Putnam
Europe
Equity
Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
12-31-03
[GRAPHIC OMITTED: CURRENCY]
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From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
In recent months we have communicated with you regarding short-term
trading activity in certain Putnam funds by a small number of Putnam
employees. Your fund, Putnam Europe Equity Fund, was one of the funds in
which some of this trading occurred. We apologize for this and want you
to be aware of the steps being taken to correct this problem. A number
of corrective actions, including more stringent employee trading
restrictions, enhanced compliance standards and systems, and new
redemption fees for fund shares held for short time periods, are being
implemented. As we have noted earlier, your Trustees will ensure that
the Putnam funds are fully compensated for any losses resulting from
improper employee trading activity at Putnam. Furthermore, after an
exhaustive investigation we have made sure that the employees involved
in the trading are no longer working for Putnam.
Over the past six months, financial markets enjoyed improving trends as
the global economy emerged from a slump. A broad rally in stocks
extended to Europe and your fund benefited. However, it had relatively
less exposure to stocks that had most to gain from the
stronger-than-expected recovery, and so its return lagged both its
benchmark index and the average of its Lipper peer group. In the report
that follows, your management team describes its rationale for this
positioning, including its emphasis on what the team considers
high-quality companies.
We deeply appreciate your continued support of the Putnam funds during
this challenging period. Putnam is a firm that aspires to high ethical
standards and we want you to know that we intend to restore your
confidence in the firm.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
February 18, 2004
Report from Fund Management
Fund highlights
* Putnam Europe Equity Fund class A shares' total return for the first
half of the fiscal year, which ended December 31, 2003, was 22.63% at
net asset value (NAV) and 15.55% at public offering price (POP).
* Due to the fund's stock selection criteria, which emphasized companies
in strong financial condition less dependent on economic growth for
earnings, the fund underperformed the 25.07% return of its benchmark,
the MSCI Europe Index.
* For the same reason, the fund underperformed the average of 24.48% for
the European Region Funds category tracked by Lipper.
* See the Performance Summary beginning on page 8 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
European economies experienced a moderate acceleration during the fund's
semiannual period, which ended December 31, 2003. Though modest
statistically, the acceleration was much stronger than many in the
markets had anticipated when European stocks sold off heavily in the
first half of calendar year 2003. We, too, were skeptical that business
conditions would improve and had favored companies that were less
dependent on economic growth to achieve strong earnings. However, it was
the lower-quality companies -- which we had avoided due to their high
debt levels and sensitivity to the economic cycle -- that delivered the
best performance during the period, after first staving off fears of
insolvency. Given this relatively lower exposure to some of these
stronger performers, the fund underperformed its benchmark and its
peers, though it recorded a significant advance in absolute returns.
FUND PROFILE
Putnam Europe Equity Fund seeks capital appreciation by investing
primarily in common stocks of companies located in European markets.
Without a predetermined bias toward growth or value stocks, the fund
targets large and midsize companies priced below what we believe to be
their true worth. It may be suitable for investors seeking capital
appreciation and willing to accept the risks of investing in European
markets.
Market overview
Improved economic performance and anticipation of stronger growth to
come supported a broad rally across European countries and industrial
sectors during your fund's semiannual period. Most markets advanced by
more than 10%. Optimism increased throughout the region as the risks and
uncertainties surrounding the Iraq war last April subsided and stimuli
provided by interest-rate cuts from the European Central Bank took
effect. As the continent's major economies, Germany and France, shook
off stagnation during the summer, many companies whose solvency had been
in question, particularly in Germany, rallied strongly. The United
Kingdom and smaller markets on the periphery, such as Spain, Ireland,
and Sweden, which had already been growing in the first six months of
2003, began to grow more quickly in the second half. In the United
Kingdom, the real estate sector was so strong that the Bank of England
raised interest rates to slow activity.
The appreciation of the euro relative to the dollar also added to the
fund's performance for U.S. investors whose returns are earned in
dollars. The euro appreciated because Europe offers higher interest
rates than most other developed regions of the world and because it has
a positive balance of payments with the rest of the world. For European
exporters and multinationals, the euro's strength increased pricing
pressure from cheaper currency competitors, and the latter earned less
when they translated their overseas incomes into euros.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 12/31/03
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Equities
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MSCI Europe Index (European stocks) 25.07%
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MSCI Pacific Index (Asian stocks) 30.44%
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S&P 500 Index (broad stock market) 15.14%
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Russell 2000 Index (stocks of small and midsize companies) 24.92%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 0.17%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) -1.23%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 9.21%
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Citigroup World Government Bond Index (global government
bonds) 7.28%
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These indexes provide an overview of performance in different market
sectors for the six months ended 12/31/03.
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Strategy overview
Your fund invests in leading companies that we believe are priced below
their worth. We do this with a stock selection process designed to
identify companies that generate cash returns that exceed their cost of
capital. When we find stocks with these qualities that are also priced
below their intrinsic worth, we believe they are likely to appreciate
over the long term. Unfortunately, during the semiannual period,
European markets favored companies with weaker fundamentals. Though many
of our holdings advanced by significant amounts, they did not lead their
industries or markets.
