Item 1. Report to Stockholders:
- --------------------------------
The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
Putnam
Europe Equity
Fund
6 | 30 | 05
Annual Report
[GRAPHICS OMITTED: YARN COVER, SCALE AND LOGO]
BLEND FUNDS
invest opportunistically
in a variety of stocks,
such as growth stocks and value stocks.
What makes Putnam different?
[GRAPHIC OMITTED: FOUNDER]
In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam
established The Prudent Man Rule, a legal foundation for responsible money
management.
THE PRUDENT MAN RULE
All that can be required of a trustee to invest is that he shall conduct
himself faithfully and exercise a sound discretion. He is to observe how men
of prudence, discretion, and intelligence manage their own affairs, not in
regard to speculation, but in regard to the permanent disposition of their
funds, considering the probable income, as well as the probable safety of
the capital to be invested.
[GRAPHIC OMITTED: JUSTICE SAMUEL PUTNAM 1830]
A time-honored tradition in money management
Since 1937, our values have been rooted in a profound sense of
responsibility for the money entrusted to us.
A prudent approach to investing
We use a research-driven team approach to seek consistent, dependable,
superior investment results over time, although there is no guarantee a fund
will meet its objectives.
Funds for every investment goal
We offer a broad range of mutual funds and other financial products so
investors and their advisors can build diversified portfolios.
A commitment to doing what's right for investors
We have below-average expenses and stringent investor protections, and
provide a wealth of information about the Putnam funds.
Industry-leading service
We help investors, along with their financial advisors, make informed
investment decisions with confidence.
Putnam
Europe Equity
Fund
6 | 30 | 05
Annual Report
Message from the Trustees 2
About the fund 4
The year in review 7
Performance 13
Expenses 16
Turnover 18
Risk 19
Your fund's management 20
Terms and definitions 23
Trustee approval of management contract 25
Other shareholder information 30
Financial statements 31
Federal tax information 53
Shareholder meeting results 54
Brokerage commissions 56
About the Trustees 57
Officers 63
Cover photograph [C] Marco Cristofori
Message from the Trustees
Dear Fellow Shareholder
During the period ended June 30, 2005, the Federal Reserve Board's more
restrictive monetary policy, along with high energy prices, began to
moderate the pace of economic expansion. International markets generally
outperformed stock and bond markets in the United States. However, the U.S.
dollar strengthened against foreign currencies, partially offsetting the
effects of these gains. Amid the uncertainties of this environment, the
in-depth, professional research and active management that mutual funds can
provide makes them an intelligent choice for today's investors.
We want you to know that Putnam Investments' management team, under the
leadership of Chief Executive Officer Ed Haldeman, continues to focus on
investment performance and remains committed to putting the interests of
shareholders first. In keeping with these goals, we have redesigned and
expanded our shareholder reports to make it easier for you to learn more
about your fund.
More information about your fund's strategy and history has been added to
this report. We have also included additional information about your fund's
management team, including compensation data pertaining to your fund.
Furthermore, on page 25 we provide information about the 2005 approval by
the Trustees of your fund's management contract with Putnam.
We would also like to take this opportunity to announce the retirement of
one of your fund's Trustees, Ronald J. Jackson, who has been an independent
Trustee of the Putnam funds since 1996. We thank him for his service.
In the following pages, members of your fund's management team discuss the
fund's performance, strategies, and their outlook for the months ahead.
Respectfully yours,
/S/ GEORGE PUTNAM, III
George Putnam, III
President of the Funds
/S/ JOHN A. HILL
John A. Hill
Chairman of the Trustees
August 17, 2005
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM, III AND JOHN A. HILL]
Putnam Europe Equity Fund: the advantages of investing in European markets
As a shareholder of Putnam Europe Equity Fund, you are positioning some of
your money to benefit from opportunities in one of the world's most advanced
economies.
While international investing involves additional risks, Europe offers a
long history of capitalism and stock investing, and the region continues to
evolve. Today, the 25 member states of the European Union, with over 450
million people, form a large, integrated economy that exports more goods and
services than any nation in the world.
With these advantages, it is not surprising that European companies are
leaders in many business sectors, including financials, health care, and
telecommunications. If you look at the products or services you use every
day -- from cars to cellular telephones to household products -- you are
likely to find many items made by European companies.
