UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: (811- 05693 )

Exact name of registrant as specified in charter: Putnam Europe Equity Fund

Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109

Name and address of agent for service:	Beth S. Mazor, Vice President
	One Post Office Square
	Boston, Massachusetts 02109
Copy to:	John W. Gerstmayr, Esq.
	Ropes & Gray LLP
	One International Place
	Boston, Massachusetts 02110
Registrant’s telephone number, including area code:		(617) 292-1000

Date of fiscal year end: June 30, 2006

Date of reporting period: July 1, 2005—June 30, 2006

Item 1. Report to Stockholders:

The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:

What makes Putnam different?

In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management.

THE PRUDENT MAN RULE

All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.

A time-honored tradition in money management

Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.

A prudent approach to investing

We use a research-driven team approach to seek consistent, dependable, superior investment results over time, although there is no guarantee a fund will meet its objectives.

Funds for every investment goal

We offer a broad range of mutual funds and other financial products so investors and their financial representatives can build diversified portfolios.

A commitment to doing what’s right for investors

We have below-average expenses and stringent investor protections, and provide a wealth of information about the Putnam funds.

Industry-leading service

We help investors, along with their financial representatives, make informed investment decisions with confidence.

Putnam
Europe Equity
Fund

6| 30| 06
Annual Report

Message from the Trustees	2
About the fund	4
Report from the fund managers	7
Performance	12
Expenses	15
Portfolio turnover	17
Risk	18
Your fund’s management	19
Terms and definitions	22
Trustee approval of management contract	24
Other information for shareholders	29
Financial statements	30
Federal tax information	51
Brokerage commissions	52
About the Trustees	53
Officers	59

Cover photograph: © Marco Cristofori

Message from the Trustees

Dear Fellow Shareholder

Over the last two months of your fund’s reporting period, investors were particularly preoccupied with the course of the economy. A more pessimistic outlook pervaded the markets in May and June as leading economic indicators began to warn of slower growth and the Federal Reserve (the Fed) continued its series of interest-rate increases. The resulting correction undercut much of the progress that markets had achieved in the first four months of 2006.

However, we believe that today’s higher interest rates, far from being a threat to global economic fundamentals, are in fact an integral part of them. These higher rates are bringing business borrowing costs closer to the rate of return available from investments. At some point, this could mean that economic growth may, indeed, slow somewhat, but we consider this a typical development for the middle of an economic cycle, and one that could help provide the basis for a longer and more durable business expansion and a continued healthy investment environment.

The recent correction has brought valuations back to attractive levels and created opportunities in a wide array of markets and sectors. You can be assured that the investment professionals managing your fund are working to take advantage of these opportunities as they arise. Moreover, Putnam Investments’ management team, under the leadership of Chief Executive Officer Ed Haldeman, continues to focus on investment performance and remains committed to putting the interests of shareholders first.

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We would like to take this opportunity to announce the retirement of one of your fund’s Trustees, John Mullin, who has been an independent Trustee of the Putnam funds since 1997. We thank him for his service. In the following pages, members of your fund’s management team discuss the fund’s performance and strategies for the fiscal period ended June 30, 2006, and provide their outlook for the months ahead. As always, we thank you for your support of the Putnam funds.

Putnam Europe Equity Fund: the advantages
of investing in European markets

As a shareholder of Putnam Europe Equity Fund, you are positioning some of your money to benefit from opportunities in one of the world’s most advanced economies.

While international investing involves additional risks, Europe offers a long history of capitalism and stock investing, and the region continues to evolve. Today, the 25 member states of the European Union, with over 450 million people, form a large, integrated economy that exports more goods and services than any nation in the world.

With these advantages, it is not surprising that European companies are leaders in many business sectors, including financials, health care, and telecommunications. If you look at the products or services you use every day —from cars to cellular telephones to household products — you are likely to find many items made by European companies.

At the macroeconomic level, Europe offers diversification because it generally follows a different business cycle than the United States. In Europe, interest rates are not set by the U.S. Federal Reserve Board, but by the European Central Bank, the Bank of England, and other central banks. While different economic systems, political developments, and currencies like the euro, the British pound, and the Swiss franc can add risk, they also provide diversification for U.S.-based investors.

For over 15 years, Putnam Europe Equity Fund has served investors by seeking to invest in leading companies in European markets. Pursuing Putnam’s “blend” strategy, the fund’s management team targets stocks believed to be worth more than their current stock prices indicate, and seeks to perform well when either growth- or value-style stocks lead international markets. The team selects

Changes in the world and Europe’s regional economy have added to the investment potential of European companies since Putnam Europe Equity Fund launched in 1990.

stocks and determines market and sector weightings by relying on the proprietary research of Putnam analysts and team members based in Boston, as well as in London for better access to information about European companies.

Finally, investing in Europe may help you in managing one important financial risk — the possibility of a slump in the U.S. economy. Investing internationally can diversify your portfolio and gives you a chance to keep building wealth even if U.S. stocks struggle.

Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The fund invests some or all of its assets in small and/or midsize companies. Such investments increase the risk of greater price fluctuations. The fund concentrates its investments by region and involves more risk than a fund that invests more broadly. While diversification can help protect your returns from excessive volatility, it cannot protect against market losses.

The European Union: Expansion increases investment opportunities.

The European Union (EU) has grown over the past half century because it has succeeded in providing stable conditions for economic growth and investment. From a base of six members in the 1950s, it has grown to include 25 countries, with four additional countries currently candidates for membership.

What does the continuing expansion of the EU mean for investors?

Greater growth potential. Businesses in new member countries gain greater access to international capital and trade opportunities within the EU.

Lower business costs. Companies in older EU countries can increase their sales in new member countries while reducing their business costs by shifting production to less expensive markets.

Putnam Europe Equity Fund seeks capital appreciation by investing primarily in common stocks of companies located in European markets. Without a predetermined bias toward growth or value stocks, the fund targets large and midsize companies priced below what we believe to be their true worth. It may be suitable for investors seeking capital appreciation who are willing to accept the risks of investing in European markets.

Highlights

* Putnam Europe Equity Fund class A shares returned 24.54% at net asset value (NAV) for the 12 months ended June 30, 2006.

* The fund’s benchmark, the MSCI Europe Index, returned 24.75% in U.S. dollar terms during the period.

* The fund’s peer group, the Lipper European Region Funds category, had an average return of 26.75% during the period.

* Additional fund performance, comparative performance, and Lipper data can be found in the performance section beginning on page 12.

Performance

Total return for class A shares for periods ended 6/30/06

Since the fund’s inception (9/7/90), average annual return is 10.68% at NAV and 10.30% at POP.

	Average annual return		Cumulative return
	NAV	POP	NAV	POP
10 years	8.91%	8.32%	134.70%	122.40%
5 years	7.92	6.76	46.38	38.71
3 years	21.55	19.39	79.57	70.17
1 year	24.54	18.01	24.54	18.01

Data is historical. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns at NAV do not reflect a sales charge of 5.25% . For the most recent month-end performance, visit www.putnam.com. For a portion of the period, this fund limited expenses, without which returns would have been lower. A short-term trading fee of up to 2% may apply.

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Report from the fund managers

The year in review

During its fiscal year ended June 30, 2006, Putnam Europe Equity Fund benefited from strong capital appreciation among European stocks. The fund’s return at net asset value (NAV, or without sales charges) lagged the return of the fund’s benchmark index, primarily because of the portfolio’s limited exposure to stocks in the metals industry within the basic materials sector. Stock selections generally contributed to results, and our shift to an underweight position in technology stocks also proved effective. The fund’s return in the period ranked narrowly behind the average return of other European region funds tracked by Lipper. We believe this was in part because the portfolio, unlike many in its peer group, had virtually no investments in the emerging markets of Eastern Europe. These markets significantly outperformed the developed markets but we considered them to be overvalued. Currency positions had a slight positive impact as the U.S. dollar weakened over the course of the period relative to the euro and the British pound.

Market overview

European stock markets delivered impressive results for the fiscal year. Merger and acquisitions (M&A) activity reached record highs, spurred on by low interest rates, industry restructurings, strong corporate balance sheets, and interest from private equity investors. In a break from recent years, markets often responded positively to M&A deals over the period, as indicated by the fact that stocks of acquiring companies have tended to appreciate along with the stocks of acquired companies. Also, corporate earnings through the period continued to grow and helped to drive impressive advances across most European markets. Toward the end of the period the market experienced a sharp reversal as European equities, in common with markets across the world, fell in response to fears of rising inflation and an outlook for slowing global economic growth.

To ward off inflationary pressures, the European Central Bank (ECB) raised

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interest rates three times, beginning in December 2005. This was the first time in five years that the ECB has tightened rates. Despite the rate increases and market correction late in the fiscal period, companies have continued to maintain a positive outlook on the current environment.

Strategy overview

In managing your fund’s portfolio, our approach is founded on careful stock selection. We seek to own a range of large and midsize European companies mispriced by the market — in other words, companies that we believe are worth more than their current stock prices indicate. The fund’s blend investment style gives us the flexibility to invest in an array of companies without a bias toward either growth or value stocks. For example, we may target companies that are growing rapidly and seem to have the potential to continue growing, as well as out-of-favor companies undergoing changes that may improve their earnings and growth potential. While we also analyze markets and industry sectors to fully understand the investment environment, research on individual stocks has the greatest impact on our investment decisions. Portfolio overweights relative to the benchmark at the sector level tend to be small and typically reflect our convictions about individual stocks.

During the period, the portfolio had an overweight position in the consumer

Market sector performance
These indexes provide an overview of performance in different market sectors for the 12 months ended 6/30/06.
Equities
MSCI Europe Index (European stocks)	24.75%
MSCI Pacific Index (Asian stocks)	30.93%
Russell 2000 Index (small-company stocks)	14.58%
S&P 500 Index (broad stock market)	8.63%
Bonds
Lehman Aggregate Bond Index (broad bond market)	-0.81%
Lehman Government Bond Index (U.S. Treasury and agency securities)	-1.16%
JP Morgan Global High Yield Index (global high-yield corporate bonds)	5.07%
Citigroup World Government Bond Index (global government bonds)	-0.36%

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cyclicals sector because of the attractiveness of individual stocks there. Also, we decided to increase exposure to financials while reducing technology from an overweight to an underweight position. Both decisions resulted from our valuation criteria driving individual stock investments. Based on the same reasons, we maintained an underweight to stocks in the United Kingdom.