Based on our top-down analysis of European markets and sectors, we did
not see many opportunities worth pursuing with overweights or
underweights. The fund's market and sector weightings were generally
close to those of our benchmark index. Since the rally was so broad,
these weightings had relatively little impact on performance. The only
exception worth noting was an underweight to financials, especially in
the early months of the period. We avoided German banks that we
considered to have weak balance sheets. As it turned out, German bank
stocks performed quite well during the period primarily because these
banks own a lot of stocks themselves and their capital bases
strengthened considerably due to the market advance.
As business conditions improved, we increased our exposure to consumer
cyclical companies, restructuring manufacturers, and certain financial
companies likely to be involved in mergers and acquisitions. In each of
these areas, we identified companies that we believed could achieve both
long-term earnings growth and a short-term boost from the economic
cycle. The weighting to financial stocks increased during the period as
a result of new purchases and market performance.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 6/30/03 as of 12/31/03
Banking 13.6% 14.5%
Oil and gas 11.5% 10.3%
Pharmaceuticals 8.6% 9.1%
Telecommunications 5.4% 7.5%
Investment banking/
brokerage 4.6% 6.2%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
Among the portfolio's best performers was Philips Electronics of the
Netherlands. This company has long been known for consumer electronics
such as televisions, but it also has new operations in other areas, such
as semiconductors and medical equipment, that are thriving. The stock
was attractively priced because of concerns about the economic recovery
and because Philips' restructuring of its consumer business in North
America was behind schedule. It was a large holding and a large
overweight relative to the index.
We took some risks on a couple of stocks that had been deeply out of
favor. British Airways, a global airline, was hurt by several factors
early in 2003 -- the general slowdown in Europe's economy, the threat of
terrorism that mounted during the Iraq war, and the SARS epidemic, which
erased demand for travel on its Asian routes. However, travel and
tourism staged a recovery in the latter half of 2003, and British
Airways, one of the most effective cost-cutters among airline companies,
became one of our top contributors to performance. Another stock that
tumbled to very low valuations early in 2003 was Ericsson, a Swedish
company that makes equipment for transmitting cellular telephone calls.
Although some thought Ericsson might go out of business, it instead
enjoyed stronger orders during the fund's fiscal period because wireless
telephone companies began investing in a new generation of
infrastructure equipment, called 3G, which can lower their operating
costs and carry considerably more data than older networks.
One of the companies buying equipment from Ericsson is Vodafone of the
United Kingdom, one of the fund's top holdings, which performed well in
the period.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY WEIGHTINGS AS OF 12/31/03]
TOP COUNTRY WEIGHTINGS AS OF 12/31/03
United Kingdom 30.0%
Switzerland 19.2%
France 17.1%
Germany 7.3%
Italy 6.3%
Footnote reads:
Weightings are shown as a percentage of net assets. Holdings will vary
over time.
Vodafone is Europe's leading wireless service provider, and also has
operations in Japan and the United States. We believe it can increase
revenues per customer by building its 3G network, which should also
lower its cost base.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
1 Vodafone Group PLC
United Kingdom
Telecommunications
2 Total SA Class B
France
Oil and gas
3 HSBC Holdings PLC
United Kingdom
Banking
4 Novartis AG
Switzerland
Pharmaceuticals
5 UBS AG
Switzerland
Investment banking/brokerage
6 ENI SpA
Italy
Oil and gas
7 Nestle SA
Switzerland
Food
8 AstraZeneca PLC
United Kingdom
Pharmaceuticals
9 Roche Holding AG
Switzerland
Pharmaceuticals
10 Diageo PLC
United Kingdom
Beverage
Footnote reads:
These holdings represent 34.8% of the fund's net assets as of 12/31/03.
The fund's holdings will change over time.
Given the fund's underperformance, there were also a variety of holdings
that did not perform well. Among our large holdings, Nokia of Finland
was a laggard. It was caught in a trough, in a manner of speaking. Its
older models of wireless handsets were facing stiff competition from
low-cost Asian competitors, while its newer models have yet to take off,
though we believe they will enjoy strong demand because they will be
better able to take advantage of 3G wireless capabilities. Other
holdings that underperformed included KPN, a telecommunications company,
and Allied Irish Banks of Ireland. These holdings exemplify the stock
selection strategy we outlined above -- they generate stable long-term
earnings growth and cash flow, but their revenues are not highly
sensitive to an upswing in the economic cycle. These stocks appreciated
in the period, but did not keep pace with the broad market advance.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
OF SPECIAL INTEREST
Putnam introduces a new redemption fee to protect long-term investors in
the funds. To discourage attempts to profit from short-term trading and
help preserve the value of your long-term investment, Putnam is
introducing one of the most stringent short-term redemption fees in the
industry. For shares purchased on or after April 19, 2004, a 2%
redemption fee will be applied to shares exchanged or sold within 5
calendar days of purchase. The fee applies to all Putnam funds except
money market funds, variable annuity funds, and closed-end funds. A 1%
redemption fee currently applicable to international, global, and
taxable high-yield funds may still be imposed on shares that are
exchanged or redeemed within 90 days of purchase. Please see your fund's
prospectus for additional information or talk to your financial advisor.