At the macroeconomic level, Europe offers diversification because it
generally follows a different business cycle than the United States. In
Europe, interest rates are not set by the U.S. Federal Reserve Board, but by
the European Central Bank and the Bank of England. While different economic
systems, political developments, as well as currencies like the euro, the
British pound, and the Swiss franc, can add risk, they also provide
diversification to U.S.-based investors.
For nearly 15 years, Putnam Europe Equity Fund has served investors by
seeking to invest in leading companies in European markets. The fund's
management team selects stocks and determines market and sector weightings
by relying on the proprietary research of Putnam analysts and team members
based in Boston, as well as in London for better access to information about
European companies.
Changes in the world and Europe's regional economy have added to the growth
potential of European companies since Putnam Europe Equity Fund launched in
1990.
[GRAPHICS OMITTED: FLAG, CELL PHONE, EUROPE CENTRAL BANK]
1990
Germany re-unifies
1991
European Common Market becomes European Union
1993
Single European Market ends trade barriers in Europe
1996
Germany issues publicly traded stock for Deutsche Telecom
1998
European Central Bank is founded
The team uses Putnam's blend strategy to identify stocks that are priced
below their worth and are likely to appreciate.
Finally, investing in Europe may help you in managing one important
financial risk -- the possibility of a slump in the U.S. economy. Investing
internationally can diversify your portfolio and gives you a chance to keep
building wealth even if U.S. stocks struggle.
Additional risks may be associated with emerging-market securities,
including illiquidity and volatility. The fund invests some or all of its
assets in small and/or midsize companies. Such investments increase the risk
of greater price fluctuations. The fund invests in fewer issuers or
concentrates its investments by region or sector, and involves more risk
than a fund that invests more broadly.
The European Union: Expansion increases investment opportunities.
The European Union has grown over the past half century because it has
succeeded in providing stable conditions for economic growth and investment.
From a base of six members in the 1950s, it has grown to include 25
countries, with four additional countries currently candidates for
membership.
What does the continuing expansion of the European Union mean for investors?
Greater growth potential. Businesses in new member countries gain greater
access to international capital and trade opportunities within the EU.
Lower business costs. Companies in older EU countries can increase their
sales in new member countries while reducing their business costs by
shifting production to less expensive markets.
[GRAPHICS OMITTED: EURO CURRENCY AND SATELLITE DISH BACK]
1999
The euro integrates 11 European economies under one currency
2000
Cross-border corporate merger activity sets record
2003
Russia achieves investment-grade status
2004
France Telecom privatized as French government sells majority control
2004
European Union expands to include 10 new member states
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.
- ------------------------------------------------------------------------------
Highlights
* Putnam Europe Equity Fund's class A shares returned 16.66% without sales
charges for the 12 months ended June 30, 2005.
* The fund's benchmark, the MSCI Europe Index, returned 16.87%.
* The fund's Lipper peer group, European Region Funds, had an average return
of 17.66% during the period.
* Additional fund performance, comparative performance, and Lipper data can
be found in the performance section beginning on page 13.
- ------------------------------------------------------------------------------
Performance
Total return for class A shares for periods ended 6/30/05
Since the fund's inception (9/7/90), annualized return is 9.80% at NAV; and
9.40% at POP.
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Annualized return Cumulative return
NAV POP NAV POP
- ------------------------------------------------------------------------------
10 years 8.30% 7.72% 122.01% 110.35%
- ------------------------------------------------------------------------------
5 years -2.06 -3.11 -9.88 -14.61
- ------------------------------------------------------------------------------
1 year 16.66 10.54 16.66 10.54
- ------------------------------------------------------------------------------
Data is historical. Past performance does not guarantee future results. More
recent returns may be less or more than those shown. Investment return and
principal value will fluctuate and you may have a gain or a loss when you
sell your shares. Performance assumes reinvestment of distributions and does
not account for taxes. Returns at NAV do not reflect a sales charge of
5.25%. For the most recent month-end performance, visit www.putnam.com. For
a portion of the period, this fund limited expenses, without which returns
would have been lower. A short-term trading fee of up to 2% may apply.
