Putnam
Europe
Growth
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
6-30-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes that lie ahead
will be even more breathtaking in their scope. What will not change is
the Trustees' dedication to serving the best interests of our
shareholders.
We are pleased to announce the addition of Joshua Byrne to your fund's
management team. Joshua is a Senior Vice President in Putnam's Global
Core Equity Group. He joined Putnam in 1992 and has a total of 13 years
of investment experience.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
August 16, 2000
REPORT FROM FUND MANAGEMENT
Omid Kamshad
Nigel P. Hart
Nicholas J. A. Melhuish
Joshua L. Byrne
During the past year European markets have begun to fulfill much of the
promise that we have seen for several years as managers of Putnam Europe
Growth Fund. Many industries are now undergoing consolidation,
governments continue to push through structural reforms to revitalize
business activity, and a cyclical upswing in the economy has improved
investment conditions. These factors have combined to drive the
performance of your portfolio, which achieved a strong result for the
fiscal year that ended June 30, 2000.
Total return for 12 months ended 6/30/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------
24.07% 16.91% 23.23% 18.23% 23.20% 22.20% 23.58% 19.25%
----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* EUROPEAN COMPANIES HELP TO POWER GLOBAL RALLY
The past year was an unusual one for international investors because
during this period, sector strategies mattered more than country
weightings. This represented a departure from the previous few years, in
which country selection played the more important role. During the past
year, fund performance depended on investments in technology, media, and
telecommunications, the three sectors that led all others by far.
Because these sectors experienced substantial volatility in the past 12
months, the timing of investments mattered as much as their size. As the
fiscal year opened, in fact, these sectors were fairly weak, but they
took off in the late summer and early fall, achieving gigantic gains
until March 2000, at which point investors began to take profits.
European stocks not only participated in this global rally but also
helped to drive it. Europe is home to many of the world's dominant
telecommunications and media companies. Wireless telephone service in
Europe, for example, is more advanced than in the United States. As The
Wall Street Journal states, "At the moment, any European (or Japanese)
cell-phone user who visits America travels back in time about five
years" (June 26, 2000). In the media sector, European television
companies are benefiting from deregulation, while advertising companies
such as the United Kingdom's WPP Group are helping many new technology
companies develop global brand names.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY ALLOCATIONS]
TOP COUNTRY ALLOCATIONS *
United Kingdom 30.7%
France 20.7%
Netherlands 13.1%
Switzerland 7.2%
Germany 6.3%
Footnote reads:
*Based on net assets as of 6/30/00. Holdings will vary over time.
Fortunately, the top-down component of our stock selection process
involves sector analysis as well as country analysis. For most of the
period, the fund had large investments in these sectors. Some of the
fund's top telecommunications holdings have included Mannesmann,
Ericsson, Telecom Italia Mobile; top media companies included Televison
Francaise, Havas Advertising, and Granada Group; and technology holdings
included STMicroelectronics and Nokia.
In the first quarter of 2000, we also made a strategic shift, reducing
the fund's exposure to traditional fixed-line telephone companies and
investing more in energy and financial services stocks, while
maintaining the fund's holdings in wireless telecommunications
companies. Although these holdings, as well as others mentioned 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.
* EUROPEAN TELECOMS IN STRUCTURAL SHIFT
The European telecommunications sector has undertaken great changes in
the past 12 months. Companies are competing to dominate the growth
industry of wireless and position themselves for global expansion. The
biggest story was the takeover battle involving Mannesmann and Vodafone
Group. Your fund owned both stocks. The battle originated late in 1999,
when Mannesmann decided to buy Orange, Vodafone's largest U.K.
competitor. Vodafone responded with a hostile bid for Mannesmann. The
ensuing struggle helped both stocks appreciate, and national governments
did not interfere. Vodafone emerged as the dominant partner and should
emerge as Europe's dominant wireless service company.
"One solid choice is Putnam European Growth. The fund's management team
invests in firms that appear undervalued relative to their growth rates,
return on capital, and other metrics. That's kept the fund mostly away
from tech stocks, which recently made up 17.6% percent of assets."