The fund's management team
The fund is managed by the Putnam International Core Team. Heather
Arnold has been named the new Portfolio Leader of the fund. Ms. Arnold
joined Putnam in September, 2003, and has 15 years of investment
experience. The other members of the team are Joshua Byrne (Portfolio
Member), Melissa Reilly (Portfolio Member), Simon Davis, Daniel Grana,
Pamela Holding, Stephen Oler, and George Stairs.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
We believe Europe's economies should continue growing and provide
support for stock markets. Even in the more rigid economies of Germany
and France, recent business data have been encouraging and optimism and
confidence are returning. The German government initiated tax cuts and
reforms of their labor and pension markets, all of which should
contribute to recovery. Although interest rates have increased in the
United Kingdom, inflation remains low on the continent and we do not
expect significant rate increases in the euro zone. However, while
interest rates do not appear to threaten the recovery, the rising value
of the euro is a headwind restraining Europe's growth.
While economic conditions are supportive, we do not expect the trends of
late 2003 to persist in 2004. Markets are unlikely to continue advancing
at the same pace, and low-quality stocks that have led recently in our
view have high valuations, which could leave them subject to volatility.
We have positioned the portfolio in companies that we consider to be
competitive for the long term. The portfolio holds many cyclical stocks,
but those we favor appear to have more stable long-term earnings growth
prospects. We also find value in European companies that are in the
midst of restructuring in order to lower their cost base and improve
their competitive positioning, particularly when faced with a strong
euro. We believe our emphasis on high-quality companies with strong cash
flow and balance sheets should serve the fund well over time.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. International
investing involves certain risks, such as currency fluctuations,
economic instability, and political developments. Funds investing in a
single region may be subject to more volatility than funds investing in
a diverse group of regions.
Performance summary
This section provides information about your fund's performance during
the first half of its fiscal year, which ended December 31, 2003.
Performance should always be considered in light of a fund's investment
strategy. Past performance does not indicate 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. A profile of your fund's strategy appears on the
first page of this report. See page 9 for definitions of some terms used
in this section.
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TOTAL RETURN FOR PERIODS ENDED 12/31/03
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Class A Class B Class C Class M Class R
(inception dates) (9/7/90) (2/1/94) (7/26/99) (12/1/94) (12/1/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 22.63% 15.55% 22.13% 17.13% 22.10% 21.10% 22.35% 18.08% 22.46%
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1 year 31.40 23.89 30.43 25.42 30.36 29.36 30.81 26.22 31.11
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5 years -5.03 -10.50 -8.55 -10.18 -8.50 -8.50 -7.29 -10.53 -6.20
Annual average -1.03 -2.19 -1.77 -2.12 -1.76 -1.76 -1.50 -2.20 -1.27
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10 years 126.63 113.51 110.66 110.66 110.15 110.15 117.22 109.56 121.07
Annual average 8.53 7.88 7.74 7.74 7.71 7.71 8.07 7.68 8.26
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Annual average
(life of fund) 9.62 9.13 8.80 8.80 8.79 8.79 9.11 8.82 9.35
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 5.75% and 3.50%, respectively (which
for class A shares does not reflect a reduction in sales charges that
went into effect after December 31, 2003; if this reduction had been in
place for all periods indicated, returns would have been higher). Class
B share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Class R share returns have no
initial sales charge or CDSC. Performance for class B, C, M, and R
shares before their inception is derived from the historical performance
of class A shares, adjusted for the applicable sales charge (or CDSC)
and higher operating expenses for such shares. For more recent
performance, please visit www.putnaminvestments.com.
A 1% redemption fee on total assets redeemed or exchanged within 90 days
of purchase will be imposed for all share classes of Putnam Europe
Equity Fund.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/03
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Lipper European
Region Funds
MSCI Europe category
Index average*
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6 months 25.07% 24.48%
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1 year 38.54 37.58
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5 years -3.83 10.39
Annual average -0.78 1.54
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10 years 130.50 126.86
Annual average 8.71 8.43
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Annual average
(life of fund) 8.75 8.52
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 12/31/03, there
were 145, 143, 79, and 19 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 12/31/03
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Class A Class B Class C Class M Class R
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Distributions (number) 1 1 1 1 1
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Income $0.280 $0.152 $0.120 $0.204 $0.279
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Capital gains -- -- -- -- --
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Total $0.280 $0.152 $0.120 $0.204 $0.279
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Share value: NAV POP NAV NAV NAV POP NAV
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6/30/03 $14.84 $15.75* $14.31 $14.68 $14.68 $15.21 --
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12/1/03+ -- -- -- -- -- -- $16.95
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12/31/03 17.91 19.00* 17.32 17.80 17.75 18.39 17.91
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* Does not reflect a reduction in class A sales charges that went into
effect after December 31, 2003.
+ Inception date of class R shares.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares (since reduced to 5.25%) and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption (except on certain
redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charges or CDSC and
are available only to certain defined contribution plans.
Comparative indexes
Citigroup (formerly Salomon Smith Barney) World Government Bond Index is
an unmanaged index of government bonds from 14 countries.
