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 800 Boylston Street Boston, Massachusetts 02199-3600 |
Registrant’s telephone number, including area code: | (617) 292-1000 |
Date of fiscal year end: | June 30, 2011 |
Date of reporting period: | July 1, 2010 — June 30, 2011 |
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: |
![](https://capedge.com/proxy/N-CSR/0000928816-11-001150/europeequityfundx1x1.jpg)
Putnam
Europe Equity
Fund
Annual report
6 | 30 | 11
Message from the Trustees | 1 | ||
About the fund | 2 | ||
Performance snapshot | 4 | ||
Interview with your fund’s portfolio manager | 5 | ||
Your fund’s performance | 10 | ||
Your fund’s expenses | 12 | ||
Terms and definitions | 14 | ||
Trustee approval of management contract | 15 | ||
Other information for shareholders | 20 | ||
Financial statements | 21 | ||
Federal tax information | 40 | ||
About the Trustees | 41 | ||
Officers | 43 | ||
Message from the Trustees
Dear Fellow Shareholder:
In early August, equity markets around the world were rocked by indications of slowing economic growth and worsening debt issues in Europe and the United States. Significantly, Standard & Poor’s downgraded U.S. sovereign debt to AA+ from AAA on August 5. While Putnam’s investment team believes the downgrade will have limited immediate impact on the real economy, it is important to recognize that market volatility has risen in the near term.
Long-term investors are wise to seek the counsel of their financial advisors during volatile times and to remember that market volatility historically has served as an opportunity for nimble managers to both guard against risk and pursue new opportunities. We believe that many investment opportunities still exist today, and that Putnam’s active, research-intensive investment approach offers shareholders a potential advantage in this environment.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancy’s Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
![](https://capedge.com/proxy/N-CSR/0000928816-11-001150/europeequityfundx3x1.jpg)
About the fund
Pursuing growth in European markets since 1990
As a shareholder of Putnam Europe Equity Fund, you are seeking to benefit from opportunities in one of the world’s most developed economic regions. Europe has a long history of capitalism and stock investing, and the region continues to evolve. Today, the 27 member states of the European Union form a large, integrated economy that exports more goods and services than any nation in the world.
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 and cell phones to household products — you are likely to find many items made by European companies.
European stocks can offer diversification to U.S. investors because Europe can follow a different business cycle than that of the United States. Though international markets can experience downturns, investing internationally gives investors a chance to keep building wealth even if U.S. stocks struggle.
Since 1990, the fund has sought attractively valued companies across European markets. Pursuing Putnam’s “blend” strategy, the fund’s manager targets stocks believed to be worth more than their current prices indicate, and seeks to position the fund to perform well whether growth- or value-style stocks are leading international markets. The manager selects stocks and determines market and sector weightings relying in part on the proprietary research of Putnam analysts based in Boston and London.
Consider these risks before investing: 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 concentrates its investments by region or sector, and involves more risk than a fund that invests more broadly. The use of derivatives involves special risks and may result in losses. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The market may not favor growth- or value-style investing.
In-depth analysis is key to successful stock selection.
Drawing on the expertise of a dedicated team of stock analysts, the fund’s portfolio manager seeks stocks that are believed to be underpriced by the market. Once a stock is selected for the portfolio, it is regularly assessed to ensure that it continues to be attractive. Areas of focus include:
Valuation The manager carefully considers how each stock is valued, seeking stocks whose valuations are attractive relative to the company’s growth potential and capital requirements.
Cash flow The manager examines each company’s financials, particularly the amount of cash a company generates relative to the earnings that it reports, and projects its ability to generate cash returns going forward.
Quality The manager evaluates high-quality companies with characteristics such as solid management teams and sound business models.
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2 | 3 |
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See pages 5 and 10–12 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus. To obtain the most recent month-end performance, visit putnam.com.
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Interview with your fund’s portfolio manager
Simon [Sam] Davis
The fund posted positive results for the year, both in absolute terms and relative to its benchmark and Lipper peer group average, based on the performance of class A shares before sales charge. What drove this result?
Performance was chiefly due to our stock selection. This supports our focus on investment opportunities from the bottom up — that is, we judge companies on a case-by-case basis in terms of their valuation, fundamental characteristics, competitive positioning, and future growth prospects. I believe the fund’s relative results also illustrate how investors who primarily seek to benefit from top-down market themes found it difficult to identify sustained trends to latch on to as the market progressed this year along its persistently volatile path.
In Europe, sovereign debt issues were a periodic threat throughout the year, but some positive signs remain visible. How has this played out from your perspective?
Overall, the European economy continues to gradually recover thanks to the substantial monetary and fiscal stimulus that has been applied. However, the recovery has been lopsided: Northern European economies have continued to display relative strength as exports to faster-growing emerging economies have been brisk and robust employment has supported consumption. Meanwhile, the peripheral economies, such as Portugal, Ireland, Greece, and Spain, have deteriorated, as concerns over unemployment and the announcement of fiscal austerity measures have depressed consumer sentiment and economic activity.
In addition, healing in the corporate credit markets over the past year has allowed
![](https://capedge.com/proxy/N-CSR/0000928816-11-001150/europeequityfundx6x1.jpg)
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 6/30/11. See pages 4 and 10–12 for additional fund performance information. Index descriptions can be found on page 14.
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companies to access capital markets to raise new money. Many banks, including some in peripheral European countries, have rebuilt their capital bases, repaying expensive government loans, escaping potential restrictions of state ownership, and stabilizing the overall financial system. In summary, markets saw positive results for the year, but only after fighting through periods of high risk aversion related to European sovereign debt problems that remain unresolved.
In light of these still-unfolding risks in Europe, how did you position the fund?
As I mentioned, our fund management process is driven primarily by bottom-up stock selection, but in today’s environment one cannot ignore macroeconomic concerns. Accordingly, the fund owned stocks of European companies that we felt were undervalued relative to their ability to deliver earnings growth and that we believed were positioned to benefit from positive economic data, particularly those companies exposed to growth in emerging markets.
Our view that the European debt crisis would not bring about a double-dip recession during the period was vindicated. In addition, the fund’s positions in companies located in better financed and more fiscally sound Northern European countries like Germany had a positive impact on performance.
How did currency positions affect the fund?
We do not employ currency-hedging strategies, but the fund gains currency exposure indirectly through stocks held in the various currencies across Europe. During the period, we underestimated the degree to which markets would look to the Swiss franc as a safe haven relative to currencies like the euro and the U.S. dollar, which depreciated, and thus currency exposures in the fund detracted somewhat from results.
![](https://capedge.com/proxy/N-CSR/0000928816-11-001150/europeequityfundx7x1.jpg)
Country allocations are shown as a percentage of the fund’s net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Weightings will vary over time.
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![](https://capedge.com/proxy/N-CSR/0000928816-11-001150/europeequityfundx8x1.jpg)
Among those holdings that performed well for the fund, what were some highlights?
A German company we discussed at the fund’s semiannual period-end, Kabel Deutschland Holding, contributed significantly to performance for the year overall, and it remained an overweight position relative to the benchmark through the end of the annual period. Of crucial importance for this company, Germany’s leading cable TV operator, is that it has the infrastructure to give its customers more premium offerings relative to Deutsche Telecom, its primary competitor. As Kabel promotes its “triple-play” services, bundling cable TV with broadband Internet and voice services, it has done a good job selling consumers on higher-speed, higher-priced products. We continue to believe the company has solid growth opportunities going forward.