Your fund’s holdings

Several fund holdings benefited from the record pace of mergers and acquisitions in the past year. In the telecommunications sector, Danish company TDC was acquired at a premium in January by a group of private equity firms. Shares of utilities in Europe outperformed the broader market on acquisition speculation and on the prospect of deregulation that could further increase the possibilities of cross-border mergers and acquisitions. Fund holding Iberdrola of Spain appreciated on speculation that it would also become an acquisition target.

Our selections among financial stocks were among the portfolio’s best performers during the period. Shares of financial holdings with investment banking operations that benefited from the M&A boom, such as BNP Paribas of France and Credit Suisse of Switzerland, were strong contributors to performance.

Fund holdings in energy stocks generally outperformed the broader market, as the price of oil remained at elevated

Comparison of top country weightings

This chart shows how the fund’s top weightings have changed over the last six months.
Weightings are shown as a percentage of net assets. Holdings will vary over time.

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levels. The fund’s returns benefited both from an overweight position in the sector and from our stock selection. Total of France, among the top holdings near the end of the period, helped the fund’s results. Norsk Hydro of Norway contributed strong results. The fund’s overweight position in service companies that develop new energy fields, such as Saipem of Italy, also contributed to results during the fiscal period, though these stocks underperformed near the end of the period as investors became more concerned about the effects of higher interest rates.

Stocks in the communication services sector underperformed the broader market during the reporting period. Large companies with major businesses in traditional fixed-line telephone service were particularly weak, reflecting concerns that the profit margins of fixed-line services would erode as voice-over Internet protocol (VOIP) services become more popular. VOIP services allow telephone communications over the Internet, are competitively priced, and are offered by smaller rivals of the established large fixed-line companies. This was a problem for France Telecom in particular; this stock also lagged the market because of a poor earnings report and management’s warning of slower revenue growth ahead. Also, shares of Vodafone Group of the United Kingdom, the world’s biggest mobile-phone company, have languished as the company revisits its long-term strategy.

Top holdings

This table shows the fund's top holdings, and the percentage of the fund's net assets that each comprised, as of 6/30/06. The fund's holdings will change over time.

Holding (percent of fund's net assets)	Country	Industry
Royal Dutch Shell PLC Class A (3.9%)	Netherlands	Oil and gas
UniCredito Italiano SpA (3.4%)	Italy	Banking
Roche Holding AG (3.4%)	Switzerland	Pharmaceuticals
ABN AMRO Holding NV (2.9%)	Netherlands	Banking
Credit Suisse Group (2.8%)	Switzerland	Investment banking/brokerage
Vodafone Group PLC (2.8%)	United Kingdom	Telecommunications
Novartis AG (2.7%)	Switzerland	Pharmaceuticals
Total SA (2.6%)	France	Oil and gas
Allianz AG (2.5%)	Germany	Insurance
Reckitt Benckiser PLC (2.5%)	United Kingdom	Consumer goods

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Vodafone sold its businesses in Japan and Sweden, and there is speculation that it will soon exit the U.S. market. Overall, however, we believe we added value from stock selection in the sector.

Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.

The outlook for your fund

The following commentary reflects anticipated developments that could affect your fund over the next six months, as well as your management team’s plans for responding to them.

Europe’s economy has continued to strengthen thus far in 2006, with Germany, France, and Italy showing surprisingly strong economic improvement. Confidence in Germany and Italy remains high, while there are signs of improved consumer spending in France. The United Kingdom economy also appears to be recovering. Housing prices have risen and mortgage approvals have increased significantly — a key forward indicator for the health of the housing market. With British consumer confidence still fragile, however, we believe that interest rates in the U.K. are likely to remain on hold over the summer, though the ECB may continue to raise rates because of concerns about inflation.

The recent sell-off in the market after an extended period of appreciation suggests that as growth becomes harder to find, those firms that are able to exhibit sustainable secular growth are likely to command a premium once again. As such, our positioning toward such firms, which have strong cash flow and consistent above-trend performance, is intended to allow the fund to exploit such a rotation. Overall, we remain focused on refining the portfolio’s risk/return profile to maintain well-balanced exposure to companies we consider likely to continue appreciating.

The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.

International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The fund invests some or all of its assets in small and/or midsize companies. Such investments increase the risk of fluctuations in the value of your investment. The fund concentrates its investments in one region and involves more risk than a fund that invests more broadly.

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Your fund’s performance

This section shows your fund’s performance for periods ended June 30, 2006, the end of its fiscal year. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. For the most recent month-end performance, please visit www.putnam.com or call Putnam at 1-800-225-1581. Class Y shares are generally only available to corporate and institutional clients. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.

Fund performance
Total return for periods ended 6/30/06
	Class A		Class B		Class C		Class M		Class R	Class Y
(inception dates)	(9/7/90)		(2/1/94)		(7/26/99)		(12/1/94)		(12/1/03)	(10/4/05)
	NAV	POP	NAV	CDSC	NAV	CDSC	NAV	POP	NAV	NAV
Annual average
(life of fund)	10.68%	10.30%	9.85%	9.85%	9.85%	9.85%	10.16%	9.93%	10.42%	10.69%
10 years	134.70	122.40	117.97	117.97	117.82	117.82	123.78	116.55	129.48	135.19
Annual average	8.91	8.32	8.10	8.10	8.10	8.10	8.39	8.03	8.66	8.93
5 years	46.38	38.71	40.88	38.88	40.90	40.90	42.64	37.99	44.97	46.68
Annual average	7.92	6.76	7.10	6.79	7.10	7.10	7.36	6.65	7.71	7.96
3 years	79.57	70.17	75.58	72.58	75.52	75.52	76.91	71.20	78.66	79.95
Annual average	21.55	19.39	20.64	19.95	20.63	20.63	20.94	19.63	21.34	21.63
1 year	24.54	18.01	23.65	18.65	23.66	22.66	23.97	19.95	24.52	24.80

Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for class A and M shares reflect a sales charge of 5.25% and 3.25%, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares.

For a portion of the period, this fund limited expenses, without which returns would have been lower.

A 2% short-term trading fee may be applied to shares exchanged or sold within 5 days of purchase. In addition, there is a 1% short-term trading fee for this fund on shares sold or exchanged between 6 and 90 days.

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Change in the value of a $10,000 investment ($9,475 after sales charge)

Cumulative total return from 6/30/96 to 6/30/06

Past performance does not indicate 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 $21,797 and $21,782, 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 $21,655 at public offering price. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $22,948 and $23,519, respectively. See first page of performance section for performance calculation method.

Comparative index returns
For periods ended 6/30/06
		Lipper European
	MSCI Europe	Region Funds
	Index	category average*
Annual average
(life of fund)	10.11%	9.93%
10 years	161.53	179.78
Annual average	10.09	10.63
5 years	64.35	82.22
Annual average	10.45	11.96
3 years	87.89	97.91
Annual average	23.40	25.15
1 year	24.75	26.75

Index and Lipper results should be compared to fund performance at net asset value.

* Over the 1-, 3-, 5-, and 10-year periods ended 6/30/06, there were 103, 95, 82, and 29 funds, respectively, in this Lipper category.

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Fund price and distribution information
For the 12-month period ended 6/30/06
Distributions	Class A		Class B	Class C	Class M		Class R	Class Y
Number	1		1	1	1		1	1
Income	$0.278		$0.078	$0.107	$0.152		$0.257	$0.290
Capital gains	—		—	—	—		—	—
Total	$0.278		$0.078	$0.107	$0.152		$0.257	$0.290
Share value:	NAV	POP	NAV	NAV	NAV	POP	NAV	NAV
6/30/05	$20.79	$21.94	$20.03	$20.58	$20.61	$21.30	$20.75	—
10/4/05*	—	—	—	—	—	—	—	$22.46
6/30/06	25.58	27.00	24.68	25.33	25.38	26.23	25.55	25.62
* Inception date of class Y shares.

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Your fund’s expenses

As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund limited these expenses; had it not done so, expenses would have been higher. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial advisor.

Review your fund’s expenses

The table below shows the expenses you would have paid on a $1,000 investment in Putnam Europe Equity Fund from January 1, 2006, to June 30, 2006. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

	Class A	Class B	Class C	Class M	Class R	Class Y
Expenses paid per $1,000*	$ 7.75	$ 11.68	$ 11.68	$ 10.37	$ 9.06	$ 6.43
Ending value (after expenses)	$1,125.40	$1,121.30	$1,121.30	$1,123.00	$1,125.00	$1,127.20

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of net assets for the six months ended 6/30/06. The expense ratio may differ for each share class (see the table at the bottom of the next page). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year. Does not reflect the effect of a non-recurring reimbursement by Putnam. If this amount had been reflected in the table above, expenses for each share class would have been lower.

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended June 30, 2006, use the calculation method below. To find the value of your investment on January 1, 2006, go to www.putnam.com and log on to your account. Click on the “Transaction History” tab in your Daily Statement and enter 01/01/2006 in both the “from” and “to” fields. Alternatively, call Putnam at 1-800-225-1581.

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Compare expenses using the SEC’s method

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

	Class A	Class B	Class C	Class M	Class R	Class Y
Expenses paid per $1,000*	$ 7.35	$ 11.08	$ 11.08	$ 9.84	$ 8.60	$ 6.11
Ending value (after expenses)	$1,017.50	$1,013.79	$1,013.79	$1,015.03	$1,016.27	$1,018.74

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of net assets for the six months ended 6/30/06. The expense ratio may differ for each share class (see the table at the bottom of this page). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year. Does not reflect the effect of a non-recurring reimbursement by Putnam. If this amount had been reflected in the table above, expenses for each share class would have been lower.

Compare expenses using industry averages

You can also compare your fund’s expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranks funds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown below indicates how much of your fund’s net assets have been used to pay ongoing expenses during the period.

	Class A	Class B	Class C	Class M	Class R	Class Y
Your fund's annualized
expense ratio*	1.47%	2.22%	2.22%	1.97%	1.72%	1.22%
Average annualized expense
ratio for Lipper peer group†	1.56%	2.31%	2.31%	2.06%	1.81%	1.31%

* For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights. Does not reflect the effect of a non-recurring reimbursement by Putnam. If this amount had been reflected in the table above, the expense ratio for each share class would have been lower.

† Simple average of the expenses of all front-end load funds in the fund’s Lipper peer group, calculated in accordance with Lipper’s standard method for comparing fund expenses (excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses). This average reflects each fund’s expenses for its most recent fiscal year available to Lipper as of 6/30/06. To facilitate comparison, Putnam has adjusted this average to reflect the 12b-1 fees carried by each class of shares other than class Y shares, which do not incur 12b-1 fees. The peer group may include funds that are significantly smaller or larger than the fund, which may limit the comparability of the fund’s expenses to the simple average, which typically is higher than the asset-weighted average.

