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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
6-30-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Over the past several months, Putnam has introduced a number of
voluntary reforms for the benefit of shareholders, including efforts to
add new disclosure about funds. We would like to call your attention to
new disclosures now being included in these reports. You can find
expense and risk comparison information for your fund in the pages
following the performance tables in the Performance Summary. The expense
information lets you estimate the amount you have actually paid for
ongoing expenses such as management fees and distribution (or 12b-1)
fees and lets you compare these with the average expenses for your
fund's peer group, as tracked by Lipper, an independent fund-rating
company. The risk comparison information illustrates your fund's risk
relative to similar funds as tracked by Morningstar, another independent
fund-rating company. We believe the expense and risk comparisons can
serve as valuable tools when you and your financial advisor make
decisions about your financial program. These enhancements to our
reports are part of our efforts to provide shareholders additional
information about the funds they own.
With regard to your fund's performance, a solid and broadening economic
expansion in the global economy underpinned an advance for European
equity markets during your fund's most recent fiscal period. Your fund's
management team positioned the portfolio effectively to achieve
impressive absolute returns. However, the team's emphasis on what it
considered high-quality stocks caused it to underperform the average
return of funds in its peer group as well as its benchmark, which had
greater exposure to stocks that led during the market rally. In the
following pages the management team will explain the reasons for its
decisions and why it favors the prospects for this portfolio as European
markets are now experiencing shifting trends.
As always, we appreciate your support of Putnam Investments.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
August 18, 2004
Report from Fund Management
Fund highlights
* During its 2004 fiscal year Putnam Europe Equity Fund's class A shares
returned 23.59% at net asset value (NAV) and 16.45% at public offering
price (POP).
* The fund underperformed the 28.87% return of the MSCI Europe Index,
its benchmark, because of stock selection across several sectors and the
fund's emphasis on stocks with very large market capitalization.
* For the same reasons, the fund underperformed the 28.66% average
return of the Lipper European Region Funds, its peer group.
* See the Performance Summary beginning on page 8 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
Stocks in European markets rose significantly during your fund's fiscal
year, which ended June 30, 2004. They benefited from steadily improving
economic conditions, though the absolute rate of economic growth in
Europe remained lower than in other regions of the world. We positioned
the portfolio cautiously in light of Europe's relative weakness, the
potential for setbacks, and the headwind presented by the rising value
of the euro in currency markets. We sought out stocks of very large
companies with solid balance sheets, little debt, and strong cash flows.
However, stocks with these qualities were not among the strongest
performers over this period. Since the recovery was sustained and
financing conditions became easier, smaller companies with weaker
financial positions benefited more substantially. Nevertheless, we have
not abandoned our positioning, because we currently believe that
high-quality stocks are excellent long-term investments for the
portfolio and our positioning did, in fact, deliver attractive returns
on an absolute basis.
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
While the pace of economic growth in most of Europe has been slower than
in other parts of the world, the region has attracted investments for
other reasons, such as its positive balance of trade and its increasing
merger and acquisition activity. Interest rates were higher in Europe
than in the United States or Japan, even after the European Central Bank
cut rates twice during the year to stimulate growth. Additional stimulus
came from tax cuts in Germany and Italy intended to increase the level
of consumer spending and investment. Deficit spending by the governments
of Germany and France also provided stimulus.
The European Union's (E.U.) enlargement process, which calls for the
gradual admittance of 13 nations in eastern Europe as new member states,
is providing business opportunities while compelling countries with high
labor costs, especially Germany, to become more competitive. One of the
chief beneficiaries of the process during the year was Austria, which
has historic financial and business ties with many of the states that
are candidates for admission.
Conditions in the United Kingdom differed from those on the Continent,
but were still attractive to investors. Though an E.U. member, the
United Kingdom has a separate currency and monetary policy. During the
year, it enjoyed stronger economic growth than the Continent thanks to
manufacturing exports and a burgeoning real estate market. The Bank of
England has actually raised interest rates several times since November
2003, in order to prevent inflation.
The March terrorist bombings in Spain affected all European financial
markets. They plunged together but subsequently rallied. The attacks
served as a reminder that European markets are also vulnerable to
geopolitical risks.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 6/30/04
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Equities
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MSCI Europe Index (European stocks) 28.87%
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MSCI Pacific Index (Asian stocks) 41.12%
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S&P 500 Index (broad stock market) 19.11%
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Russell 2000 Index (stocks of small and midsize companies) 33.37%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 0.32%
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Lehman Government Bond Index (U.S. Treasury and agency securities) -1.36%
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JP Morgan Global High Yield Index (global high-yield corporate bonds) 11.70%
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Citigroup World Government Bond Index (global government bonds) 5.65%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 6/30/04.
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Strategy overview
We select securities for the portfolio using a blend investment
strategy, which targets companies priced below their worth without a
bias toward either growth or value stocks. In executing the strategy
this year, we favored very large, financially strong companies with
solid balance sheets and strong cash flows that appeared able to weather
possible setbacks in the global recovery as well as geopolitical
uncertainties.
In addition to stock selection, we also manage the fund's market and
sector weightings because differences in market and sector results can
have a meaningful impact on performance. During the past year, we
maintained a generally underweight exposure to the United Kingdom
(relative to the benchmark index). This was primarily because many U.K.
stocks were, in our view, priced near or above their true worth, rather
than below it. In France, on the other hand, we found many stocks that
we considered undervalued, so the portfolio became overweighted in
France. Over the course of the fiscal year, our search for high-quality
stocks also led us to increase exposure to Switzerland, which offered
many companies with the characteristics we sought.