-- The Boston Sunday Globe, July 2, 2000
Telecommunication services, as well as the industry structure, are
changing. Wireless handheld messaging devices made by companies such as
Nokia, one of the fund's largest holdings, are being rolled out in
Europe and Asia. In essence, these devices allow people to use wireless
phones to send e-mail and access the Internet. They are already becoming
widespread in Scandinavian countries, where people use them for
everything from ordering tickets to debiting a bank account.
* BULLISH OUTLOOK FOR ENERGY, FINANCIALS SECTORS
Near the middle of the fiscal period, we began to build up larger
positions in energy companies. Our reasoning was based on both
short-term cyclical factors, such as rising prices for oil and natural
gas, and the strategic changes occurring within the industry. Among our
top holdings were TotalFina Elf, of France, and Ente Nazionale
Idrocarburi of Italy. We also had a significant position in BP Amoco. BP
Amoco is one of the top three oil companies in the world. It is a leader
in controlling production costs and is expanding strategically in North
America, where the old British Petroleum has taken over Amoco and is in
the process of acquiring Atlantic Richfield.
We are upbeat on the outlook for TotalFina Elf, a company that is the
product of a three-way combination undertaken over the past two years
involving Total, Elf Aquitaine, and Petrofina of Belgium. This merger
offers huge cost savings; for years these formerly separate companies
had built refineries in close proximity to each other, and combining
them will conserve capacity and increase efficiencies. There are also
downstream synergies, in that these companies will no longer compete at
the retail level by building rival filling stations.
"Globalization spreads ideas as well as products -- and this time it's
Europe doing the catching up. Just as American managers in the 1980s
read all those articles in the Harvard Business Review glorifying lean
Japanese production, European managers are now copying American tricks
like re-engineering."
-- The Wall Street Journal, June 26, 2000
In addition to building up energy stocks, we also added to many
positions in financial services companies. Our research has concluded
that the outlook for insurance companies is particularly strong. This
industry had been out of favor for some time, because of increasing
problems in the property and casualty areas during the mid-1990s. During
the period, we added significantly to an existing holding, ING of the
Netherlands. It is, in our view, one of the best-managed life insurance
companies in the world, and it also manages a lucrative banking
franchise in Europe. The stock's recent valuations were quite
attractive. We have also built a substantial position in Investor, a
Swedish holding company that is minority controlled by the Wallenberg
families. Investor has extensive holdings in companies across Europe
which we believe are not fully reflected in the stock's price. Company
management is firmly committed to unlocking the value of the company's
assets in a way that can help the stock appreciate.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Vodafone AirTouch PLC
United Kingdom
Communication services
TotalFina Elf S.A.
France
Energy
Nokia Oyj
Finland
Technology
Philips Electronics
Netherlands
Technology
Shell Transportation & Trading
United Kingdom
Energy
BP Amoco PLC
United Kingdom
Energy
Aventis S.A.
France
Health care
Telefonaktiebolaget L.M. Ericsson
Sweden
Technology
Internationale Nederlanden
Groep (ING)
Netherlands
Financial
Allianz AG
Germany
Financial
Footnote reads:
These holdings represent 33.9% of the fund's net assets as of 6/30/00.
Portfolio holdings will vary over time.
* SOLID GROWTH SHOULD HELP STOCKS AND EURO
With continuing growth in the European region, we currently expect that
both growth companies and companies more sensitive to the economic cycle
will continue to achieve solid profits. The weakness of the euro has
persisted as investors have poured money into U.S. stocks. Stronger
growth in Europe may yet stabilize the euro, avoiding imported
inflation. Now with the U.S. economy slowing, European growth levels may
soon match those in the United States.
Our fundamental research leads us to anticipate strong results for
companies involved in wireless communications, media, energy, and
financials in particular. With its broadly diversified portfolio, your
fund remains invested in all major sectors, of course. Diversification
is a consistent feature of the fund, because our fundamental research
targets growing companies with attractive stock prices, while our
top-down research strives to set optimal weights for market and sector
exposures. With this investment process, the fund can capitalize as
European companies continue to demonstrate their potential for healthy
growth.