JP Morgan (formerly Chase) Global High Yield Index is an unmanaged index
used to mirror the investable universe of the U.S. dollar global
high-yield corporate debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Morgan Stanley Capital International (MSCI) Europe Index is an unmanaged
index of securities from 13 European countries.
Morgan Stanley Capital International (MSCI) Pacific Index is an
unmanaged index of securities from five Asian countries.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor website,
www.putnaminvestments.com, by calling Putnam's shareholder services line
at 1-800-225-1581, or on the SEC's website, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
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 period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
The fund's portfolio
December 31, 2003 (Unaudited)
Common stocks (97.0%) (a)
Number of shares Value
Belgium (1.5%)
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103,309 Groupe Bruxelles Lambert SA $5,819,741
157,325 Interbrew 4,198,198
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10,017,939
Finland (2.2%)
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846,515 Nokia OYJ 14,635,974
France (17.1%)
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199,550 BNP Paribas SA 12,562,493
154,631 Bouygues SA 5,405,543
68,230 Christian Dior SA 4,132,734
98,517 Lagardere SCA 5,686,455
91,056 LVMH Moet Hennessy Louis Vuitton SA 6,625,733
38,529 Pernod-Ricard 4,283,113
37,450 Pinault-Printemps-Redoute SA 3,620,041
49,903 Renault SA 3,442,417
25,141 Renault SA 144A (NON) 1,734,281
92,185 Schneider Electric SA 6,033,609
81,565 Societe Generale 7,200,314
262,129 Societe Television Francaise I 9,150,202
179,494 Total SA Class B 33,365,447
154,672 Veolia Environnement 4,154,711
256,875 Vivendi Universal SA (NON) 6,242,421
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113,639,514
Germany (7.3%)
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202,362 BASF AG 11,420,143
202,623 Bayerische Motoren Werke (BMW) AG 9,441,755
218,174 Deutsche Lufthansa AG 3,645,595
343,690 Deutsche Telekom AG (NON) 6,302,035
154,100 Siemens AG 12,398,606
381,198 T-Online International AG (NON) 4,927,470
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48,135,604
Ireland (2.4%)
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436,178 Allied Irish Banks PLC 6,985,814
262,481 CRH PLC 5,388,921
27,048 Depfa Bank PLC 3,400,790
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15,775,525
Italy (6.3%)
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1,032,734 ENI SpA 19,483,617
1,209,250 IntesaBCI SpA 4,727,454
546,627 Mediaset SpA 6,493,689
942,936 Snam Rete Gas SpA 144A (NON) 3,995,499
1,302,500 UniCredito Italiano SpA 7,030,254
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41,730,513
Netherlands (5.2%)
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539,265 ING Groep NV 12,574,441
1,097,452 Koninklijke (Royal) KPN NV (NON) 8,470,060
454,039 Koninklijke (Royal) Philips
Electronics NV 13,255,426
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34,299,927
Spain (2.2%)
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221,756 Altadis SA 6,292,271
439,880 Iberdrola SA 8,692,661
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14,984,932
Sweden (3.6%)
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262,150 Hennes & Mauritz AB Class B 6,233,595
1,134,000 Nordea AB 8,515,289
275,900 Securitas AB Class B 3,721,483
52,040 SKF AB Class B 2,011,753
1,835,022 Telefonaktiebolaget LM Ericsson AB
Class B (NON) 3,291,725
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23,773,845
Switzerland (19.2%)
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79,551 Ciba Specialty Chemicals AG (NON) 6,158,413
363,002 Credit Suisse Group 13,287,365
75,900 Nestle SA 18,971,930
516,581 Novartis AG 23,463,860
176,402 Roche Holding AG 17,801,448
52,419 Swatch Group AG (The) Class B 6,296,895
206,069 Swiss Reinsurance Co. 13,919,076
7,185 Synthes-Stratec, Inc. 7,114,092
292,883 UBS AG 20,067,295
--------------
127,080,374
United Kingdom (30.0%)
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687,121 3i Group PLC 7,595,344
392,967 AstraZeneca PLC 18,852,466
813,973 BHP Billiton PLC 7,110,614
1,395,896 BP PLC 11,319,534
1,032,036 British Airways PLC (NON) 4,295,316
230,950 Burberry Group PLC 144A (NON) 1,511,063
402,103 Burberry Group PLC 2,630,886
1,194,859 Diageo PLC 15,721,041
594,758 GUS PLC 8,235,271
1,326,084 Hilton Group PLC 5,335,167
1,772,995 HSBC Holdings PLC 27,866,301
184,414 Man Group PLC 4,823,046
271,877 Reckitt Benckiser PLC 6,151,724
242,337 Rio Tinto PLC 6,693,649
400,326 Royal Bank of Scotland Group PLC 11,795,624
378,058 Standard Chartered PLC 6,243,126
2,075,770 Tesco PLC 9,577,567
14,093,204 Vodafone Group PLC 34,941,117
806,235 WPP Group PLC 7,916,178
--------------
198,615,034
--------------
Total Common stocks (cost $498,241,699) $642,689,181
Short-term investments (3.7%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$21,534,966 Short-term investments held in
Putnam commingled cash account with
yields ranging from 0.80% to 1.13%
and due dates ranging from January
2, 2004 to February 25, 2004 (d) $21,534,966
2,820,000 U.S. Treasury Bill zero %, February
5, 2004 (SEG) 2,817,444
--------------
Total Short-term investments (cost $24,352,410) $24,352,410
- -------------------------------------------------------------------------------
Total Investments (cost $522,594,109) $667,041,591
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $662,702,181.