Fiat, the Italian auto manufacturer, also had strong performance. As we mentioned at the end of the semiannual period, the successful breakup of the group into Fiat Auto and Fiat Industrial uncovered significant value in each component company. In addition, Fiat Auto’s margins increased, and it took a greater stake in Chrysler, all of which supported share price appreciation. We sold the stock by the end of the period.
The diversified mining group Rio Tinto was also a key contributor to the fund’s performance for the year. The group has continued to benefit from strong demand in emerging markets, especially in China, for its main
![](https://capedge.com/proxy/N-CSR/0000928816-11-001150/europeequityfundx8x2.jpg)
This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 6/30/11. Short-term holdings are excluded. Holdings will vary over time.
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products: iron ore, coal, and copper. It has continued to generate strong cash flows. This has enabled Rio Tinto to pay down debt taken on at the time of its acquisition of Alcan in 2008, resulting in a more robust balance sheet. In addition, Rio Tinto has used cash flow to sustain organic growth through investment in new and existing projects while also rewarding shareholders with increased share buy-backs and dividends.
Which strategies or holdings had a negative impact on results?
The stock of Pandora, a Danish jewelry company, suffered on concerns that the rising price of silver would squeeze the company’s gross margins and in the wake of a lower-than-expected growth report. We believe that the company’s growth prospects are still quite healthy, as it has taken steps to hedge its silver exposure, may expand into new geographies, and retains the ability to diversify its jewelry product line, all of which could potentially extend its reach across its consumer base.
As we mentioned at the semiannual period-end, the fund established a position in the Bank of Ireland that detracted from returns. We bought the stock last July because we thought the bank would be a survivor in a more consolidated marketplace. However, we underestimated the problems facing the Irish economy and the ability of the government to resolve issues with its banking system. We sold the position in the fall.
The fund’s holding in Britvic also weighed on performance. While we believed that the company was well-managed and attractively valued with strong niche market positions, this U.K.-based soft-drink maker was unable to offset the impact of increasing prices of the raw materials it uses, and as a result suffered a hit to its gross margins. Its exposure to
![](https://capedge.com/proxy/N-CSR/0000928816-11-001150/europeequityfundx9x1.jpg)
This chart shows the fund’s largest allocation shifts, by percentage, over the past six months. Weightings are shown as a percentage of net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings will vary over time.
Data in the chart reflect a new calculation methodology put in effect within the past six months.
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the weak U.K. consumer was also a headwind, as was its business in Ireland, where the economy and consumers are extremely challenged by the country’s ongoing fiscal crisis. Consequently, we eliminated the fund’s position in the stock by period-end.
How do you gauge the risks and opportunities going forward for European markets and the fund?
Sovereign default remains a risk. Most recently, it has been acknowledged that the original bailout plan for Greece will not be sufficient, rating agencies have made further downgrades to Greek and other sovereign debt ratings, and the market is increasingly convinced that some form of debt restructuring is inevitable. This will again focus attention on whether sovereign debt restructuring in other peripheral European economies is also required, and there remains great uncertainty regarding the impact of such an event on the balance sheets of European banks and the implications for debt markets. In addition, a number of countries have announced significant austerity measures to reduce the risk of government debt service costs spiraling upward. This is likely to have a negative impact on growth, at least in the short term, due to a reduction in aggregate disposable income and depressed consumer sentiment. Signs of economic weakness have recently become more evident in the United Kingdom, for example.
Absent a default among the more debt-laden European countries, I believe European equity markets should continue to trend upward. My colleagues and I expect several factors have the potential to drive this positive market development, including a continued recovery in corporate earnings; attractive valuations — especially relative to historically low bond yields; a pickup in corporate investment; more progress on rebuilding bank equity ratios; and concrete signs of fiscal restructuring.
While we expect to see further bouts of volatility, we are confident in our approach of identifying attractive growth investment opportunities in Europe on a stock-by-stock basis with a strong emphasis on valuation. We expect that restructuring and consolidation will remain important drivers of returns as companies continue to rationalize in the face of increased global competition and still tough global economic conditions. We continue to favor companies with strong market positions and limited refinancing risk that are able to exhibit sustainable secular growth in today’s challenging environment.
Thank you, Sam, for bringing us up to date.
The views expressed in this report are exclusively those of Putnam Management, and are subject to change. They are not meant as investment advice.
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. Current and future portfolio holdings are subject to risk.
Portfolio Manager Simon Davis is Co-Head of International Equities at Putnam. He has a B.A. from Oxford University. Simon joined Putnam in 2000 and has been in the investment industry since 1988.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended June 30, 2011, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent 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. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. 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 6/30/11
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) | ||||
Before | After | Before | After | Net | Net | |||||
sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
Annual average | ||||||||||
(life of fund) | 8.38% | 8.07% | 7.57% | 7.57% | 7.57% | 7.57% | 7.86% | 7.68% | 8.12% | 8.45% |
10 years | 56.99 | 47.93 | 45.50 | 45.50 | 45.63 | 45.63 | 49.22 | 43.98 | 53.65 | 59.28 |
Annual average | 4.61 | 3.99 | 3.82 | 3.82 | 3.83 | 3.83 | 4.08 | 3.71 | 4.39 | 4.76 |
5 years | 7.25 | 1.09 | 3.28 | 1.62 | 3.35 | 3.35 | 4.61 | 0.96 | 5.99 | 8.59 |
Annual average | 1.41 | 0.22 | 0.65 | 0.32 | 0.66 | 0.66 | 0.91 | 0.19 | 1.17 | 1.66 |
3 years | –5.14 | –10.61 | –7.29 | –10.04 | –7.22 | –7.22 | –6.55 | –9.83 | –5.80 | –4.42 |
Annual average | –1.74 | –3.67 | –2.49 | –3.47 | –2.47 | –2.47 | –2.23 | –3.39 | –1.97 | –1.50 |
1 year | 38.36 | 30.38 | 37.29 | 32.29 | 37.32 | 36.32 | 37.72 | 32.88 | 38.00 | 38.73 |
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 5.75% and 3.50% sales charge, respectively, levied at the time of purchase. Class B share returns after CDSC reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for 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 the higher operating expenses for such shares, except for class Y shares, for which 12b-1 fees are not applicable.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
Class B share performance does not reflect conversion to class A shares.
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus.
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Comparative index returns For periods ended 6/30/11
Lipper European Region Funds | ||
MSCI Europe Index (ND) | category average* | |
Annual average (life of fund) | 8.11% | 8.48% |
10 years | 81.63 | 104.47 |
Annual average | 6.15 | 6.81 |
5 years | 10.51 | 10.88 |
Annual average | 2.02 | 1.89 |
3 years | –5.88 | –4.51 |
Annual average | –2.00 | –1.71 |
1 year | 36.02 | 34.95 |
Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 6/30/11, there were 105, 93, 85, 64, and 9 funds, respectively, in this Lipper category.
![](https://capedge.com/proxy/N-CSR/0000928816-11-001150/europeequityfundx12x1.jpg)
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 $14,550 and $14,563, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $14,398. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $15,365 and $15,928, respectively.