Report from the fund managers
The year in review
Your fund achieved robust returns during its 2005 fiscal year. In our view,
European stocks began the 12-month period with a noticeable valuation
advantage versus stocks in other regions in the world, and as investors
noticed this gap, they bid up the prices of European shares more rapidly. At
net asset value (NAV, or without sales charges) your fund performed in line
with its benchmark index as our stock selections performed well on a
relative basis, though this advantage was offset by the fund's currency
positioning. Our underweight to the United Kingdom caused the fund to have
an underweight to the British pound, one of Europe's stronger currencies
during the period. Currency positioning also contributed to the fund's
underperformance of its Lipper peer group. Funds that led this group also
tended to favor small-cap companies and stocks in Eastern European emerging
markets.
Market overview
The strongest periods of the past year for European markets occurred in
November and December of 2004, as well as in May and June of this year. In
both cases, politics played a role. Last November, European stocks rallied
as geopolitical uncertainty eased following the U.S. elections. In May and
June, another rally was sparked by referendums in France and the
Netherlands, in which voters rejected the proposed constitution for the
European Union (EU). Though the constitution had little economic
significance, it cast doubt on the next phase of EU enlargement, causing the
euro to weaken, and enhancing the stock prices of export companies.
Politics played a role in part because economic trends were fairly stable
for the 12-month period. Economic growth was generally sluggish in France
and Germany, while Italy struggled with recessionary conditions. The United
Kingdom continued to expand, as did smaller markets such as Ireland. Neither
the European Central Bank nor the Bank of England cut interest rates during
the year, though Sweden's Riksbank eased monetary policy toward the end of
the period. While inflationary pressures remained contained, several spikes
in oil prices had negative effects on Europe, which imports a large share of
its energy. On the bright side, oil prices made the energy sector Europe's
top performer for the period.
Economic pressures also encouraged companies to remain focused on managing
costs and delivering value to shareholders. Corporate restructurings gained
momentum during the year, as did strategic mergers and acquisitions.
Strategy overview
Your fund follows Putnam's blend strategy, pursuing stocks of companies that
are priced below what we consider their long-term worth without a bias
toward traditional growth- or value-style stocks. We assess each company's
valuation based on our analysis of its future earnings, cash flows, and
business strategies. In addition, during the period, our research led us to
identify several broad themes that influenced our investment decisions.
We came to the view that the price of oil was likely to stay stronger for
longer than has been the case in past economic cycles. Traditionally, a
spike in prices has caused producers to increase supplies quickly, and
prices subsequently fall. Our analysis this year indicated that demand would
outstrip supply for a considerable period, and so we maintained an
overweight in the sector - relative to the benchmark - although we did
adjust holdings to favor more undervalued stocks.
Another theme that influenced our strategy was corporate change. As we
have discussed in previous reports, we believe that restructurings focused
on cutting business costs or shedding unprofitable units, as well as prudent
mergers or acquisitions, can help an undervalued stock to appreciate. The
pace of corporate change in Europe remained on the upswing during the past
year.
- ------------------------------------------------------------------------------
Market sector performance
These indexes provide an overview of performance in different market sectors
for the 12 months ended 6/30/05.
- ------------------------------------------------------------------------------
Equities
- ------------------------------------------------------------------------------
MSCI Europe Index (European stocks) 16.87%
- ------------------------------------------------------------------------------
MSCI Pacific Index (Asian stocks) 6.64%
- ------------------------------------------------------------------------------
S&P 500 Index (broad stock market) 6.32%
- ------------------------------------------------------------------------------
Russell 2000 Index (small-company stocks) 9.45%
- ------------------------------------------------------------------------------
Bonds
- ------------------------------------------------------------------------------
Lehman Aggregate Bond Index
(broad bond market) 6.80%
- ------------------------------------------------------------------------------
Government Bond Index
(U.S. Treasury and agency securities) 6.65%
- ------------------------------------------------------------------------------
JP Morgan Global High Yield Index
(global high-yield corporate bonds) 10.29%
- ------------------------------------------------------------------------------
Citigroup World Government Bond Index
(global government bonds) 7.61%
- ------------------------------------------------------------------------------
We also found that many companies that are traditionally considered growth
stocks had become undervalued. When growth stocks no longer trade at a
premium, we may add them to the portfolio, given the likelihood that such
stocks may appreciate to reflect their long-term growth capabilities.