In terms of sector positioning, the portfolio had a moderate underweight
relative to the benchmark to financials because we avoided large
European insurance companies that lacked solid balance sheets, and
because we believed several British banks were exposed to an overheating
real estate market. During the course of the year, we gradually
increased weightings in a few sectors. We added to consumer cyclical
stocks benefiting from the economic expansion, to conglomerates that
were undertaking restructurings to cut costs, and to health-care stocks
that were left behind in the rally and offered attractive valuations in
our view.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY WEIGHTINGS COMPARED]
TOP COUNTRY WEIGHTINGS COMPARED
as of 12/31/03 as of 6/30/04
United Kingdom 30.0% 26.3%
France 17.1% 22.7%
Switzerland 19.2% 19.2%
Germany 7.3% 8.1%
Sweden 3.6% 5.3%
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
We were disappointed by the performance of Vodafone Group of the United
Kingdom, the world's leading wireless telephone service company and a
large holding. Vodafone's bid for AT&T's wireless business surprised
markets because Vodafone already had a partnership with Verizon
Wireless. The bid was unsuccessful, but investors remain concerned that
Vodafone's relationship with Verizon is strained and that its U.S.
positioning may not be optimal. Also, Vodafone's operations in Japan are
struggling. We continue to favor the stock because the company is still
achieving solid growth in its other international mobile businesses and
it is strategically well positioned with economies of scale and
investments in new technologies. Also, the stock is now quite
undervalued, in our view, relative to its history and others in its
industry.
The performance of Siemens of Germany also disappointed us. This
conglomerate has market-leading positions in several businesses -- power
generation, transmission and distribution, and process controls -- and
has been restructuring. However, it has recently been a net buyer of
assets rather than a net seller, causing investors concern about its
financial discipline. We continue to favor Siemens because it stands to
benefit from the recovery in global capital spending and from rising
profit margins as it cuts costs.
A restructuring conglomerate that has achieved better stock performance
than Siemens is Vivendi Universal of France. We built a position in it
during the first half of the fiscal year. This company experienced a
financial crisis in 2002 but is under new leadership that is executing an
effective strategy to reduce costs. Vivendi has been deriving growth from
its 55% ownership stake in SFR Cegetel, the second-largest French mobile
telecommunications operator. Vivendi has recently restructured its media
assets, folding its U.S. holdings into NBC Universal and maintaining its
stake in Canal Plus, the leading French subscription television channel.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS AS OF 6/30/04]
TOP INDUSTRY WEIGHTINGS AS OF 6/30/04
Oil and gas 12.1%
Banking 11.5%
Pharmaceuticals 11.0%
Telecommunications 7.9%
Investment banking/brokerage 5.7%
Footnote reads:
Weightings are shown as a percentage of net assets. Holdings will vary
over time
Another large holding in France was Total, an integrated oil company
that performed in line with the market. The company has continued to
grow steadily, reflecting its strong and highly diversified exploration
program and the ongoing restructuring of its "downstream" businesses,
such as filling stations. Total has benefited from high energy prices
and deploys its excess cash flow sensibly in the form of dividends and
share repurchases.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
(Percent of fund's net assets as of 6/30/04)
1 Total SA Class B (5.0%)
France
Oil and gas
2 BP PLC (5.0%)
United Kingdom
Oil and gas
3 Vodafone Group PLC (4.1%)
United Kingdom
Telecommunications
4 Novartis AG (3.9%)
Switzerland
Pharmaceuticals
5 AstraZeneca PLC (3.8%)
United Kingdom
Pharmaceuticals
6 Roche Holding AG (3.3%)
Switzerland
Pharmaceuticals
7 Nestle SA (2.7%)
Switzerland
Food
8 Vivendi Universal SA (2.6%)
France
Conglomerates
9 Siemens AG (2.5%)
Germany
Electrical equipment
10 Credit Suisse Group (2.5%)
Switzerland
Investment banking/brokerage
Footnote reads:
The fund's holdings will change over time.
In Switzerland, we trimmed exposure slightly to Novartis, a
pharmaceutical stock that was among the top ten holdings at the close of
the period. After performing well from November through February, it
came under a cloud when it failed to acquire industry rival Aventis. We
continue to own a smaller position in Novartis because of its solid
revenue growth, its respectable pipeline of new products, and its
limited number of patents facing expiration. The company's profit
margins are under pressure because of its current investments in
research and development and marketing, but we believe these margins
should expand again beginning in 2005.
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
Trustees approve sub-management agreement. The Trustees have approved a
sub-management relationship for your fund that will become effective in
July. Putnam Investments Limited ("PIL") -- a London, U.K.-based,
wholly-owned subsidiary of Putnam Investments and an affiliate of Putnam
Investment Management, LLC ("Putnam Management"), the fund's investment
manager -- has been retained as the sub-manager for a portion of the
assets of the fund. There is no change in the contractual arrangements
between Putnam Management and your fund. Putnam Management will remain
fully responsible for all aspects of the management of the fund,
including any activity by PIL. Putnam Management (and not the fund) will
pay PIL for its investment management services to the fund.
The fund's management team
The fund is managed by the Putnam International Core Team. The members
of the team are Heather Arnold (Portfolio Leader), 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.
New factors are emerging to influence European markets. At the start of
the fund's previous fiscal year, the question was whether the global
economy would recover. Today the question is what forces could derail
the current global expansion. Markets have indicated worry that rising
U.S. interest rates, China's efforts to slow its economy, and higher
energy prices could cause the expansion to stall. We think that,
although growth is expected to moderate, a soft landing is likely and
Europe should weather this scenario. Although the United States and Asia
are important trading partners for Europe, any slowdown in the former
regions would likely affect European exports, but this could be
partially offset by the domestic economic recovery that is only just
beginning to emerge in continental Europe. On the Continent, economic
growth is slower -- 1.6% in Germany, 1.8% in France, and 2.8% in Spain
- -- and is likely to increase gradually, but should not require tighter
monetary policy. As such, we believe rate increases by the European
Central Bank will come much later than in the United States. The euro is
now strong enough to compel companies to manage their costs, but below
the levels that put excessive pressure on exporters. We believe the
high-quality stocks emphasized in the portfolio are best positioned to
compete in an environment of moderating global growth. Weaker
competitors in each industry will be in a more difficult position. Also,
for the next six to 12 months, Europe appears to offer friendlier
economic and interest-rate trends than other regions of the world.