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Fund price and distribution information For the 12-month period ended 6/30/11
Distributions | Class A | Class B | Class C | Class M | Class R | Class Y | ||
Number | 1 | 1 | 1 | 1 | 1 | 1 | ||
Income | $0.367 | $0.191 | $0.214 | $0.268 | $0.329 | $0.417 | ||
Capital gains | — | — | — | — | — | — | ||
Total | $0.367 | $0.191 | $0.214 | $0.268 | $0.329 | $0.417 | ||
Before | After | Net | Net | Before | After | Net | Net | |
sales | sales | asset | asset | sales | sales | asset | asset | |
Share value | charge | charge | value | value | charge | charge | value | value |
6/30/10 | $15.83 | $16.80 | $15.12 | $15.50 | $15.65 | $16.22 | $15.66 | $15.90 |
6/30/11 | 21.50 | 22.81 | 20.55 | 21.05 | 21.26 | 22.03 | 21.25 | 21.60 |
The classification of distributions, if any, is an estimate. Final distribution information will appear on your year-end tax forms. Before-sales-charge share value for class A and M shares does not take into account any sales charge levied at the time of purchase. After-sales-charge share value is calculated assuming that the maximum sales charge (5.75% for class A shares and 3.50% for class M shares) was levied at the time of purchase.
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. Using the following information, 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 representative.
Expense ratios
Class A | Class B | Class C | Class M | Class R | Class Y | |
Total annual operating expenses for the fiscal year | ||||||
ended 6/30/10* | 1.47% | 2.22% | 2.22% | 1.97% | 1.72% | 1.22% |
Annualized expense ratio for the six-month period | ||||||
ended 6/30/11†‡ | 1.47% | 2.22% | 2.22% | 1.97% | 1.72% | 1.22% |
Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Restated to reflect projected expenses under a management contract effective 1/1/10.
† For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
‡ Includes an increase of 0.04% in annualized performance fees for the six months ended 6/30/11.
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Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from January 1, 2011, to June 30, 2011. 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*† | $7.60 | $11.46 | $11.46 | $10.17 | $8.89 | $6.31 |
Ending value (after expenses) | $1,085.30 | $1,081.60 | $1,081.20 | $1,082.50 | $1,083.60 | $1,086.50 |
* 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 average net assets for the six months ended 6/30/11. The expense ratio may differ for each share class.
† 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.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended June 30, 2011, use the following calculation method. To find the value of your investment on January 1, 2011, call Putnam at 1-800-225-1581.
![](https://capedge.com/proxy/N-CSR/0000928816-11-001150/europeequityfundx14x1.jpg)
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 following table 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 average net assets for the six months ended 6/30/11. The expense ratio may differ for each share class.
† 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.
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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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is 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 over time 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 generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
MSCI Europe Index (ND) is an unmanaged index of Western European equity securities.
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.
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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 Investment Management (“Putnam Management”), the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), and the sub-advisory contract among Putnam Management, PIL, and another affiliate, Putnam Advisory Company (“PAC”).
The Board of Trustees, with the assistance of its Contract Committee which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. Over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided 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 on a number of occasions. At the Trustees’ June 17, 2011 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management, sub-management and sub-advisory contracts, effective July 1, 2011. (Because PIL and PAC are affiliates of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL and PAC, the Trustees have not evaluated PIL or PAC as separate entities, and all subsequent references to Putnam Management below should be deemed to include reference to PIL and PAC as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented 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 services, and
• That the fee schedule represented 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 management 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 some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
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Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. In reviewing management fees, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management 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.
Most of the open-end Putnam funds have new management contracts, with new fee schedules reflecting the implementation of more competitive fee levels for many funds, complex-wide breakpoints for the open-end funds, and performance fees for some funds. These new management contracts have been in effect for a little over a year – since January or, for a few funds, February, 2010. The Trustees approved the new management contracts on July 10, 2009, and fund shareholders subsequently approved the contracts by overwhelming majorities of the shares voted.
Because these management contracts had been implemented only recently, the Contract Committee had limited practical experience with the operation of the new fee structures. Under its new management contract, your fund has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. In addition, your fund’s new management contract provides that its management fees will be adjusted up or down depending upon whether your fund’s performance is better or worse than the performance of an appropriate index of securities prices specified in the management contract. To ensure that the performance comparison was being made over a reasonable period of time, your fund did not begin accruing performance adjustments until January 2011, by which time there was a twelve month period under the new management contract based on which to determine performance adjustments. The Contract Committee observed that the complex-wide breakpoints of the open-end funds and your fund’s performance fee had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure and performance fee in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds had sufficiently low expenses that these expense limitations did not apply. However, in the case of your fund, the first of the expense limitations applied during its fiscal year ending in 2010. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and extraordinary expenses). Putnam Management’s support for these expense limitations was an important factor in the Trustees’
16
decision to approve the continuance of your fund’s management, sub-management and sub-advisory contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the 1st quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the 4th quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2010 (the first quintile representing the least expensive funds and the fifth quintile the most expensive funds). The fee and expense data reported by Lipper as of December 31, 2010, reflected the most recent fiscal year-end data available in Lipper’s database at that time.
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 provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds 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, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and 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 may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes 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 its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
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
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the Putnam funds’ investment process and performance by the work of several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized 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.
The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered that its class A share cumulative total return performance at net asset value was in the following quartiles of its Lipper Inc. peer group (Lipper European Region Funds) for the one-year, three-year and five-year periods ended December 31, 2010 (the first quartile representing thebest-performing funds and the fourth quartile the worst-performing funds):
One-year period | 3rd | ||
Three-year period | 2nd | ||
Five-year period | 3rd | ||
Over the one-year, three-year and five-year periods ended December 31, 2010, there were 109, 95 and 88 funds, respectively, in your fund’s Lipper peer group. (When considering performance information, shareholders should be mindful that past performance is not a guarantee of future results.)
Brokerage and soft-dollar allocations; investor servicing
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 allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking
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best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management contract, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
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Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy 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 must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these 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. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, 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 website 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 website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of June 30, 2011, Putnam employees had approximately $371,000,000 and the Trustees had approximately $70,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
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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 non-investment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the 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 highlights table also includes the current reporting period.
