PUTNAM EUROPE GROWTH FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
October 30, 2000, as revised November 30, 2000
This SAI is not a prospectus. If the fund has more than one form of
current prospectus, each reference to the prospectus in this SAI shall
include all of the fund's prospectuses, unless otherwise noted. The SAI
should be read together with the applicable prospectus. Certain
disclosure has been incorporated by reference from the fund's annual
report. For a free copy of the fund's annual report or prospectus dated
October 30, 2000, as revised from time to time, call Putnam Investor
Services at 1-800-225-1581 or write Putnam Investor Services, Mailing
address: P.O. Box 41203, Providence, RI 02940-1203.
Part I of this SAI contains specific information about the fund. Part
II includes information about the fund and the other Putnam funds.
TABLE OF CONTENTS
PART I
FUND ORGANIZATION AND CLASSIFICATION I-3
INVESTMENT RESTRICTIONS I-4
CHARGES AND EXPENSES I-6
INVESTMENT PERFORMANCE I-13
ADDITIONAL OFFICERS I-14
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS I-14
Part II
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1
TAXES II-25
MANAGEMENT II-28
DETERMINATION OF NET ASSET VALUE II-36
HOW TO BUY SHARES II-37
DISTRIBUTION PLANS II-48
INVESTOR SERVICES II-49
SIGNATURE GUARANTEES II-52
SUSPENSION OF REDEMPTIONS II-53
SHAREHOLDER LIABILITY II-53
STANDARD PERFORMANCE MEASURES II-53
COMPARISON OF PORTFOLIO PERFORMANCE II-54
SECURITIES RATINGS II-58
DEFINITIONS II-62
SAI
PART I
FUND ORGANIZATION AND CLASSIFICATION
Putnam Europe Growth Fund is a Massachusetts business trust organized on
November 10, 1988. A copy of the Agreement and Declaration of Trust,
which is governed by Massachusetts law, is on file with the Secretary of
State of The Commonwealth of Massachusetts.
The fund is an open-end diversified management investment company with
an unlimited number of authorized shares of beneficial interest. The
Trustees may, without shareholder approval, create two or more series of
shares representing separate investment portfolios. Any such series of
shares may be divided without shareholder approval into two or more
classes of shares having such preferences and special or relative rights
and privileges as the Trustees determine. The fund offers classes of
shares with different sales charges and expenses.
Each share has one vote, with fractional shares voting proportionally.
Shares of all classes and series will vote together as a single class on
all matters except when otherwise required by law or as determined by
the Trustees. Shares are freely transferable, are entitled to dividends
as declared by the Trustees, and, if the fund were liquidated, would
receive the net assets of the fund. The fund may suspend the sale of
shares at any time and may refuse any order to purchase shares.
Although the fund is not required to hold annual meetings of its
shareholders, shareholders holding at least 10% of the outstanding
shares entitled to vote have the right to call a meeting to elect or
remove Trustees, or to take other actions as provided in the Agreement
and Declaration of Trust.
The fund is a "diversified" investment company under the Investment
Company Act of 1940. This means that with respect to 75% of its total
assets, the fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities). The
remaining 25% of its total assets is not subject to this restriction.
To the extent the fund invests a significant portion of its assets in
the securities of a particular issuer, it will be subject to an
increased risk of loss if the market value of such issuer's securities
declines.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed without
a vote of a majority of the outstanding voting securities, the fund may
not and will not:
(1) Borrow money in excess of 10% of the value (taken at the lower of
cost or current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as
a temporary measure to facilitate the meeting of redemption requests
(not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency
purposes. Such borrowings will be repaid before any additional
investments are purchased.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under certain federal securities
laws.
(3) Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities representing interests in real
estate, and it may acquire and dispose of real estate or interests in
real estate acquired through the exercise of its rights as a holder of
debt obligations secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except that the
fund may purchase and sell financial futures contracts and options and
may enter into foreign exchange contracts and other financial
transactions not involving physical commodities.
(5) Make loans, except by purchase of debt obligations in which the fund
may invest consistent with its investment policies, by entering into
repurchase agreements, or by lending its portfolio securities.
(6) With respect to 75% of its total assets, invest in securities of any
issuer if, immediately after such investment, more than 5% of the total
assets of the fund (taken at current value) would be invested in the
securities of such issuer; provided that this limitation does not apply
to obligations issued or guaranteed as to interest or principal by the
U.S. government or its agencies or instrumentalities.
(7) With respect to 75% of its total assets, acquire more than 10% of
the outstanding voting securities of any issuer.
(8) Purchase securities (other than securities of the U.S. government)
if as a result of such purchase more than 25% of the fund's total assets
would be invested in any one industry.