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Your fund’s
portfolio turnover

Putnam funds are actively managed by teams of experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund’s managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund’s assets within a one-year period. Funds with high turnover may be more likely to generate capital gains and dividends that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance.

Turnover comparisons
Percentage of holdings that change every year
	2006	2005	2004	2003	2002
Putnam Europe Equity Fund	81%	56%	82%	80%	77%
Lipper European Region Funds
category average	97%	113%	139%	187%	247%

Turnover data for the fund is calculated based on the fund's fiscal-year period, which ends on June 30. Turnover data for the fund's Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the comparability of the fund's portfolio turnover rate to the Lipper average. Comparative data for 2006 is based on information available as of 6/30/06.

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Your fund’s risk

This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund’s Overall Morningstar Risk.

Your fund’s Overall Morningstar^® Risk

Your fund’s Overall Morningstar Risk is shown alongside that of the average fund in its broad asset class, as determined by Morningstar. The risk bar broadens the comparison by translating the fund’s Overall Morningstar Risk into a percentile, which is based on the fund’s ranking among all funds rated by Morningstar as of June 30, 2006. A higher Overall Morningstar Risk generally indicates that a fund’s monthly returns have varied more widely.

Morningstar determines a fund’s Overall Morningstar Risk by assessing variations in the fund’s monthly returns — with an emphasis on downside variations — over 3-, 5-, and 10-year periods, if available. Those measures are weighted and averaged to produce the fund’s Overall Morningstar Risk. The information shown is provided for the fund’s class A shares only; information for other classes may vary. Overall Morningstar Risk is based on historical data and does not indicate future results.
Morningstar does not purport to measure the risk associated with a current investment in a fund, either on an absolute basis or on a relative basis. Low Overall Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2006 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

18

Your fund’s management

Your fund is managed by the members of the Putnam International Core Team. Joshua Byrne is the Portfolio Leader and Simon Davis is a Portfolio Member of your fund. The Portfolio Leader and Portfolio Member coordinate the team’s management of the fund.

For a complete listing of the members of the Putnam International Core Team, including those who are not Portfolio Leaders or Portfolio Members of your fund, visit Putnam’s Individual Investor Web site at www.putnam.com.

Investment team fund ownership

The table below shows how much the fund’s current Portfolio Leader and Portfolio Member have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of June 30, 2006, and June 30, 2005.

N/A indicates the individual was not a Portfolio Leader or Portfolio Member as of 6/30/05.

Trustee and Putnam employee fund ownership

As of June 30, 2006, all of the Trustees then on the Board of the Putnam funds owned fund shares. The table below shows the approximate value of investments in the fund and all Putnam funds as of that date by the Trustees and Putnam employees. These amounts include investments by the Trustees’ and employees’ immediate family members and investments through retirement and deferred compensation plans.

		Total assets in
	Assets in the fund	all Putnam funds
Trustees	$ 174,000	$ 87,000,000
Putnam employees	$2,789,000	$421,000,000

19

Fund manager compensation

The total 2005 fund manager compensation that is attributable to your fund is approximately $320,000. This amount includes a portion of 2005 compensation paid by Putnam Management to the fund managers listed in this section for their portfolio management responsibilities, calculated based on the fund assets they manage taken as a percentage of the total assets they manage. The compensation amount also includes a portion of the 2005 compensation paid to the Chief Investment Officer of the team and the Group Chief Investment Officer of the fund’s broader investment category for their oversight responsibilities, calculated based on the fund assets they oversee taken as a percentage of the total assets they oversee. This amount does not include compensation of other personnel involved in research, trading, administration, systems, compliance, or fund operations; nor does it include non-compensation costs. These percentages are determined as of the fund’s fiscal period-end. For personnel who joined Putnam Management during or after 2005, the calculation reflects annualized 2005 compensation or an estimate of 2006 compensation, as applicable.

Other Putnam funds managed by the Portfolio Leader and Portfolio Members

Joshua Byrne is also a Portfolio Leader of Putnam International Equity Fund.

Simon Davis is also a Portfolio Leader of Putnam International Equity Fund.

Joshua Byrne and Simon Davis may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.

Changes in your fund’s Portfolio Leader and Portfolio Members

During the year ended June 30, 2006, Portfolio Member Joshua Byrne became the Portfolio Leader and Simon Davis became a Portfolio Member of the fund. These changes follow the departure of Portfolio Leader Heather Arnold and Portfolio Member Mark Pollard from your fund’s management team.

20

Putnam fund ownership by Putnam’s Executive Board

The table below shows how much the members of Putnam’s Executive Board have invested in all Putnam mutual funds (in dollar ranges). Information shown is as of June 30, 2006, and June 30, 2005.

			$1 –	$10,001 –	$50,001 –	$100,001 –	$500,001 –	$1,000,001
		Year $0	$10,000	$50,000	$100,000	$500,000	$1,000,000	and over
Philippe Bibi	2006							*
Chief Technology Officer	2005							*
Joshua Brooks	2006							*
Deputy Head of Investments	2005							*
William Connolly	2006							*
Head of Retail Management	N/A
Kevin Cronin	2006							*
Head of Investments	2005							*
Charles Haldeman, Jr.	2006							*
President and CEO	2005							*
Amrit Kanwal	2006						*
Chief Financial Officer	2005						*
Steven Krichmar	2006						*
Chief of Operations	2005							*
Francis McNamara, III	2006							*
General Counsel	2005							*
Richard Robie, III	2006						*
Chief Administrative Officer	2005						*
Edward Shadek	2006							*
Deputy Head of Investments	2005							*
Sandra Whiston	2006						*
Head of Institutional Management	N/A
N/A indicates the individual was not a member of Putnam’s Executive Board as of 6/30/05.

21

Terms and definitions

Important terms

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.

Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

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 5.25% maximum sales charge for class A shares and 3.25% for class M shares.

Contingent deferred sales charge (CDSC) is generally 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.

Share classes

Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).

Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.

Class C shares are not subject to an initial sales charge and are subject to a CDSC 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 CDSC (except on certain redemptions of shares bought without an initial sales charge).

Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.

Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are only available to eligible purchasers, including eligible defined contribution plans or corporate IRAs.

22

Comparative indexes

Citigroup World Government Bond Index is an unmanaged index of global investment-grade fixed-income securities.

JP Morgan Global High Yield Index is an unmanaged index of global high-yield fixed-income securities.

Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.

Lehman Government Bond Index is an unmanaged index of U.S. Treasury and agency securities.

Morgan Stanley Capital International (MSCI) Europe Index is an unmanaged index of Western European equity securities.

Morgan Stanley Capital International (MSCI) Pacific Index is an unmanaged index of equity securities from Australia and developed countries in Asia.

Russell 2000 Index is an unmanaged index of the 2,000 smallest companies in the Russell 3000 Index.

S&P 500 Index is an unmanaged index of common stock performance.

Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.

Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.

23

Trustee approval of
management contract

General conclusions

The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Management and the sub-management contract between Putnam Management’s affiliate, Putnam Investments Limited (“PIL”), and Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months ending in June 2006, the Contract Committee met four times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. Upon completion of this review, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract and sub-management contract, effective July 1, 2006. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below include reference to PIL as necessary or appropriate in the context.)

This approval was based on the following conclusions:

* That the fee schedule in effect for your fund represents reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and

* That such fee schedule represents an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.

These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prior years.

24

Management fee schedules and categories; total expenses

The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints, and the assignment of funds to particular fee categories. In reviewing fees and expenses, the Trustees generally focused their attention on material changes in circumstances — for example, changes in a fund’s size or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry —that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. The Trustees focused on two areas of particular interest, as discussed further below:

* Competitiveness. The Trustees reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 15th percentile in management fees and in the 31st percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2005 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). The Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distribution (12b-1) fees and other expenses, had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints.

The Trustees noted that the expense ratio increases described above were currently being controlled by expense limitations implemented in January 2004 and which Putnam Management, in consultation with the Contract Committee, has committed to maintain at least through 2007. These expense limitations give effect to a commitment by Putnam Management that the expense ratio of each open-end fund would be no higher than the average expense ratio of the competitive funds included in the fund’s relevant Lipper universe (exclusive of any applicable 12b-1 charges in each case). The Trustees observed that this commitment to limit fund expenses has served shareholders well since its inception. In order to ensure that the expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees requested, and Putnam Management agreed, to implement an additional expense limitation for certain funds for the twelve months beginning January 1, 2007 equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper based on the size of the fund. This additional expense limitation will be applied to those open-end funds that had above-average expense ratios (exclusive of 12b-1 charges) based on the Lipper custom peer group data for the period ended December 31, 2005. This additional expense limitation will not be applied to your fund.

* Economies of scale. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effective management fee rate of a fund (as a percentage of fund assets) declines as a fund grows in

25

size and crosses specified asset thresholds. Conversely, as a fund shrinks in size — as has been the case for many Putnam funds in recent years— these breakpoints result in increasing fee levels. In recent years, the Trustees have examined the operation of the existing breakpoint structure during periods of both growth and decline in asset levels. The Trustees concluded that the fee schedules in effect for the funds represented an appropriate sharing of economies of scale at current asset levels. In reaching this conclusion, the Trustees considered the Contract Committee’s stated intent to continue to work with Putnam Management to plan for an eventual resumption in the growth of assets, including a study of potential economies that might be produced under various growth assumptions.

In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis. Because many of the costs incurred by Putnam Management in managing the funds are not readily identifiable to particular funds, the Trustees observed that the methodology for allocating costs is an important factor in evaluating Putnam Management’s costs and profitability, both as to the Putnam funds in the aggregate and as to individual funds. The Trustees reviewed Putnam Management’s cost allocation methodology with the assistance of independent consultants and concluded that this methodology was reasonable and well-considered.

Investment performance

The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the Investment Process Committee of the Trustees and the Investment Oversight Committee of the Trustees, which meet on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognize that this does not guarantee favorable investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing each fund’s performance with various benchmarks and with the performance of competitive funds.

26

The Trustees noted the satisfactory investment performance of many Putnam funds. They also noted the disappointing investment performance of certain funds in recent years and discussed with senior management of Putnam Management the factors contributing to such underperfor-mance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line to address areas of underperformance. In particular, they noted the important contributions of Putnam Management’s leadership in attracting, retaining and supporting high-quality investment professionals and in systematically implementing an investment process that seeks to merge the best features of fundamental and quantitative analysis. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these changes and to evaluate whether additional changes to address areas of underperformance are warranted.