Your fund's holdings
Both our overweight in the energy sector and our stock selection within it
contributed to the fund's positive results. Top-performing holdings
included Total of France, Royal Dutch Petroleum of the Netherlands, and
Norsk Hydro of Norway. All three companies are diversified energy
producers with significant oil reserves, and each represented an
overweight position relative to the benchmark. Performance also benefited
from our selling discipline, as we took profits on a position in BP of the
United Kingdom. We believed BP had reached its fair value and, indeed, it
subsequently underperformed. Another overweighted holding in the sector
that did very well was SBM Offshore, an oil-service company that
specializes in building offshore drilling platforms. Holdings that
benefited from corporate change included Aggregate Industries. This
company, based in the United Kingdom, provides construction materials such
as asphalt and concrete, and was acquired by its rival Holcim, of
Switzerland. Aggregate Industries, which is considered to be an overweight
position because it is not found in the fund's benchmark, appreciated
significantly in the period and we sold the position at a profit.
Autoroutes du Sud de la France (ASF), which operates toll roads in France,
has appreciated in part due to the rising likelihood that the French
government will allow Vinci, a French construction company, to acquire the
remainder of ASF.
- ------------------------------------------------------------------------------
Comparison of top country weightings
This chart shows how the fund's top weightings have changed over the last
six months. Weightings are shown as a percentage of net assets. Regions will
vary over time.
[GRAPHIC OMITTED: horizontal bar chart COMPARISON OF TOP COUNTRY WEIGHTINGS]
as of as of
12/31/04 6/30/05
United Kingdom 17.1% 22.5%
- ------------------------------------------------
France 21.2% 20.3%
- ------------------------------------------------
Swizterland 15.8% 10.8%
- ------------------------------------------------
Netherlands 9.2% 10.7%
- ------------------------------------------------
Germany 6.9% 6.9%
- ------------------------------------------------
Other holdings that we favored for their restructuring potential did not
fare as well. Siemens of Germany and Koninklijke Philips Electronics NV of
the Netherlands, both overweight positions, significantly underperformed the
benchmark. We continue to hold the stocks because we consider their
valuations attractive despite the very slow progress they are making towards
productivity improvements.
Two other disappointing holdings were from the financials sector. Barclays
and Lloyds, both based in the United Kingdom, struggled as tight monetary
policy from the Bank of England restrained both the real estate market and
consumer spending. We continue to hold these stocks because they are
undervalued, in our view. Better performers in the financials sector
included Allied Irish Banks, which undertook a restructuring, and OTP Bank,
based in Hungary, which has benefited from its lending activities in Eastern
Europe.
In the telecommunications sector, we have invested in a number of companies
which appear undervalued to us on the basis of earnings and cash flow. We
disagree with the market consensus, in that we believe European
telecommunications companies are generating substantial amounts of excess
cash flow that can be returned to shareholders in the form of buybacks and
higher dividends, even after rising capital expenditure burdens are taken
into account. Early in the period we had an overweight in Deutsche Telecom,
which performed well. We gradually sold this position to lock in profits and
built a larger position in France Telecom, which had more attractive
valuations, and also contributed to performance.
- ------------------------------------------------------------------------------
Top holdings
This table shows the fund's top holdings, and the percentage of the fund's
net assets that each comprised, as of 6/30/05. The fund's holdings will
change over time.
- -----------------------------------------------------------------------------------------------------
Holding (percent of fund's net assets) Country Industry
- -----------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. (4.3%) Netherlands Oil and gas
- -----------------------------------------------------------------------------------------------------
Vodafone Group PLC (4.2%) United Kingdom Telecommunications
- -----------------------------------------------------------------------------------------------------
Total SA (4.0%) France Oil and gas
- -----------------------------------------------------------------------------------------------------
Novartis AG (3.6%) Switzerland Pharmaceuticals
- -----------------------------------------------------------------------------------------------------
Roche Holding AG (2.8%) Switzerland Pharmaceuticals
- -----------------------------------------------------------------------------------------------------
Nokia OYJ (2.7%) Finland Communications equipment
- -----------------------------------------------------------------------------------------------------
Vivendi Universal SA (2.5%) France Conglomerates
- -----------------------------------------------------------------------------------------------------
Veolia Environnement (2.2%) France Water utilities
- -----------------------------------------------------------------------------------------------------
France Telecom SA (2.2%) France Telecommunications
- -----------------------------------------------------------------------------------------------------
GlaxoSmithKline PLC (2.1%) United Kingdom Pharmaceuticals
- -----------------------------------------------------------------------------------------------------
Growth stocks that presented uncharacteristically attractive valuations in
the period included Roche Holding AG, a pharmaceuticals company based in
Switzerland, Hennes & Mauritz, a specialty clothing retailer headquartered
in Sweden, and Indra Sistemas, a technology company in Spain. Each
contributed positively to results in the period.