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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 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, 2011, 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, 2011 by correspondence with the custodian and transfer agent provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 11, 2011
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The fund’s portfolio 6/30/11
COMMON STOCKS (99.1%)* | Shares | Value |
Belgium (3.1%) | ||
Anheuser-Busch InBev NV | 75,542 | $4,387,481 |
Telenet Group Holding NV † | 38,145 | 1,817,233 |
6,204,714 | ||
Denmark (0.7%) | ||
Pandora A/S S | 41,937 | 1,319,269 |
1,319,269 | ||
Finland (2.2%) | ||
Fortum OYJ | 83,184 | 2,412,041 |
Metso OYJ | 36,125 | 2,054,604 |
4,466,645 | ||
France (20.7%) | ||
Arkema | 24,120 | 2,486,230 |
AXA SA | 171,354 | 3,898,791 |
BioMerieux | 8,476 | 985,311 |
BNP Paribas SA | 52,607 | 4,065,994 |
Christian Dior SA | 24,397 | 3,843,553 |
Sanofi | 88,899 | 7,156,272 |
Schneider Electric SA | 15,738 | 2,632,502 |
SCOR | 99,178 | 2,822,528 |
Societe Generale SA | 34,609 | 2,056,324 |
Technip SA | 20,757 | 2,228,189 |
Total SA | 120,037 | 6,950,836 |
Vinci SA | 31,774 | 2,037,821 |
41,164,351 | ||
Germany (18.0%) | ||
BASF SE | 64,753 | 6,353,025 |
Bayerische Motoren Werke (BMW) AG | 30,771 | 3,074,397 |
Biotest AG (Preference) | 23,107 | 1,673,543 |
Deutsche Post AG | 146,771 | 2,823,728 |
Henkel AG & Co. KGaA | 54,666 | 3,799,684 |
Infineon Technologies AG | 130,461 | 1,468,457 |
Kabel Deutschland Holding AG † | 46,425 | 2,858,147 |
MTU Aero Engines Holding AG | 31,131 | 2,489,739 |
Porsche Automobil Holding SE (Preference) | 49,320 | 3,917,213 |
Siemens AG | 36,577 | 5,029,500 |
Suedzucker AG | 66,053 | 2,350,250 |
35,837,683 | ||
Ireland (3.2%) | ||
Kerry Group PLC Class A | 88,552 | 3,666,389 |
WPP PLC | 219,353 | 2,749,160 |
6,415,549 | ||
Israel (0.9%) | ||
Teva Pharmaceutical Industries, Ltd. ADR S | 37,200 | 1,793,784 |
1,793,784 | ||
Netherlands (4.4%) | ||
Gemalto NV S | 40,542 | 1,941,139 |
ING Groep NV GDR † | 339,501 | 4,184,700 |
Koninklijke (Royal) KPN NV | 174,952 | 2,547,925 |
8,673,764 |
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COMMON STOCKS (99.1%)* cont. | Shares | Value |
Norway (0.9%) | ||
DnB NOR ASA | 131,416 | $1,836,398 |
1,836,398 | ||
Poland (0.8%) | ||
Warsaw Stock Exchange † | 88,399 | 1,677,339 |
1,677,339 | ||
Russia (2.6%) | ||
Aeroflot — Russian Airlines OJSC | 210,000 | 521,932 |
Gazprom OAO ADR | 100,988 | 1,472,405 |
Sberbank OJSC | 555,096 | 2,042,753 |
Synergy Co. † | 34,907 | 1,190,175 |
5,227,265 | ||
Spain (1.8%) | ||
Banco Santander Central Hispano SA | 316,784 | 3,662,745 |
3,662,745 | ||
Sweden (2.3%) | ||
Telefonaktiebolaget LM Ericsson AB Class B | 165,292 | 2,387,285 |
Volvo AB Class B | 119,339 | 2,088,345 |
4,475,630 | ||
Switzerland (6.7%) | ||
Credit Suisse Group † | 58,808 | 2,288,630 |
Nestle SA | 38,996 | 2,424,922 |
Novartis AG | 77,548 | 4,753,016 |
Syngenta AG † | 7,069 | 2,387,602 |
Wolseley PLC | 44,955 | 1,467,789 |
13,321,959 | ||
United Kingdom (30.8%) | ||
Barclays PLC | 624,184 | 2,572,037 |
BG Group PLC | 175,835 | 3,994,998 |
BP PLC | 357,724 | 2,636,279 |
British American Tobacco (BAT) PLC | 75,913 | 3,331,192 |
Carillion PLC | 532,473 | 3,217,827 |
Centrica PLC | 627,146 | 3,257,888 |
HSBC Holdings PLC | 193,192 | 1,919,643 |
Kingfisher PLC | 695,447 | 2,985,811 |
Pearson PLC | 112,205 | 2,120,222 |
Prudential PLC | 171,063 | 1,979,021 |
Reckitt Benckiser Group PLC | 78,559 | 4,342,264 |
Rio Tinto PLC | 80,957 | 5,841,322 |
Royal Dutch Shell PLC Class A | 206,466 | 7,358,205 |
Schroders PLC | 59,220 | 1,472,043 |
Telecity Group PLC † | 204,959 | 1,824,478 |
Tullow Oil PLC | 67,256 | 1,340,030 |
Vedanta Resources PLC | 46,346 | 1,559,376 |
Virgin Media, Inc. | 31,000 | 927,830 |
Vodafone Group PLC | 837,789 | 2,225,201 |
Whitbread PLC | 47,152 | 1,223,586 |
WM Morrison Supermarkets PLC | 492,770 | 2,357,137 |
Xstrata PLC | 127,289 | 2,805,101 |
61,291,491 | ||
Total common stocks (cost $165,970,817) | $197,368,586 |
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SHORT-TERM INVESTMENTS (2.9%)* | Shares | Value |
Putnam Cash Collateral Pool, LLC 0.17% d | 4,467,483 | $4,467,483 |
Putnam Money Market Liquidity Fund 0.04% e | 1,332,729 | 1,332,729 |
Total short-term investments (cost $5,800,212) | $5,800,212 | |
TOTAL INVESTMENTS | ||
Total investments (cost $171,771,029) | $203,168,798 |
Key to holding’s abbreviations | |
ADR | American Depository Receipts |
GDR | Global Depository Receipts |
OAO | Open Joint Stock Company |
OJSC | Open Joint Stock Company |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from July 1, 2010 through June 30, 2011 (the reporting period).
* Percentages indicated are based on net assets of $199,082,378.
† Non-income-producing security.
d See Note 1 to the financial statements regarding securities lending. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
e See Note 5 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
S Security on loan, in part or in entirety, at the close of the reporting period.
ADR or GDR after the name of a foreign holding represents ownership of foreign securities on deposit with a custodian bank.
The fund had the following industry concentration greater than 10% at the close of the reporting period (as a percentage of net assets):
Oil, gas, and consumable fuels | 11.9% |
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Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
Valuation inputs | ||||
Investments in securities: | Level 1 | Level 2 | Level 3 | |
Common stocks: | ||||
Belgium | $6,204,714 | $— | $— | |
Denmark | 1,319,269 | — | — | |
Finland | 4,466,645 | — | — | |
France | 41,164,351 | — | — | |
Germany | 35,837,683 | — | — | |
Ireland | 6,415,549 | — | — | |
Israel | 1,793,784 | — | — | |
Netherlands | 8,673,764 | — | — | |
Norway | 1,836,398 | — | — | |
Poland | 1,677,339 | — | — | |
Russia | 5,227,265 | — | — | |
Spain | 3,662,745 | — | — | |
Sweden | 4,475,630 | — | — | |
Switzerland | 13,321,959 | — | — | |
United Kingdom | 61,291,491 | — | — | |
Total common stocks | 197,368,586 | — | — | |
Short-term investments | 1,332,729 | 4,467,483 | — | |
Totals by level | $198,701,315 | $4,467,483 | $— |
The accompanying notes are an integral part of these financial statements.