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 6/30/00, 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 06/30/00
Class A Class B Class C Class M
(inception dates) (9/7/90) (2/1/94) (7/26/99) (12/1/94)
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------------
1 year 24.07% 16.91% 23.23% 18.23% 23.20% 22.20% 23.58% 19.25%
------------------------------------------------------------------------------
5 years 146.35 132.13 137.69 135.69 137.30 137.30 141.04 132.67
Annual average 19.76 18.34 18.91 18.70 18.87 18.87 19.24 18.40
------------------------------------------------------------------------------
Life of fund 343.11 317.56 312.00 312.00 311.54 311.54 324.22 309.16
Annual average 16.39 15.68 15.53 15.53 15.51 15.51 15.87 15.44
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/00
MSCI Europe Consumer
Index price index
------------------------------------------------------------
1 year 15.10% 3.67%
------------------------------------------------------------
5 years 133.20 12.98
Annual average 18.44 2.47
------------------------------------------------------------
Life of fund 257.22 30.93
Annual average 13.83 2.78
------------------------------------------------------------
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, 5-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. For class C shares, returns for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the CDSC
currently applicable to class C shares, which is 1% for the first year
and is eliminated thereafter, and the higher operating expenses
applicable to class C 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 12,896 11,246
6/30/95 16,950 15,318 11,588
6/30/96 19,970 17,567 11,915
6/30/97 25,659 22,836 12,188
6/30/98 34,696 31,299 12,386
6/30/99 33,657 31,036 12,629
6/30/00 $41,756 $35,722 $13,093
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 and class C
shares would have been valued at $41,200 and $41,154, respectively, and
no contingent deferred sales charges would apply; a $10,000 investment
in the fund's class M shares would have been valued at $42,422 ($40,916
at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 6/30/00
Class A Class B Class C Class M
-------------------------------------------------------------------------
Distributions (number) 1 1 1 1
-------------------------------------------------------------------------
Income $0.188 $0.020 $0.164 $0.005
-------------------------------------------------------------------------
Capital gains
Long-term 0.037 0.037 0.037 0.037
-------------------------------------------------------------------------
Short-term -- -- -- --
-------------------------------------------------------------------------
Total $0.225 $0.057 $0.201 $0.042
-------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
-------------------------------------------------------------------------
6/30/99 $21.72 $23.05 $21.14 -- $21.48 $22.26
-------------------------------------------------------------------------
7/26/99* -- -- -- $21.68 -- --
-------------------------------------------------------------------------
6/30/00 26.71 28.34 25.99 26.56 26.50 27.46
-------------------------------------------------------------------------
*Inception date of class C shares.
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 C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
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 or C shares and assumes redemption at the
end of the period. Your fund's 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. The CDSC for class C shares is 1% for one
year after purchase.
COMPARATIVE BENCHMARKS
Morgan Stanley Capital International Europe Index (MSCI Europe) is an
unmanaged list of equity securities originating in one of the 15
European countries, with all values expressed in U.S. dollars.
Securities indexes assume reinvestment of all distributions and interest
payments and do not take into 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.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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 are determined. All investment and noninvestment 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-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended June 30, 2000
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, 2000, and the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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, 2000 by correspondence with the custodian,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 10, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
June 30, 2000
COMMON STOCKS (98.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Denmark (0.8%)
-------------------------------------------------------------------------------------------------------------------
250,634 Tele Danmark A.S. $ 16,943,000
Finland (4.5%)
-------------------------------------------------------------------------------------------------------------------
178,747 Elisa Communications Oyj 8,222,934
26,600 Helsingin Puhelin Oyj 2,615,627
1,589,871 Nokia Oyj AB Class A 81,443,495
----------------
92,282,056
France (20.7%)
-------------------------------------------------------------------------------------------------------------------