(9) Issue any class of securities which is senior to the fund's shares
of beneficial interest, except for permitted borrowings.
The Investment Company Act of 1940 provides that a "vote of a majority
of the outstanding voting securities" of the fund means the affirmative
vote of the lesser of (1) more than 50% of the outstanding fund shares,
or (2) 67% or more of the shares present at a meeting if more than 50%
of the outstanding fund shares are represented at the meeting in person
or by proxy.
The following non-fundamental investment policies may be changed by the
Trustees without shareholder approval:
The fund will not invest in (a) securities which are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the fund (or the person designated by the
Trustees of the fund to make such determinations) to be readily
marketable), and (c) repurchase agreements maturing in more than seven
days, if, as a result, more than 15% of the fund's net assets (taken at
current value) would be invested in securities described in (a), (b) and
(c) above.
Geographic focus. The fund normally invests at least 85% of its total
assets in
European companies. We consider the following to be European companies:
-- companies organized under the laws of a European country,
-- companies whose principal office is located in a European country,
-- companies whose common stock is traded principally on a securities
exchange in Europe,
-- companies that earn 50% or more of their total revenues or profits from
business in Europe, or
-- companies with 50% or more of their assets located in a European
country.
--------------------------
In connection with the offering of its shares in Japan, the fund has
undertaken to the Japanese Securities Dealers Association that the fund
will not: (1) invest more than 15% of its net assets in securities that
are not traded on an official exchange or other regulated market,
including, without limitation, the National Association of Securities
Dealers Automated Quotation System (this restriction shall not be
applicable to bonds determined by Putnam Investment Management, Inc. to
be liquid and for which a market price (including a dealer quotation) is
generally obtainable or determinable); (2) borrow money in excess of 10%
of the value of its total assets; (3) make short sales of securities in
excess of the fund's net asset value; and (4) together with other mutual
funds managed by Putnam Investment Management, Inc., acquire more than
50% of the outstanding voting securities of any issuer.
If the undertaking is violated, the fund will, promptly after discovery,
take such action as may be necessary to cause the violation to cease,
which shall be the only obligation of the fund and the only remedy in
respect of the violation. This undertaking will remain in effect as
long as shares of the fund are qualified for offer or sale in Japan and
such undertaking is required by the Japanese Securities Dealers
Association as a condition of such qualification.
--------------------------
All percentage limitations on investments (other than pursuant to the
non-fundamental restriction) will apply at the time of the making of an
investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
-------------------
CHARGES AND EXPENSES
Management fees
Under a Management Contract dated October 21, 1996 the fund pays a
quarterly fee to Putnam Management based on the average net assets of
the fund, as determined at the close of each business day during the
quarter, at the annual rate of:
0.80% of the first $500 million of average net assets;
0.70% of the next $500 million of average net assets;
0.65% of the next $500 million of average net assets;
0.60% of the next $5 billion of average net assets;
0.575% of the next $5 billion of average net assets;
0.555% of the next $5 billion of average net assets;
0.540% of the next $5 billion of average net assets; and
0.530% of any excess thereafter.
For the past three fiscal years, pursuant to the Management Contract,
the fund incurred the following fees:
Fiscal Management
year fee paid
2000 $13,258,660
1999 $12,211,545
1998 $ 6,715,370
Brokerage commissions
The following table shows brokerage commissions paid during the fiscal
periods indicated:
Fiscal Brokerage
year commissions
2000 $9,351,242
1999 $5,891,766
1998 $2,893,467
The fund's brokerage commissions paid for fiscal year 2000 were
significantly greater than the previous year due to the increase in the
fund's assets during the past year.
The following table shows transactions placed with brokers and dealers
during the most recent fiscal year to recognize research, statistical
and quotation services received by Putnam Management and its affiliates:
Dollar value Percent of
of these total Amount of
transactions transactions commissions
$3,051,126,646 74.72% $7,070,642
Administrative expense reimbursement
The fund reimbursed Putnam Management for administrative services during
fiscal 2000, including compensation of certain fund officers and
contributions to the Putnam Investments, Inc. Profit Sharing Retirement
Plan for their benefit, as follows:
Portion of total
reimbursement for
Total compensation and
reimbursement contributions
$19,193 $15,534
Trustee responsibilities and fees
The Trustees are responsible for generally overseeing the conduct of
fund business. Subject to such policies as the Trustees may determine,
Putnam Management furnishes a continuing investment program for the fund
and makes investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the fund's other affairs
and business.
Each Trustee receives a fee for his or her services. Each Trustee also
receives fees for serving as Trustee of other Putnam funds. The
Trustees periodically review their fees to assure that such fees
continue to be appropriate in light of their responsibilities as well as
in relation to fees paid to trustees of other mutual fund complexes.
