTRY ALLOCATIONS
United Kingdom 31.6%
France 14.8%
Netherlands 11.7%
Switzerland 10.4%
Germany 7.8%
Footnote reads:
Based on net assets as of 6/30/99. Holdings will vary over time.
The resulting weakness in the euro reduced the returns of dollar-based
investments such as your fund, although this currency effect was muted to
some extent by lower exposure to euro-based markets than that of the
fund's benchmark index. Curiously, though, European markets did not
respond more positively to the benefits of a weaker currency.
However, if one looks beyond the current weakness of economies such as
Germany and Italy, there is more cause for optimism. The European consumer
is in good financial health and has been for some time, helped by 2.5%
interest rates in much of the region. The industrial sector has lagged
badly, however, and needs to improve for the European economy to post a
sustainable recovery. Through survey data and leading economic indicators,
there is growing evidence that we are witnessing such an improvement.
* FUND TARGETS GROWING, ECONOMICALLY SENSITIVE INDUSTRIES
During the period, we de-emphasized underperforming areas such as health
care and finance and instead focused on industries that stand to benefit
from a global economic recovery such as telecommunications, technology,
and media. While the performance of undervalued cyclical stocks has
improved in line with increasing evidence of an uptick in worldwide
demand, we believe companies in commodity-based areas such as steel and
commodity chemicals still have little or no pricing power and have largely
avoided adding them to the fund.
For example, the revenues of advertising and media companies typically
rise as economies strengthen. In this regard, we targeted companies such
as French broadcaster TF-1, British advertising agency WPP Group, and
French agency Publicis. 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.
Morningstar gave Putnam Europe Growth Fund's class A shares its highest
ranking of 5 stars for overall performance (based on 3- and 5-year returns) as
of June 30, 1999. This rating put the fund among the top 10% of the 987
international equity funds rated.
Past performance is not indicative of future results. Morningstar ratings
reflect risk-adjusted performance through 6/30/99 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 the 3-year and five-year performance, the fund received 5 stars
for both periods. There were 987 and 498 international equity funds rated,
respectively. The top 10% of the funds in an investment category receive 5
stars; the next 22.5% receive 4 stars. Performance of other share classes will
vary.
Telecommunications and telecommunications equipment companies have enjoyed
rising demand for data and voice transmission as well as the explosive
growth of cellular usage around the world. The fund owns shares of leading
telecommunications equipment manufacturer Nokia of Finland, the U.K.'s
Orange, and some of the so-called incumbents such as British Telecom,
Telefonica, Cable & Wireless, Swisscom, and Portugal Telecom.
Finally a recovery in worldwide growth -- especially in places like Asia
- -- tends to raise demand for luxury goods. The well-known luxury goods
maker Gucci was represented in the portfolio. During the reporting period,
Gucci was the subject of a hostile takeover fight between LVMH and Pinault
Printemps Redoute. The fund also invested in Swiss luxury goods maker Cie.
Financiere Richemont, owner of recognizable brands such as Cartier, Mont
Blanc, and Dunhill. Recently Richemont moved to put a greater focus on its
luxury goods businesses by selling its Rothman's tobacco subsidiary to
British tobacco company BAT, revealing the substantial undervaluation of
Richemont stock.
* ASTOUNDING LEVELS OF MERGERS AND ACQUISITIONS; CORPORATE RESTRUCTURING STILL
A FOCUS
Merger and acquisition activity involving European companies continues to
grow at an astounding pace and your fund has benefited in several
instances. According to Morgan Stanley Dean Witter and J.P. Morgan, the
$654 billion in European M&A activity in the first half of 1999 could not
only break last year's level of $870 billion but also surpass the record
of $1.3 trillion. The growth in the number of hostile approaches,
especially in France, where such tactics have hitherto been unthinkable,
is quite shocking.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Mannesmann AG (Germany)
Business equipment and services
Elf Aquitaine S.A. (France)
Oil and gas
Hoechst AG (Germany)
Chemicals
British Telecommunications
plc ADR (United Kingdom)
Telecommunications
Diageo plc (United Kingdom)
Food and beverages
United Bank of Switzerland AG
(Switzerland)
Insurance and finance
Cie. Financiere Richemont AG
Class A (Switzerland)
Consumer goods
DaimlerChrysler (Germany)
Automotive
Telefonaktiebolaget LM Ericsson
Class B (Sweden)
Telecommunications
OY Nokia AB Class A (Finland)
Telecommunications
Footnote reads:
These holdings represent 22.3% of the fund's net assets as of 6/30/99.