In the case of your fund, the Trustees considered that your fund’s class A share cumulative total return performance at net asset value was in the following percentiles of its Lipper Inc. peer group (Lipper European Region Funds) for the one-, three- and five-year periods ended March 31, 2006 (the first percentile being the best performing funds and the 100th percentile being the worst performing funds):

One-year period	Three-year period	Five-year period
50th	81st	75th

(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report. Over the one-, three- and five-year periods ended March 31, 2006, there were 103, 95, and 81 funds, respectively, in your fund’s Lipper peer group. Past performance is no guarantee of future performance.)

The Trustees noted the disappointing performance for your fund for the three-year period ended March 31, 2006. In this regard, the Trustees considered that Putnam Management had made changes to the fund’s investment team that it believed would strengthen the investment process, which focuses on a blending of quantitative techniques with fundamental analysis.

As a general matter, the Trustees concluded that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance,

* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper European Region Funds category for the one-, five-, and ten-year periods ended June 30, 2006 , were 57%, 70%, and 70%, respectively. Over the one-, five- and ten-year periods ended June 30, 2006, the fund ranked 59th out of 103, 58th out of 82, and 21st out of 29 funds, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.

27

the Trustees concluded that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of terminating a management contract and engaging a new investment adviser for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.

Brokerage and soft-dollar allocations; other benefits

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.

The Trustees’ annual review of your fund’s management contract also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the custodian agreement and investor servicing agreement with Putnam Fiduciary Trust Company, all of which provide benefits to affiliates of Putnam Management.

Comparison of retail and institutional fee schedules

The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparison of such fees with fees charged to the funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and the mutual funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across all asset sectors are higher on average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutional clients of the firm, but did not rely on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.

28

Other information
for shareholders

Putnam’s policy on confidentiality

In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ addresses, telephone numbers, Social Security numbers, and the names of their financial advisors. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial advisor, if you’ve listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don’t hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available on the Putnam Individual Investor Web site, www.putnam.com/individual, and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s Web site at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Web site or the operation of the Public Reference Room.

29

Financial statements

A guide to financial statements

These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 liquidation preference of preferred shares.)

Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal year.

Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, 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.

30

Report of Independent Registered Public Accounting Firm

To the Trustees and Shareholders of
Putnam Europe Equity 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 Equity Fund (the “fund”) at June 30,2006, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2006, by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
August 14, 2006

31

The fund’s portfolio 6/30/06
COMMON STOCKS (97.9%)*
	Shares		Value
Austria (0.7%)
Oesterreichische Post AG †	68,200	$	2,068,235
Oesterreichische Post AG 144A †	41,318		1,253,010
			3,321,245
Belgium (5.4%)
InBev NV	186,684		9,153,205
KBC Groupe SA	95,116		10,202,727
Mobistar SA	93,419		7,411,016
			26,766,948
France (14.6%)
BNP Paribas SA	75,545		7,229,334
Christian Dior SA	46,317		4,538,928
France Telecom SA	296,747		6,377,563
France Telecom SA 144A	83,115		1,786,273
Renault SA	73,264		7,868,114
Renault SA 144A	1,967		211,244
Schneider Electric SA	80,084		8,344,573
Societe Generale	64,234		9,444,164
Technip SA	72,606		4,019,399
Total SA	191,572		12,601,381
Veolia Environnement	191,188		9,877,572
			72,298,545
Germany (7.7%)
Adidas-Salomon AG	111,172		5,351,323
Allianz AG	79,229		12,504,778
BASF AG	137,716		11,046,626
Henkel KGaA	28,074		2,919,505
Henkel KGaA (Preference)	40,637		4,644,204
Schwarz Pharma AG	16,445		1,474,268
			37,940,704
Greece (2.3%)
Alpha Bank AE	71,072		1,770,061
National Bank of Greece SA	122,500		4,836,310
Postal Savings Bank †	161,717		3,312,218
Postal Savings Bank 144A †	68,748		1,408,067
			11,326,656
Hungary (0.5%)
MOL Magyar Olaj- es Gazipari Rt.	20,917		2,149,530
Ireland (1.8%)
CRH PLC	274,892		8,933,844

32

COMMON STOCKS (97.9%)* continued
	Shares		Value
Italy (7.0%)
IntesaBCI SpA	991,003	$	5,802,848
Mediaset SpA	492,462		5,792,437
Saipem SpA	269,610		6,121,808
UniCredito Italiano SpA	2,150,654		16,896,360
			34,613,453
Netherlands (13.5%)
ABN AMRO Holding NV	520,278		14,228,102
Endemol NV	210,646		3,533,359
European Aeronautic Defense and Space Co.	158,620		4,554,791
European Aeronautic Defense and Space Co. 144A	87,721		2,518,918
ING Groep NV	234,872		9,227,723
Koninklijke (Royal) KPN NV	408,527		4,591,033
Koninklijke (Royal) KPN NV 144A	266,764		2,997,898
Royal Dutch Shell PLC Class A	574,400		19,313,938
Royal Dutch Shell PLC Class B	165,338		5,781,913
			66,747,675
Norway (1.7%)
Norsk Hydro ASA	305,570		8,105,566
Russia (0.3%)
OAO Gazprom	143,565		1,507,433
Spain (3.9%)
Banco Bilbao Vizcaya Argentaria SA	210,712		4,331,876
Grifols SA †	345,917		2,843,699
Grifols SA 144A †	105,753		869,370
Iberdrola SA	328,846		11,322,169
			19,367,114
Sweden (2.1%)
Hennes & Mauritz AB Class B	88,640		3,434,132
SKF AB Class B	321,460		5,066,475
Telefonaktiebolaget LM Ericsson AB Class B	515,200		1,702,691
			10,203,298
Switzerland (18.9%)
Arpida, Ltd. †	42,606		789,709
Arpida, Ltd. 144A †	9,740		180,532
Credit Suisse Group	251,357		14,038,392
Holcim, Ltd.	30,165		2,307,880
Julius Baer Holding, Ltd. Class B	89,732		7,781,121
Nestle SA	26,406		8,279,500
Nobel Biocare Holding AG	41,222		9,769,483
Novartis AG	246,055		13,300,270
Roche Holding AG	102,019		16,835,176
Serono SA	2,050		1,413,591
Speedel Holding AG †	11,175		1,459,949

33

COMMON STOCKS (97.9%)* continued
	Shares		Value
Switzerland continued
STMicroelectronics NV	339,720	$	5,468,240
Xstrata PLC 144A	49,930		1,892,879
Zurich Financial Services AG	45,858		10,035,065
			93,551,787
United Kingdom (17.5%)
AstraZeneca PLC	23,088		1,393,618
BAE Systems PLC	861,601		5,891,444
Barclays PLC	741,658		8,428,163
Barratt Developments PLC	432,992		7,590,940
Ladbrokes PLC	840,522		6,334,088
Punch Taverns PLC	567,098		9,176,425
Reckitt Benckiser PLC	333,145		12,444,918
Rio Tinto PLC	104,377		5,518,567
Schroders PLC	247,800		4,628,391
Stagecoach Group PLC	1,911,818		4,074,693
Tesco PLC	1,108,696		6,848,040
Vodafone Group PLC	6,582,863		14,030,176
			86,359,463
Total common stocks (cost $421,621,253)		$	483,193,261
SHORT-TERM INVESTMENTS (2.2%)*
	Principal amount		Value
Interest in $333,000,000 joint tri-party repurchase
agreement dated June 30, 2006 with UBS
Securities, LLC due July 3, 2006 with respect
to various U.S. Government obligations — maturity
value of $9,771,257 for an effective yield of 5.23%
(collateralized by Freddie Mac securities
with yields ranging from 4.00% to 12.00% and due
dates ranging from June 1, 2007 to June 1, 2036
valued at $339,662,581)	$9,767,000	$	9,767,000
U.S. Treasury Bill zero %, August 17, 2006 #	1,024,000		1,017,712
Total short-term investments (cost $10,784,712)		$	10,784,712
TOTAL INVESTMENTS
Total investments (cost $432,405,965)		$	493,977,973

34

* Percentages indicated are based on net assets of $493,737,651.

† Non-income-producing security.

# This security was pledged and segregated with the custodian to cover margin requirements for futures contracts at June 30, 2006. At June 30, 2006, liquid assets totaling $7,459,416 have been designated as collateral for open futures contracts.

144A after the name of an issuer represents securities 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.

The fund had the following industry group concentrations greater than 10% at June 30, 2006 (as a percentage of net assets):

Banking	19.4%
Oil and gas	12.1
FUTURES CONTRACTS OUTSTANDING at 6/30/06
		Number of		Expiration	Unrealized
		contracts	Value	date	appreciation
Dow Jones Euro Stoxx 50 Index (Long)		88	$4,120,043	Sep-06	$266,292
FTSE 100 Index (Long)		31	3,339,374	Sep-06	175,141
Total					$441,433

The accompanying notes are an integral part of these financial statements.

35

Statement of assets and liabilities 6/30/06

ASSETS
Investment in securities, at value (Note 1):
Unaffiliated issuers (identified cost $432,405,965)	$493,977,973
Cash	1,361
Foreign currency (cost $689,108) (Note 1)	695,131
Dividends, interest and other receivables	773,754
Receivable for shares of the fund sold	192,246
Receivable for securities sold	1,677,054
Receivable for variation margin (Note 1)	252,877
Foreign tax reclaim receivable	487,305
Total assets	498,057,701
LIABILITIES
Payable for securities purchased	1,782,496
Payable for shares of the fund repurchased	737,954
Payable for compensation of Manager (Notes 2 and 5)	1,048,077
Payable for investor servicing and custodian fees (Note 2)	134,840
Payable for Trustee compensation and expenses (Note 2)	155,356
Payable for administrative services (Note 2)	3,802
Payable for distribution fees (Note 2)	343,354
Other accrued expenses	114,171
Total liabilities	4,320,050
Net assets	$493,737,651
REPRESENTED BY
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)	$462,760,951
Undistributed net investment income (Note 1)	9,091,748
Accumulated net realized loss on investments
and foreign currency transactions (Note 1)	(40,147,261)
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies	62,032,213
Total — Representing net assets applicable to capital shares outstanding	$493,737,651
(Continued on next page)

36

Statement of assets and liabilities (Continued)
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
Net asset value and redemption price per class A share
($341,155,118 divided by 13,335,156 shares)	$25.58
Offering price per class A share
(100/94.75 of $25.58)*	$27.00
Net asset value and offering price per class B share
($126,764,088 divided by 5,135,710 shares)**	$24.68
Net asset value and offering price per class C share
($5,454,506 divided by 215,305 shares)**	$25.33
Net asset value and redemption price per class M share
($14,096,810 divided by 555,391 shares)	$25.38
Offering price per class M share
(100/96.75 of $25.38)*	$26.23
Net asset value, offering price and redemption price per class R share
($6,154 divided by 241 shares)	$25.55
Net asset value, offering price and redemption price per class Y share
($6,260,975 divided by 244,418 shares)	$25.62

* On single retail sales of less than $50,000. On sales of $50,000 or more 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.

