-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J1jvjMAib2ESrH6sqg89fsiccJmb6EZYW5joYjP+A7+tunUQlAmcD8y4gJiS1mUB +zpVyMGS1DpmQVWoQLVLFA== 0000928816-00-000080.txt : 20000217 0000928816-00-000080.hdr.sgml : 20000217 ACCESSION NUMBER: 0000928816-00-000080 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM EUROPE GROWTH FUND CENTRAL INDEX KEY: 0000842940 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 043083315 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05693 FILM NUMBER: 546930 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQUARE STREET 2: MAILSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 8002551581 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM EUROPE FUND DATE OF NAME CHANGE: 19900726 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM GOVERNMENT INCOME FUND DATE OF NAME CHANGE: 19900412 N-30D 1 PUTNAM EUROPE GROWTH FUND Putnam Europe Growth Fund SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 12-31-99 [LOGO: BOSTON * LONDON * TOKYO] From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: This is the last letter to you and the other shareholders of Putnam Europe Growth Fund that I will be signing. After more than 30 years as Chairman of the Trustees and President of the Putnam Funds, the time has come for me to step aside. In June, John Hill will become Chairman. John is currently an independent Trustee and has served on the board for the past 14 years. In addition, my son, George Putnam, III, will take on the role of President. I am confident that the leadership of the funds will be in exceptionally strong hands. I will become Chairman Emeritus, remain a Putnam shareholder, and stay in close touch with the funds. It has been my privilege to serve you. In one final piece of news, I am pleased to announce the addition of Nicholas J. Melhuish to Putnam Europe Growth Fund's management team. Nicholas joined Putnam's Global Core Equity Group in 1999 from Schroder Capital Management International. He has 8 years of investment experience. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees February 16, 2000 Report from the Fund Managers Mark D. Pollard Omid Kamshad Nigel Hart Nicholas J. Melhuish Putnam Europe Growth Fund ended its semiannual period on December 31, 1999, on a solid note. The fund benefited from long-standing positions in technology and telecommunications stocks, the global economic recovery, and the hard evidence of a recovery in the euro zone economy as well as from record levels of mergers and acquisitions. We also continued to de-emphasize underperforming sectors such as banking, autos, pharmaceuticals, and basic industries. As the callout found on page 2 attests, the fund continued to generate attractive risk-adjusted returns relative to its peers. Additionally the fund's total return for the reporting period remained significantly higher than that of its benchmark index, the Morgan Stanley Capital International Europe Index. (See page 6 for complete performance information.) Total return for 6 months ended 12/31/99 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP - --------------------------------------------------------------------------- 23.33% 16.21% 22.89% 17.89% 22.87% 21.87% 23.06% 18.75% - --------------------------------------------------------------------------- Past performance is not indicative of future results. Performance information for longer periods and explanation of performance calculation methods begin on page 6. * TECHNOLOGY AND TELECOMMUNICATIONS STOCKS STAND OUT The rise of the Internet around the world, rapidly increasing flows of data through broadband networks, and worldwide demand for cellular and wireless telecommunications services have driven the outstanding performance of technology and telecommunications companies this year. Investors continued to recognize the strong fundamentals and growth potential present in these sectors. A number of European companies have leading positions in areas such as telecommunications equipment, semiconductors, and information technology services. [GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY ALLOCATIONS] TOP COUNTRY ALLOCATIONS* United Kingdom 32.8% France 19.1% Netherlands 10.3% Germany 6.3% Italy 6.3% Footnote reads: *Based on net assets as of 12/31/99. Holdings will vary over time. On an ongoing basis, we have sought out technology and telecommunications companies that have significant pricing power within their respective industries, are recognized leaders in product innovation, and are focused on earning a high return on capital. Fund holdings exhibiting these characteristics include Nokia, ST Microelectronics, Vodafone AirTouch, Bouygues, Telecom Italia Mobil (TIM), and Mannesmann.* Morningstar gave the fund's class A shares four out of five stars for risk-adjusted performance for the three years ended December 31, 1999. This put the fund among the top 22.5% of the 1104 international equity funds rated. Past performance is not indicative of future results. Morningstar ratings reflect risk-adjusted performance through 12/31/99 and are subject to change every month. Morningstar ratings are calculated from a fund's 3-, 5-, and 10-year returns (with fee adjustments) in excess of 90-day Treasury bill returns and a risk factor that reflects performance below 90-day Treasury bill returns. For the 5-year period, the fund received 4 stars. Performance of other share classes will vary. For example, ST Microelectronics of France was buoyed by the continued upswing in semiconductor prices and benefited from its status as a top provider of chips for cellular handsets. Nokia retains the bulk of market share in the handset market and has moved aggressively into the development of next-generation wireless products. Cellular companies Bouygues of France and TIM in Italy are experiencing strong volume growth in their respective markets. While these holdings, along with others discussed in this report, were viewed favorably at the end of the period, all are subject to review and adjustment in accordance with the fund's investment strategy and may vary in the future. *Please see page 4 for a discussion of the Vodafone/Mannesmann deal as well as other important developments that affected the fund in this record year of European mergers and acquisitions. * COMPANIES THAT BENEFIT FROM THE GLOBAL RECOVERY With economic growth accelerating around the world and a weak euro making the goods of European exporting companies more attractively priced outside Europe, we targeted value-added exporters such as telecommunications equipment companies, luxury goods companies, and advertising and media firms. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS Shell Transportation & Trading United Kingdom Oil and gas Oy Nokia AB Class A Finland Telecommunications Total S.A. Class B France Oil and gas Mannesmann AG Germany Business equipment and services British Telecommunications PLC ADR United Kingdom Telecommunications Telefonaktiebolaget LM Ericsson Class B (Ericsson AB) Sweden Telecommunications Internationale Nederlanden Groep (ING) Netherlands Insurance and finance Aventis S.A. France Pharmaceuticals and biotechnology Telecom Italia Mobile SpA Italy Telecommunications British Petroleum Co. PLC United Kingdom Oil and gas Footnote reads: These holdings represent 29.7% of the fund's net assets as of 12/31/99. Portfolio holdings will vary over time. Luxury goods companies Gucci Group, which fended off a hostile takeover attempt from rival LVMH in 1999, and Compagnie Financiere Richemont particularly benefited from the Asian economic recovery and renewed Asian consumer demand for Gucci's high-fashion products and Richemont's Cartier jewelry. These companies are able to retain pricing power because of their strong brand image. Advertising and media companies such as Havas Advertising, WPP, and Publicis are benefiting from a renewed focus by companies on creating leading global brands both in the online and off-line worlds. For example, Havas is one of Europe's leading advertising agencies and has successfully transformed itself into a global agency through a carefully balanced strategy of internal and external growth. The company's client list includes large well-known names such as Microsoft, Volvo, MCI WorldCom, and Procter & Gamble. It has also been successful in capturing revenues from dot.com companies seeking to establish their brands among both investors and consumers. Record merger and acquisition activity is positive but must be evaluated on an individual basis According to Thomson Financial Securities Data, merger and acquisition activity involving European companies rose to $1.23 trillion in 1999, double 1998 levels. Additionally Europe took a greater share of the world's biggest mergers as European M&A activity accounted for 39% of the global total up from 22% in 1998. The level of hostile takeover activity in 1999 was unprecedented in Europe with takeover fights such as Telecom Italia and Olivetti, Total Fina and Elf Aquitaine, and the three-way fight among BNP, Paribas, and Societe Generale. More friendly deals also occurred such as those of Vodafone and AirTouch and Mannesmann and Orange -- all being a precursor to the recent hostile bid by Vodafone AirTouch for Mannesman to create a European telecommunications giant. Your fund has benefited from participation in many of 1999's largest mergers. Of course, not all mergers are positive for shareholders and some may be undertaken out of weakness. As portfolio managers, our job is to evaluate these deals on a case-by-case basis to determine if value is actually created, if the promised cost savings might occur, if synergies exist, and if the new entity can achieve the growth potential outlined by the new management. * UNITED KINGDOM, BANKS, AND PHARMACEUTICAL COMPANIES DE-EMPHASIZED ACROSS REGION While the fund maintains a significant weighting in the United Kingdom, it is still a small percentage considering the size of the overall U.K. market within Europe. The reason for this is because we continue to find U.K. stocks relatively unattractive. More than 28% of the broad U.K. market is comprised of banking and pharmaceutical stocks. Currently we believe both of these sectors are too richly valued given their growth prospects. Instead, a substantial portion of our U.K. weighting is made up of growing global companies such as Vodafone Airtouch and multinationals such as Shell Transport and Trading, the sister company of the multinational oil company Royal Dutch Shell. We also found more value and growth prospects in U.K. mid-capitalization stocks. Banking and financial companies across Europe are now feeling the pressure of low interest rates on their loan profitability. The Internet is also beginning to play a role in fulfilling the financial needs of Europeans and we are concerned that as financial intermediaries, European banks are not responding quickly enough. In the pharmaceutical industry, we think industry growth may be reduced by government policy changes and patents expirations. * POSITIVE CHANGE SHOULD CONTINUE, BUT IT MUST BE EVALUATED IN EUROPEAN CONTEXT Record merger and acquisition activity, corporate restructuring, industrial consolidation, and an increasing focus on shareholder value are all elements of the European investment story that make many observers compare corporate Europe today to the United States in the 1980s and early 1990s. This year, with the introduction of the euro, the pace of change has accelerated. Of course, Europe still has a long way to go to make itself competitive with the United States. However, we have seen positive developments such as the recent German tax reduction proposals and these leave us feeling optimistic that Europe is committed to positive change. Looking ahead, we believe the portfolio is well positioned for a continued upswing in global economic growth with relatively low inflation. We believe this type of environment can work in the favor of a great variety of European companies. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 12/31/99, there is no guarantee the fund will continue to hold these securities in the future. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Funds investing in a single sector may be subject to more volatility than funds investing in a diverse group of sectors. Performance summary This section provides information about your fund's performance, which should always be considered in light of its investment strategy. Putnam Europe Growth Fund is designed for investors seeking capital appreciation through investments primarily in common stocks and other securities of European Companies.