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Statement of assets and liabilities 6/30/11
ASSETS | |
Investment in securities, at value, including $4,358,097 of securities on loan (Note 1): | |
Unaffiliated issuers (identified cost $165,970,817) | $197,368,586 |
Affiliated issuers (identified cost $5,800,212) (Notes 1 and 5) | 5,800,212 |
Foreign currency (cost $1,076) (Note 1) | 1,076 |
Dividends, interest and other receivables | 718,527 |
Foreign tax reclaim | 59,498 |
Receivable for shares of the fund sold | 27,829 |
Receivable for investments sold | 378,224 |
Total assets | 204,353,952 |
LIABILITIES | |
Payable for shares of the fund repurchased | 215,347 |
Payable for compensation of Manager (Note 2) | 118,555 |
Payable for investor servicing fees (Note 2) | 51,138 |
Payable for custodian fees (Note 2) | 24,815 |
Payable for Trustee compensation and expenses (Note 2) | 153,577 |
Payable for administrative services (Note 2) | 1,082 |
Payable for distribution fees (Note 2) | 120,030 |
Collateral on securities loaned, at value (Note 1) | 4,467,483 |
Other accrued expenses | 119,547 |
Total liabilities | 5,271,574 |
Net assets | $199,082,378 |
REPRESENTED BY | |
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $261,626,364 |
Undistributed net investment income (Note 1) | 380,290 |
Accumulated net realized loss on investments and foreign currency transactions (Note 1) | (94,316,535) |
Net unrealized appreciation of investments and assets and liabilities in foreign currencies | 31,392,259 |
Total — Representing net assets applicable to capital shares outstanding | $199,082,378 |
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
Net asset value and redemption price per class A share | |
($177,368,725 divided by 8,250,374 shares) | $21.50 |
Offering price per class A share (100/94.25 of $21.50)* | $22.81 |
Net asset value and offering price per class B share ($5,580,385 divided by 271,590 shares)** | $20.55 |
Net asset value and offering price per class C share ($2,216,772 divided by 105,309 shares)** | $21.05 |
Net asset value and redemption price per class M share ($3,750,559 divided by 176,426 shares) | $21.26 |
Offering price per class M share (100/96.50 of $21.26)* | $22.03 |
Net asset value, offering price and redemption price per class R share | |
($219,194 divided by 10,316 shares) | $21.25 |
Net asset value, offering price and redemption price per class Y share | |
($9,946,743 divided by 460,481 shares) | $21.60 |
* 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.
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Statement of operations Year ended 6/30/11
INVESTMENT INCOME | |
Dividends (net of foreign tax of $613,125) | $5,646,205 |
Interest (including interest income of $1,269 from investments in affiliated issuers) (Note 5) | 449 |
Securities lending (including interest income of $257,140 from investments in affiliated | |
issuers) (Note 1) | 259,998 |
Total investment income | 5,906,652 |
EXPENSES | |
Compensation of Manager (Note 2) | 1,430,776 |
Investor servicing fees (Note 2) | 655,617 |
Custodian fees (Note 2) | 43,214 |
Trustee compensation and expenses (Note 2) | 16,761 |
Administrative services (Note 2) | 6,295 |
Distribution fees — Class A (Note 2) | 441,463 |
Distribution fees — Class B (Note 2) | 66,168 |
Distribution fees — Class C (Note 2) | 21,406 |
Distribution fees — Class M (Note 2) | 27,829 |
Distribution fees — Class R (Note 2) | 899 |
Other | 202,288 |
Total expenses | 2,912,716 |
Expense reduction (Note 2) | (802) |
Net expenses | 2,911,914 |
Net investment income | 2,994,738 |
Net realized gain on investments (Notes 1 and 3) | 25,316,023 |
Net realized gain on foreign currency transactions (Note 1) | 41,875 |
Net unrealized depreciation of assets and liabilities in foreign currencies during the year | (12,279) |
Net unrealized appreciation of investments during the year | 34,166,188 |
Net gain on investments | 59,511,807 |
Net increase in net assets resulting from operations | $62,506,545 |
The accompanying notes are an integral part of these financial statements.
28
Statement of changes in net assets
INCREASE (DECREASE) IN NET ASSETS | Year ended 6/30/11 | Year ended 6/30/10 |
Operations: | ||
Net investment income | $2,994,738 | $2,579,190 |
Net realized gain on investments | ||
and foreign currency transactions | 25,357,898 | 7,645,898 |
Net unrealized appreciation of investments | ||
and assets and liabilities in foreign currencies | 34,153,909 | 3,241,013 |
Net increase in net assets resulting from operations | 62,506,545 | 13,466,101 |
Distributions to shareholders (Note 1): | ||
From ordinary income | ||
Net investment income | ||
Class A | (3,264,473) | (944,351) |
Class B | (67,158) | — |
Class C | (23,605) | — |
Class M | (51,043) | (1,135) |
Class R | (2,834) | (467) |
Class Y | (193,883) | (73,122) |
Increase in capital from settlement payments (Note 6) | 92,249 | 908,927 |
Redemption fees (Note 1) | 3,398 | 3,045 |
Decrease from capital share transactions (Note 4) | (31,514,930) | (36,710,567) |
Total increase (decrease) in net assets | 27,484,266 | (23,351,569) |
NET ASSETS | ||
Beginning of year | 171,598,112 | 194,949,681 |
End of year (including undistributed net investment | ||
income of $380,290 and $854,444, respectively) | $199,082,378 | $171,598,112 |
The accompanying notes are an integral part of these financial statements.
29
Financial highlights (For a common share outstanding throughout the period)
INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | |||||||||||||
Ratio | |||||||||||||||
Net asset | Net realized | Ratio | of net investment | ||||||||||||
value, | and unrealized | Total from | From | From | Total return | Net assets, | of expenses | income (loss) | |||||||
beginning | Net investment | gain (loss) | investment | net investment | net realized gain | Total | Redemption | Non-recurring | Net asset value, | at net asset | end of period | to average | to average | Portfolio | |
Period ended | of period | income (loss) a | on investments | operations | income | on investments | distributions | fees e | reimbursements | end of period | value (%) b | (in thousands) | net assets (%) c | net assets (%) | turnover (%) |
Class A | |||||||||||||||
June 30, 2011 | $15.83 | .31 | 5.72 | 6.03 | (.37) | — | (.37) | — | .01 g,h | $21.50 | 38.36 | $177,369 | 1.43 | 1.54 | 70 |
June 30, 2010 | 15.12 | .23 | .49 | .72 | (.09) | — | (.09) | — | .08 f | 15.83 | 5.20 | 151,329 | 1.52 d | 1.25 d | 113 |
June 30, 2009 | 23.20 | .42 | (8.56) | (8.14) | — | — | — | — | .06 i,j | 15.12 | (34.83) | 169,467 | 1.47 d | 2.65 d | 79 |
June 30, 2008 | 33.47 | .48 | (5.14) | (4.66) | (.54) | (5.07) | (5.61) | — | — | 23.20 | (15.43) | 346,192 | 1.41 d | 1.70 d | 77 |
June 30, 2007 | 25.58 | .37 | 8.17 | 8.54 | (.56) | (.09) | (.65) | — | — | 33.47 | 33.69 | 476,598 | 1.48 d | 1.26 d | 106 |
Class B | |||||||||||||||
June 30, 2011 | $15.12 | .12 | 5.49 | 5.61 | (.19) | — | (.19) | — | .01 g,h | $20.55 | 37.29 | $5,580 | 2.18 | .65 | 70 |
June 30, 2010 | 14.48 | .06 | .50 | .56 | — | — | — | — | .08 f | 15.12 | 4.42 | 6,671 | 2.27 d | .37 d | 113 |
June 30, 2009 | 22.39 | .27 | (8.24) | (7.97) | — | — | — | — | .06 i,j | 14.48 | (35.33) | 10,391 | 2.22 d | 1.74 d | 79 |