(NON) Non-income-producing security.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at December 31, 2003.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The fund had the following industry group concentrations greater than
10% at December 31, 2003
(as a percentage of net assets):
Banking 14.5%
Oil and gas 10.3
Futures contracts outstanding at December 31, 2003 (Unaudited)
Market Aggregate Expiration Unrealized
value face value date appreciation
- ------------------------------------------------------------------------------------------------------
Dow Jones Euro Stoxx 50
Index (Long) $8,037,351 $7,940,011 Mar-04 $97,340
FT-SE 100 Index (Long) 6,956,069 6,796,850 Mar-04 159,219
- ------------------------------------------------------------------------------------------------------
$256,559
- ------------------------------------------------------------------------------------------------------
Statement of assets and liabilities
December 31, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$522,594,109) (Note 1) $667,041,591
- -------------------------------------------------------------------------------
Foreign currency (cost $1,313,975) (Note 1) 1,349,518
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 1,181,514
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 805,555
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 167,084
- -------------------------------------------------------------------------------
Total assets 670,545,262
Liabilities
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,520,599
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,347,256
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 250,708
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 119,781
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 950
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 484,671
- -------------------------------------------------------------------------------
Other accrued expenses 119,116
- -------------------------------------------------------------------------------
Total liabilities 7,843,081
- -------------------------------------------------------------------------------
Net assets $662,702,181
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $826,674,358
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (4,668,126)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (304,150,870)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 144,846,819
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $662,702,181
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($359,376,606 divided by 20,066,848 shares) $17.91
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $17.91)*+ $19.00
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($261,501,415 divided by 15,095,382 shares)** $17.32
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($6,229,071 divided by 349,889 shares)** $17.80
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($35,594,016 divided by 2,005,784 shares) $17.75
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $17.75)* $18.39
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($1,073 divided by 60 shares) $17.91
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
+ Effective January 28, 2004, the maximum front-end sales charge for class A
shares will decrease to 5.25%.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Six months ended December 31, 2003 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $405,441) $3,681,602
- -------------------------------------------------------------------------------
Interest 79,959
- -------------------------------------------------------------------------------
Total investment income 3,761,561
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,698,116
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,354,083
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 14,159
- -------------------------------------------------------------------------------
Administrative services (Note 2) 6,117
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 474,987
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,335,148
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 34,859
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 171,583
- -------------------------------------------------------------------------------
Other 195,478
- -------------------------------------------------------------------------------
Total expenses 6,284,530
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (461,330)
- -------------------------------------------------------------------------------
Net expenses 5,823,200
- -------------------------------------------------------------------------------
Net investment loss (2,061,639)
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 67,204,369
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 840,446
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 296,587
- -------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 132,905
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
contracts during the period 72,798,278
- -------------------------------------------------------------------------------
Net gain on investments 141,272,585
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $139,210,946
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Six months ended Year ended
December 31 June 30
Decrease in net assets 2003* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income (loss) $(2,061,639) $7,871,619
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 68,341,402 (133,866,964)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 72,931,183 16,555,628
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 139,210,946 (109,439,717)
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
- -------------------------------------------------------------------------------
Class A (5,679,885) (6,108,247)
- -------------------------------------------------------------------------------
Class B (2,300,297) (1,792,896)
- -------------------------------------------------------------------------------
Class C (41,785) (43,371)
- -------------------------------------------------------------------------------
Class M (430,745) (232,136)
- -------------------------------------------------------------------------------
Class R (16) --
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (146,312,923) (198,675,142)
- -------------------------------------------------------------------------------
Total decrease in net assets (15,554,705) (316,291,509)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 678,256,886 994,548,395
- -------------------------------------------------------------------------------
End of period (including distributions in
excess of net investment income of
$4,668,126 and undistributed net investment
income of $5,846,241, respectively) $662,702,181 $678,256,886
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2003 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.84 $16.65 $18.63 $26.71 $21.72 $23.68
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.02) .20 .17 .12 .11 .16
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.37 (1.79) (2.02) (6.05) 5.11 (.91)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.35 (1.59) (1.85) (5.93) 5.22 (.75)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.28) (.22) (.13) (.01) (.19) (.21)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (2.14) (.04) (1.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.28) (.22) (.13) (2.15) (.23) (1.21)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.91 $14.84 $16.65 $18.63 $26.71 $21.72
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.63* (9.47) (9.96) (23.32) 24.07 (2.99)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $359,377 $369,565 $570,806 $786,342 $1,094,311 $903,697
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .74* 1.43 1.32 1.23 1.21 1.23
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.13)* 1.40 1.01 .52 .46 .72
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 41.87* 79.66 76.68 88.89 110.71 65.08