TOTAL RETURN FOR PERIODS ENDED 12/31/99 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 - -------------------------------------------------------------------------------------------- 6 months 23.33% 16.21% 22.89% 17.89% 22.87% 21.87% 23.06% 18.75% - -------------------------------------------------------------------------------------------- 1 year 23.15 16.06 22.26 17.26 22.26 21.26 22.61 18.33 - -------------------------------------------------------------------------------------------- 5 years 176.10 160.25 166.07 164.07 166.01 166.01 171.04 161.49 Annual average 22.52 21.08 21.62 21.44 21.61 21.61 22.07 21.20 - -------------------------------------------------------------------------------------------- Life of fund 340.46 315.06 310.89 310.89 310.46 310.46 322.45 307.46 Annual average 17.26 16.52 16.39 16.39 16.38 16.38 16.74 16.29 - --------------------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/99 MSCI Consumer Europe Index price Index - --------------------------------------------------------------------- 6 months 18.76% 1.56% - --------------------------------------------------------------------- 1 year 15.89 2.80 - --------------------------------------------------------------------- 5 years 171.58 12.76 Annual average 22.12 2.43 - --------------------------------------------------------------------- Life of fund 268.58 28.27 Annual average 15.00 2.70 - --------------------------------------------------------------------- Past performance is no assurance of future results. More recent returns may be more or less than those shown. Returns for class A and class M shares reflect the current maximum initial sales charges of 5.75% and 3.50%, respectively. Class B share returns for the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declines to 1% in the sixth year, and is eliminated thereafter. Returns shown for class B and class M shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect both the initial sales charge or CDSC, if any, currently applicable to each class and in the case of class B and class M shares the higher operating expenses applicable to such shares. 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.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 12/31/99 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 -- -- - -------------------------------------------------------------------------------------- 12/31/99 26.55 28.17 25.92 26.49 26.39 27.35 - -------------------------------------------------------------------------------------- *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) is an unmanaged list of equity securities originating in one of the 15 European countries, with all values expressed in U.S. dollars. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Securities indexes assume reinvestment of all distributions and interest payments and do not take in account brokerage fees or taxes. Securities in the fund do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index. A guide to the financial statements These sections of the report 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. Welcome to www.putnaminv.com Now you can use your PC to get up-to-date information about your funds, learn more about investing and retirement planning, and access market news and economic outlooks from Putnam. VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR: * the benefits of investing with Putnam * Putnam's money management philosophy * complete fund information, daily pricing and long-term performance * your current account value, portfolio value and transaction history * the latest on new funds and other Putnam news You can also read Putnam economist Dr. Robert Goodman's commentary and Putnam's Capital Markets outlook, search for a particular fund by name or objective, use our glossary to decode investment terms . . . and much more. The site can be accessed through any of the major online services (America Online, CompuServe, Prodigy) that offer web access. Of course, you can also access it via Netscape or Microsoft Internet Explorer, using an independent Internet service provider. New features will be added to the site regularly. So be sure to bookmark us at http://www.putnaminv.com
The fund's portfolio December 31, 1999 (Unaudited) COMMON STOCKS (98.0%) (a) NUMBER OF SHARES VALUE Australia (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 1,252,853 Standard Chartered Bank Australia Ltd. $ 19,449,282 Canada (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 503,258 Laurasia Resources Ltd. 9,062,368 Finland (3.8%) - -------------------------------------------------------------------------------------------------------------------------- 15,200 Helsingin Puhelin Oyj (Helsinki Telephone Corp.) Class E 1,264,582 23,675 HPY Holding Oyj (NON) 887,185 410,440 Oy Nokia AB Class A 74,322,475 -------------- 76,474,242 France (19.1%) - -------------------------------------------------------------------------------------------------------------------------- 4,570 Alcatel Alsthom CGE S.A. 1,048,212 830,857 Aventis S.A. 