732,647 Aventis S.A. 53,680,811
257,929 Axa S.A. 40,787,860
207,529 BNP Paribas 20,048,696
52,424 Bouygues S.A. 35,170,213
284,604 France Telecom S.A. 39,932,719
755,307 Havas Advertising S.A. 17,337,075
122,850 Liberty Surf Group S.A. (NON) 4,001,964
22,165 Publicis S.A. 8,730,847
722,877 Rhodia S.A. 12,193,374
750,492 Sanofi-Synthelabo S.A. 35,891,649
244,295 Schneider Electric S.A. 17,091,660
264,790 Societe Television Francaise 18,525,556
292,544 STMicroelectronics N.V. ADR 18,777,668
606,342 Total Fina Elf S.A. Class B 93,327,579
139,763 Vivendi S.A. 12,383,572
----------------
427,881,243
Germany (6.3%)
-------------------------------------------------------------------------------------------------------------------
132,138 Allianz AG 48,123,603
518,420 Bayerische Motoren Werke (BMW) AG 15,700,578
719,920 Deutsche Lufthansa AG 16,904,298
696 Marschollek, Lautenschlaeger und Partner AG 349,532
123,384 ProSieben Media AG 15,490,911
215,530 Siemens AG 32,533,822
----------------
129,102,744
Ireland (1.9%)
-------------------------------------------------------------------------------------------------------------------
1,095,849 CRH PLC 19,849,946
357,798 Elan Corp. PLC ADR (NON) 16,751,330
2,101,788 Jefferson Smurfit Group PLC 3,578,561
----------------
40,179,837
Italy (4.5%)
-------------------------------------------------------------------------------------------------------------------
1,362,683 Alleanza Assicurazioni 18,218,636
2,306,500 Banca Intesa SpA 10,367,478
1,099,250 Bipop-Carire SpA (REL) 8,681,015
732,000 Bulgari SpA 9,821,683
4,200,450 Ente Nazionale Idrocarburi (ENI) SpA 24,355,553
661,731 Mediaset SpA 10,147,248
555,200 Riunione Adriatica di Sicurta SpA 6,119,192
850,763 Telecom Italia SpA 5,666,830
----------------
93,377,635
Netherlands (13.1%)
-------------------------------------------------------------------------------------------------------------------
558,198 Aegon N.V. 19,938,591
730,085 Akzo-Nobel N.V. 31,137,249
279,232 Gucci Group N.V. 26,457,232
521,539 Hagemeyer N.V. 14,435,465
746,405 Internationale Nederlanden Groep (ING) N.V. 50,647,102
578,502 Koninklijke Ahold N.V. 17,093,272
1,631,567 Philips Electronics N.V. 77,246,474
271,919 Versatel Telecom International N.V. (NON) 11,466,715
822,917 Wolters Kluwer N.V. 22,004,274
----------------
270,426,374
Spain (2.7%)
-------------------------------------------------------------------------------------------------------------------
170,476 Acciona S.A. (NON) 6,519,030
314,916 Telefonica Publicidad e Informacion S.A. 2,984,955
2,154,447 Telefonica S.A. 46,458,495
----------------
55,962,480
Sweden (5.8%)
-------------------------------------------------------------------------------------------------------------------
2,054,052 Investor AB 28,235,600
368,139 NetCom AB (NON) 27,339,549
486,073 SKF AB 8,178,846
382,898 Tele1 Europe Holding AB ADR (NON) 4,717,429
2,572,727 Telefonaktiebolaget LM Ericsson Class B 51,213,879
----------------
119,685,303
Switzerland (7.2%)
-------------------------------------------------------------------------------------------------------------------
108,780 ABB AG 13,065,511
14,770 Compagnie Financiere Richemont AG 39,932,425
3,256 Julius Baer Holdings AG 12,919,045
7,090 Nestle S.A. 14,240,188
40,172 Serono S.A. Class B 33,608,465
15,523 Swatch Group AG (The) (NON) 19,804,812
7,400 Swiss Reinsurance Co. 15,135,950
----------------
148,706,396
United Kingdom (30.7%)
-------------------------------------------------------------------------------------------------------------------
505,421 3i Group PLC 10,395,734
4,075,475 Aegis Group PLC 11,997,210
1,121,997 ARM Holdings PLC (NON) 12,022,849
1,209,036 BOC Group PLC (NON) 17,383,822
7,044,447 BP Amoco PLC 67,595,625
1,834,858 Carlton Communications PLC 23,604,989
1,576,235 Compass Group PLC 20,766,924
1,308,836 Cordiant Communications Group PLC 7,388,844
972,930 EMAP PLC 15,652,989
1,956,087 EMI Group PLC 17,763,226
3,703,995 Granada Group PLC 36,999,576
878,874 Hays PLC 4,901,698
2,321,802 HSBC Holdings PLC 26,548,628
710,300 Hit Entertainment PLC 144A 4,676,420
45,500 IQE, Inc. PLC 144A 3,580,941
1,444,694 Marconi PLC 18,804,282
2,014,057 Misys PLC 17,009,376
1,331,819 Royal Bank of Scotland Group PLC 22,293,731
1,233,533 Sage Group (The) PLC 9,988,194
1,758,810 Scottish Power PLC 14,906,970
8,621,784 Shell Transportation & Trading 71,965,622
1,247,288 Smiths Industries PLC 16,234,825
827,279 Standard Chartered PLC 10,304,674
1,437,141 Trinity PLC 12,898,420
26,045,291 Vodafone AirTouch PLC 105,250,193
1,172,800 WPP Group PLC 17,129,067
2,337,842 Williams PLC 13,622,542
465,545 Zeneca Group PLC 21,736,983
----------------
633,424,354
----------------
Total Common Stocks (cost $1,597,044,560) $ 2,027,971,422
SHORT-TERM INVESTMENTS (2.5%) (a) (cost $51,524,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 51,524,000 Interest in $750,000,000 joint repurchase agreement
dated June 30, 2000 with Goldman Sachs and
Co. due July 3, 2000 with respect to various
U.S. Treasury obligations -- maturity value of
$51,551,909 for an effective yield of 6.5% $ 51,524,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,648,568,560) (b) $ 2,079,495,422
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,064,353,807.