Portfolio holdings will vary over time.
The fund was a shareholder in Telecom Italia (sold prior to the end of the
period), which was won by Olivetti after a long and often dramatic hostile
takeover fight that involved German giant Deutsche Telecom. In this well-
publicized battle, fund holding Mannesmann of Germany was able to enhance
its development of a formidable fixed and cellular telecommunications
franchise with the purchase of Olivetti's Italian fixed and cellular
assets, which Olivetti was forced to sell during its attempts to acquire
Telecom Italia. In France, the fund also capitalized on the run-up in the
price of banks Societe Generale and Banque Nationale de Paris, which are
participants in an extraordinary three-way hostile takeover battle that
also involves French bank Paribas.
We continued to seek out companies that have adopted Europe's newfound
commitment to corporate restructuring and raising value for shareholders.
One example was Hoechst in Germany. The company is remaking itself from a
diversified chemical company to a pure life science company, i.e., one
with more of a focus on biotechnology and pharmaceuticals than on
industrial chemicals. This move has unleashed great value for Hoechst's
shareholders as it revealed a life science business priced at a fraction
of the values assigned to other pure life science companies. In addition,
Hoechst plans to merge with Rhone-Poulenc of France to form the world's
largest life sciences company.
* UNITED KINGDOM BEGINS TO MOVE FROM ECONOMIC SLOWDOWN
Thanks to a series of interest-rate cuts by the Bank of England and some
easing of the pressure caused by a strong sterling, the United Kingdom
appears to have achieved a soft landing rather than a recession in its
economy. Because the U.K.'s economic rebound is moving slightly ahead of
Europe's economic cycle, we have found more growth opportunities here
recently than in Continental Europe.
For example, in order to take advantage of the buoyant real estate sector,
the fund owned shares in property companies Land Securities and Canary
Wharf. We also found an attractive corporate restructuring situation in
the dual-listed Royal Dutch/Shell, in which we are beginning to see signs
of genuine corporate restructuring after years of neglect of shareholders'
interests and half-hearted restructuring attempts.
* AFTER MANY FALSE STARTS, EUROPEAN EQUITIES APPEAR POISED FOR TURNAROUND
Continental Europe appears poised for a rebound after sluggish economic
growth in the first half of the year, aided by the weak euro, lower
interest rates, and an end to the war in Kosovo. We believe the United
Kingdom offers attractive opportunities as its economy rebounds gradually
from recession earlier this year. Both the European Central Bank and the
Bank of England have been in an interest-rate easing pattern, creating a
bullish environment for stocks.
For several years, investors in European markets have looked to positive
developments in Europe as a harbinger of better things to come only to see
their hopes frustrated by extraneous events and the strong performance of
the U.S. markets and economy. We believe, however, that investors in
European stocks should remain fully invested. Unlike the United States,
where the issue is how much interest rates need to rise in order to slow
growth to a sustainable level, European investors can look forward to the
early stages of growth. In such an environment of low inflation, low
interest rates, corporate restructuring, improving growth, and relatively
attractive valuations, we remain cautiously optimistic about the prospects
of the European equity markets.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 6/30/99, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, such as currency fluctuations, economic
instability, and political developments. Funds investing in a single
sector may be subject to more volatility than funds 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 6/30/99
Class A Class B Class M
(inception dates) (9/7/90) (2/1/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------
1 year -2.99% -8.55% -3.66% -8.23% -3.37% -6.74%
- -------------------------------------------------------------------------
5 years 139.95 126.14 131.32 129.32 135.64 127.44
Annual average 19.13 17.73 18.26 18.06 18.70 17.86
- -------------------------------------------------------------------------
Life of fund 257.16 236.57 234.35 234.35 243.28 231.10
Annual average 15.55 14.77 14.68 14.68 15.03 14.56
- -------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/99
MSCI Consumer
Europe Index price index
- -------------------------------------------------------------------------
1 year -0.84% 1.96%
- -------------------------------------------------------------------------
5 years 140.67 12.30
Annual average 19.20 2.35
- -------------------------------------------------------------------------
Life of fund 210.36 26.29
Annual average 13.69 2.68
- -------------------------------------------------------------------------
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-year 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 9/7/90
Fund's class A MSCI Europe Consumer price
Date shares at POP Index index
9/7/90 9,425 10,000 10,000
6/30/91 9,792 9,318 10,334
6/30/92 11,662 11,416 10,653
6/30/93 11,743 11,129 10,973
6/30/94 14,027 12,829 11,246
6/30/95 16,950 15,318 11,588
6/30/96 19,970 17,567 11,907
6/30/97 25,659 22,836 12,181
6/30/98 34,696 31,299 12,386
6/30/99 $33,657 $31,036 $12,629
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $33,435 and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class M shares would have been
valued at $34,328 ($33,110 at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 6/30/99
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
- -------------------------------------------------------------------------
6/30/99 21.72 23.05 21.14 21.48 22.26
- -------------------------------------------------------------------------
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 funds' class B 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 equity securities originating in one of the 15 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.