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 shows your fund's performance during its fiscal year, which
ended June 30, 2004. Performance should always be considered in light of
a fund's investment strategy. Data represents past performance. Past
performance does not guarantee future results. More recent returns may
be less or more than those shown. Investment return and principal value
will fluctuate and you may have a gain or a loss when you sell your
shares. For the most recent month-end performance, please visit
www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 6/30/04
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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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1 year 23.59% 16.45% 22.69% 17.69% 22.65% 21.65% 22.97% 18.68% 23.28%
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5 years -4.15 -9.69 -7.65 -9.29 -7.63 -7.63 -6.48 -9.75 -5.32
Annual average -0.84 -2.02 -1.58 -1.93 -1.57 -1.57 -1.33 -2.03 -1.09
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10 years 129.97 116.75 113.63 113.63 113.36 113.36 120.38 112.71 124.42
Annual average 8.68 8.04 7.89 7.89 7.87 7.87 8.22 7.84 8.42
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Annual average
(life of fund) 9.32 8.85 8.51 8.51 8.50 8.50 8.81 8.53 9.05
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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 on January 28, 2004; 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 a portion of the period, this fund limited expenses, without which
returns would have been lower.
A 2% short-term trading fee will be imposed on shares exchanged or sold
within 5 days of purchase. In addition, there is a 1% short-term trading
fee for this fund on shares sold or exchanged between 6 and 90 days.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/04
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Lipper European
MSCI Europe Region Funds
Index category average*
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1 year 28.87% 28.66%
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5 years 1.54 19.26
Annual average 0.31 2.76
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10 years 144.37 132.48
Annual average 9.35 8.72
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Annual average
(life of fund) 8.65 8.46
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 6/30/04, there were 138,
77, and 18 funds, respectively, in this Lipper category.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 6/30/94 to 6/30/04
Fund's class A MSCI Europe
Date shares at POP Index
6/30/94 9,425 10,000
6/30/95 11,389 11,878
6/30/96 13,419 13,623
6/30/97 17,241 17,708
6/30/98 23,313 24,271
6/30/99 22,615 24,067
6/30/00 28,057 27,701
6/30/01 21,515 21,678
6/30/02 19,372 20,007
6/30/03 17,537 18,962
6/30/04 $21,675 $24,437
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class C
shares would have been valued at $21,363 and $21,336, respectively, and
no contingent deferred sales charges would apply. A $10,000 investment
in the fund's class M shares would have been valued at $22,038 ($21,271
at public offering price). A $10,000 investment in the fund's class R
shares would have been valued at $22,442. See first page of performance
section for performance calculation method.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 6/30/04
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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 $0.2800 $0.1520 $0.1200 $0.2040 $0.2790
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Capital gains -- -- -- -- --
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Total $0.2800 $0.1520 $0.1200 $0.2040 $0.2790
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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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6/30/04 18.05 19.05+ 17.40 17.88 17.84 18.49 18.03
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* Inception date of class R shares.
+ Reflects a reduction in sales charges that took effect on January 28, 2004.
Understanding your
fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. In the most
recent six-month period, your fund limited these expenses; had it not
done so, expenses may have been higher. Using the information below, you
can estimate how these expenses affect your investment and compare them
with the expenses of other funds. You may also pay one-time transaction
expenses, including sales charges (loads) and redemption fees, which are
not shown in this section and would have resulted in higher total
expenses. For more information, see your fund's prospectus or talk to
your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam Europe Equity Fund from January 1, 2004, to June
30, 2004. It also shows how much a $1,000 investment would be worth at
the close of the period, assuming actual returns and expenses.
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 6/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $7 $11 $11 $10 $8
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Ending value (after expenses) $1,008 $1,005 $1,005 $1,005 $1,007
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 6/30/04.
The expense ratio may differ for each share class (see the table at the
bottom of the next page). Expenses are calculated by multiplying the
expense ratio by the average account value for the period; then
multiplying the result by the number of days in the period; and then
dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended June
30, 2004, use the calculation method below. To find the value of your
investment on January 1, 2004, go to www.putnaminvestments.com and log
on to your account. Click on the "Transaction History" tab in your Daily
Statement and enter 01/01/2004 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 1/1/04 [DIV] $1,000 x per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 x $7 (see table above) = $70
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines
to help investors assess fund expenses. Per these guidelines, the table
below shows your fund's expenses based on a $1,000 investment, assuming
a hypothetical 5% annualized return. You can use this information to
compare the ongoing expenses (but not transaction expenses or total
costs) of investing in the fund with those of other funds. All mutual
fund shareholder reports will provide this information to help you make
this comparison. Please note that you cannot use this information to
estimate your actual ending account balance and expenses paid during the
period.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 6/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $7 $11 $11 $10 $8
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Ending value (after expenses) $1,018 $1,014 $1,014 $1,015 $1,017
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 6/30/04.
The expense ratio may differ for each share class (see the table at the
bottom of this page). Expenses are calculated by multiplying the expense
ratio by the average account value for the period; then multiplying the
result by the number of days in the period; and then dividing that
result by the number of days in the year.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment
styles or objectives. The expense ratio for each share class shown below
indicates how much of your fund's net assets have been used to pay
ongoing expenses during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class C Class M Class R
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Your fund's annualized
expense ratio+ 1.41% 2.16% 2.16% 1.91% 1.66%
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Average annualized expense
ratio for Lipper peer group++ 1.86% 2.61% 2.61% 2.36% 2.11%
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+ For the fund's most recent fiscal half year; may differ from expense
ratios based on one-year data in the financial highlights.