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2003 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.31 $16.04 $17.95 $25.99 $21.14 $23.11
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.08) .09 .04 (.05) (.07) -- (d)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.24 (1.73) (1.95) (5.85) 4.98 (.88)
- -----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.16 (1.64) (1.91) (5.90) 4.91 (.88)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.15) (.09) -- -- (.02) (.09)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (2.14) (.04) (1.00)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.09) -- (2.14) (.06) (1.09)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.32 $14.31 $16.04 $17.95 $25.99 $21.14
- -----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.13* (10.21) (10.64) (23.87) 23.23 (3.66)
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $261,501 $266,777 $378,679 $580,207 $877,126 $790,680
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.11* 2.18 2.07 1.98 1.96 1.98
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.50)* .68 .23 (.24) (.30) (.01)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 41.87* 79.66 76.68 88.89 110.71 65.08
- -----------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
For the
Six months period
ended July 26,
December 31 1999+ to
Per-share (Unaudited) Year ended June 30 June 30
operating performance 2003 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.68 $16.43 $18.39 $26.56 $21.68
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.08) .10 .03 (.03) (.02)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.32 (1.77) (1.99) (6.00) 5.10
- -----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.24 (1.67) (1.96) (6.03) 5.08
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.08) -- -- (.16)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (2.14) (.04)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.08) -- (2.14) (.20)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.80 $14.68 $16.43 $18.39 $26.56
- -----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.10* (10.15) (10.66) (23.85) 23.06*
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $6,229 $7,455 $10,751 $17,113 $13,501
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.11* 2.18 2.07 1.98 1.82*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.49)* .69 .20 (.12) (.08)*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 41.87* 79.66 76.68 88.89 110.71
- -----------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- -----------------------------------------------------------------------------------------------------------------------------
Six months
ended
December 31
Per-share (Unaudited) Year ended June 30
operating performance 2003 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.68 $16.46 $18.39 $26.50 $21.48 $23.51
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.06) .13 .08 .01 (.02) .02
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.33 (1.78) (2.00) (5.98) 5.08 (.85)
- -----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.27 (1.65) (1.92) (5.97) 5.06 (.83)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.13) (.01) -- -- (d) (.20)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (2.14) (.04) (1.00)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.13) (.01) (2.14) (.04) (1.20)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.75 $14.68 $16.46 $18.39 $26.50 $21.48
- -----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.35* (9.98) (10.43) (23.67) 23.58 (3.37)
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $35,594 $34,460 $34,312 $54,103 $79,416 $97,950
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .99* 1.93 1.82 1.73 1.71 1.73
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.38)* .98 .47 .04 (.08) .07
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 41.87* 79.66 76.68 88.89 110.71 65.08
- -----------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- ----------------------------------------------------------------------------------------------------------------
For the
period
December 1,
2003+ to
Per-share December 31,
operating performance 2003
- ----------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $16.95
- ----------------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------------
Net investment loss (a) (.01)
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.25
- ----------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.24
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------
From net
investment income (.28)
- ----------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.91
- ----------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 7.36*
- ----------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .15*
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.04)*
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 41.87*
- ----------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment loss has been determined on the basis of the
weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
December 31, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam Europe Equity Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks capital appreciation by
investing primarily in common stocks and other securities of European
companies.
The fund offers class A, class B, class C, class M and class R shares.
The fund began offering class R shares on December 1, 2003. Class A
shares are sold with a maximum front-end sales charge of 5.75%.
Effective January 28, 2004, the maximum front-end sales charge for class
A will decrease to 5.25%. Class B shares, which convert to class A
shares after approximately eight years, do not pay a front-end sales
charge but pay a higher ongoing distribution fee than class A, class M
and class R shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
C shares are subject to the same fees and expenses as class B shares,
except that class C shares have a one-year 1.00% contingent deferred
sales charge and do not convert to class A shares. Class M shares are
sold with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is higher than class A shares but lower than class
B and class C shares. Class R shares are sold without a front-end sales
charge and pay an ongoing distribution fee that is higher than class A
shares, but lower than class B, class C and class M shares. Class R
shares are offered to qualified employee-benefit plans.
A redemption fee of 1.00%, which is retained by the fund, may apply to
shares of any class redeemed (either by selling or exchanging to another
fund) within 90 days of purchase. Effective April 19, 2004, a 2.00%
redemption fee may apply to any shares that are redeemed (either by
selling or exchanging into another fund) within 5 days of purchase. A
1.00% redemption fee would apply to any shares that are redeemed
(either by selling or exchanging into another fund) within 6-90 days of
purchase.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
For foreign investments, if trading or events occurring in other markets
after the close of the principal exchange in which the foreign
investments are traded are expected to materially affect the value of
the investments, then those investments are valued, taking into
consideration these events, at their fair value following procedures
approved by the Trustees. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates fair value. Other investments,
including restricted securities, are valued at fair value following
procedures approved by the Trustees. Such valuations and procedures are
reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recognized on the ex-dividend date except that certain dividends from
foreign securities 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.
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 are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions 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.
E) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange-traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Futures and written option contracts outstanding at period end, if any,
are listed after the fund's portfolio.