*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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type and
industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
sources listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the fiscal year ended June 30, 1999
To the Trustees and Shareholders of
Putnam Europe Growth Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Europe Growth
Fund (the "fund") at June 30, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of investments owned at June
30, 1999 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 12, 1999
<TABLE>
<CAPTION>
The fund's portfolio
June 30, 1999
COMMON STOCKS (97.0%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Finland (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
399,327 Oy Nokia AB Class A $ 35,113,821
France (14.8%)
- --------------------------------------------------------------------------------------------------------------------------
311,890 Aerospatiale Matra (NON) 7,211,232
29,400 Aerospatiale Matra 144A (NON) 679,760
177,687 AGF (Assurances Generales de France) 8,584,263
216,702 Axa S.A. (NON) 26,520,283
302,269 Banque Nationale de Paris 25,265,940
43,260 Bouygues S.A. (NON) 11,470,058
43,260 Bouygues S.A. Rights (Expiration Date 7/13/99) (NON) 115,461
163,147 CNP Assurances (NON) 4,470,865
133,800 CNP Assurances 144A (NON) 3,666,642
318,647 Elf Aquitaine S.A. (NON) 46,907,818
202,479 France Telecom S.A. 15,343,276
79,344 Groupe Danone 20,520,342
18,290 Havas Advertising SA (NON) 3,952,598
142,775 Lafarge Coppee 13,618,008
45,835 Publicis S.A. (NON) 9,720,343
237,365 Sanofi-Synthelabo S.A. (NON) 10,104,551
119,508 SCOR 5,946,652
127,173 Societe Generale 22,483,684
29,223 Television Francaise I (TF1) 6,832,250
277,945 Vivendi 22,585,804
--------------
265,999,830
Germany (7.8%)
- --------------------------------------------------------------------------------------------------------------------------
1 Bayerische Motoren Werke (BMW) AG 552
413,040 DaimlerChrysler AG 35,892,350
419,594 Deutsche Lufthansa AG 7,630,950
873,809 Hoechst AG 39,683,643
374,270 Mannesmann AG 56,025,281
--------------
139,232,776
Greece (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
398,145 Hellenic Telecommunication Organization S.A. 8,573,320
Ireland (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,824,136 Allied Irish Banks PLC 24,060,126
307,906 Bank of Ireland 5,192,019
1,409,355 CRH PLC 25,077,217
200,560 Esat Telecom Group PLC (NON) 8,799,570
--------------
63,128,932
Italy (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
820,100 Alleanza Assicurazioni SpA 9,459,587
380,936 Banca Popolare di Bergamo SpA 8,393,868
336,400 Compagnie Industriali Riunite (CIR) SpA 448,927
3,702,298 Ente Nazionale Idrocarburi (ENI) SpA (NON) 22,175,858
1,541,349 Istituto Bancario San Paolo di Torino 21,047,737
168,100 Mediaset SpA 1,499,013
957,700 Monte Dei Paschi NY Branch (NON) 4,260,185
--------------
67,285,175
Netherlands (11.7%)
- --------------------------------------------------------------------------------------------------------------------------
832,007 ABN AMRO Holding N.V. 18,074,936
698,134 Akzo-Nobel N.V. 29,466,561
203,983 Gucci Group N.V. (NON) 14,278,810
221,449 Hunter Douglas N.V. ADR 7,628,663
605,807 Internationale Nederlanden Groep (ING) 32,902,135
702,993 Koninklijke Ahold N.V. 24,290,025
612,614 Laurasia Resources Ltd. 14,259,357
272,000 Libertel NV (NON) 5,346,296
94,376 Nutreco Holding NV 3,358,540
41,101 Nutreco Holding NV 144A 1,462,653