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.
- ------------------------------------------------------------------------------
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.
European economies are beginning to show some positive trends, though there
are significant differences among the region's larger countries. Germany is
improving, Italy is weakening, and though the United Kingdom has slowed, the
consequence may be easier monetary policy from the Bank of England. We
believe that the world economy is facing many headwinds including rising
U.S. short-term interest rates and persistently high energy prices, which
are likely to lead to slower corporate earnings growth. Such an environment
is likely to benefit high-quality larger-cap companies characterized by
strong free cash flow and consistently above-trend performance -- such as
those we seek to emphasize in your fund. Furthermore, we expect mergers and
acquisition activity to continue accelerating. Recent transactions suggest
that the market may respond favorably to such deals and reward companies by
bidding up share prices. We have sought to take advantage of these trends by
focusing on companies with strong, value-creative management teams that are
leading restructuring efforts as well as on midsize companies that may be
acquisition candidates in industry consolidations.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. International investing
involves certain risks, such as currency fluctuations, economic instability,
and political developments. Additional risks may be associated with
emerging-market securities, including illiquidity and volatility. The fund
invests some or all of its assets in small and/or midsize companies. Such
investments increase the risk of greater price fluctuations. The fund
invests in fewer issuers or concentrates its investments by region or
sector, and involves more risk than a fund that invests more broadly.
Your fund's performance
This section shows your fund's performance during its fiscal year, which
ended June 30, 2005. Performance should always be considered in light of a
fund's investment strategy. Data represents past performance. Past
performance does not guarantee future results. More recent returns may be
less or more than those shown. Investment return and principal value will
fluctuate and you may have a gain or a loss when you sell your shares. For
the most recent month-end performance, please visit www.putnam.com.
- ------------------------------------------------------------------------------
Fund performance
Total return for periods ended 6/30/05
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
NAV POP NAV CDSC NAV CDSC NAV POP NAV
- ---------------------------------------------------------------------------------------------------------------------------------
Annual average
(life of fund) 9.80% 9.40% 8.98% 8.98% 8.97% 8.97% 9.29% 9.02% 9.53%
- ---------------------------------------------------------------------------------------------------------------------------------
10 years 122.01 110.35 106.17 106.17 105.92 105.92 111.70 104.35 116.62
Annual average 8.30 7.72 7.50 7.50 7.49 7.49 7.79 7.41 8.04
- ---------------------------------------------------------------------------------------------------------------------------------
5 years -9.88 -14.61 -13.26 -14.80 -13.23 -13.23 -12.17 -15.24 -10.97
Annual average -2.06 -3.11 -2.81 -3.15 -2.80 -2.80 -2.56 -3.25 -2.30
- ---------------------------------------------------------------------------------------------------------------------------------
1 year 16.66 10.54 15.73 10.73 15.73 14.73 16.05 11.97 16.38
Performance assumes reinvestment of distributions and does not account for taxes. Returns at public
offering price (POP) for class A and M shares reflect a sales charge of 5.25% and 3.50%,
respectively (which for class M shares does not reflect a reduction in sales charges that went into
effect on April 1, 2005; 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
shares 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 may be applied to shares exchanged or sold within 5 days of purchase. In
addition, there is a 1% short-term trading fee for this fund on shares sold or exchanged between 6
and 90 days.