48,060,950 171,299 Axa S.A. 23,850,028 208,383 Banque Nationale de Paris 19,202,410 36,395 Bouygues S.A. 23,103,036 101,775 Carrefour Supermarche S.A. 18,746,813 4,823 Castorama Dubois 1,465,285 192,207 CNP Assurances 7,069,250 105,726 CNP Assurances 144A (NON) 3,888,535 116,371 France Telecom S.A. 15,371,189 39,497 Havas Advertising S.A. 16,807,474 69,325 Lafarge Coppee 8,062,054 36,015 Publicis S.A. 13,586,659 103,800 Rhodia S.A. 2,343,248 701,733 Sanofi-Synthelabo S.A. (NON) 29,183,700 253,553 Schneider S.A. 19,883,043 52,342 Societe Generale 12,163,548 104,997 STMicroelectronics 16,139,803 26,743 Television Francaise I (TF1) 13,989,798 530,570 Total S.A. Class B 70,722,328 234,492 Vivendi 21,148,341 -------------- 385,835,704 Germany (6.3%) - -------------------------------------------------------------------------------------------------------------------------- 640,456 Bayerische Motoren Werke (BMW) AG 19,522,252 68,440 Bayerische Vereinsbank AG 4,668,073 32 Celanese AG (NON) 579 275,610 Mannesmann AG 66,404,647 103,591 ProSieben Media AG 6,013,064 657 SAP AG 323,201 247,589 Siemens AG 31,458,114 -------------- 128,389,930 Ireland (3.8%) - -------------------------------------------------------------------------------------------------------------------------- 1,210,181 Allied Irish Banks PLC 13,781,444 1,288,966 CRH PLC 27,749,376 258,361 Elan Corp. PLC ADR (NON) 7,419,814 196,529 Esat Telecom Group PLC (NON) 17,982,404 3,490,316 Jefferson Smurfit Group PLC 10,458,966 -------------- 77,392,004 Italy (6.3%) - -------------------------------------------------------------------------------------------------------------------------- 951,857 Alleanza Assicurazioni SpA 11,596,150 125,056 Banca Popolare di Brescia SpA 11,052,087 3,917,235 Ente Nazionale Idrocarburi (ENI) SpA 21,516,432 1,240,791 Istituto Bancario San Paolo di Torino 16,838,700 1,289,765 Mediaset SpA 20,033,455 4,115,117 Telecom Italia Mobile SpA 45,910,467 -------------- 126,947,291 Netherlands (10.3%) - -------------------------------------------------------------------------------------------------------------------------- 649,654 Akzo-Nobel N.V. 32,546,886 83,976 ASM Lithography Holding N.V. (NON) 9,318,128 414,193 Fortis Amev N.V. 14,896,244 239,299 Gucci Group N.V. 27,399,736 810,543 Internationale Nederlanden Groep (ING) 48,875,451 262,840 Libertel N.V. (NON) 6,874,843 225,878 Libertel N.V. (NON) 5,908,065 235,995 Philips Electronics N.V. 32,050,481 16,721 Randstad Holding N.V. 804,059 310,429 Vendex International N.V. 8,244,498 663,096 Wolters Kluwer N.V. 22,413,706 -------------- 209,332,097 Portugal (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 1,937,013 Portugal Telecom S.A. 21,220,636 Spain (1.9%) - -------------------------------------------------------------------------------------------------------------------------- 181,675 Acciona S.A. 10,234,843 218,501 Mapfre Vida Seguros 5,033,695 933,174 Telefonica S.A. (NON) 23,281,571 -------------- 38,550,109 Sweden (6.0%) - -------------------------------------------------------------------------------------------------------------------------- 1,776,390 Investor AB 25,062,230 267,951 Pharmacia & Upjohn, Inc. 12,160,259 266,310 SKF AB Class B 6,481,238 1,489,968 Svenska Handelsbanken 18,743,939 921,460 Telefonaktiebolaget LM Ericsson Class B (Ericsson AB) 59,260,316 -------------- 121,707,982 Switzerland (5.2%) - -------------------------------------------------------------------------------------------------------------------------- 13,828 Ares-Serono Group Class B 29,532,161 14,934 Cie Finance Richemont AG Class A 35,646,482 18,485 Clariant AG 8,812,886 69,985 Credit Suisse Group 13,913,475 14,764 Fantastic Corp. (NON) 2,792,286 2,884 Fantastic Corp. (NON) 8,713,593 2,190 Swatch Group AG (The) 2,522,902 14,932 United Bank of Switzerland (UBS) AG 4,033,141 -------------- 105,966,926 United Kingdom (32.8%) - -------------------------------------------------------------------------------------------------------------------------- 3,257,158 Aegis Group PLC 11,838,629 2,448,411 Allied Zurich AG 28,852,915 426,279 Barclays PLC 12,271,050 1,227,692 Bass PLC 15,280,661 2,327,706 British Aerospace PLC 15,416,723 4,519,710 British Petroleum Co. PLC 45,449,594 2,637,685 British Telecommunications PLC ADR 64,467,664 398,500 Cable & Wireless Communications (NON) 5,729,258 1,773,419 Cable & Wireless PLC 30,051,553 2,279,274 Carlton Communications PLC 22,202,093 3,378,085 Diageo PLC 27,175,653 740,057 Dixons Group PLC 17,800,817 1,497,042 EMI Group PLC 14,691,304 3,425,561 Granada Group PLC 34,723,662 1,006,801 Hanson PLC 8,440,945 1,439,829 HSBC Holdings PLC 20,072,515 18,100 Jazztel PLC 1,178,763 884,388 Land Securities PLC 9,914,764 392,656 Misys PLC 6,120,961 1,354,556 Next PLC 12,997,610 938,974 Peninsular and Oriental Steam Navigation Co. 15,668,736 2,564,282 Scottish Power PLC 19,427,580 3,675,346 Securicor Group PLC (NON) 9,543,975 9,321,172 Shell Transportation & Trading 77,472,816 5,131,421 Siebe PLC 27,934,933 1,211,837 Smithkline Beecham PLC ADR 15,465,052 