The Trustees meet monthly over a two-day period, except in August. The
Board Policy Committee, which consists solely of Trustees not affiliated
with Putnam Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time together
with the appropriate preparation requires the equivalent of at least
three business days per Trustee meeting. The following table shows the
year each Trustee was first elected a Trustee of the Putnam funds, and
the fees paid to each Trustee by the fund for fiscal 2000 and the fees
paid to each Trustee by all of the Putnam funds during calendar year
1999:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or Estimated Total
Aggregate retirement annual benefits compensation
compensation benefits accrued from all from all
from the as part of Putnam funds Putnam
Trustees/Year fund(1) fund expenses upon retirement (2) funds (3)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/
1994 (4) $2,242 $ 483 $95,000 $191,000
Hans H. Estin/
1972 2,242 1,112 95,000 190,000
John A. Hill/
1985 (4)(5) 2,231 560 115,000 239,750
Ronald J. Jackson/
1996 (4) 2,242 627 95,000 193,500
Paul L. Joskow/
1997 (4) 2,242 238 95,000 191,000
Elizabeth T. Kennan/
1992 2,231 717 95,000 190,000
Lawrence J. Lasser/
1992 2,230 547 95,000 189,000
John H. Mullin, III/
1997 (4) 2,225 356 95,000 196,000
Robert E. Patterson/
1984 2,242 377 95,000 190,250
William F. Pounds/
1971 (6) 2,796 1,268 115,000 231,000
George Putnam/
1957 (6) 2,242 1,104 95,000 190,000
George Putnam, III/
1984 2,242 256 95,000 190,000
A.J.C. Smith/
1986 2,207 805 95,000 188,000
W. Thomas Stephens/
1997 (4) 2,220 333 95,000 188,000
W. Nicholas Thorndike/
1992 2,208 1,005 95,000 190,000
-----------------------------------------------------------------------------------
</TABLE>
(1) Includes an annual retainer and an attendance fee for each meeting
attended.
(2) Assumes that each Trustee retires at the normal retirement date.
Estimated benefits for each Trustee are based on Trustee fee rates in
effect during calendar 1999.
(3) As of December 31, 1999, there were 114 funds in the Putnam family.
(4) Includes compensation deferred pursuant to a Trustee Compensation
Deferral Plan. The total amounts of deferred compensation payable by the
fund to Ms. Baxter, Mr. Hill, Mr. Jackson, Mr. Joskow, Mr. Mullin, and
Mr. Stephens as of June 30, 2000 were $6,216, $6,742, $6,118, $5,955,
$5,966 and $3,708, respectively, including income earned on such
amounts.
(5) Includes additional compensation for service as Vice Chairman of the
Putnam funds. Mr. Hill was elected Chairman of the Putnam Funds as of
July 1, 2000.
(6) Reflects retirement from the Board of Trustees of the Putnam funds
on June 30, 2000.
Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement benefit
equal to one-half of the average annual compensation paid to such
Trustee for the last three years of service prior to retirement. This
retirement benefit is payable during a Trustee's lifetime, beginning the
year following retirement, for a number of years equal to such Trustee's
years of service. A death benefit, also available under the Plan,
assures that the Trustee and his or her beneficiaries will receive
benefit payments for the lesser of an aggregate period of (i) ten years
or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that are not
"interested persons" of the fund, as defined in the Investment Company
Act of 1940) may terminate or amend the Plan at any time, but no
termination or amendment will result in a reduction in the amount of
benefits (i) currently being paid to a Trustee at the time of such
termination or amendment, or (ii) to which a current Trustee would have
been entitled had he or she retired immediately prior to such
termination or amendment.
For additional information concerning the Trustees, see "Management" in
Part II of this SAI.
Share ownership
At September 30, 2000, the officers and Trustees of the fund as a group
owned less than 1% of the outstanding shares of each class of the fund,
and, except as noted below, no person owned of record or to the
knowledge of the fund beneficially 5% or more of any class of shares of
the fund.