- ------------------------------------------------------------------------------
Change in value of a $10,000 investment ($9,475 after sales charge)
Cumulative total return from 6/30/95 to 6/30/05
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
Putnam Europe Equity Fund
class A shares at POP MSCI Europe Index
6/30/95 9,475 10,000
6/30/96 11,162 11,468
12/31/97 14,342 14,908
6/30/98 19,393 20,433
6/30/99 18,812 20,261
6/30/00 23,340 23,320
6/30/01 17,898 18,250
6/30/02 16,115 16,844
6/30/03 14,589 15,964
6/30/04 18,031 20,572
6/30/05 $21,035 $24,043
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 $20,617 and $20,592, respectively, and no
contingent deferred sales charges would apply. A $10,000 investment in the
fund's class M shares would have been valued at $21,170 ($20,435 at public
offering price). A $10,000 investment in the fund's class R shares would
have been valued at $21,662. See first of performance section for
performance calculation method.
- ------------------------------------------------------------------------------
Comparative index returns
For periods ended 6/30/05
- ------------------------------------------------------------------------------
Lipper European
MSCI Europe Region Funds
Index category average*
- ------------------------------------------------------------------------------
Annual average
(life of fund) 9.19% 9.04%
- ------------------------------------------------------------------------------
10 years 140.43 141.00
Annual average 9.17 9.07
- ------------------------------------------------------------------------------
5 years 3.10 8.93
Annual average 0.61 1.05
- ------------------------------------------------------------------------------
1 year 16.87 17.66
- ------------------------------------------------------------------------------
Index and Lipper results should be compared to fund performance at net asset
value.
* Over the 1-, 5-, and 10-year periods ended 6/30/05 there were 105, 69, and
19 funds, respectively, in this Lipper category.
- ------------------------------------------------------------------------------
Price and distribution information
For the 12-month period ended 6/30/05
- ---------------------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ---------------------------------------------------------------------------------------------
Distributions (number) 1 1 1 1 1
- ---------------------------------------------------------------------------------------------
Income $0.263 $0.106 $0.111 $0.092 $0.229
- ---------------------------------------------------------------------------------------------
Capital gains -- -- -- -- --
- ---------------------------------------------------------------------------------------------
Total $0.263 $0.106 $0.111 $0.092 $0.229
- ---------------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP NAV
- ---------------------------------------------------------------------------------------------
6/30/04 $18.05 $19.05 $17.40 $17.88 $17.84 $18.49 $18.03
- ---------------------------------------------------------------------------------------------
6/30/05 20.79 21.94 20.03 20.58 20.61 21.30* 20.75
- ---------------------------------------------------------------------------------------------
* Reflects a reduction in sales charges that took effect on April 1, 2005.
Your fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. In the most recent
six-month period, your fund limited these expenses; had it not done so,
expenses would have been higher. Using the information below, you can
estimate how these expenses affect your investment and compare them with the
expenses of other funds. You may also pay one-time transaction expenses,
including sales charges (loads) and redemption fees, which are not shown in
this section and would have resulted in higher total expenses. For more
information, see your fund's prospectus or talk to your financial advisor.
- ------------------------------------------------------------------------------
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam Europe Equity Fund from January 1, 2005, to June 30,
2005. It also shows how much a $1,000 investment would be worth at the close
of the period, assuming actual returns and expenses.
- ------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ------------------------------------------------------------------------------
Expenses paid per $1,000* $7.31 $11.00 $11.00 $9.77 $8.55
- ------------------------------------------------------------------------------
Ending value (after expenses) $993.30 $989.60 $989.40 $990.40 $992.30
- ------------------------------------------------------------------------------
* 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 6/30/05. 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,
2005, use the calculation method below. To find the value of your investment
on January 1, 2005, go to www.putnam.com and log on to your account. Click
on the "Transaction History" tab in your Daily Statement and enter
01/01/2005 in both the "from" and "to" fields. Alternatively, call Putnam at
1-800-225-1581.
- ------------------------------------------------------------------------------
How to calculate the expenses you paid
- ------------------------------------------------------------------------------
Total
Value of your Expenses paid = expenses
investment on 1/1/05 [DIV] $1,000 x per $1,000 paid
- ------------------------------------------------------------------------------
Example Based on a $10,000 investment in class A shares of your fund.