37

Statement of operations Year ended 6/30/06

INVESTMENT INCOME
Dividends (net of foreign tax of $1,564,150)	$ 17,267,225
Interest (including interest income of $397,899
from investments in affiliated issuers) (Note 5)	433,097
Securities lending	2,583
Total investment income	17,702,905
EXPENSES
Compensation of Manager (Note 2)	4,225,252
Investor servicing fees (Note 2)	1,372,486
Custodian fees (Note 2)	573,492
Trustee compensation and expenses (Note 2)	43,950
Administrative services (Note 2)	25,058
Distribution fees — Class A (Note 2)	867,568
Distribution fees — Class B (Note 2)	1,601,454
Distribution fees — Class C (Note 2)	54,197
Distribution fees — Class M (Note 2)	111,722
Distribution fees — Class R (Note 2)	16
Other	311,960
Non-recurring costs (Notes 2 and 6)	7,296
Costs assumed by Manager (Notes 2 and 6)	(7,296)
Fees waived and reimbursed by Manager or affiliate (Notes 5 and 6)	(126,723)
Total expenses	9,060,432
Expense reduction (Note 2)	(442,015)
Net expenses	8,618,417
Net investment income	9,084,488
Net realized gain on investments (Notes 1 and 3)	120,463,568
Net realized gain on futures contracts (Note 1)	78,599
Net realized loss on foreign currency transactions (Note 1)	(56,530)
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year	37,785
Net unrealized depreciation of investments
and futures contracts during the year	(13,388,314)
Net gain on investments	107,135,108
Net increase in net assets resulting from operations	$116,219,596

The accompanying notes are an integral part of these financial statements.

38

Statement of changes in net assets

DECREASE IN NET ASSETS
	Year ended	Year ended
	6/30/06	6/30/05
Operations:
Net investment income	$ 9,084,488	$ 4,226,325
Net realized gain on investments
and foreign currency transactions	120,485,637	83,329,669
Net unrealized depreciation of investments
and assets and liabilities in foreign currencies	(13,350,529)	(3,307,492)
Net increase in net assets resulting from operations	116,219,596	84,248,502
Distributions to shareholders: (Note 1)
From net investment income
Class A	(4,066,575)	(4,235,243)
Class B	(567,351)	(1,201,201)
Class C	(25,177)	(31,377)
Class M	(96,538)	(78,348)
Class R	(30)	(15)
Class Y	(76,391)	—
Redemption fees (Note 1)	15,069	15,967
Decrease from capital share transactions (Note 4)	(144,066,252)	(125,583,398)
Total decrease in net assets	(32,663,649)	(46,865,113)
NET ASSETS
Beginning of year	526,401,300	573,266,413
End of year (including undistributed net investment
income of $9,091,748 and $4,748,036 respectively)	$ 493,737,651	$ 526,401,300

The accompanying notes are an integral part of these financial statements.

39

Financial highlights (For a common share outstanding throughout the period)

INVESTMENT OPERATIONS:					LESS DISTRIBUTIONS:					RATIOS AND SUPPLEMENTAL DATA:
			Net						Total			Ratio of net
	Net asset		realized and	Total	From			Net asset	return	Net	Ratio of	investment
	value,	Net	unrealized	from	net			value,	at net	assets,	expenses to	income (loss)	Portfolio
	beginning	investment	gain (loss) on	investment	investment	Total	Redemption	end	asset	end of period	average net	to average	turnover
Period ended	of period	income (loss)(a)	investments	operations	income	distributions	fees	of period	value(%)(b)	(in thousands)	assets (%)(c)	net assets (%)	(%)
CLASS A
June 30, 2006	$20.79	.48(d,g,h)	4.59	5.07	(.28)	(.28)	—(e)	$25.58	24.54(g)	$341,155	1.46(d,g)	2.04(d,g,h)	80.51
June 30, 2005	18.05	.22(d,f )	2.78	3.00	(.26)	(.26)	—(e)	20.79	16.66(f )	328,279	1.44(d)	1.13(d,f )	56.35
June 30, 2004	14.84	.12(d)	3.37	3.49	(.28)	(.28)	—(e)	18.05	23.59	313,766	1.44(d)	.69(d)	82.35
June 30, 2003	16.65	.20	(1.79)	(1.59)	(.22)	(.22)	—	14.84	(9.47)	369,565	1.43	1.40	79.66
June 30, 2002	18.63	.17	(2.02)	(1.85)	(.13)	(.13)	—	16.65	(9.96)	570,806	1.32	1.01	76.68
CLASS B
June 30, 2006	$20.03	.21(d,g,h)	4.52	4.73	(.08)	(.08)	—(e)	$24.68	23.65(g)	$126,764	2.21(d,g)	.99(d,g,h)	80.51
June 30, 2005	17.40	.04(d,f )	2.70	2.74	(.11)	(.11)	—(e)	20.03	15.73(f )	177,711	2.19(d)	.23(d,f )	56.35
June 30, 2004	14.31	—(d,e)	3.24	3.24	(.15)	(.15)	—(e)	17.40	22.69	229,608	2.19(d)	(.04)(d)	82.35
June 30, 2003	16.04	.09	(1.73)	(1.64)	(.09)	(.09)	—	14.31	(10.21)	266,777	2.18	.68	79.66
June 30, 2002	17.95	.04	(1.95)	(1.91)	—	—	—	16.04	(10.64)	378,679	2.07	.23	76.68
CLASS C
June 30, 2006	$20.58	.30(d,g,h)	4.56	4.86	(.110)	(.11)	—(e)	$25.33	23.66(g)	$5,455	2.21(d,g)	1.29(d,g,h)	80.51
June 30, 2005	17.88	.06(d,f )	2.75	2.81	(.11)	(.11)	—(e)	20.58	15.73(f )	5,182	2.19(d)	.33(d,f )	56.35
June 30, 2004	14.68	(.01)(d)	3.33	3.32	(.12)	(.12)	—(e)	17.88	22.65	5,482	2.19(d)	(.06)(d)	82.35
June 30, 2003	16.43	.10	(1.77)	(1.67)	(.08)	(.08)	—	14.68	(10.15)	7,455	2.18	.69	79.66
June 30, 2002	18.39	.03	(1.99)	(1.96)	—	—	—	16.43	(10.66)	10,751	2.07	.20	76.68
CLASS M
June 30, 2006	$20.61	.34(d,g,h)	4.58	4.92	(.15)	(.15)	—(e)	$25.38	23.97(g)	$14,097	1.96(d,g)	1.49(d,g,h)	80.51
June 30, 2005	17.84	.09(d,f )	2.77	2.86	(.09)	(.09)	—(e)	20.61	16.05(f )	15,227	1.94(d)	.46(d,f )	56.35
June 30, 2004	14.68	(.01)(d)	3.37	3.36	(.20)	(.20)	—(e)	17.84	22.97	24,410	1.94(d)	.01(d)	82.35
June 30, 2003	16.46	.13	(1.78)	(1.65)	(.13)	(.13)	—	14.68	(9.98)	34,460	1.93	.98	79.66
June 30, 2002	18.39	.08	(2.00)	(1.92)	(.01)	(.01)	—	16.46	(10.43)	34,312	1.82	.47	76.68
CLASS R
June 30, 2006	$20.75	.67(d,g,h)	4.39	5.06	(.26)	(.26)	—(e)	$25.55	24.52(g)	$6	1.71(d,g)	2.69(d,g,h)	80.51
June 30, 2005	18.03	.20(d,f )	2.75	2.95	(.23)	(.23)	—(e)	20.75	16.38(f )	2	1.69(d)	1.03(d,f )	56.35
June 30, 2004†	16.95	.04(d)	1.32	1.36	(.28)	(.28)	—(e)	18.03	8.08*	1	.99* (d)	.26* (d)	82.35
CLASS Y
June 30, 2006††	$22.46	.53(d,g,h)	2.92	3.45	(.29)	(.29)	—(e)	$25.62	15.52*(g)	$6,261	.89* (d,g)	2.19* (d,g,h)	80.51
See notes to financial highlights at the end of this section.

The accompanying notes are an integral part of these financial statements.

40 41

Financial highlights (Continued)

* Not annualized.

† For the period December 1, 2003 (commencement of operations) to June 30, 2004.

††For the period October 4, 2005 (commencement of operations) to June 30, 2006.

(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) Reflects an involuntary contractual expense limitation and waivers of certain fund expenses in connection with investments in Putnam Prime Market Fund during the period. As a result of such limitation and waivers, the expenses of each class, as a percentage of its net assets, reflect a reduction of the following amounts (Notes 2 and 5):

		6/30/06	6/30/05	6/30/04
	Class A	<0.01%	0.05%	0.03%
	Class B	<0.01	0.05	0.03
	Class C	<0.01	0.05	0.03
	Class M	<0.01	0.05	0.03
	Class R	<0.01	0.05	0.03
	Class Y	<0.01	—	--
(e)	Amount represents less than $0.01 per share.
(f)	Reflects a non-recurring accrual related to Putnam Management’s settlement with the SEC regarding brokerage allocation
	practices, which amounted to the following amounts (Note 6):
				Percentage of
			Per share	net assets
	Class A		$0.01	0.04%
	Class B		0.01	0.03
	Class C		0.01	0.04
	Class M		0.01	0.03
	Class R		0.01	0.04
(g)	Reflects a non-recurring reimbursement from Putnam Investments relating to the calculation of certain amounts paid by the
	fund to Putnam in previous years for transfer agent services, which amounted to $0.01 per share and 0.02% of average net
	assets for the period ended June 30, 2006 (Note 6).
(h)	Reflects a special dividend received by the fund which amounted to the following amounts:
				Percentage of
			Per share	net assets
	Class A		$0.23	0.96%
	Class B		0.20	0.87
	Class C		0.22	0.95
	Class M		0.23	0.97
	Class R		0.31	1.27
	Class Y		0.23	0.94

The accompanying notes are an integral part of these financial statements.