F) Line of credit During the period, the fund was entered into a
committed line of credit with certain banks. The line of credit
agreement included restrictions that the fund would maintain an asset
coverage ratio of at least 300% and that borrowings would not exceed
prospectus limitations. For the period ended August 6, 2003, the fund
had no borrowings against the line of credit. Effective August 6, 2003,
the fund no longer participated in a committed line of credit.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At June 30, 2003, the fund had a capital loss carryover of $308,550,792
available to the extent allowed by tax law to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- --------------------------------
$883,298 June 30, 2009
162,279,117 June 30, 2010
145,388,377 June 30, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending June 30, 2004 $46,769,010 of losses recognized during the period
November 1, 2002 to June 30, 2003.
The aggregate identified cost on a tax basis is $540,213,439, resulting
in gross unrealized appreciation and depreciation of $127,549,148 and
$720,996, respectively, or net unrealized appreciation of $126,828,152.
H) 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. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.80% of the first $500 million
of average net assets, 0.70% of the next $500 million, 0.65% of the next
$500 million, 0.60% of the next $5 billion, 0.575% of the next $5
billion, 0.555% of the next $5 billion, 0.54% of the next $5 billion and
0.53% thereafter.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses) through
December 31, 2004, to the extent that expenses of the fund (exclusive of
brokerage commissions, interest, taxes, offering and extraordinary
expenses, credits from Putnam Fiduciary Trust Company (PFTC), a
subsidiary of Putnam, LLC, and payments under the fund's distribution
plan) would exceed an annual rate of 1.15% of the fund's average net
assets.
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 PFTC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended December 31, 2003,
the fund paid PFTC $1,033,492 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the six months ended December 31,
2003, the fund's expenses were reduced by $461,330 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,346 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in 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 fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C, class M and class R shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The purpose of the
Plans is to compensate Putnam Retail Management, a wholly-owned
subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for
services provided and expenses incurred by it in distributing shares of
the fund. The Plans provide for payments by the fund to Putnam Retail
Management at an annual rate 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 six months ended December 31, 2003, Putnam Retail Management,
acting as underwriter, received net commissions of $10,650 and $110,005
from the sale of class A and class M shares, respectively, and received
$422,623 and $1,162 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 six months ended
December 31, 2003, Putnam Retail Management, acting as underwriter,
received $251 and no monies on class A and class M redemptions,
respectively.
Note 3
Purchases and sales of securities
During the six months ended December 31, 2003, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $281,707,622 and $453,803,595, respectively.
There were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At December 31, 2003, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended December 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 6,081,507 $93,408,446
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 283,197 4,913,464
- ----------------------------------------------------------------
6,364,704 98,321,910
Shares repurchased (11,199,968) (179,276,723)
- ----------------------------------------------------------------
Net decrease (4,835,264) $(80,954,813)
- ----------------------------------------------------------------
Year ended June 30, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 13,939,455 $191,991,041
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 410,231 5,624,263
- ----------------------------------------------------------------
14,349,686 197,615,304
Shares repurchased (23,729,010) (331,889,468)
- ----------------------------------------------------------------
Net decrease (9,379,324) $(134,274,164)
- ----------------------------------------------------------------
Six months ended December 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 299,697 $4,669,141
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 124,975 2,098,306
- ----------------------------------------------------------------
424,672 6,767,447
Shares repurchased (3,969,694) (62,104,890)
- ----------------------------------------------------------------
Net decrease (3,545,022) $(55,337,443)
- ----------------------------------------------------------------
Year ended June 30, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 782,294 $10,605,661
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 122,327 1,624,500
- ----------------------------------------------------------------
904,621 12,230,161
Shares repurchased (5,875,496) (79,023,900)
- ----------------------------------------------------------------
Net decrease (4,970,875) $(66,793,739)
- ----------------------------------------------------------------
Six months ended December 31, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 15,361 $235,245
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,017 34,793
- ----------------------------------------------------------------
17,378 270,038
Shares repurchased (175,352) (2,789,479)
- ----------------------------------------------------------------
Net decrease (157,974) $(2,519,441)
- ----------------------------------------------------------------
Year ended June 30, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 124,837 $1,705,564
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,704 36,827
- ----------------------------------------------------------------
127,541 1,742,391
Shares repurchased (274,048) (3,793,489)
- ----------------------------------------------------------------
Net decrease (146,507) $(2,051,098)
- ----------------------------------------------------------------
Six months ended December 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,400,413 $21,281,187
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 5,917 101,777
- ----------------------------------------------------------------
1,406,330 21,382,964
Shares repurchased (1,747,490) (28,885,206)
- ----------------------------------------------------------------
Net decrease (341,160) $(7,502,242)
- ----------------------------------------------------------------
Year ended June 30, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,341,857 $19,364,569
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 8,013 109,062
- ----------------------------------------------------------------
1,349,870 19,473,631
Shares repurchased (1,087,895) (15,029,772)
- ----------------------------------------------------------------
Net increase 261,975 $4,443,859
- ----------------------------------------------------------------
For the period December 1, 2003
(commencement of operations)
to December 31, 2003
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 59 $1,000
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1 16
- ----------------------------------------------------------------
60 1,016
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 60 $1,016
- ----------------------------------------------------------------
At December 31, 2003, Putnam, LLC owned 60 class R shares of the fund
(100% of class R shares outstanding), valued at $1,073.