June 30, 2008 | 32.34 | .16 | (4.85) | (4.69) | (.19) | (5.07) | (5.26) | — | — | 22.39 | (16.04) | 32,360 | 2.16 d | .58 d | 77 |
June 30, 2007 | 24.68 | .05 | 7.97 | 8.02 | (.27) | (.09) | (.36) | — | — | 32.34 | 32.68 | 77,315 | 2.23 d | .17 d | 106 |
Class C | |||||||||||||||
June 30, 2011 | $15.50 | .15 | 5.60 | 5.75 | (.21) | — | (.21) | — | .01 g,h | $21.05 | 37.32 | $2,217 | 2.18 | .80 | 70 |
June 30, 2010 | 14.84 | .09 | .49 | .58 | — | — | — | — | .08 f | 15.50 | 4.45 | 1,859 | 2.27 d | .48 d | 113 |
June 30, 2009 | 22.94 | .30 | (8.46) | (8.16) | — | — | — | — | .06 i,j | 14.84 | (35.31) | 2,325 | 2.22 d | 1.90 d | 79 |
June 30, 2008 | 33.11 | .25 | (5.06) | (4.81) | (.29) | (5.07) | (5.36) | — | — | 22.94 | (16.04) | 4,912 | 2.16 d | .89 d | 77 |
June 30, 2007 | 25.33 | .14 | 8.08 | 8.22 | (.35) | (.09) | (.44) | — | — | 33.11 | 32.68 | 6,983 | 2.23 d | .48 d | 106 |
Class M | |||||||||||||||
June 30, 2011 | $15.65 | .21 | 5.66 | 5.87 | (.27) | — | (.27) | — | .01 g,h | $21.26 | 37.72 | $3,751 | 1.93 | 1.06 | 70 |
June 30, 2010 | 14.96 | .13 | .49 | .62 | (.01) | — | (.01) | — | .08 f | 15.65 | 4.64 | 3,250 | 2.02 d | .75 d | 113 |
June 30, 2009 | 23.07 | .34 | (8.51) | (8.17) | — | — | — | — | .06 i,j | 14.96 | (35.15) | 3,683 | 1.97 d | 2.19 d | 79 |
June 30, 2008 | 33.23 | .27 | (5.03) | (4.76) | (.33) | (5.07) | (5.40) | — | — | 23.07 | (15.85) | 7,551 | 1.91 d | .96 d | 77 |
June 30, 2007 | 25.38 | .19 | 8.13 | 8.32 | (.38) | (.09) | (.47) | — | — | 33.23 | 33.02 | 14,075 | 1.98 d | .66 d | 106 |
Class R | |||||||||||||||
June 30, 2011 | $15.66 | .29 | 5.62 | 5.91 | (.33) | — | (.33) | — | .01 g,h | $21.25 | 38.00 | $219 | 1.68 | 1.49 | 70 |
June 30, 2010 | 14.97 | .21 | .46 | .67 | (.06) | — | (.06) | — | .08 f | 15.66 | 4.97 | 133 | 1.77 d | 1.20 d | 113 |
June 30, 2009 | 23.02 | .42 | (8.53) | (8.11) | — | — | — | — | .06 i,j | 14.97 | (34.97) | 97 | 1.72 d | 2.80 d | 79 |
June 30, 2008 | 33.30 | .44 | (5.13) | (4.69) | (.52) | (5.07) | (5.59) | — | — | 23.02 | (15.63) | 107 | 1.66 d | 1.60 d | 77 |
June 30, 2007 | 25.55 | .60 | 7.84 | 8.44 | (.60) | (.09) | (.69) | — | — | 33.30 | 33.36 | 89 | 1.73 d | 1.94 d | 106 |
Class Y | |||||||||||||||
June 30, 2011 | $15.90 | .37 | 5.74 | 6.11 | (.42) | — | (.42) | — | .01 g,h | $21.60 | 38.73 | $9,947 | 1.18 | 1.84 | 70 |
June 30, 2010 | 15.19 | .27 | .49 | .76 | (.13) | — | (.13) | — | .08 f | 15.90 | 5.41 | 8,356 | 1.27 d | 1.52 d | 113 |
June 30, 2009 | 23.24 | .52 | (8.63) | (8.11) | — | — | — | — | .06 i,j | 15.19 | (34.64) | 8,987 | 1.22 d | 3.50 d | 79 |
June 30, 2008 | 33.53 | .57 | (5.16) | (4.59) | (.63) | (5.07) | (5.70) | — | — | 23.24 | (15.22) | 9,154 | 1.16 d | 2.05 d | 77 |
June 30, 2007 | 25.62 | .48 | 8.14 | 8.62 | (.62) | (.09) | (.71) | — | — | 33.53 | 34.00 | 10,873 | 1.23 d | 1.59 d | 106 |
See notes to financial highlights at the end of this section.
The accompanying notes are an integral part of these financial statements.
30 | 31 |
Financial highlights (Continued)
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/or brokerage/service arrangements (Note 2).
d Reflects an involuntary contractual expense limitation in effect during the period. For periods prior to June 30, 2010 certain fund expenses were waived in connection with the fund’s investment in Putnam Prime Money Market Fund. As a result of such limitation and/or waivers, the expenses of each class reflect a reduction of the following amounts:
Percentage of | |
average net assets | |
June 30, 2010 | 0.02% |
June 30, 2009 | 0.14 |
June 30, 2008 | <0.01 |
June 30, 2007 | <0.01 |
e Amount represents less than $0.01 per share.
f Reflects a non-recurring reimbursement pursuant to a settlement between the Securities and Exchange Commission (SEC) and Prudential Securities, Inc., which amounted to $0.08 per share outstanding as of March 30, 2010.
g Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Zurich Capital Markets, Inc., which amounted to less than $0.01 per share outstanding on December 21, 2010.
h Reflects a non-recurring reimbursal related to short-term trading related lawsuits, which amounted to $0.01 per share outstanding on May 11, 2011 (Note 6).
i Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Millennium Partners, L.P., Millennium Management, L.L.C., and Millennium International Management, L.L.C., which amounted to $0.03 per share outstanding as of June 23, 2009.
j Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Bear, Stearns & Co., Inc. and Bear, Stearns Securities Corp., which amounted to $0.03 per share outstanding as of May 21, 2009.
The accompanying notes are an integral part of these financial statements.
32
Notes to financial statements 6/30/11
Note 1: Significant accounting policies
Putnam Europe Equity Fund (the fund), is a Massachusetts business trust, which 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. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, 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 not available to all investors, are sold at net asset value. 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 not available to all investors.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. 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’s management team 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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from July 1, 2010 through June 30, 2011.
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, and are classified as Level 1 securities. 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 and is generally categorized as a Level 2 security.
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 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, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. 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.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC, does not believe accurately reflects the security’s fair value, the security will be valued at fair
33
value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
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 in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission (the SEC), 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 Management. These balances may be invested in issues of 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) 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.
D) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is 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 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. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
E) Securities lending The fund may lend securities, through its agent, to qualified borrowers in order to earn additional income. The loans are collateralized by cash 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 agent; 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. Effective August 2010, cash collateral is invested in Putnam Cash Collateral Pool, LLC, a limited liability company managed by an affiliate of Putnam Management. Investments in Putnam Cash Collateral Pool, LLC are valued at its closing net asset value each business day. There
34
are no management fees charged by Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the value of securities loaned amounted to $4,358,097 and the fund received cash collateral of $4,467,483.