1,671,337 Smiths Industries PLC 24,973,870 10,902,224 Tesco PLC 33,153,560 336,300 Trinity PLC 3,590,942 3,900,997 Vodafone Group PLC 19,330,374 978,801 Wolseley PLC 7,506,534 396,417 WPP Group PLC 6,282,050 -------------- 665,027,556 United States (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 6,500 NTL, Inc. $ 810,875 -------------- Total Common Stocks (cost $1,476,305,747) $1,986,167,002 PREFERRED STOCKS (--%) (a) (cost $941,574) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 1,562 Sap Ag Systeme Preference Bearer (Germany) $ 939,680 SHORT-TERM INVESTMENTS (1.9%) (a) (cost $38,728,000) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $38,728,000 Interest in $578,946,000 joint repurchase agreement dated December 31, 1999 with J P Morgan due January 3, 2000 with respect to various U.S. Treasury obligations -- maturity value of $38,736,068 for an effective yield of 2.50% $ 38,728,000 - -------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,515,975,321) (b) $2,025,834,682 - -------------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $2,025,831,527. (b) The aggregate identified cost on a tax basis is $1,517,033,939 resulting in gross unrealized appreciation and depreciation of $545,581,284 and $36,780,541, respectively, or net unrealized appreciation of $508,800,743. (NON) Non-income-producing security. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR after the name of a foreign holding stands for American Depositary Receipts, representing ownership of foreign securities on deposit with a domestic custodian bank. The fund had the following industry group concentrations greater than 10% at December 31, 1999 (as a percentage of net assets): Telecommunications 19.2% Insurance and finance 16.3 Oil and gas 11.1 The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities December 31, 1999 (Unaudited) Assets - ----------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $1,515,975,321) (Note 1) $2,025,834,682 - ----------------------------------------------------------------------------------------------- Cash 963 - ----------------------------------------------------------------------------------------------- Foreign currency 1,123 - ----------------------------------------------------------------------------------------------- Dividends, interest and other receivables 5,553,496 - ----------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 7,758,200 - ----------------------------------------------------------------------------------------------- Receivable for securities sold 31,650,680 - ----------------------------------------------------------------------------------------------- Total assets 2,070,799,144 Liabilities - ----------------------------------------------------------------------------------------------- Payable for securities purchased 36,130,682 - ----------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 3,663,945 - ----------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 3,215,586 - ----------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 307,513 - ----------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 44,262 - ----------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 5,187 - ----------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 1,501,905 - ----------------------------------------------------------------------------------------------- Other accrued expenses 98,537 - ----------------------------------------------------------------------------------------------- Total liabilities 44,967,617 - ----------------------------------------------------------------------------------------------- Net assets $2,025,831,527 Represented by - ----------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $1,449,588,626 - ----------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (959,770) - ----------------------------------------------------------------------------------------------- Accumulated net realized gain on investment and foreign currency transactions (Note 1) 67,442,722 - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 509,759,949 - ----------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $2,025,831,527 Computation of net asset value and offering price - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($1,014,315,546 divided by 38,199,734 shares) $26.55 - ----------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $26.55)* $28.17 - ----------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($911,777,684 divided by 35,170,691 shares)** $25.92 - ----------------------------------------------------------------------------------------------- Net asset value and offering price per class C share ($4,333,691 divided by 163,567 shares)** $26.49 - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($95,404,606 divided by 3,614,809 shares) $26.39 - ----------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $26.39)* $27.35 - ----------------------------------------------------------------------------------------------- * 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.