++ For class A shares, expenses shown represent the average of the
expenses of front-end load funds viewed by Lipper as having the same
investment classification or objective as the fund, calculated in
accordance with Lipper's standard reporting methodology for comparing
expenses within a given universe. All Lipper data is for the most recent
fiscal periods available as of 6/30/04. For class B, C, M and R shares,
Putnam has adjusted the Lipper total expense average to reflect higher
12b-1 fees incurred by these classes of shares. The peer group may include
funds that are significantly larger or smaller than the fund, which may
limit the comparability of the fund's expenses to the Lipper average.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a
risk comparison to help you understand how your fund compares with other
funds. The comparison utilizes a risk measure developed by Morningstar,
an independent fund-rating agency. This risk measure is referred to as
the fund's Overall Morningstar Risk.
Your fund's Overall Morningstar Risk is shown alongside that of the
average fund in its broad asset class, as determined by Morningstar. The
risk bar broadens the comparison by translating the fund's Overall
Morningstar Risk into a percentile, which is based on the fund's ranking
among all funds rated by Morningstar as of 6/30/04. A higher Overall
Morningstar Risk generally indicates that a fund's monthly returns have
varied more widely.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 3.02
Int'l stock
fund average 3.80
0% INCREASING RISK 100%
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class
A shares only; information for other classes may vary. Overall
Morningstar Risk is based on historical data and does not indicate
future results. Morningstar does not purport to measure the risk
associated with a current investment in a fund, either on an absolute
basis or on a relative basis. Low Overall Morningstar Risk does not mean
that you cannot lose money on an investment in a fund. Copyright 2004
Morningstar, Inc. All Rights Reserved. The information contained herein
(1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate,
complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this
information.
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. NAV
is calculated by dividing the net assets of each class of shares by the
number of outstanding shares in the class.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% 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 charge or CDSC and
are available only to certain defined contribution plans.
Comparative indexes
Citigroup World Government Bond Index is an unmanaged index of
government bonds from 14 countries.
JP Morgan 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 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.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
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 Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Report of Independent Registered Public Accounting Firm,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the 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 year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, by distributions to
shareholders, and by changes in the number of the fund's shares. It
lists distributions and their sources (net investment income or realized
capital gains) over the current reporting period and the most recent
fiscal year-end. The distributions listed here may not match the sources
listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the
one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of
Putnam Europe Equity Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam
Europe Equity Fund (the "fund") at June 30, 2004, and the results of its
operations, the changes in its net assets and the financial highlights
for each of the periods indicated, in conformity with accounting
principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the fund's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
investments owned at June 30, 2004, by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 10, 2004
The fund's portfolio
June 30, 2004
Common stocks (99.6%) (a)
Number of shares Value
Belgium (2.2%)
- -------------------------------------------------------------------------------
92,102 Groupe Bruxelles Lambert SA $5,888,295
94,629 Interbrew SA 3,010,536
57,994 Umicore 3,651,247
--------------
12,550,078
Finland (0.5%)
- -------------------------------------------------------------------------------
185,015 Nokia OYJ 2,669,558
France (22.7%)
- -------------------------------------------------------------------------------
103,212 Autoroutes du Sud de la France (ASF) 4,098,530
184,964 BNP Paribas SA 11,375,125
94,110 Carrefour Supermarche SA 4,566,030
188,128 Credit Agricole SA 4,577,531
209,324 France Telecom SA (NON) 5,454,894
116,140 Lagardere SCA 7,255,546
77,077 LVMH Moet Hennessy Louis Vuitton SA 5,574,738
93,825 M6 Metropole Television 144A 2,644,797
28,521 Pernod-Ricard SA 3,646,828
77,000 Peugeot SA 4,287,651
41,316 Pinault-Printemps-Redoute SA 4,244,883
84,578 Renault SA 6,441,389
7,229 Renault SA 144A 550,555
85,241 Schneider Electric SA 5,817,806
69,139 Societe Generale 5,875,398
120,042 Societe Television Francaise I 3,781,056
151,403 Total SA Class B 28,863,653
215,539 Veolia Environnement 6,080,992
537,882 Vivendi Universal SA (NON) 14,920,029
--------------
130,057,431
Germany (8.1%)
- -------------------------------------------------------------------------------
166,300 Deutsche Post AG 3,585,121
747,717 Deutsche Telekom AG (NON) 13,144,768
244,000 Infineon Technologies AG (NON) 3,286,134
105,400 Metro AG 5,000,956
4,553 Porsche AG (Preferred) 3,060,397
202,480 Siemens AG 14,570,843
328,172 T-Online International AG (NON) 3,717,055
--------------
46,365,274
Hungary (0.5%)
- -------------------------------------------------------------------------------
143,868 OTP Bank Rt. 2,940,686
Ireland (2.7%)
- -------------------------------------------------------------------------------
355,342 Allied Irish Banks PLC 5,490,325
233,064 CRH PLC 4,922,353
333,460 Depfa Bank PLC 4,827,680
--------------
15,240,358
Italy (4.3%)
- -------------------------------------------------------------------------------
498,134 ENI SpA 9,890,407
1,258,496 IntesaBCI SpA 4,914,787
324,127 Mediaset SpA 3,694,899
1,302,500 UniCredito Italiano SpA 6,433,563
--------------
24,933,656
Netherlands (5.1%)
- -------------------------------------------------------------------------------
112,542 European Aeronautic Defense and
Space Co. 3,132,698
426,040 ING Groep NV 10,055,413
352,616 Koninklijke (Royal) Philips
Electronics NV 9,493,607
94,649 Royal Numico NV (NON) 3,041,111
122,133 VNU NV 3,546,772
--------------
29,269,601
Spain (2.7%)
- -------------------------------------------------------------------------------
119,403 Gestevision Telecinco SA (NON) 1,782,410
48,900 Gestevision Telecinco SA 144A (NON) 729,964
366,508 Iberdrola SA 7,736,255
193,412 Indra Sistemas SA Class A 2,465,997
281,553 Telefonica Moviles SA (S) 2,938,971
--------------
15,653,597
Sweden (5.3%)
- -------------------------------------------------------------------------------
236,650 Hennes & Mauritz AB Class B 6,111,212
1,095,000 Nordea AB 7,887,059
144,040 SKF AB Class B 5,287,854
2,892,830 Telefonaktiebolaget LM Ericsson AB
Class B (NON) 8,526,624
169,980 Vostok Nafta Investment, Ltd. (NON) 2,335,820
--------------
30,148,569
Switzerland (19.2%)
- -------------------------------------------------------------------------------
398,771 Credit Suisse Group (NON) 14,171,306
58,562 Nestle SA 15,620,275
504,291 Novartis AG 22,250,501
190,932 Roche Holding AG 18,907,178
25,085 Swatch Group AG (The) Class B 3,265,337
150,753 Swiss Re 9,793,768
44,968 Synthes, Inc. 5,126,323
190,315 UBS AG 13,412,633
48,617 Zurich Financial Services AG (NON) 7,677,697
--------------
110,225,018
United Kingdom (26.3%)
- -------------------------------------------------------------------------------