Note 5
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order by
the Securities and Exchange Commission in partial resolution of
administrative and cease-and-desist proceedings initiated by the SEC on
October 28, 2003 in connection with alleged excessive short-term trading
by at least six Putnam Management investment professionals. The SEC's
findings reflect that four of those employees engaged in such trading in
funds over which they had investment decision-making responsibility and
had access to non-public information regarding, among other things,
current portfolio holdings and valuations. The six individuals are no
longer employed by Putnam Management. Under the order, Putnam Management
will make restitution for losses attributable to excessive short-term
trading by Putnam employees, institute new employee trading restrictions
and enhanced employee trading compliance, retain an independent
compliance consultant, and take other remedial actions. Putnam
Management neither admitted nor denied the order's findings, which
included findings that Putnam Management willfully violated provisions
of the federal securities laws. A civil monetary penalty and other
monetary relief, if any, will be determined at a later date. If a
hearing is necessary to determine the amounts of such penalty or other
relief, Putnam Management will be precluded from arguing that it did not
violate the federal securities laws in the manner described in the SEC
order, the findings set forth in the SEC order will be accepted as true
by the hearing officer and additional evidence may be presented. Putnam
Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal fees.
Administrative proceedings instituted by the Commonwealth of
Massachusetts on October 28, 2003 against Putnam Management in
connection with alleged market timing activities by Putnam employees and
by participants in some Putnam-administered 401(k) plans are pending.
Putnam Management has committed to make complete restitution for any
losses suffered by Putnam shareholders as a result of any improper
market-timing activities by Putnam employees or within
Putnam-administered 401(k) plans.
The SEC's and Commonwealth's allegations and related matters also serve
as the general basis for numerous lawsuits, including purported class
action lawsuits filed against Putnam Management and certain related
parties, including certain Putnam funds. Putnam Management has agreed to
bear any costs incurred by Putnam funds in connection with these
lawsuits. Based on currently available information, Putnam Management
believes that the likelihood that the pending private lawsuits and
purported class action lawsuits will have a material adverse financial
impact on the fund is remote, and the pending actions are not likely to
materially affect its ability to provide investment management services
to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. In addition, Marsh & McLennan Companies, Inc., Putnam
Management's parent company, has engaged counsel to conduct a separate
review of Putnam Management's policies and controls related to
short-term trading. The fund may experience increased redemptions as a
result of these matters, which could result in increased transaction
costs and operating expenses.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Investors should consider the investment objective, risks, charges, and
expenses of a fund before investing. For a prospectus containing this
and other information for any Putnam fund or product, call your
financial advisor at 1-800-225-1581 and ask for a prospectus. Please
read the prospectus carefully before investing.
Growth Funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund+
Income Funds
American Government Income Fund
Diversified Income Trust
Global Income Trust*
High Yield Advantage Fund+*
High Yield Trust*
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund++
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund++
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
Asset Allocation Funds
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* A 1% redemption fee on total assets redeemed or exchanged within 90
days of purchase may be imposed for all share classes of these funds.
+ Closed to new investors.
++ An investment in a money market fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government
agency. Although the funds seek to preserve your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
Services for shareholders
Investor services
Help your investment grow Set up a program for systematic investing with
as little as $25 a month from a Putnam fund or from your own savings or
checking account. (Regular investing does not guarantee a profit or
protect against loss in a declining market.)
Switch funds easily* You can move money from one Putnam fund to another
within the same class of shares without a service charge.
Access your money easily You can have checks sent regularly or redeem
shares any business day at the then-current net asset value, which may
be more or less than the original cost of the shares. Class B and class
C shares carry a sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial
advisor or directly from Putnam. To open an account by mail, send a
check made payable to the name of the fund along with a completed fund
application. To add to an existing account, complete the investment slip
found at the top of your Confirmation of Activity statement and return
it with a check payable to your fund.
For more information
Visit www.putnaminvestments.com A secure section of our Web site
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.
Use our toll-free number 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.
* This privilege is subject to change or termination. An exchange of
funds may result in a taxable event. Certain funds have imposed a 1%
redemption fee on total assets redeemed or exchanged within 90 days of
purchase. See a prospectus for details.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Treasurer and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk 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 www.putnaminvestments.com.
Investors should consider the investment objective, risks, charges, and
expenses of a fund, which are described in its prospectus. For more
information or to request a prospectus, call 1-800-225-1581 toll free.
Please read the prospectus carefully before investing. The fund's
Statement of Additional Information contains additional information
about the fund's Trustees and is available without charge upon request
by calling 1-800-225-1581.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
SA005-203450 057/234/688 2/04
Not FDIC Insured May Lose Value No Bank Guarantee
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal financial
officers 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 on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officers
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an 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.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: March 5, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an 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/Steven Spiegel
---------------------------
Steven Spiegel
Principal Executive Officer
Date: March 5, 2004
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: March 5, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: March 5, 2004