Statement of operations Six months ended December 31, 1999 (Unaudited) Investment income: - ----------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $1,334,357) $ 13,155,442 - ----------------------------------------------------------------------------------------------- Interest 613,477 - ----------------------------------------------------------------------------------------------- Total investment income 13,768,919 Expenses: - ----------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 6,290,754 - ----------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 1,879,813 - ----------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 18,418 - ----------------------------------------------------------------------------------------------- Administrative services (Note 2) 10,200 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 1,133,782 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 4,037,282 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 9,218 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 344,867 - ----------------------------------------------------------------------------------------------- Reports to shareholders 37,332 - ----------------------------------------------------------------------------------------------- Auditing 61,203 - ----------------------------------------------------------------------------------------------- Legal 6,778 - ----------------------------------------------------------------------------------------------- Postage 114,018 - ----------------------------------------------------------------------------------------------- Other 186,391 - ----------------------------------------------------------------------------------------------- Total expenses 14,130,056 - ----------------------------------------------------------------------------------------------- Expense reduction (Note 2) (619,986) - ----------------------------------------------------------------------------------------------- Net expenses 13,510,070 - ----------------------------------------------------------------------------------------------- Net investment income 258,849 - ----------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 82,649,854 - ----------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Notes 1 and 3) (640,838) - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 120,633 - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of investments during the period 306,320,009 - ----------------------------------------------------------------------------------------------- Net gain on investments 388,449,658 - ----------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $388,708,507 - ----------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Six months ended Year ended December 31 June 30 1999* 1999 - --------------------------------------------------------------------------------------------------------------- Increase in net assets - --------------------------------------------------------------------------------------------------------------- Operations: - --------------------------------------------------------------------------------------------------------------- Net investment income $ 258,849 $ 6,302,471 - --------------------------------------------------------------------------------------------------------------- Net realized gain on investments and foreign currency transactions 82,009,016 11,887,118 - --------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies 306,440,642 (67,165,107) - --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 388,708,507 (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) (144,454,054) 469,025,201 - --------------------------------------------------------------------------------------------------------------- Total increase in net assets 233,504,594 324,547,429 Net assets - --------------------------------------------------------------------------------------------------------------- Beginning of period 1,792,326,933 1,467,779,504 - --------------------------------------------------------------------------------------------------------------- End of period (including distribution is excess of net investment income and undistributed net investment income of $959,770 and $6,683,630, respectively) $2,025,831,527 $1,792,326,933 - --------------------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) CLASS A - --------------------------------------------------------------------------------------------------------------------------------- Six months ended Per-share December 31 operating performance (Unaudited) Year ended June 30 - --------------------------------------------------------------------------------------------------------------------------------- 1999 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $21.72 $23.68 $18.96 $15.91 $13.88 $11.64 - --------------------------------------------------------------------------------------------------------------------------------- Investment operations - --------------------------------------------------------------------------------------------------------------------------------- Net investment income .04(c) .16(c) .31(c) .24(c) .24(c) .18 - --------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 5.02 (.91) 5.91 4.07 2.19 2.22 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 5.06 (.75) 6.22 4.31 2.43 2.40 - --------------------------------------------------------------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------------------------------------------------------------- From net investment income (.19) (.21) (.37) (.20) -- -- - --------------------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (.04) (.88) (1.13) (1.06) (.40) (.16) - --------------------------------------------------------------------------------------------------------------------------------- In excess of net realized gain on investments -- (.12) -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.23) (1.21) (1.50) (1.26) (.40) (.16) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $26.55 $21.72 $23.68 $18.96 $15.91 $13.88 - --------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data - --------------------------------------------------------------------------------------------------------------------------------- Total return at net asset value (%)(a) 23.33* (2.99) 35.22 28.49 17.82 20.84 - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $1,014,316 $903,697 $791,871 $313,492 $127,980 $90,420 - --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) .60* 1.23 1.32 1.45 1.47 1.38 - --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) .20* .72 1.46 1.43 1.59 1.45 - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 46.94* 65.08 48.86 55.45 38.85 44.33 - --------------------------------------------------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the year ended June 30, 1996 and thereafter, includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2) (c) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period. (d) Net investment income was less than $0.01 per share.