276,694 STMicroelectronics N.V. 18,491,100
885,250 TNT Post Group N.V. 21,200,565
516,196 Vedior NV 8,811,079
392,057 Vendex International N.V. 10,504,599
--------------
210,075,319
Portugal (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
752,713 Electricidade de Portugal S.A. 13,595,781
654,451 Portugal Telecom S.A. 26,708,816
--------------
40,304,597
Spain (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
40,539 CF Alba Spain S. A. 6,584,202
1,308,537 Iberdola S.A. 19,993,876
262,882 Mapfre Vida Seguros 7,533,055
434,376 Metrovacesa S.A. 8,533,384
434,376 Metrovacesa S.A. Rights (Expiration Date 7/26/99) (NON) 422,400
472,175 Telfonica S.A. (NON) 22,816,217
526,600 Vallehermoso SA 5,115,369
--------------
70,998,503
Sweden (4.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,186,507 Investor AB 13,329,963
166,400 Modern Times Group MTG AB (NON) 3,630,653
266,559 Pharmacia & Upjohn, Inc. (NON) 14,815,838
1,532,865 Svenska Handelsbanken 18,490,093
1,097,070 Telefonaktiebolaget LM Ericsson Class B (Ericsson AB) 35,353,781
--------------
85,620,328
Switzerland (10.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,847 Ares-Serono Group Class B (NON) 6,256,922
18,584 Cie. Financiere Richemont AG Class A (NON) 35,918,655
95,014 Credit Suisse Group 16,521,504
3,169 Julius Baer Holdings AG 9,074,771
9,879 Nestle S.A. 17,886,929
20,203 Novartis AG ADR (NON) 29,644,997
90,477 Swisscom AG ADR (NON) 34,213,992
124,569 United Bank of Switzerland (UBS) AG (NON) 37,362,648
--------------
186,880,418
United Kingdom (31.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,665,974 Allied Zurich AG 33,533,068
910,000 Anglian Water PLC (NON) 10,068,293
1,582,929 Associated British Ports Holdings PLC 7,165,229
3,070,777 Avis Europe PLC 144A ADR (NON) 12,931,423
1,847,781 Bass PLC 26,826,316
1 BAT Industries PLC 5
1,290,204 British Airways PLC 8,907,817
583,634 BP Amoco PLC 10,466,171
2,351,735 British Telecommunications PLC ADR 39,428,333
782,010 Burmah Castrol PLC 14,849,970
1,533,024 Cable & Wireless Communications (NON) 14,749,101
2,115,873 Cable & Wireless PLC (NON) 26,980,897
1,079,300 Canary Wharf 144A PLC (NON) 6,811,471
3,615,498 Diageo PLC 37,778,158
2,474,300 EMI Group PLC (NON) 19,863,552
1,109,055 Granada Group PLC (NON) 20,588,102
138,200 Hanson PLC (NON) 1,228,256
244,715 HSBC Holdings PLC (NON) 8,672,622
1,474,594 Land Securities PLC 19,838,474
1,141,911 National Westminster Bancorp Inc. (NON) 24,223,746
935,666 Orange PLC ADR (NON) 13,724,311
1,727,527 Peninsular and Oriental Steam Navigation Co. 25,952,342
2,462,313 Scottish Power PLC (NON) 21,281,909
1,844,965 Securicor Group PLC 16,193,476
4,636,495 Shell Transportation & Trading (NON) 34,790,075
2,512,196 Siebe PLC 11,896,612
2,016,992 Smithkline Beecham PLC ADR 26,228,992
1,213,105 Smiths Industries PLC 16,033,531
9,619,372 Tesco PLC (NON) 24,767,757
2,054,539 Tomkins PLC (NON) 8,911,154
2,494,100 WPP Group PLC 21,104,271
--------------
565,795,434
--------------
Total Common Stocks (cost $1,535,469,101) $1,739,008,453
SHORT-TERM INVESTMENTS (2.4%) (a) (cost $42,622,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$42,622,000 Interest in $250,000,000 joint repurchase agreement
dated June 30, 1999 with Lehman Brothers due
July 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $42,627,801 for an
effective yield of 4.90% $ 42,622,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,578,091,101) (b) $1,781,630,453
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,792,326,933.