468,141 3i Group PLC 5,199,677
1,739,171 Aggregate Industries PLC 2,586,126
483,779 AstraZeneca PLC 21,704,027
254,765 BHP Billiton PLC 2,210,626
3,214,713 BP PLC 28,389,960
577,400 Burberry Group PLC 4,279,846
744,391 Diageo PLC 10,036,348
285,798 GUS PLC 4,381,940
812,095 Hilton Group PLC 4,064,522
1,394,738 ITV PLC 2,921,247
164,490 Man Group PLC 4,259,526
223,597 Reckitt Benckiser PLC 6,329,399
228,875 Rio Tinto PLC 5,503,456
285,366 Royal Bank of Scotland Group PLC 8,217,625
111,974 Royal Bank of Scotland Group PLC
144A 3,224,492
1,533,096 Tesco PLC 7,402,060
10,763,591 Vodafone Group PLC 23,568,825
653,308 WPP Group PLC 6,634,369
--------------
150,914,071
--------------
Total Common stocks
(cost $492,269,687) $570,967,897
Short-term investments (1.7%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$2,330,999 Short-term investments held as
collateral for loaned securities
with a yield of 1.25%, due July 1,
2004 (d) $2,330,918
7,502,657 Putnam Prime Money Market Fund (e) 7,502,657
--------------
Total Short-term investments
(cost $9,833,575) $9,833,575
- -------------------------------------------------------------------------------
Total Investments
(cost $502,103,262) $580,801,472
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $573,266,413.
(NON) Non-income-producing security.
(S) Securities on loan, in part or in entirety, at June 30, 2004.
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in the
Putnam Prime Money Market Fund.
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 June 30, 2004 (as a percentage of net assets):
Oil and gas 12.1%
Banking 11.5
Pharmaceuticals 11.0
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
June 30, 2004
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value, including $2,217,311 of securities
on loan (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated Issuers (identified cost $494,600,605) $573,298,815
- -------------------------------------------------------------------------------
Affiliated Issuers (identified cost $7,502,657) (Note 5) 7,502,657
- -------------------------------------------------------------------------------
Foreign currency (cost $137,102) (Note 1) 127,406
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 539,488
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 200,098
- -------------------------------------------------------------------------------
Receivable for securities sold 11,166,547
- -------------------------------------------------------------------------------
Foreign tax reclaim receivable 591,518
- -------------------------------------------------------------------------------
Total assets 593,426,529
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 14,120,567
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,926,278
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 992,462
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 139,976
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 124,799
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,316
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 410,908
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 2,330,918
- -------------------------------------------------------------------------------
Other accrued expenses 112,892
- -------------------------------------------------------------------------------
Total liabilities 20,160,116
- -------------------------------------------------------------------------------
Net assets $573,266,413
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $732,379,565
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 3,073,616
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (240,877,002)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 78,690,234
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $573,266,413
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($313,765,632 divided by 17,382,152 shares) $18.05
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.75 of $18.05)* $19.05
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($229,607,871 divided by 13,198,979 shares)** $17.40
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($5,481,570 divided by 306,605 shares)** $17.88
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($24,410,259 divided by 1,368,089 shares) $17.84
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $17.84)* $18.49
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($1,081 divided by 60 shares) $18.03
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended June 30, 2004
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,798,945) $13,158,324
- -------------------------------------------------------------------------------
Interest (including interest income of $7,517 from
investments in affiliated issuers) (Note 5) 122,710
- -------------------------------------------------------------------------------
Securities lending 2,182
- -------------------------------------------------------------------------------
Total investment income 13,283,216
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,104,386
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,549,119
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 29,941
- -------------------------------------------------------------------------------
Administrative services (Note 2) 14,012
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 895,383
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,563,477
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 64,680
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 283,542
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 3
- -------------------------------------------------------------------------------
Other 386,471
- -------------------------------------------------------------------------------
Non-recurring costs (Note 6) 21,655
- -------------------------------------------------------------------------------
Costs assumed by Manager (Note 6) (21,655)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Notes 2 and 5) (220,966)
- -------------------------------------------------------------------------------
Total expenses 11,670,048
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (750,829)
- -------------------------------------------------------------------------------
Net expenses 10,919,219
- -------------------------------------------------------------------------------
Net investment income 2,363,997
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 133,309,062
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,323,077
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 299,237
- -------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (17,849)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
contracts during the year 6,792,447
- -------------------------------------------------------------------------------
Net gain on investments 141,705,974
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $144,069,971
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended June 30
Decrease in net assets 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $2,363,997 $7,871,619
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 134,931,376 (133,866,964)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 6,774,598 16,555,628
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 144,069,971 (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) (240,607,716) (198,675,142)
- -------------------------------------------------------------------------------
Total decrease in net assets (104,990,473) (316,291,509)
Net assets
- -------------------------------------------------------------------------------
Beginning of year 678,256,886 994,548,395
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $3,073,616 and
$5,846,241, respectively) $573,266,413 $678,256,886
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.84 $16.65 $18.63 $26.71 $21.72
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .12 (d) .20 .17 .12 .11
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.37 (1.79) (2.02) (6.05) 5.11