Financial highlights (For a share outstanding throughout the period) CLASS B - -------------------------------------------------------------------------------------------------------------------------------- Six months ended Per-share December 31 operating performance (Unaudited) Year ended June 30 - -------------------------------------------------------------------------------------------------------------------------------- 1999 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $21.14 $23.11 $18.56 $15.64 $13.75 $11.62 - -------------------------------------------------------------------------------------------------------------------------------- Investment operations - -------------------------------------------------------------------------------------------------------------------------------- Net investment income (.04)(c) --(c)(d) .14(c) .13(c) .14(c) .08 - -------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 4.88 (.88) 5.80 3.97 2.15 2.21 - -------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 4.84 (.88) 5.94 4.10 2.29 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) (.16) - -------------------------------------------------------------------------------------------------------------------------------- In excess of net realized gain on investments -- (.12) -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (.06) (1.09) (1.39) (1.18) (.40) (.16) - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $25.92 $21.14 $23.11 $18.56 $15.64 $13.75 - -------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data - -------------------------------------------------------------------------------------------------------------------------------- Total return at net asset value (%)(a) 22.89* (3.66) 34.26 27.51 16.95 19.92 - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $911,778 $790,680 $633,294 $261,454 $90,126 $45,733 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) .98* 1.98 2.07 2.20 2.23 2.13 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (.18)* (.01) .69 .76 .96 .74 - -------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 46.94* 65.08 48.86 55.45 38.85 44.33 - -------------------------------------------------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the year ended June 30, 1996 and thereafter, includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2) (c) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period. (d) Net investment income was less than $0.01 per share.
Financial highlights (For a share outstanding throughout the period) CLASS C - ------------------------------------------------------------------------------------------------------------------------------- For the period Per-share July 26, 1999+ operating performance to December 31 - ------------------------------------------------------------------------------------------------------------------------------- 1999 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $21.68 - ------------------------------------------------------------------------------------------------------------------------------- Investment operations - ------------------------------------------------------------------------------------------------------------------------------- Net investment income (c) (.03) - ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 5.04 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 5.01 - ------------------------------------------------------------------------------------------------------------------------------- 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 $26.49 - ------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------- Total return at net asset value (%)(a) 23.16* - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $4,334 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) .84* - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (.13) * - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 46.94* - ------------------------------------------------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the year ended June 30, 1996 and thereafter, includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2) (c) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period. (d) Net investment income was less than $0.01 per share.
Financial highlights (For a share outstanding throughout the period) CLASS M - -------------------------------------------------------------------------------------------------------------------------------- Six months ended For the period Per-share December 31 Dec. 1, 1994+ operating performance (Unaudited) Year ended June 30 to June 30 - -------------------------------------------------------------------------------------------------------------------------------- 1999 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $21.48 $23.51 $18.85 $15.86 $13.90 $12.35 - -------------------------------------------------------------------------------------------------------------------------------- Investment operations - -------------------------------------------------------------------------------------------------------------------------------- Net investment income (.01)(c) .02(c) .20(c) .19(c) .24(c) .09 - -------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 4.96 (.85) 5.89 4.03 2.12 1.62 - -------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 4.95 (.83) 6.09 4.22 2.36 1.71 - -------------------------------------------------------------------------------------------------------------------------------- Less distributions: - -------------------------------------------------------------------------------------------------------------------------------- From net investment income --(d) (.20) (.30) (.17) -- -- - -------------------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (.04) (.88) (1.13) (1.06) (.40) (.16) - -------------------------------------------------------------------------------------------------------------------------------- In excess of net realized gain on investments -- (.12) -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (.04) (1.20) (1.43) (1.23) (.40) (.16) - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $26.39 $21.48 $23.51 $18.85 $15.86 $13.90 - -------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data - -------------------------------------------------------------------------------------------------------------------------------- Total return at net asset value (%)(a) 23.06* (3.37) 34.56 27.91 17.28 14.06* - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $95,405 $97,950 $42,614 $15,811 $4,047 $746 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) .85* 1.73 1.82 1.95 2.02 1.08* - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) (.06)* .07 .99 1.10 1.59 1.61* - -------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 46.94* 65.08 48.86 55.45 38.85 44.33 - -------------------------------------------------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the year ended June 30, 1996 and thereafter, includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2) (c) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period. (d) Net investment income was less than $0.01 per share.