42

Notes to financial statements

Note 1: Significant accounting policies

Putnam Europe Equity Fund (the “fund”), a Massachusetts business trust, 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, class M, class R and class Y shares. The fund began offering class Y shares on October 4, 2005. Class A and class M shares are sold with a maximum front-end sales charge of 5.25% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are offered to qualified employee-benefit plans are sold without a front-end sales charge or a contingent deferred sales charge. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are sold to certain eligible purchasers including certain defined contribution plans (including corporate IRAs), bank trust departments and trust companies.

A 2.00% redemption fee may apply to any shares that are redeemed (either by selling or exchanging into another fund) within 5 days of purchase. A 1.00% redemption fee would apply to any shares that are redeemed (either by selling or exchanging into another fund) within 6-90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.

Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). 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.

In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund expects the risk of material loss to be remote.

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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in 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 valued at the last reported sales price on their principal exchange, or official closing price for certain markets. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such

43

exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors, including movements in the U.S. securities markets. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate. Other investments, including certain restricted securities, are valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and does not reflect an actual market price.

B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission, the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, an indirect wholly-owned subsidiary of Putnam, LLC. These balances may be invested in issues of high-grade short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments.

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 coun-terparty. 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 recorded on the trade date (the 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, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain when the amounts are conclusively determined.

E) Foreign currency translationThe 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 earned 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, currency gains and losses realized between the trade and settlement dates on securities transactions

44

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) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase, or for other investment purposes. The fund may also write options on swaps or securities it owns or in which it may invest to increase its current returns.

The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. Risks may exceed amounts recognized on the statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.

Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.” Exchange traded options are valued at the last sale price or, if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. Futures and written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.

G) Security lending The fund may lend securities, through its agents, to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agents; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the statement of operations. At June 30, 2006, the fund had no securities out on loan.

H) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code of 1986 (the “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 Code, 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.

At June 30, 2006, the fund had a capital loss carryover of $37,791,834 available to the extent allowed by the Code to offset future net capital gain, if any. This capital loss carryover will expire on June 30, 2011.

I) Distributions to shareholders Distributions to shareholders from net investment income are

45

recorded by the fund on the ex-dividend date. Distributions from capital gains, 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 and realized gains and losses on passive foreign investment companies. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended June 30, 2006, the fund reclassified $91,286 to increase undistributed net investment income with an increase to accumulated net loss of $91,286.

The tax basis components of distributable earnings and the federal tax cost as of period end June 30, 2006 were as follows:

Unrealized appreciation	$ 74,895,600
Unrealized depreciation	(15,679,019)
	—————————————
Net unrealized appreciation	59,216,581
Undistributed ordinary income	9,091,747
Capital loss carryforward	(37,791,834)
Cost for federal income tax purposes	$434,761,392

Note 2: Management fee, administrative services and other transactions

Putnam Management is paid for management and investment advisory services 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.

Putnam Management has agreed to waive fees and reimburse expenses of the fund through June 30, 2007, to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper, Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses. For the year ended June 30, 2006, Putnam Management did not waive any of its management fee from the fund.

For the year ended June 30, 2006, Putnam Management has assumed $7,296 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 6).

Putnam Investments Limited (“PIL”), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.

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, LLC. PFTC receives fees for custody services based on the fund’s asset level, the number of its security holdings and transaction volumes. Putnam Investor Services, a division of PFTC, provides investor servicing agent functions to the fund. Putnam Investor Services receives fees for investor servicing based on the

46

number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. During the year ended June 30, 2006, the fund incurred $1,945,978 for these services.

The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund’s expenses. The fund also reduced expenses through brokerage service arrangements. For the year ended June 30, 2006, the fund’s expenses were reduced by $442,015 under these arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $342, as a quarterly retainer, 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, industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees. George Putnam, III, who is not an independent Trustee, also receives the foregoing fees for his services as Trustee.

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 noncontribu-tory defined benefit pension plan (the “Pension Plan”) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. Pension expense for the fund is included in Trustee compensation and expenses in the statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

The fund has adopted distribution plans (the “Plans”) with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.

For the year ended June 30, 2006, Putnam Retail Management, acting as underwriter, received net commissions of $10,701 and $12,497 from the sale of class A and class M shares, respectively, and received $87,490 and $79 in contingent deferred sales charges from redemptions of class B and class C shares, respectively. A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the year ended June 30, 2006, Putnam Retail Management, acting as underwriter, received $75 and no monies on class A and class M redemptions, respectively.

Note 3: Purchases and sales of securities

During the year ended June 30, 2006, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $419,597,258 and $559,395,214, respectively. There were no purchases or sales of U.S. government securities.

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Note 4: Capital shares

At June 30, 2006, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:

CLASS A	Shares	Amount
Year ended 6/30/06:
Shares sold	2,958,628	$ 70,476,862
Shares issued
in connection
with reinvestment
of distributions	147,913	3,367,983
	3,106,541	73,844,845
Shares
repurchased	(5,564,969)	(132,925,112)
Net decrease	(2,458,428)	$ (59,080,267)
Year ended 6/30/05:
Shares sold	2,892,196	$ 58,173,584
Shares issued
in connection
with reinvestment
of distributions	175,934	3,594,342
	3,068,130	61,767,926
Shares
repurchased	(4,656,698)	(91,959,548)
Net decrease	(1,588,568)	$ (30,191,622)

CLASS B	Shares	Amount
Year ended 6/30/06:
Shares sold	238,624	$5,455,532
Shares issued
in connection
with reinvestment
of distributions	23,537	518,992
	262,161	5,974,524
Shares
repurchased	(3,997,989)	(91,163,917)
Net decrease	(3,735,828)	$ (85,189,393)
Year ended 6/30/05:
Shares sold	316,638	6,069,875
Shares issued
in connection
with reinvestment
of distributions	55,452	1,095,737
	372,090	7,165,612
Shares
repurchased	(4,699,531)	(89,973,740)
Net decrease	(4,327,441)	$ (82,808,128)
CLASS C	Shares	Amount
Year ended 6/30/06:
Shares sold	31,530	752,962
Shares issued
in connection
with reinvestment
of distributions	894	20,228
	32,424	773,190
Shares
repurchased	(68,847)	(1,620,149)
Net decrease	(36,423)	(846,959)
Year ended 6/30/05:
Shares sold	40,576	820,426
Shares issued
in connection
with reinvestment
of distributions	1,245	25,281
	41,821	845,707
Shares
repurchased	(96,698)	(1,905,876)
Net decrease	(54,877)	$ (1,060,169)

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CLASS M	Shares	Amount
Year ended 6/30/06:
Shares sold	112,154	$2,839,914
Shares issued
in connection
with reinvestment
of distributions	2,253	51,035
	114,407	2,890,949
Shares
repurchased	(297,760)	(7,288,467)
Net decrease	(183,353)	$(4,397,518)
Year ended 6/30/05:
Shares sold	105,532	$2,095,512
Shares issued
in connection
with reinvestment
of distributions	1,975	40,114
	107,507	2,135,626
Shares
repurchased	(736,852)	(13,659,601)
Net decrease	(629,345)	$ (11,523,975)
CLASS R	Shares	Amount
Year ended 6/30/06:
Shares sold	168	$ 4,098
Shares issued
in connection
with reinvestment
of distributions	1	30
	169	4,128
Shares
repurchased	(13)	(307)
Net increase	156	$ 3,821
Year ended 6/30/05:
Shares sold	24	$481
Shares issued
in connection
with reinvestment
of distributions	1	15
	25	496
Shares repurchased	—	—
Net increase	25	$496

CLASS Y	Shares	Amount
For the period 10/4/05 (commencement of operations)
to 6/30/06:
Shares sold	349,583	$ 7,905,627
Shares issued
in connection
with reinvestment
of distributions	3,356	76,391
	352,939	7,982,018
Shares
repurchased	(108,521)	(2,537,954)
Net increase	244,418	$ 5,444,064

At June 30, 2006, Putnam, LLC owned 61 class R shares of the fund (25.3% of class R shares outstanding), valued at $1,559.

Note 5: Investment in Putnam Prime Money Market Fund

Pursuant to an exemptive order from the Securities and Exchange Commission, the fund invests in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Management fees paid by the fund are reduced by an amount equal to the management and administrative services fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the year ended June 30, 2006, management fees paid were reduced by $11,915 relating to the fund’s investment in Putnam Prime Money Market Fund. Income distributions earned by the fund are recorded as income in the statement of operations and totaled $397,899 for the year ended June 30, 2006. During the year ended June 30, 2006, cost of purchases and cost of sales of investments in Putnam Prime Money Market Fund aggregated $224,258,105 and $234,629,857, respectively.

Note 6: Regulatory matters and litigation

Putnam Management has entered into agreements with the Securities and Exchange Commission and the Massachusetts Securities

49

Division settling charges connected with excessive short-term trading by Putnam employees and, in the case of the charges brought by the Massachusetts Securities Division, by participants in some Putnam-administered 401(k) plans. Pursuant to these settlement agreements, Putnam Management will pay a total of $193.5 million in penalties and restitution, with $153.5 million being paid to certain open-end funds and their shareholders. The amount will be allocated to shareholders and funds pursuant to a plan developed by an independent consultant, and will be paid following approval of the plan by the SEC and the Massachusetts Securities Division.

The Securities and Exchange Commission’s and Massachusetts Securities Division’s allegations and related matters also serve as the general basis for numerous lawsuits, including purported class action lawsuits filed against Putnam Management and certain related parties, including certain Putnam funds. Putnam Management will bear any costs incurred by Putnam funds in connection with these lawsuits. Putnam Management believes that the likelihood that the pending private lawsuits and purported class action lawsuits will have a material adverse financial impact on the fund is remote, and the pending actions are not likely to materially affect its ability to provide investment management services to its clients, including the Putnam funds.

Pursuant to a settlement with the Securities and Exchange Commission relating to Putnam Management’s brokerage allocation practices, on October 13, 2005 the fund received $193,848 in proceeds paid by Putnam Management. The fund had accrued a receivable for this amount in the prior fiscal year.

In March 2006, the fund received $114,808 from Putnam to address issues relating to the calculation of certain amounts paid by the Putnam mutual funds to Putnam for transfer agent services. This amount is included in Fees waived and reimbursed by Manager or affiliate on the Statement of operations. Review of this matter is ongoing and the amount received by the fund may be adjusted in the future. Such adjustment is not expected to be material.

Putnam Management and Putnam Retail Management are named as defendants in a civil suit in which the plaintiffs allege that the management and distribution fees paid by certain Putnam funds were excessive and seek recovery under the Investment Company Act of 1940. Putnam Management and Putnam Retail Management have contested the plaintiffs’ claims and the matter is currently pending in the U.S. District Court for the District of Massachusetts. Based on currently available information, Putnam Management believes that this action is without merit and that it is unlikely to have a material effect on Putnam Management’s and Putnam Retail Management’s ability to provide services to their clients, including the fund.