(b) The aggregate identified cost on a tax basis is $1,579,149,719, resulting in gross unrealized appreciation and
depreciation of $275,334,559 and $72,853,825, respectively, or net unrealized appreciation of $202,480,734.
(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 after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign
securities on deposit with a domestic custodian bank.
The fund had the following industry group concentrations greater than 10% at June 30, 1999 (as a percentage of
net assets):
Insurance and finance 19.5%
Telecommunications 15.2
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
June 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,578,091,101) (Note 1) $1,781,630,453
- -----------------------------------------------------------------------------------------------
Cash 192,812
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 6,457,700
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 2,251,333
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 1,182,136
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 17,454,882
- -----------------------------------------------------------------------------------------------
Total assets 1,809,169,316
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 7,396,107
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 44,975
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,044,061
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,188,597
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 392,105
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 37,649
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,229
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,447,953
- -----------------------------------------------------------------------------------------------
Other accrued expenses 285,707
- -----------------------------------------------------------------------------------------------
Total liabilities 16,842,383
- -----------------------------------------------------------------------------------------------
Net assets $1,792,326,933
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,594,042,680
- -----------------------------------------------------------------------------------------------
Undistributed net investment income 6,683,630
- -----------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments
and foreign currency transactions (Note 1) (11,718,684)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 203,319,307
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,792,326,933
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($903,696,540 divided by 41,608,012 shares) $21.72
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $21.72)* $23.05
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($790,680,374 divided by 37,396,783 shares)** $21.14
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($97,950,019 divided by 4,559,525 shares) $21.48
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $21.48)* $22.26
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended June 30, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $4,574,623) $ 31,738,025
- -----------------------------------------------------------------------------------------------
Interest 1,784,914
- -----------------------------------------------------------------------------------------------
Total investment income 33,522,939
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 12,211,545
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,852,012
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 41,039
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 20,474
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,158,210
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 7,403,404
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,024,513
- -----------------------------------------------------------------------------------------------
Reports to shareholders 70,093
- -----------------------------------------------------------------------------------------------
Registration fees 139,864
- -----------------------------------------------------------------------------------------------
Auditing 40,598
- -----------------------------------------------------------------------------------------------
Legal 32,116
- -----------------------------------------------------------------------------------------------
Postage 301,775
- -----------------------------------------------------------------------------------------------
Other 344,317
- -----------------------------------------------------------------------------------------------
Total expenses 27,639,960
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (419,492)
- -----------------------------------------------------------------------------------------------
Net expenses 27,220,468
- -----------------------------------------------------------------------------------------------
Net investment income 6,302,471
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 10,757,714
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 1,129,404
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (204,322)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (66,960,785)
- -----------------------------------------------------------------------------------------------
Net loss on investments (55,277,989)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(48,975,518)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended June 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 6,302,471 $ 9,920,746
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 11,887,118 86,038,453
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies (67,165,107) 178,406,624
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (48,975,518) 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 (33,386,409) (23,126,779)
- ---------------------------------------------------------------------------------------------------------------
Class B (29,928,941) (19,048,225)
- ---------------------------------------------------------------------------------------------------------------
Class M (9,042,716) (1,128,746)
- ---------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
Class A (4,505,495) --
- ---------------------------------------------------------------------------------------------------------------
Class B (4,038,909) --
- ---------------------------------------------------------------------------------------------------------------
Class M (1,220,314) --
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 469,025,201 658,369,779
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 324,547,429 877,022,256
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 1,467,779,504 590,757,248
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $6,683,630 and $10,855,424, respectively) $1,792,326,933 $1,467,779,504
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $23.68 $18.96 $15.91 $13.88 $11.64
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .16(c) .31(c) .24(c) .24(c) .18
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.91) 5.91 4.07 2.19 2.22
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.75) 6.22 4.31 2.43 2.40
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.37) (.20) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.88) (1.13) (1.06) (.40) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments (.12) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.21) (1.50) (1.26) (.40) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.72 $23.68 $18.96 $15.91 $13.88
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.99) 35.22 28.49 17.82 20.84