(b) The aggregate identified cost on a tax basis is $1,651,578,189,
resulting in gross unrealized appreciation and depreciation of
$489,909,753 and $61,992,520, respectively, or net unrealized
appreciation of $427,917,233.
(NON) Non-income-producing security.
(REL) BiPop-Carire SpA is involved in a joint venture with Putnam Investments.
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, 2000 (as a percentage of net assets):
Financial 15.5%
Technology 15.2
Communication services 13.0
Energy 12.5
Consumer cyclicals 11.0
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,648,568,560) (Note 1) $2,079,495,422
-------------------------------------------------------------------------------------------
Cash 114,361
-------------------------------------------------------------------------------------------
Foreign currency (cost $4,843) 5,024
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 2,844,030
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 10,692,008
-------------------------------------------------------------------------------------------
Receivable for securities sold 26,416,693
-------------------------------------------------------------------------------------------
Total assets 2,119,567,538
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,204
-------------------------------------------------------------------------------------------
Payable for securities purchased 41,679,902
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 7,908,616
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,430,908
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 630,962
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 58,351
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,721
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,440,746
-------------------------------------------------------------------------------------------
Other accrued expenses 57,321
-------------------------------------------------------------------------------------------
Total liabilities 55,213,731
-------------------------------------------------------------------------------------------
Net assets $2,064,353,807
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,473,809,905
-------------------------------------------------------------------------------------------
Undistributed net investment income 100,512
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions (Note 1) 159,661,820
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 430,781,570
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,064,353,807
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,094,310,540 divided by 40,965,150 shares) $26.71
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $26.71)* $28.34
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($877,126,126 divided by 33,746,793 shares)** $25.99
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($13,500,879 divided by 508,241 shares)** $26.56
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($79,416,262 divided by 2,996,592 shares) $26.50
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $26.50)* $27.46
-------------------------------------------------------------------------------------------
* 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, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $3,587,917) $ 28,636,815
-------------------------------------------------------------------------------------------
Interest 1,923,982
-------------------------------------------------------------------------------------------
Total investment income 30,560,797
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 13,258,660
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 4,143,606
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 49,517
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 19,193
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,454,652
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 8,469,925
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 56,952
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 642,473
-------------------------------------------------------------------------------------------
Other 913,991
-------------------------------------------------------------------------------------------
Total expenses 30,008,969
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,353,401)
-------------------------------------------------------------------------------------------
Net expenses 28,655,568
-------------------------------------------------------------------------------------------
Net investment income 1,905,229
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 174,228,113
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (586,097)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 74,753
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 227,387,510
-------------------------------------------------------------------------------------------
Net gain on investments 401,104,279
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $403,009,508
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended June 30
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $1,905,229 $6,302,471
--------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 173,642,016 11,887,118
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies 227,462,263 (67,165,107)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 403,009,508 (48,975,518)
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (7,156,559) (8,081,573)
--------------------------------------------------------------------------------------------------
Class B (701,242) (3,212,251)
--------------------------------------------------------------------------------------------------
Class C (26,075) --
--------------------------------------------------------------------------------------------------
Class M (18,373) (2,085,646)
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (1,408,472) (33,386,409)
--------------------------------------------------------------------------------------------------
Class B (1,297,297) (29,928,941)
--------------------------------------------------------------------------------------------------
Class C (5,883) --
--------------------------------------------------------------------------------------------------
Class M (135,958) (9,042,716)
--------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
Class A -- (4,505,495)
--------------------------------------------------------------------------------------------------
Class B -- (4,038,909)
--------------------------------------------------------------------------------------------------
Class M -- (1,220,314)
--------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (120,232,775) 469,025,201
--------------------------------------------------------------------------------------------------
Total increase in net assets 272,026,874 324,547,429
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 1,792,326,933 1,467,779,504
--------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $100,512 and $6,683,630, respectively) $2,064,353,807 $1,792,326,933
--------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $21.72 $23.68 $18.96 $15.91 $13.88
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income (loss)(a) .11 .16 .31 .24 .24
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 5.11 (.91) 5.91 4.07 2.19