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.49 (1.59) (1.85) (5.93) 5.22
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.28) (.22) (.13) (.01) (.19)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (2.14) (.04)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.28) (.22) (.13) (2.15) (.23)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.05 $14.84 $16.65 $18.63 $26.71
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 23.59 (9.47) (9.96) (23.32) 24.07
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $313,766 $369,565 $570,806 $786,342 $1,094,311
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.44 (d) 1.43 1.32 1.23 1.21
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .69 (d) 1.40 1.01 .52 .46
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.35 79.66 76.68 88.89 110.71
- ------------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
of the fund reflect a reduction of 0.03% based on average net assets per class A share for the period
ended June 30, 2004 (Notes 2 and 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.31 $16.04 $17.95 $25.99 $21.14
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) -- (d)(e) .09 .04 (.05) (.07)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.24 (1.73) (1.95) (5.85) 4.98
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.24 (1.64) (1.91) (5.90) 4.91
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.15) (.09) -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (2.14) (.04)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.09) -- (2.14) (.06)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.40 $14.31 $16.04 $17.95 $25.99
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.69 (10.21) (10.64) (23.87) 23.23
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $229,608 $266,777 $378,679 $580,207 $877,126
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 2.19 (d) 2.18 2.07 1.98 1.96
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.04)(d) .68 .23 (.24) (.30)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.35 79.66 76.68 88.89 110.71
- ------------------------------------------------------------------------------------------------------------------
(a) Per share net investment income (loss) has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
of the fund reflect a reduction of 0.03% based on average net assets per class B share for the period
ended June 30, 2004 (Notes 2 and 5).
(e) 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 period
July 26, 1999+
Per-share Year ended June 30 to June 30
operating performance 2004 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) (.01)(d) .10 .03 (.03) (.02)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.33 (1.77) (1.99) (6.00) 5.10
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.32 (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 $17.88 $14.68 $16.43 $18.39 $26.56
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.65 (10.15) (10.66) (23.85) 23.06*
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,482 $7,455 $10,751 $17,113 $13,501
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 2.19 (d) 2.18 2.07 1.98 1.82*
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.06)(d) .69 .20 (.12) (.08)*
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.35 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).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
of the fund reflect a reduction of 0.03% based on average net assets per class C share for the period
ended June 30, 2004 (Notes 2 and 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------
Per-share Year ended June 30
operating performance 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.68 $16.46 $18.39 $26.50 $21.48
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.01)(d) .13 .08 .01 (.02)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.37 (1.78) (2.00) (5.98) 5.08
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.36 (1.65) (1.92) (5.97) 5.06
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.13) (.01) -- -- (e)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (2.14) (.04)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.13) (.01) (2.14) (.04)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.84 $14.68 $16.46 $18.39 $26.50
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.97 (9.98) (10.43) (23.67) 23.58
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $24,410 $34,460 $34,312 $54,103 $79,416
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.94 (d) 1.93 1.82 1.73 1.71
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .01 (d) .98 .47 .04 (.08)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.35 79.66 76.68 88.89 110.71
- ------------------------------------------------------------------------------------------------------------------
(a) Per share net investment income (loss) has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
of the fund reflect a reduction of 0.03% based on average net assets per class M share for the period
ended June 30, 2004 (Notes 2 and 5).
(e) 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+
Per-share to June 30
operating performance 2004
- ------------------------------------------------------------------------------
Net asset value,
beginning of period $16.95
- ------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------
Net investment income (a) .04 (d)
- ------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.32
- ------------------------------------------------------------------------------
Total from
investment operations 1.36
- ------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------
From net
investment income (.28)
- ------------------------------------------------------------------------------
Net asset value,
end of period $18.03
- ------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.08*
- ------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1
- ------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .99* (d)
- ------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .26* (d)
- ------------------------------------------------------------------------------
Portfolio turnover (%) 82.35
- ------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income 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).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
0.03% based on average net assets per class R share for the period ended
June 30, 2004 (Notes 2 and 5).
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
June 30, 2004
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 5.25%. Prior to
January 28, 2004, the maximum front-end sales charge for class A shares
was 5.75%. Class B shares, which convert to class A shares after
approximately eight years, do not pay a front-end sales charge but pay a
higher ongoing distribution fee than class A, 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 and class R 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.
Prior to April 19, 2004 a redemption fee of 1.00%, which is retained by
the fund, applied to shares of any class redeemed (either by selling or
by exchanging to another fund) within 90 days of purchase. Effective
April 19, 2004 (May 3, 2004 for defined contribution plans administered
by Putnam) a 2.00% redemption fee may apply to any shares that are
redeemed (either by selling or exchanging into another fund) within 5
days of purchase. A 1.00% redemption fee would apply to any shares that
are redeemed (either by selling or exchanging into another fund) within
6-90 days of purchase. The redemption fee is accounted for as an
addition to paid-in-capital. Total redemption fees received by the fund
for the year ended June 30, 2004 were $48,654.
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. Many securities markets
and exchanges outside the U.S. close prior to the close of the New York
Stock Exchange and, therefore, the closing prices for securities in such
markets or on such exchanges may not fully reflect events that occur after
such close but before the close of the New York Stock Exchange.