Note 7

New accounting pronouncement

In June 2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”). The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken by a filer in the filer’s tax return. The Interpretation will become effective for fiscal years beginning after December 15, 2006 but will also apply to tax positions reflected in the fund’s financial statements as of that date. No determination has been made whether the adoption of the Interpretation will require the fund to make any adjustments to its net assets or have any other effect on the fund’s financial statements.

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Federal tax information
(Unaudited)

For the period, interest and dividends from foreign countries were $18,852,489 or $0.967 (for all classes of shares). Taxes paid to foreign countries were $1,564,150 or $0.080 (for all classes of shares).

For its tax year ended June 30, 2006, the fund hereby designates 100%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.

The Form 1099 you receive in January 2007 will show the tax status of all distributions paid to your account in calendar 2006.

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Brokerage commissions
(Unaudited)

Brokerage commissions are paid to firms that execute trades on behalf of your fund. When choosing these firms, Putnam is required by law to seek the best execution of the trades, taking all relevant factors into consideration, including expected quality of execution and commission rate. Listed below are the largest relationships based upon brokerage commissions for your fund and the other funds in Putnam’s International group for the year ended June 30, 2006. The other Putnam mutual funds in this group are Putnam Global Equity Fund, Putnam International Capital Opportunities Fund, Putnam International Equity Fund, Putnam International Growth and Income Fund, Putnam International New Opportunities Fund, Putnam VT Global Equity Fund, Putnam VT International Equity Fund, Putnam VT International Growth and Income Fund, and Putnam VT International New Opportunities Fund.

The top five firms that received brokerage commissions for trades executed for the International group are (in descending order) Goldman Sachs, Credit Suisse First Boston, UBS Warburg, Merrill Lynch, and Citigroup Global Markets. Commissions paid to these firms together represented approximately 52% of the total brokerage commissions paid for the year ended June 30, 2006.

Commissions paid to the next 10 firms together represented approximately 36% of the total brokerage commissions paid during the period. These firms are (in alphabetical order) ABN AMRO U.S., Bear Stearns & Company, Cazenove, Deutsche Bank Securities, Hong Kong Shanghai Banking Corp., JP Morgan Clearing, Lehman Brothers, Morgan Stanley Dean Witter, Nomura Securities, and Santander Investment Securities.

Additional information about brokerage commissions is available on the Securities and Exchange Commission (SEC) Web site at www.sec.gov. Putnam funds disclose commissions by firm to the SEC in semiannual filings on Form N-SAR.

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About the Trustees

Jameson A. Baxter (Born 1943), Trustee since 1994, Vice Chairman since 2005

Ms. Baxter is the President of Baxter Associates, Inc., a private investment firm that she founded in 1986.

Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a steel service corporation), the Mutual Fund Directors Forum, Advocate Health Care and BoardSource, formerly the National Center for Nonprofit Boards. She is Chairman Emeritus of the Board of Trustees, Mount Holyoke College, having served as Chairman for five years and as a board member for thirteen years. Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a manufacturer of energy control products).

Ms. Baxter has held various positions in investment banking and corporate finance, including Vice President and Principal of the Regency Group, and Vice President of and Consultant to First Boston Corporation. She is a graduate of Mount Holyoke College.

Charles B. Curtis (Born 1940), Trustee since 2001

Mr. Curtis is President and Chief Operating Officer of the Nuclear Threat Initiative (a private foundation dealing with national security issues) and serves as Senior Advisor to the United Nations Foundation.

Mr. Curtis is a member of the Council on Foreign Relations and the Trustee Advisory Council of the Applied Physics Laboratory, Johns Hopkins University. Until 2003, Mr. Curtis was a member of the Electric Power Research Institute Advisory Council and the University of Chicago Board of Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was a Member of the Board of Directors of the Gas Technology Institute and the Board of Directors of the Environment and Natural Resources Program Steering Committee, John F. Kennedy School of Government, Harvard University. Until 2001, Mr. Curtis was a member of the Department of Defense Policy Board and Director of EG&G Technical Services, Inc. (a fossil energy research and development support company).

From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan & Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy and Under Secretary of the U.S. Department of Energy. He served as Chairman of the Federal Energy Regulatory Commission from 1977 to 1981 and has held positions on the staff of the U.S. House of Representatives, the U.S. Treasury Department, and the SEC.

53

Myra R. Drucker (Born 1948), Trustee since 2004

Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence College, Vice Chair of the Board of Trustees of the Commonfund (a not-for-profit firm specializing in asset management for educational endowments and foundations) and a member of the Investment Committee of the Kresge Foundation (a charitable trust).

Ms. Drucker is an ex-officio member of the New York Stock Exchange (NYSE) Pension Managers Advisory Committee, having served as Chair for seven years and a member of the Executive Committee of the Committee on Investment of Employee Benefit Assets. She is Chair of the Advisory Board of Hamilton Lane Advisors (an investment management firm) and a member of the Advisory Board of RCM (an investment management firm). Until August 31, 2004, Ms. Drucker was Managing Director and a member of the Board of Directors of General Motors Asset Management and Chief Investment Officer of General Motors Trust Bank. Ms. Drucker also served as a member of the NYSE Corporate Accountability and Listing Standards Committee and the NYSE/NASD IPO Advisory Committee.

Prior to joining General Motors Asset Management in 2001, Ms. Drucker held various executive positions in the investment management industry. Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a technology and service company in the document industry), where she was responsible for the investment of the company’s pension assets. Ms. Drucker was also Staff Vice President and Director of Trust Investments for International Paper (a paper, paper distribution, packaging and forest products company) and previously served as Manager of Trust Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in Literature and Psychology from Sarah Lawrence College and pursued graduate studies in economics, statistics and portfolio theory at Temple University.

John A. Hill (Born 1942), Trustee since 1985 and Chairman since 2000

Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity buyout firm that specializes in energy investments in the diversified worldwide energy industry.

Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil Company and various private companies controlled by First Reserve Corporation, as well as Chairman of TH Lee, Putnam Investment Trust (a closed-end investment company advised by an affiliate of Putnam Management). He is also a Trustee of Sarah Lawrence College. Until 2005, he was a Director of Continuum Health Partners of New York.

Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held executive positions in investment banking and investment management with several firms and with the federal government, including Deputy Associate Director of the Office of Management and Budget and Deputy

54

Director of the Federal Energy Administration. He is active in various business associations, including the Economic Club of New York, and lectures on energy issues in the United States and Europe. Mr. Hill holds a B.A. degree in Economics from Southern Methodist University and pursued graduate studies there as a Woodrow Wilson Fellow.

Paul L. Joskow (Born 1947), Trustee since 1997

Dr. Joskow is the Elizabeth and James Killian Professor of Economics and Management, and Director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology.

Dr. Joskow serves as a Director of National Grid plc (a UK-based holding company with interests in electric and gas transmission and distribution and telecommunications infrastructure) and TransCanada Corporation (an energy company focused on natural gas transmission and power services). He also serves on the Board of Overseers of the Boston Symphony Orchestra. Prior to February 2005, he served on the board of the Whitehead Institute for Biomedical Research (a non-profit research institution) and has been President of the Yale University Council since 1993. Prior to February 2002, he was a Director of State Farm Indemnity Company (an automobile insurance company), and, prior to March 2000, he was a Director of New England Electric System (a public utility holding company).

Dr. Joskow has published five books and numerous articles on topics in industrial organization, government regulation of industry, and competition policy. He is active in industry restructuring, environmental, energy, competition and privatization policies — serving as an advisor to governments and corporations worldwide. Dr. Joskow holds a Ph.D. and M. Phil from Yale University and a B.A. from Cornell University.

Elizabeth T. Kennan (Born 1938), Trustee since 1992

Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and cattle breeding). She is President Emeritus of Mount Holyoke College.

Dr. Kennan served as Chairman and is now Lead Director of Northeast Utilities. Until 2005, she was a Director of Talbots, Inc. She has served as Director on a number of other boards, including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life Insurance. She is a Trustee of the National Trust for Historic Preservation, of Centre College and of Midway College in Midway, Kentucky. Until 2006, she was a member of The Trustees of Reservations. Dr. Kennan has served on the oversight committee of the Folger Shakespeare Library, as President of Five Colleges Incorporated, as a Trustee of Notre Dame University and is active in various educational and civic associations.

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As a member of the faculty of Catholic University for twelve years, until 1978, Dr. Kennan directed the post-doctoral program in Patristic and Medieval Studies, taught history and published numerous articles. Dr. Kennan holds a Ph.D. from the University of Washington in Seattle, an M.S. from St. Hilda’s College at Oxford University and an A.B. from Mount Holyoke College. She holds several honorary doctorates.

Robert E. Patterson (Born 1945), Trustee since 1984

Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman of Cabot Properties, Inc. (a private equity firm investing in commercial real estate).

Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin Diabetes Center and as a Director of Brandywine Trust Group, LLC. Prior to June 2003, he was a Trustee of Sea Education Association. Prior to December 2001, he was President and Trustee of Cabot Industrial Trust (a publicly traded real estate investment trust). Prior to February 1998, he was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership (a registered investment adviser involved in institutional real estate investments). Prior to 1990, he served as Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of Cabot Partners).

Mr. Patterson practiced law and held various positions in state government and was the founding Executive Director of the Massachusetts Industrial Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard Law School.

W. Thomas Stephens (Born 1942), Trustee since 1997

Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade, L.L.C. (a paper, forest products and timberland assets company).

Until 2005, Mr. Stephens was a director of TransCanadaPipelines, Ltd. Until 2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public utility company), Qwest Communications, and Norske Canada, Inc. (a paper manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well, Inc. (a diversified printing company). He served as Chairman of Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest products company) until 1999.

Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of Johns Manville Corporation. He holds B.S. and M.S. degrees from the University of Arkansas.

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Richard B. Worley (Born 1945), Trustee since 2004

Mr. Worley is Managing Partner of Permit Capital LLC, an investment management firm.

Mr. Worley serves on the Executive Committee of the University of Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson Foundation (a philanthropic organization devoted to health care issues) and is a Director of The Colonial Williamsburg Foundation (a historical preservation organization). Mr. Worley also serves on the investment committees of Mount Holyoke College and World Wildlife Fund (a wildlife conservation organization).

Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief Strategic Officer of Morgan Stanley Investment Management. He previously served as President, Chief Executive Officer and Chief Investment Officer of Morgan Stanley Dean Witter Investment Management and as a Managing Director of Morgan Stanley, a financial services firm. Mr. Worley also was the Chairman of Miller Anderson & Sherrerd, an investment management firm.

Mr. Worley holds a B.S. degree from University of Tennessee and pursued graduate studies in economics at the University of Texas.

Charles E. Haldeman, Jr.* (Born 1948), Trustee since 2004

Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC (“Putnam Investments”). He is a member of Putnam Investments’ Executive Board of Directors and Advisory Council. Prior to November 2003, Mr. Haldeman served as Co-Head of Putnam Investments’ Investment Division.

Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive positions in the investment management industry. He previously served as Chief Executive Officer of Delaware Investments and President & Chief Operating Officer of United Asset Management. Mr. Haldeman was also a partner and director of Cooke & Bieler, Inc. (an investment management firm).

Mr. Haldeman currently serves on the Board of Governors of the Investment Company Institute and as a Trustee of Dartmouth College, and he is a member of the Partners HealthCare Systems Investment Committee. He is a graduate of Dartmouth College, Harvard Law School and Harvard Business School. Mr. Haldeman is also a Chartered Financial Analyst (CFA) charterholder.

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George Putnam, III* (Born 1951), Trustee since 1984 and President since 2000

Mr. Putnam is President of New Generation Research, Inc. (a publisher of financial advisory and other research services), and of New Generation Advisers, Inc. (a registered investment advisor to private funds). Mr. Putnam founded the New Generation companies in 1986.

Mr. Putnam is a Director of The Boston Family Office, LLC (a registered investment adviser). He is a Trustee of St. Mark’s School and Shore Country Day School, and until 2002 was a Trustee of the Sea Education Association.

Mr. Putnam previously worked as an attorney with the law firm of Dechert LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a graduate of Harvard College, Harvard Business School and Harvard Law School.

The address of each Trustee is One Post Office Square, Boston, MA 02109.

As of June 30, 2006, there were 108 Putnam Funds. All Trustees serve as Trustees of all Putnam funds. Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, death, or removal.

* Trustees who are or may be deemed to be “interested persons” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent company of Putnam, LLC and its affiliated companies. Messrs. Haldeman and Putnam, III are deemed “interested persons” by virtue of their positions as officers of the fund, Putnam Management or Putnam Retail Management and as shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the President of your fund and each of the other Putnam funds. Mr. Haldeman is President and Chief Executive Officer of Putnam Investments.

58

Officers

In addition to George Putnam, III, the other officers of the fund are shown below:

Charles E. Porter (Born 1938)	Richard S. Robie, III (Born 1960)
Executive Vice President, Associate Treasurer,	Vice President
Compliance Liaison and Principal	Since 2004
Executive Officer	Senior Managing Director, Putnam
Since 1989	Investments, Putnam Management
	and Putnam Retail Management. Prior
Jonathan S. Horwitz (Born 1955)	to 2003, Senior Vice President, United
Senior Vice President and Treasurer	Asset Management Corporation
Since 2004
Prior to 2004, Managing Director,	Francis J. McNamara, III (Born 1955)
Putnam Investments	Vice President and Chief Legal Officer
	Since 2004
Steven D. Krichmar (Born 1958)	Senior Managing Director, Putnam
Vice President and Principal Financial Officer	Investments, Putnam Management
Since 2002	and Putnam Retail Management. Prior
Senior Managing Director, Putnam	to 2004, General Counsel, State Street
Investments. Prior to July 2001, Partner,	Research & Management Company
PricewaterhouseCoopers LLP
	Charles A. Ruys de Perez (Born 1957)
Michael T. Healy (Born 1958)	Vice President and Chief Compliance Officer
Assistant Treasurer and Principal	Since 2004
Accounting Officer	Managing Director, Putnam Investments
Since 2000
Managing Director, Putnam Investments	Mark C. Trenchard (Born 1962)
	Vice President and BSA Compliance Officer
Beth S. Mazor (Born 1958)	Since 2002
Vice President	Managing Director, Putnam Investments
Since 2002
Managing Director, Putnam Investments	Judith Cohen (Born 1945)
	Vice President, Clerk and Assistant Treasurer
James P. Pappas (Born 1953)	Since 1993
Vice President
Since 2004	Wanda M. McManus (Born 1947)
Managing Director, Putnam Investments	Vice President, Senior Associate Treasurer
and Putnam Management. During 2002,	and Assistant Clerk
Chief Operating Officer, Atalanta/Sosnoff	Since 2005
Management Corporation; prior to 2001,
President and Chief Executive Officer,	Nancy E. Florek (Born 1957)
UAM Investment Services, Inc.	Vice President, Assistant Clerk,
	Assistant Treasurer and Proxy Manager
	Since 2005

The address of each Officer is One Post Office Square, Boston, MA 02109.

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Fund information

Founded over 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 mutual funds in growth, value, blend, fixed income, and international.

Investment Manager	Myra R. Drucker	James P. Pappas
Putnam Investment	Charles E. Haldeman, Jr.	Vice President
Management, LLC	Paul L. Joskow
One Post Office Square	Elizabeth T. Kennan	Richard S. Robie, III
Boston, MA 02109	Robert E. Patterson	Vice President
	George Putnam, III
Investment Sub-Manager	W. Thomas Stephens	Francis J. McNamara, III
Putnam Investments Limited	Richard B. Worley	Vice President and Chief
57-59 St. James Street		Legal Officer
London, England SW1A 1LD	Officers
	George Putnam, III	Charles A. Ruys de Perez
Marketing Services	President	Vice President and
Putnam Retail Management		Chief Compliance Officer
One Post Office Square	Charles E. Porter
Boston, MA 02109	Executive Vice President,	Mark C. Trenchard
	Associate Treasurer, Compliance	Vice President and
Custodian	Liaison and Principal	BSA Compliance Officer
Putnam Fiduciary	Executive Officer
Trust Company		Judith Cohen
	Jonathan S. Horwitz	Vice President, Clerk and
Legal Counsel	Senior Vice President	Assistant Treasurer
Ropes & Gray LLP	and Treasurer
		Wanda M. McManus
Independent Registered	Steven D. Krichmar	Vice President, Senior Associate
Public Accounting Firm	Vice President and	Treasurer and Assistant Clerk
PricewaterhouseCoopers LLP	Principal Financial Officer
		Nancy E. Florek
Trustees	Michael T. Healy	Vice President, Assistant Clerk,
John A. Hill, Chairman	Assistant Treasurer and	Assistant Treasurer and
Jameson Adkins Baxter,	Principal Accounting Officer	Proxy Manager
Vice Chairman
Charles B. Curtis	Beth S. Mazor
	Vice President

This report is for the information of shareholders of Putnam Europe Equity Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit www.putnam.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.

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Item 2. Code of Ethics:

(a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers.

(c) In July 2005, Putnam Investment Management, LLC, the Fund's investment manager, Putnam Retail Management Limited Partnership, the Fund's principal underwriter, and Putnam Investments Limited, the sub-manager for a portion of the assets of certain funds as determined by Putnam Management from time to time, adopted several amendments to their Code of Ethics. Insofar as such Code of Ethics applies to the Fund's principal executive officer, principal financial officer and principal accounting officer, the amendments provided for an exception to the standard 90-day holding period (one year, in the case of employees deemed to be “access persons” under the Code) for shares of Putnam mutual funds in the case of redemptions from an employee’s account in a college savings plan qualified under Section 529 of the Internal Revenue Code. Under this exception, an employee may, without penalty under the Code, make “qualified redemptions” of shares from such an account less than 90 days (or one year, as applicable) after purchase. “Qualified redemptions” include redemptions for higher education purposes for the account beneficiary and redemptions made upon death or disability. The July 2005 amendments also provide that an employee may, for purposes of the rule limiting the number of trades per calendar quarter in an employee’s personal account to a maximum of 10, count all trades of the same security in the same direction (all buys or all sells) over a period of five consecutive business days as a single trade.

The July 2005 amendments were incorporated into a restated Code of Ethics dated December 2005 (filed as an exhibit hereto).

Item 3. Audit Committee Financial Expert:

The Funds' Audit and Compliance Committee is comprised solely of Trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that all members of the Funds' Audit and Compliance Committee meet the financial literacy requirements of the New York Stock Exchange's rules and that Mr. Patterson, Mr. Stephens and Mr. Hill qualify as "audit committee financial experts" (as such term has been defined by the Regulations) based on their review of their pertinent experience and education. Certain other Trustees, although not on the Audit and Compliance Committee, would also qualify as "audit committee financial experts." The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification.

Item 4. Principal Accountant Fees and Services:

The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor:

Fiscal		Audit-
year	Audit	Related	Tax	All Other
ended	Fees	Fees	Fees	Fees
June 30, 2006	$62,006*	$--	$4,789	$ -
June 30, 2005	$64,103*	$--	$4,774	$299

* Includes fees of $492 and $613 billed by the fund’s independent auditor to the fund for audit procedures necessitated by regulatory and litigation matters for the fiscal years ended June 30, 2006 and June 30, 2005, respectively. These fees were reimbursed to the fund by Putnam Investment Management, LLC (“Putnam Management”).

For the fiscal years ended June 30, 2006 and June 30, 2005, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $264,464 and $195,398 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund.

Audit Fees represent fees billed for the fund’s last two fiscal years.

Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation.

Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities.

All Other Fees represent fees billed for services relating to an analysis of recordkeeping fees.

Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures.

The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one.

The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.

Fiscal	Audit-		All	Total
year	Related	Tax	Other	Non-Audit
ended	Fees	Fees	Fees	Fees
June 30,
2006	$ -	$ 138,160	$ -	$ -
June

30, 2005  $ -  $ -  $ -  $ - 

Item 5. Audit Committee of Listed Registrants

Not applicable

Item 6. Schedule of Investments:

The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.

Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management
Investment Companies:

Not applicable

Item 8. Portfolio Managers of Closed-End Investment Companies

Not Applicable

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and
Affiliated Purchasers:

Not applicable

Item 10. Submission of Matters to a Vote of Security Holders:

Not applicable

Item 11. Controls and Procedures:

(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

(b) Changes in internal control over financial reporting: Not applicable

Item 12. Exhibits:

(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith.

(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Putnam Europe Equity Fund

By (Signature and Title):

/s/Michael T. Healy
Michael T. Healy
Principal Accounting Officer

Date: August 28, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title):

/s/Charles E. Porter
Charles E. Porter
Principal Executive Officer

Date: August 28, 2006

By (Signature and Title):

/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer

Date: August 28, 2006