------------------------------------------------------------------------------------------------
Total from
investment operations 5.22 (.75) 6.22 4.31 2.43
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income (.19) (.21) (.37) (.20) --
------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) (.88) (1.13) (1.06) (.40)
------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments -- (.12) -- -- --
------------------------------------------------------------------------------------------------
Total distributions (.23) (1.21) (1.50) (1.26) (.40)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $26.71 $21.72 $23.68 $18.96 $15.91
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 24.07 (2.99) 35.22 28.49 17.82
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,094,311 $903,697 $791,871 $313,492 $127,980
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.21 1.23 1.32 1.45 1.47
------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .46 .72 1.46 1.43 1.59
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 110.71 65.08 48.86 55.45 38.85
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements. (Note 2)
(d) Net investment income and distributions from net investment income
were 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
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $21.14 $23.11 $18.56 $15.64 $13.75
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income (loss)(a) (.07) --(d) .14 .13 .14
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 4.98 (.88) 5.80 3.97 2.15
------------------------------------------------------------------------------------------------
Total from
investment operations 4.91 (.88) 5.94 4.10 2.29
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income (.02) (.09) (.26) (.12) --
------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) (.88) (1.13) (1.06) (.40)
------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments -- (.12) -- -- --
------------------------------------------------------------------------------------------------
Total distributions (.06) (1.09) (1.39) (1.18) (.40)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $25.99 $21.14 $23.11 $18.56 $15.64
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 23.23 (3.66) 34.26 27.51 16.95
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $877,126 $790,680 $633,294 $261,454 $90,126
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.96 1.98 2.07 2.20 2.23
------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.30) (.01) .69 .76 .96
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 110.71 65.08 48.86 55.45 38.85
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements. (Note 2)
(d) Net investment income and distributions from net investment income
were less than $0.01 per share.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
----------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to June 30
----------------------------------------------------
2000
----------------------------------------------------
Net asset value,
beginning of period $21.68
----------------------------------------------------
Investment operations
----------------------------------------------------
Net investment income (loss)(a) (.02)
----------------------------------------------------
Net realized and unrealized
gain (loss) on investments 5.10
----------------------------------------------------
Total from
investment operations 5.08
----------------------------------------------------
Less distributions:
----------------------------------------------------
From net
investment income (.16)
----------------------------------------------------
From net realized gain
on investments (.04)
----------------------------------------------------
In excess of net realized gain
on investments --
----------------------------------------------------
Total distributions (.20)
----------------------------------------------------
Net asset value,
end of period $26.56
----------------------------------------------------
Ratios and supplemental data
----------------------------------------------------
Total return at
net asset value (%)(b) 23.06*
----------------------------------------------------
Net assets, end of period
(in thousands) $13,501
----------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.82*
----------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.08)*
----------------------------------------------------
Portfolio turnover (%) 110.71
----------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements. (Note 2)
(d) Net investment income and distributions from net investment income
were less than $0.01 per share.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended June 30
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $21.48 $23.51 $18.85 $15.86 $13.90
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income (loss)(a) (.02) .02 .20 .19 .24
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 5.08 (.85) 5.89 4.03 2.12
------------------------------------------------------------------------------------------------
Total from
investment operations 5.06 (.83) 6.09 4.22 2.36
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income --(d) (.20) (.30) (.17) --
------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) (.88) (1.13) (1.06) (.40)
------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments -- (.12) -- -- --
------------------------------------------------------------------------------------------------
Total distributions (.04) (1.20) (1.43) (1.23) (.40)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $26.50 $21.48 $23.51 $18.85 $15.86
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 23.58 (3.37) 34.56 27.91 17.28
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $79,416 $97,950 $42,614 $15,811 $4,047
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.71 1.73 1.82 1.95 2.02
------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.08) .07 .99 1.10 1.59
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 110.71 65.08 48.86 55.45 38.85
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements. (Note 2)
(d) Net investment income and distributions from net investment income
were less than $0.01 per share.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
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, class C and class M shares. The fund
began offering class C shares on July 26, 1999. 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 C
shares are subject to the same fees and expenses as class B shares,
except that class C shares have a one-year 1.00% contingent deferred
sales charge and do not convert to class A shares. Class M shares are
sold with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is higher than class A shares but lower than class
B and class C 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 that 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in 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. Other investments, including restricted securities, 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). Gains or losses on securities sold are determined
on the identified cost basis. 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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) 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, 2000, the fund had no borrowings against the line of credit.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, post-October loss deferrals and foreign taxes.