Accordingly, on certain days, the fund will fair value foreign securities
taking into account multiple factors, including movements in the U.S.
securities markets. The number of days on which fair value prices will be
used will depend on market activity and it is possible that fair value
prices will be used by the fund to a significant extent. Securities quoted
in foreign currencies 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, net
of applicable withholding taxes, 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. Risks may exceed amounts recognized on the statement of assets
and liabilities. When the contract is closed, the fund records a realized
gain or loss equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed. Realized
gains and losses on purchased options are included in realized gains and
losses on investment securities.
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) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the statement of operations. At June 30, 2004, the value of
securities loaned amounted to $2,217,311. The fund received cash
collateral of $2,330,918, which is pooled with collateral of other
Putnam funds into 1 issuer of high-grade short-term investments.
G) 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.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code 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 (the "Code"), as amended.
Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At June 30, 2004, the fund had a capital loss carryover of $235,448,267
available to the extent allowed by the Code to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- ----------------------------------
$90,059,890 June 30, 2010
145,388,377 June 30, 2011
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations, which may differ from generally accepted accounting
principles. These differences include temporary and permanent differences
of losses on wash sale transactions, foreign currency gains and losses,
realized and unrealized gains and losses on passive foreign investment
companies and foreign tax credits. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended June 30, 2004, the fund reclassified
$3,316,106 to decrease distributions in excess of net investment income,
with an increase to accumulated net realized loss of $3,316,106.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $77,719,814
Unrealized depreciation (6,754,206)
------------
Net unrealized appreciation 70,965,608
Undistributed ordinary income 5,377,479
Capital loss carryforward (235,448,267)
Cost for federal income
tax purposes $509,835,864
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 July 15, 2004, Putnam Management has retained its affiliate,
Putnam Investments Limited ("PIL"), to manage a separate portion of the
assets of the fund. Putnam Management pays a quarterly sub-management
fee to PIL for its services at an annual rate of 0.35% of the average
net assets of the portion of the assets of the fund managed by PIL.
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 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. For the
year ended June 30, 2004, Putnam Management waived $219,690 of its
management fee to the fund.
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 year ended June 30, 2004, the fund
paid PFTC $1,887,241 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the year ended, June 30, 2004, the
fund's expenses were reduced by $750,829 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,349, as a quarterly retainer, has been allocated to the fund,
and an additional fee for each Trustees meeting attended. Trustees
receive additional fees for attendance at certain committee meetings.
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 in distributing shares of the
fund. The Plans provide for payments by the fund to Putnam Retail
Management at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and
1.00% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the year ended June 30, 2004, Putnam Retail Management, acting as
underwriter, received net commissions of $16,294 and $114,412 from the
sale of class A and class M shares, respectively, and received $638,110
and $1,274 in contingent deferred sales charges from redemptions of
class B and class C shares, respectively. A deferred sales charge of up
to 1.00% and 0.65% is assessed on certain redemptions of class A and
class M shares, respectively. For the year ended June 30, 2004, Putnam
Retail Management, acting as underwriter, received $531 and no monies on
class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended June 30, 2004, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $527,447,254 and $771,619,940, respectively. There were no
purchases or sales of U.S. government securities.
Note 4
Capital shares
At June 30, 2004, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended June 30, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 6,880,863 $108,024,707
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 283,197 4,913,464
- ----------------------------------------------------------------
7,164,060 112,938,171
Shares repurchased (14,684,020) (242,633,634)
- ----------------------------------------------------------------
Net decrease (7,519,960) $(129,695,463)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 561,241 $9,271,144
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 124,975 2,098,306
- ----------------------------------------------------------------
686,216 11,369,450
Shares repurchased (6,127,641) (99,946,633)
- ----------------------------------------------------------------
Net decrease (5,441,425) $(88,577,183)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 23,394 $381,228
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,017 34,793
- ----------------------------------------------------------------
25,411 416,021
Shares repurchased (226,669) (3,710,347)
- ----------------------------------------------------------------
Net decrease (201,258) $(3,294,326)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended June 30, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,459,182 $22,339,415
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 5,917 101,777
- ----------------------------------------------------------------
1,465,099 22,441,192
Shares repurchased (2,443,954) (41,482,952)
- ----------------------------------------------------------------
Net decrease (978,855) $(19,041,760)
- ----------------------------------------------------------------
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 June 30, 2004
- ----------------------------------------------------------------
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 June 30, 2004, Putnam, LLC owned 60 class R shares of the fund
(100% of class R shares outstanding), valued at $1,081.
Note 5
Investment in Putnam Prime Money
Market Fund
The fund invests in the Putnam Prime Money Market Fund, an open-end
management investment company managed by Putnam Management. Management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. Income
distributions earned by the fund are recorded as income in the statement
of operations and totaled $7,517 for the period ended June 30, 2004.
Note 6
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection with
excessive short-term trading by Putnam employees and, in the case of the
charges brought by the Massachusetts Securities Division, by participants
in some Putnam-administered 401(k) plans. The settlement with the SEC
requires Putnam Management to pay $5 million in disgorgement plus a civil
monetary penalty of $50 million, and the settlement with the Massachusetts
Securities Division requires Putnam Management to pay $5 million in
restitution and an administrative fine of $50 million. The settlements
also leave intact the process established under an earlier partial
settlement with the SEC under which Putnam Management agreed to pay the
amount of restitution determined by an independent consultant, which may
exceed the disgorgement and restitution amounts specified above, pursuant
to a plan to be developed by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class-action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management 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.
For the period ended June 30, 2004, Putnam Management has assumed
$21,655 of legal, shareholder servicing and communication, audit, and
Trustee fees incurred by the fund in connection with these matters.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. The fund may experience increased redemptions as a result
of these matters, which could result in increased transaction costs and
operating expenses.
Federal tax information
(Unaudited)
For the period, interest and dividends from foreign countries were
$14,983,061 or $0.465 per share. Taxes paid to foreign countries were
$1,798,945 or $0.056 (for all classes of shares).