Class Shareholder name Percentage
and address owned
A Charles Schwab & Co Inc. 14.70%
101 Montgomery Street
San Francisco, CA 94104-4122
A Edward D. Jones & Co. 5.70%
201 Progress Parkway
Maryland Heights, MO 63043
B Merrill Lynch 6.30%
165 Broadway
One Liberty Plaza
New York, New York 10006
C Merrill Lynch 15.50%
165 Broadway
One Liberty Plaza
New York, New York
M Sakura Friend Securities Co., LTD* 42.00%
*The mailing address for names listed is:
c/o Putnam Investments, Inc.,
One Post Office Square, Boston, MA 02109
Distribution fees
During fiscal 2000, the fund paid the following 12b-1 fees to Putnam
Retail Management, Inc.:
Class A Class B Class C Class M
$2,454,652 $8,469,925 $56,952 $642,473
Class A sales charges and contingent deferred sales charges
Putnam Retail Management, Inc. received sales charges with respect to
class A shares in the following amounts during the periods indicated:
Sales charges Contingent
Total retained by Putnam deferred
front-end Retail Management, Inc sales
Fiscal year sales charges after dealer concessions charges
2000 $2,464,038 $ 395,886 $34,864
1999 $6,923,499 $1,070,352 $78,887
1998 $5,080,890 $ 790,212 $18,565
Class B contingent deferred sales charges
Putnam Retail Management, Inc. received contingent deferred sales
charges upon redemptions of class B shares in the following amounts
during the periods indicated:
Contingent deferred
Fiscal year sales charges
2000 $1,535,435
1999 $1,606,925
1998 $ 427,456
Class C contingent deferred sales charges
Putnam Retail Management, Inc. received contingent deferred sales charge
upon redemption of class C shares in the following amount during the
period indicated:
Contingent deferred
Fiscal year sales charge
2000 $1,187
Class M sales charges
Putnam Retail Management, Inc. received sales charges with respect to
class M shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam
Total Retail Management, Inc.
Fiscal year sales charges after dealer concessions
2000 $ 2,771,973 $ 395,780
1999 $16,593,483 $2,380,597
1998 $ 68,590 $ 44,390
Investor servicing and custody fees and expenses
During the 2000 fiscal year, the fund incurred $4,143,606 in fees and
out-of-pocket expenses for investor servicing and custody services
provided by Putnam Fiduciary Trust Company.
INVESTMENT PERFORMANCE
Standard performance measures
(for periods ended June 30, 2000)
Class A Class B Class C Class M
Inception Date 9/7/90 2/1/94 7/26/99 12/1/94
Average annual total return
1 year 16.91% 18.23% 22.20% 19.25%
5 years 18.34% 18.70% 18.87% 18.40%
Life of fund 15.68% 15.53% 15.51% 15.44%
Returns for class A and class M shares reflect the deduction of the
current maximum initial sales charges of 5.75% for class A shares and
3.50% for class M shares.
Returns for class B and class C shares reflect the deduction of the
applicable contingent deferred sales charge ("CDSC"), which for class B
is 5% in the first year, declining to 1% in the sixth year, and
eliminated thereafter, and for class C is 1% in the first year and
eliminated thereafter.
Returns shown for class B, class C 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 deduction of the initial sales
charge or CDSC, if any, currently applicable to each class and the
higher operating expenses applicable to such shares.
Returns shown for class A shares have not been adjusted to reflect
payments under the class A distribution plan prior to its
implementation. All returns assume reinvestment of distributions at net
asset value and represent past performance; they do not guarantee future
results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than
their original cost.
See "Standard Performance Measures" in Part II of this SAI for
information on how performance is calculated.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of this
SAI, each of the following persons is also a Vice President of the fund
and certain of the other Putnam funds, the total number of which is
noted parenthetically. Officers of Putnam Management hold the same
offices in Putnam Management's parent company, Putnam Investments, Inc.
Officer Name (Age) (Number of funds)
Omid Kamshad (Age 38) (7 funds) Managing Director of Putnam Management.
Prior to January 1996 Mr. Kamshad was Director of Investments at Lombard
Odier International.
John J. Morgan, Jr. (Age 60) (28 funds) Managing Director of Putnam
Management.
Justin M. Scott (Age 43) (15 funds) Managing Director of Putnam
Management.
Joshua L. Byrne (Age 36) (5 funds) Senior Vice President of Putnam
Management.
Nicholas Melhuish (Age 31) (1 fund), Vice President. Prior to August
1999, Mr. Melhuish was Assistant Director at Schroder Investment
Management.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, are the fund's independent accountants, providing audit services,
tax return review and other tax consulting services and assistance and
consultation in connection with the review of various Securities and
Exchange Commission filings. The Report of Independent Accountants,
financial highlights and financial statements included in the fund's
Annual Report for the fiscal year ended June 30, 2000, filed
electronically on August 10, 2000 (File No. 811-5693), are incorporated
by reference into this SAI. The financial highlights included in the
prospectus and incorporated by reference into this SAI and the financial
statements incorporated by reference into the prospectus and this SAI
have been so included and incorporated in reliance upon the report of
the independent accountants, given on their authority as experts in
auditing and accounting.