F) Interfund lending Effective July 2010, the fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the SEC. This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
G) Line of credit Effective July 2010, the fund participates, along with other Putnam funds, in a $285 million unsecured committed line of credit and a $165 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.03% of the committed line of credit and $100,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.15% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
H) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (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. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. 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. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
At June 30, 2011, the fund had a capital loss carryover of $92,697,653 available to the extent allowed by the Code to offset future net capital gain, if any. The amounts of the carryovers and the expiration dates are:
Loss carryover | Expiration | |
$34,323,985 | June 30, 2017 | |
58,373,668 | June 30, 2018 | |
Under the recently enacted Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
I) Distributions to shareholders Distributions to shareholders from net investment income are 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/or permanent differences from losses on wash sale transactions and restitution payment. 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 reporting period ended, the fund reclassified $134,104 to increase undistributed net investment income and $92,231 to decrease paid-in-capital, with an increase to accumulated net realized loss of $41,873.
35
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
Unrealized appreciation | $34,424,875 |
Unrealized depreciation | (4,645,988) |
Net unrealized appreciation | 29,778,887 |
Undistributed ordinary income | 380,290 |
Capital loss carryforward | (92,697,653) |
Cost for federal income tax purposes | $173,389,911 |
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a management fee (base fee) (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
0.850% | of the first $5 billion, |
0.800% | of the next $5 billion, |
0.750% | of the next $10 billion, |
0.700% | of the next $10 billion, |
0.650% | of the next $50 billion, |
0.630% | of the next $50 billion, |
0.620% | of the next $100 billion, |
0.615% | of any excess thereafter. |
In addition, beginning with the fund’s thirteenth complete calendar month of operation under the management contract (January 2011), the monthly management fee consists of the monthly base fee plus or minus a performance adjustment for the month. The performance adjustment is determined based on performance over the thirty-six month period then ended or, if the management contract has not yet been effective for thirty-six complete calendar months, the period from the date the management contract became effective to the end of the month for which the fee adjustment is being computed. Each month, the performance adjustment is calculated by multiplying the performance adjustment rate and the fund’s average net assets over the performance period and the result is divided by twelve. The resulting dollar amount is added to, or subtracted from the base fee for that month. The performance adjustment rate is equal to 0.03 multiplied by the difference between the fund’s annualized performance (measured by the fund’s class A shares) and the annualized performance of the MSCI Europe Index (Net Dividends), each measured over the performance period. The maximum annualized performance adjustment rates are +/–0.15%. The monthly base fee is determined based on the fund’s average net assets for the month, while the performance adjustment is determined based on the fund’s average net assets over the performance period of up to thirty-six months. This means it is possible that, if the fund underperforms significantly over the performance period, and the fund’s assets have declined significantly over that period, the negative performance adjustment may exceed the base fee. In this event, Putnam Management would make a payment to the fund.
For the reporting period ended, the base fee represented an effective rate (excluding the impact from any expense waivers in effect) of 0.70% of the fund’s average net assets before an increase of $37,030 (0.02% of the fund’s average net assets) based on performance.
Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.
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.
36
The Putnam Advisory Company, LLC (PAC), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. Putnam Management or PIL, as applicable, pays a quarterly sub-advisory fee to PAC for its services at the annual rate of 0.35% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $802 under the expense offset arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $112, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years 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. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. 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 Limited Partnership, a wholly-owned subsidiary of Putnam Investments, 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 Limited Partnership 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 reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $6,277 and $548 from the sale of class A and class M shares, respectively, and received $7,235 and $0 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 reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received $7,523 and no monies on class A and class M redemptions, respectively.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $136,029,081 and $168,468,414, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
37
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
Year ended 6/30/11 | Year ended 6/30/10 | |||
Class A | Shares | Amount | Shares | Amount |
Shares sold | 347,405 | $6,588,035 | 426,160 | $7,612,420 |
Shares issued in connection with | ||||
reinvestment of distributions | 149,865 | 2,934,354 | 46,891 | 874,991 |
497,270 | 9,522,389 | 473,051 | 8,487,411 | |
Shares repurchased | (1,806,302) | (35,755,891) | (2,122,049) | (37,900,074) |
Net decrease | (1,309,032) | $(26,233,502) | (1,648,998) | $(29,412,663) |
Year ended 6/30/11 | Year ended 6/30/10 | |||
Class B | Shares | Amount | Shares | Amount |
Shares sold | 15,661 | $297,369 | 31,593 | $547,606 |
Shares issued in connection with | ||||
reinvestment of distributions | 3,406 | 63,996 | — | — |
19,067 | 361,365 | 31,593 | 547,606 | |
Shares repurchased | (188,793) | (3,574,614) | (308,026) | (5,248,366) |
Net decrease | (169,726) | $(3,213,249) | (276,433) | $(4,700,760) |
Year ended 6/30/11 | Year ended 6/30/10 | |||
Class C | Shares | Amount | Shares | Amount |
Shares sold | 8,137 | $165,042 | 7,154 | $121,125 |
Shares issued in connection with | ||||
reinvestment of distributions | 1,022 | 19,682 | — | — |
9,159 | 184,724 | 7,154 | 121,125 | |
Shares repurchased | (23,795) | (462,168) | (43,839) | (755,933) |
Net decrease | (14,636) | $(277,444) | (36,685) | $(634,808) |
Year ended 6/30/11 | Year ended 6/30/10 | |||
Class M | Shares | Amount | Shares | Amount |
Shares sold | 6,571 | $125,988 | 68,329 | $1,199,681 |
Shares issued in connection with | ||||
reinvestment of distributions | 1,779 | 34,536 | 41 | 753 |
8,350 | 160,524 | 68,370 | 1,200,434 | |
Shares repurchased | (39,573) | (758,458) | (106,955) | (1,927,966) |
Net decrease | (31,223) | $(597,934) | (38,585) | $(727,532) |
Year ended 6/30/11 | Year ended 6/30/10 | |||
Class R | Shares | Amount | Shares | Amount |
Shares sold | 3,655 | $72,943 | 3,095 | $54,418 |
Shares issued in connection with | ||||
reinvestment of distributions | 146 | 2,834 | 25 | 467 |
3,801 | 75,777 | 3,120 | 54,885 | |
Shares repurchased | (1,992) | (40,147) | (1,063) | (18,484) |
Net increase | 1,809 | $35,630 | 2,057 | $36,401 |
38
Year ended 6/30/11 | Year ended 6/30/10 | |||
Class Y | Shares | Amount | Shares | Amount |
Shares sold | 48,660 | $978,110 | 75,517 | $1,284,888 |
Shares issued in connection with | ||||
reinvestment of distributions | 9,405 | 184,813 | 3,780 | 70,757 |
58,065 | 1,162,923 | 79,297 | 1,355,645 | |
Shares repurchased | (122,963) | (2,391,354) | (145,742) | (2,626,850) |
Net decrease | (64,898) | $(1,228,431) | (66,445) | $(1,271,205) |
Note 5: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $1,269 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $63,257,498 and $61,924,769, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 6: Regulatory matters and litigation
In late 2003 and 2004, Putnam Management settled charges brought by the SEC and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. In July 2011, the fund recorded a receivable of $1,849,875 related to restitution payments in connection with a distribution plan approved by the SEC. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. In May 2011, the fund received a payment of $58,803 related to settlement of those lawsuits. This amount is reported in the Increase in capital from settlement payments line on the Statement of changes in net assets. Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.