For its tax year ended June 30, 2004, the fund hereby designates 100%,
or the maximum amount allowable of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care, and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan and
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the Securities and Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
managed by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget, and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure) as well as a
Director of TransCanada Corporation (a gas transmission and power
company). He also serves on the board of the Whitehead Institute for
Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company) and prior to March 2000 he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition, and privatization policies --
serving as an advisor to governments and corporations worldwide. Dr.
Joskow holds a Ph.D. and M. Phil from Yale University and B.A. from
Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner in Cambus-Kenneth Farm, LLC (cattle and
thoroughbred horses). She is President Emeritus of Mount Holyoke
College.
Dr. Kennan serves as Lead Director (formerly Chairman) of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life
Insurance. She is a Trustee of Centre College and of Midway College in
Midway, Kentucky. She is also a member of The Trustees of Reservations
and a Trustee of the National Trust for Historic Preservation. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University, and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history, and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University, and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light), and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon Read & Co., Inc.:
Fisher-Price, Inc.: and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, Inc., a private
equity firm specializing in real estate investments, and Chairman of
Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company, LLC. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, Mr. Patterson was
Executive Vice President and Director of Acquisitions of Cabot Partners
Limited Partnership (a registered investment advisor involved in
institutional real estate investments). Prior to 1990, he served as
Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc.
(the predecessor company of Cabot Partners) and as a Senior Vice
President of the Beal Companies (a real estate management, investment,
and development firm).
Mr. Patterson practiced law and held various positions in state
government, and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, and Norske Canada, Inc.
(a paper manufacturer). Until 2004, Mr. Stephens was a Director of Qwest
Communications. Until 2003, he was a Director of Mail-Well, Inc. (a
diversified printing company). He served as Chairman of Mail-Well until
2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest products company)
until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
George Putnam, III* (8/10/51), Trustee since 1984 and President since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is Chairman of Putnam Investments and a Director of and
Consultant to Marsh & McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of June 30, 2004, there were 102 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers or shareholders of the fund or Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc. George Putnam, III is the President of your fund and each of the
other Putnam funds. Mr. Smith serves as a Director of Marsh & McLennan
Companies, Inc. and as Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer
and Principal Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and
Putnam Management
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments.
Prior to July 2001, Partner,
PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance
Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to
2004, Associate, Ropes & Gray LLP; prior to
2000, Law Clerk, Massachusetts Supreme
Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004,
General Counsel, State Street Research &
Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and
Putnam Management. From 2001 to 2002, Chief
Operating Officer, Atalanta/Sosnoff Management
Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003,
Senior Vice President, United Asset
Management Corporation
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Putnam puts your interests first
In January, Putnam announced a number of voluntary
initiatives designed to reduce fund expenses, provide
investors with more useful information, and help safeguard
the interests of all Putnam investors. For details, visit
www.putnaminvestments.com.
Cost-cutting initiatives
Reduced sales charges
Effective immediately, the maximum sales charge for class A
shares has been reduced to 5.25% for equity funds (formerly
5.75%) and 4.50% for most income funds (formerly 4.75%).*
Lower class B purchase limit
To help ensure that investors are in the most cost-effective
share class, the maximum amount that can be invested in
class B shares has been reduced to $100,000. (Larger trades
or accumulated amounts will be directed to class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including
management fees for all funds, will be maintained at or below the
average of each fund's industry peers in its Lipper load-fund
universe. For more information, please see the Statement of
Additional information.
Additional measures are being taken to reduce expenses for
shareholders in the six global and international funds that had
short-term trading issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being
revised to disclose additional information that will help
shareholders compare funds and weigh their costs and risks
along with their potential benefits. Shareholders will find
easy-to-understand information about fund expense ratios,
portfolio manager compensation, risk comparisons, brokerage
commissions, and employee and trustee ownership of Putnam
funds. Disclosure of breakpoint discounts is also being
enhanced to alert investors to potential cost savings.
Protecting investors' interests
New short-term trading fee introduced
To discourage short-term trading, which can interfere with a
fund's long-term strategy, a 2% short-term trading fee will be
imposed on any Putnam fund shares redeemed or exchanged within
five calendar days of purchase.
* The maximum sales charge for class A shares of Putnam U.S.
Intermediate Government Income Fund remains 3.25%.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual
funds. Investors should carefully 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
between 6 and 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 fund seeks to
preserve your investment at $1.00 per share, it is possible
to lose money by investing in the fund.
With the exception of money market funds, a 2% redemption
fee will be applied to shares exchanged or sold within 5
days of purchase.
Check your account balances and the most recent month-end
performance at www.putnaminvestments.com.
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
Independent Registered Public Accounting Firm
PricewaterhouseCoopers 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
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and Principal
Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
Francis J. McNamara, III
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 carefully consider the investment objective, risks,
charges, and expenses of a fund, which are described in its prospectus.
For this and other information or to request a prospectus, call
1-800-225-1581 toll free. Please read the prospectus carefully before
investing. The fund's Statement of Additional Information contains
additional information about the fund's Trustees and is available
without charge upon request by calling 1-800-225-1581.
[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.
AN005-216025 057/234/688 8/04
Not FDIC Insured May Lose Value No Bank Guarantee
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
June 30, 2004 $57,486* $-- $4,213 $118
June 30, 2003 $61,214 $-- $5,310 $--
*Includes fees of $ 252 billed by the fund's independent auditor
to the fund for audit procedures necessitated by regulatory and
litigation matters. These fees were reimbursed to the fund by
Putnam.
For the fiscal years ended June 30, 2004 and June 30, 2003, the
fund's independent auditors billed aggregate non-audit fees in the
amounts of $137,958 and $ 59,828, respectively, to the fund,
Putnam Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing services
to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees represent fees billed for services relating to
fund expense processing.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
June 30, 2004 $-- $-- $-- $--
June 30, 2003 $-- $-- $-- $--
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. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal financial
officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report 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 officer
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 11. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(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: August 30, 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/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: August 30, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: August 30, 2004