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,
2000, the fund reclassified $586,098 to decrease undistributed net
investment income, with an increase to accumulated net realized gains of
$586,098. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is 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, 2000, fund expenses were reduced by
$1,353,401 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 $2,012
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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, class C 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 Retail Management, Inc., 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 Retail Management, Inc. at an annual rate up to
0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to
class A, class B, class C and class M shares, respectively. The Trustees
have approved payment by the fund at an annual rate of 0.25%, 1.00%,
1.00% and 0.75% of the average net assets attributable to class A, class
B, class C and class M shares, respectively.
For the year ended June 30, 2000, Putnam Retail Management, Inc., acting
as underwriter received net commissions of $395,886 and $395,780 from
the sale of class A and class M shares, respectively, and received
$1,535,435 and $1,187 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended June 30, 2000, Putnam Retail Management,
Inc., acting as underwriter received $34,864 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended June 30, 2000, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $2,058,497,706 and $2,171,134,817, respectively. There were
no purchases and sales of U.S. government obligations.
NOTE 4
Capital shares
At June 30, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended June 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 45,361,561 $1,130,028,953
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 307,502 7,794,679
---------------------------------------------------------------------------
45,669,063 1,137,823,632
Shares
repurchased (46,311,925) (1,146,251,509)
---------------------------------------------------------------------------
Net decrease (642,862) $ (8,427,877)
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 7,225,591 $175,526,702
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 72,197 1,787,475
---------------------------------------------------------------------------
7,297,788 177,314,177
Shares
repurchased (10,947,778) (263,217,657)
---------------------------------------------------------------------------
Net decrease (3,649,990) $(85,903,480)
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations) to
June 30, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 799,469 $20,027,714
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,156 29,235
---------------------------------------------------------------------------
800,625 20,056,949
Shares
repurchased (292,384) (7,280,433)
---------------------------------------------------------------------------
Net increase 508,241 $12,776,516
---------------------------------------------------------------------------
Year ended June 30, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 4,677,133 $115,254,957
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,524 63,628
---------------------------------------------------------------------------
4,679,657 115,318,585
Shares
repurchased (6,242,590) (153,996,519)
---------------------------------------------------------------------------
Net decrease (1,562,933) $(38,677,934)
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $117,840,129 as capital gain, for its taxable
year ended June 30, 2000.
For the period, interest and dividends from foreign countries were
$32,224,732 or $.412 per share (for all classes of shares). Taxes paid
to foreign countries were $3,587,916 or $.046 per share (for all classes
of shares).
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
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
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Technology Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Fund
Balanced Retirement Fund
Classic Equity 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
International Growth and Income Fund
New Value Fund
Small Cap 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 Growth and Income Fund 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.putnaminvestments.com.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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, III
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
John J. Morgan
Vice President
Justin M. Scott
Vice President
Omid Kamshad
Vice President and Fund Manager
Nigel P. Hart
Vice President and Fund Manager
Nicholas A.J. Melhuish
Vice President and Fund Manager
Joshua L. Byrne
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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.putnaminvestments.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.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
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