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $903,697 $791,871 $313,492 $127,980 $90,420
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.23 1.32 1.45 1.47 1.38
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .72 1.46 1.43 1.59 1.45
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 65.08 48.86 55.45 38.85 44.33
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
(d) Net investment income was less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $23.11 $18.56 $15.64 $13.75 $11.62
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income --(c)(d) .14(c) .13(c) .14(c) .08
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.88) 5.80 3.97 2.15 2.21
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.88) 5.94 4.10 2.29 2.29
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.26) (.12) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.88) (1.13) (1.06) (.40) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments (.12) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.09) (1.39) (1.18) (.40) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.14 $23.11 $18.56 $15.64 $13.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.66) 34.26 27.51 16.95 19.92
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $790,680 $633,294 $261,454 $90,126 $45,733
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.98 2.07 2.20 2.23 2.13
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.01) .69 .76 .96 .74
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 65.08 48.86 55.45 38.85 44.33
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
(d) Net investment income was less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 1, 1994+
operating performance Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 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 .02(c) .20(c) .19(c) .24(c) .09
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.85) 5.89 4.03 2.12 1.62
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.83) 6.09 4.22 2.36 1.71
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.30) (.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.88) (1.13) (1.06) (.40) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments (.12) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.20) (1.43) (1.23) (.40) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.48 $23.51 $18.85 $15.86 $13.90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.37) 34.56 27.91 17.28 14.06*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $97,950 $42,614 $15,811 $4,047 $746
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.73 1.82 1.95 2.02 1.08*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .07 .99 1.10 1.59 1.61*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 65.08 48.86 55.45 38.85 44.33
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
(d) Net investment income was less than $0.01 per share.
</TABLE>
Notes to financial statements
June 30, 1999
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. Effective July 26,
1999, the fund will begin offering class C 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 fair market value, which is determined using the
last reported sale price, or, if no sales are reported -- as is the case
of some securities traded over-the-counter -- the last reported bid 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. 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, and 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 realized 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 year ended June
30, 1999, 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. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, post-October loss
deferrals, foreign taxes, and realized gains and losses on passive foreign
investment companies. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the
year ended June 30, 1999, the fund reclassified $2,905,205 to increase
undistributed net investment income, with an increase to accumulated net
realized losses of $2,905,205. The calculation of net investment income
per share in the financial highlights table excludes these adjustments.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund for
the quarter. Such fee is based on the following annual rates: 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% thereafter.
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.
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.
For the year ended June 30, 1999, fund expenses were reduced by $419,492
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 $1,850
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
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 have approved 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 year ended June 30, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $1,070,352 and $2,380,597 from the
sale of class A and class M shares, respectively and $1,606,925 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the year ended June 30, 1999, Putnam Mutual Funds
Corp., acting as underwriter received $78,887 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended June 30, 1999, purchases and sales of investment
securities other than short-term investments aggregated $1,486,274,886 and
$1,108,584,439, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Note 4
Capital shares
At June 30, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended June 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 68,151,339 $1,483,701,940
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,995,595 41,787,368
- -----------------------------------------------------------------------------
70,146,934 1,525,489,308
Shares
repurchased (61,985,227) (1,347,029,128)
- -----------------------------------------------------------------------------
Net increase 8,161,707 $ 178,460,180
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended June 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 22,405,603 $483,946,091
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,616,996 33,083,649
- -----------------------------------------------------------------------------
24,022,599 517,029,740
Shares
repurchased (14,033,529) (296,361,954)
- -----------------------------------------------------------------------------
Net increase 9,989,070 $220,667,786
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended June 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 22,977,103 $ 505,100,716
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 98,706 2,049,124
- -----------------------------------------------------------------------------
23,075,809 507,149,840
Shares
repurchased (20,329,254) (437,252,605)
- -----------------------------------------------------------------------------
Net increase 2,746,555 $ 69,897,235
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $20,304,912 as a 20% capital gain, for its taxable year
ended June 30, 1999.
For the period, interest and dividends from foreign countries were
$33,513,711. Taxes paid to foreign countries were $4,574,623 or $0.055
(for all classes of shares).
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
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
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market 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
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION 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
* Formerly Putnam Diversified Income Trust II
[DBL.DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
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
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 Hart
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN005-53936 057/234/688 8/99