Note 7: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
39
Federal tax information (Unaudited)
For the period, interest and dividends from foreign countries were $6,258,191 or $0.675 per share (for all classes of shares). Taxes paid to foreign countries were $613,125 or $0.066 per share (for all classes of shares).
For its tax year ended June 30, 2011, 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.
For the tax year ended June 30, 2011, pursuant to §871(k) of the Internal Revenue Code, the fund hereby designates $360 of distributions paid as qualifying to be taxed as interest-related dividends, and no amount to be taxed as short-term capital gain dividends for nonresident alien shareholders.
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
40
About the Trustees
Independent Trustees
Name | ||
Year of birth | ||
Position held | Principal occupations during past five years | Other directorships |
Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
Shields, a multi-product investment management firm | focused on private | |
with over $40 billion in assets under management. | equity advisory services; | |
RAGE Frameworks, | ||
Inc., a private software | ||
company | ||
Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
College and member of the Investment Committee for the | company; UniSource | |
college’s endowment. Former Chair and current board | Energy Corporation, | |
member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
refiner and fertilizer | ||
manufacturer; Cody | ||
Resources Management, | ||
LLP, a privately held | ||
energy, ranching, and | ||
commercial real estate | ||
company | ||
Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
since 2011 | ||
Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
for Strategic and International Studies. Member of the | ||
Council on Foreign Relations. | ||
Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
Johnson & Johnson’s Chief Financial Officer for a decade. | ||
John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
of the Millstein Center for Corporate Governance and | ||
Performance at the Yale School of Management. | ||
41
Name | ||
Year of birth | ||
Position held | Principal occupations during past five years | Other directorships |
Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
Trustee since 1997 | on research and education on issues related to science, | company focused on |
technology, and economic performance. Elizabeth and | natural gas transmission | |
James Killian Professor of Economics, Emeritus at the | and power services; | |
Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
2007, served as the Director of the Center for Energy and | energy company focused | |
Environmental Policy Research at MIT. | on power services | |
Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
Massachusetts. Until November 2010, director of Ruder | ||
Finn Group, a global communications and advertising firm. | ||
Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
Joslin Diabetes Center. | ||
George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
Born 1951 | of financial advisory and other research services, and | |
Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
a registered investment advisor to private funds. | ||
Director of The Boston Family Office, LLC, a registered | ||
investment advisor. | ||
W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
packaging products. | ||
Interested Trustee | ||
Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
Born 1952 | Investments since 2008. Prior to joining Putnam | |
Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
President of the Putnam | Operating Officer of Fidelity Investments from | |
Funds since July 2009 | 2000 to 2007. | |
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of June 30, 2011, there were 106 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, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
42
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
Officer, Treasurer and Compliance Liaison | Since 2011 |
Since 2004 | General Counsel, Putnam Investments and |
Putnam Management | |
Steven D. Krichmar (Born 1958) | |
Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
Since 2002 | Vice President |
Chief of Operations, Putnam Investments and | Since 2004 |
Putnam Management | Director of Trustee Relations, |
Putnam Investments and Putnam Management | |
Janet C. Smith (Born 1965) | |
Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
Since 2007 | Since 1993 |
Director of Fund Administration Services, | |
Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
Vice President, Senior Associate Treasurer and | |
Beth S. Mazor (Born 1958) | Assistant Clerk |
Vice President | Since 2010 |
Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
Investments and Putnam Management | Management (2007–2008); Senior Financial |
Analyst, Putnam Investments (1999–2007) | |
Robert R. Leveille (Born 1969) | |
Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
Since 2007 | Vice President, Assistant Clerk, Assistant |
Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
Putnam Management, and Putnam Retail | Since 2000 |
Management | |
Susan G. Malloy (Born 1957) | |
Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
Vice President and BSA Compliance Officer | Since 2007 |
Since 2002 | Director of Accounting & Control Services, |
Director of Operational Compliance, | Putnam Management |
Putnam Investments and Putnam | |
Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
43
Services for shareholders
Investor services
Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.
Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.
Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.
Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.
Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.
Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.
Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.
Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.
For more information
Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.
Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.
44
Fund information
Founded over 70 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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
Investment Manager | Trustees | Beth S. Mazor |
Putnam Investment | Jameson A. Baxter, Chair | Vice President |
Management, LLC | Ravi Akhoury | |
One Post Office Square | Barbara M. Baumann | Robert R. Leveille |
Boston, MA 02109 | Charles B. Curtis | Vice President and |
Robert J. Darretta | Chief Compliance Officer | |
Investment Sub-Manager | John A. Hill | |
Putnam Investments Limited | Paul L. Joskow | Mark C. Trenchard |
57–59 St James’s Street | Kenneth R. Leibler | Vice President and |
London, England SW1A 1LD | Robert E. Patterson | BSA Compliance Officer |
George Putnam, III | ||
Investment Sub-Advisor | Robert L. Reynolds | Robert T. Burns |
The Putnam Advisory | W. Thomas Stephens | Vice President and |
Company, LLC | Chief Legal Officer | |
One Post Office Square | Officers | |
Boston, MA 02109 | Robert L. Reynolds | James P. Pappas |
President | Vice President | |
Marketing Services | ||
Putnam Retail Management | Jonathan S. Horwitz | Judith Cohen |
One Post Office Square | Executive Vice President, | Vice President, Clerk and |
Boston, MA 02109 | Principal Executive | Assistant Treasurer |
Officer, Treasurer and | ||
Custodian | Compliance Liaison | Michael Higgins |
State Street Bank | Vice President, Senior Associate | |
and Trust Company | Steven D. Krichmar | Treasurer and Assistant Clerk |
Vice President and | ||
Legal Counsel | Principal Financial Officer | Nancy E. Florek |
Ropes & Gray LLP | Vice President, Assistant Clerk, | |
Janet C. Smith | Assistant Treasurer and | |
Independent Registered | Vice President, Assistant | Proxy Manager |
Public Accounting Firm | Treasurer and Principal | |
PricewaterhouseCoopers LLP | Accounting Officer | Susan G. Malloy |
Vice President and | ||
Assistant Treasurer |
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 putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary 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.
![](https://capedge.com/proxy/N-CSR/0000928816-11-001150/europeequityfundx46x1.jpg)
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 May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
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 each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. 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 year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
June 30, 2011 | $66,199 | $-- | $4,858 | $ — | |
June 30, 2010 | $63,628 | $-- | $4,879 | $298* |
* | Includes fees of $298 billed by the fund’s independent auditor to the fund for procedures necessitated by regulatory and litigation matters for the fiscal year ended June 30, 2010. These fees were reimbursed to the fund by Putnam Investment Management, LLC (“Putnam Management”). |
For the fiscal years ended June 30, 2011and June 30, 2010, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $233,079 and $379,336 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 relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
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 the proposed market timing distribution. |
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. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
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 year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
June 30, 2011 | $ — | $191,000 | $ — | $ — | |
June 30, 2010 | $ — | $218,107 | $ — | $ — |
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: During the period, State Street Bank and Trust Company, which provides certain administrative, pricing and bookkeeping services for the Putnam funds pursuant to an agreement with Putnam Investment Management, LLC, began utilizing different accounting systems and systems support in providing services for the fund. |
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/Janet C. Smith Janet C. Smith Principal Accounting Officer |
Date: August 26, 2011 |
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/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
Date: August 26, 2011 |
By (Signature and Title): |
/s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
Date: August 26, 2011 |