Notes to financial statements December 31, 1999 (Unaudited) Note 1 Significant accounting policies Putnam Europe Growth Fund ("the fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks capital appreciation by investing primarily in common stocks and other securities of European companies. The fund offers class A, class B, 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 lower than class B shares and higher than class A shares. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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 six months ended December 31, 1999, 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. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. Note 2 Management fee, administrative services and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is 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 six months ended December 31, 1999, fund expenses were reduced by $619,986 under expense offset arrangements with PFTC and brokerage service arrangements. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Each Trustee of the fund receives an annual Trustee fee, of which $1,981 has been allocated to the fund, and an additional fee for each Trustee's 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 Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00%, 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 six months ended December 31, 1999, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $181,301 and $219,518 from the sale of class A and class M shares, respectively, and received $838,528 and $21 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 six months ended December 31, 1999, Putnam Mutual Funds Corp., acting as underwriter received $29,469 on class A redemptions. Note 3 Purchases and sales of securities During the six months ended December 31, 1999, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $827,200,752 and $968,072,386, respectively. There were no purchases and sales of U.S. government obligations. Note 4 Capital shares At December 31, 1999, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended December 31, 1999 - ----------------------------------------------------------------------------- Class A Shares Amount - ----------------------------------------------------------------------------- Shares sold 20,403,333 $463,166,819 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 307,755 7,801,076 - ----------------------------------------------------------------------------- 20,711,088 470,967,895 Shares repurchased (24,119,366) (549,112,693) - ----------------------------------------------------------------------------- Net decrease (3,408,278) $(78,144,798) - ----------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------- Six months ended December 31, 1999 - ----------------------------------------------------------------------------- Class B Shares Amount - ----------------------------------------------------------------------------- Shares sold 3,459,698 $ 77,020,597 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 72,210 1,787,797 - ----------------------------------------------------------------------------- 3,531,908 78,808,394 Shares repurchased (5,758,000) (126,976,347) - ----------------------------------------------------------------------------- Net decrease (2,226,092) $(48,167,953) - ----------------------------------------------------------------------------- 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 December 31, 1999 - ----------------------------------------------------------------------------- Class C Shares Amount - ----------------------------------------------------------------------------- Shares sold 297,193 $6,738,255 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,156 29,235 - ----------------------------------------------------------------------------- 298,349 6,767,490 Shares repurchased (134,782) (3,078,774) - ----------------------------------------------------------------------------- Net increase 163,567 $3,688,716 - ----------------------------------------------------------------------------- Six months ended December 31, 1999 - ----------------------------------------------------------------------------- Class M Shares Amount - ----------------------------------------------------------------------------- Shares sold 2,617,440 $ 60,565,204 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,524 63,623 - ----------------------------------------------------------------------------- 2,619,964 60,628,827 Shares repurchased (3,564,680) (82,458,846) - ----------------------------------------------------------------------------- Net decrease (944,716) $(21,830,019) - ----------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------- Our commitment to quality service * CHOOSE AWARD-WINNING SERVICE Putnam Investments has won the DALBAR Service Award 8 times in the past 9 years. In 1997 and 1998, Putnam was the only company to win all three DALBAR awards: for service to investors, to financial advisors, and to variable annuity contract holders.* * HELP YOUR INVESTMENTS GROW Set up a systematic program for investing with as little as $25 a month from a Putnam money market fund or from your checking or savings account.+ * SWITCH FUNDS EASILY Within the same class of shares, you can move money from one account to another without a service charge. (This privilege is subject to change or termination.) * ACCESS YOUR MONEY QUICKLY You can get checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than the original cost of the shares. For details about any of these or other services, contact your financial advisor or call the toll-free number shown below and speak with a helpful Putnam representative. To learn more about Putnam, visit our Web site. www.putnaminv.com To make an additional investment in this or any other Putnam fund, contact your financial advisor or call our toll-free number. 1-800-225-1581 * DALBAR, Inc., an independent research firm, presents the awards to financial services firms that provide consistently excellent service. + Regular investing, of course, does not guarantee a profit or protect against a loss in a declining market. The Putnam family of funds The following is a complete list of Putnam's open-end mutual funds. Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund [DBL. DAGGER] Capital Opportunities Fund 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 [DBL. DAGGER] OTC & Emerging Growth Fund Research Fund Tax Smart Equity Fund Vista Fund Voyager Fund Voyager Fund II GROWTH AND INCOME FUNDS Balanced Retirement Fund Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston Global Growth and Income Fund The Putnam Fund for Growth and Income Growth and Income Fund II International Growth and Income Fund New Value Fund 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 Diversified Income Trust II [DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact Putnam for details. [SECTION MARK] Not available in all states. ** An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve your investment at $1.00 per share, it is possible to lose money by investing in the fund. Check your account balances and current performance at www.putnaminv.com. Fund information WEB SITE www.putnaminv.com INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman John A. Hill, Vice Chairman Jameson Adkins Baxter Hans H. Estin Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Mark D. Pollard Vice President and Fund Manager Omid Kamshad Vice President and Fund Manager Nigel Hart Vice President and Fund Manager Nicholas J. Melhuish Vice President and Fund Manager Richard A. Monaghan Vice President John R. Verani Vice President This report is for the information of shareholders of Putnam Europe Growth Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam Investments' Web site: www.putnaminv.com. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution; are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency; and involve risk, including the possible loss of the principal amount invested. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - --------------------- BULK RATE U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminv.com SA005-58381 057/234/688 2/00 -----END PRIVACY-ENHANCED MESSAGE-----