- ------------------------------------------------------------------------------
$10,000 [DIV] $1,000 x $7.31 (see table above) = $73.10
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Compare expenses using the SEC's method
The Securities and Exchange Commission (SEC) has established guidelines to
help investors assess fund expenses. Per these guidelines, the table below
shows your fund's expenses based on a $1,000 investment, assuming a
hypothetical 5% annualized return. You can use this information to compare
the ongoing expenses (but not transaction expenses or total costs) of
investing in the fund with those of other funds. All mutual fund shareholder
reports will provide this information to help you make this comparison.
Please note that you cannot use this information to estimate your actual
ending account balance and expenses paid during the period.
- -------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- -------------------------------------------------------------------------------
Expenses paid per $1,000* $7.40 $11.13 $11.13 $9.89 $8.65
- -------------------------------------------------------------------------------
Ending value (after expenses) $1,017.46 $1,013.74 $1,013.74 $1,014.98 $1,016.22
- -------------------------------------------------------------------------------
* 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 6/30/05. 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.
- ------------------------------------------------------------------------------
Compare expenses using industry averages
You can also compare your fund's expenses with the average of its peer
group, as defined by Lipper, an independent fund-rating agency that ranks
funds relative to others that Lipper considers to have similar investment
styles or objectives. The expense ratio for each share class shown below
indicates how much of your fund's net assets have been used to pay ongoing
expenses during the period.
- ------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ------------------------------------------------------------------------------
Your fund's annualized
expense ratio+ 1.48% 2.23% 2.23% 1.98% 1.73%
- ------------------------------------------------------------------------------
Average annualized expense
ratio for Lipper peer group++ 1.71% 2.46% 2.46% 2.21% 1.96%
- ------------------------------------------------------------------------------
+ For the fund's most recent fiscal half year; may differ from expense
ratios based on one-year data in the financial highlights.
++ Simple average of the expenses of all front-end load funds in the fund's
Lipper peer group, calculated in accordance with Lipper's standard method
for comparing fund expenses (excluding 12b-1 fees and without giving effect
to any expense offset and brokerage service arrangements that may reduce
fund expenses). This average reflects each fund's expenses for its most
recent fiscal year available to Lipper as of 6/30/05. To facilitate
comparison, Putnam has adjusted this average to reflect the 12b-1 fees
carried by each class of shares. The peer group may include funds that are
significantly smaller or larger than the fund, which may limit the
comparability of the fund's expenses to the simple average, which typically
is higher than the asset-weighted average.
Your fund's portfolio turnover
Putnam funds are actively managed by teams of experts who buy and sell
securities based on intensive analysis of companies, industries, economies,
and markets. Portfolio turnover is a measure of how often a fund's managers
buy and sell securities for your fund. A portfolio turnover of 100%, for
example, means that the managers sold and replaced securities valued at 100%
of a fund's assets within a one-year period. Funds with high turnover may be
more likely to generate capital gains and dividends that must be distributed
to shareholders as taxable income. High turnover may also cause a fund to
pay more brokerage commissions and other transaction costs, which may
detract from performance.
- ------------------------------------------------------------------------------
Turnover comparisons
Percentage of holdings that change every year
- ------------------------------------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------
Putnam Europe Equity Fund 56% 82% 80% 77% 89%
- ------------------------------------------------------------------------------
Lipper European Region
Funds category average 75% 75% 114% 147% 369%
- ------------------------------------------------------------------------------
Turnover data for the fund is calculated based on the fund's fiscal-year
period, which ends on June 30. Turnover data for the fund's Lipper category
is calculated based on the average of the turnover of each fund in the
category for its fiscal year ended during the indicated year. Fiscal years
vary across funds in the Lipper category, which may limit the comparability
of the fund's portfolio turnover rate to the Lipper average. Comparative
data for 2005 is based on information available as of 6/30/05.
Your fund's risk
This risk comparison is designed to help you understand how your fund
compares with other funds. The comparison utilizes a risk measure developed
by Morningstar, an independent fund-rating agency. This risk measure is
referred to as the fund's Overall Morningstar Risk.
- ------------------------------------------------------------------------------
Your fund's Overall Morningstar Risk
Your fund's Overall Morningstar Risk is shown alongside that of the average
fund in its broad asset class, as determined by Morningstar. The risk bar
broadens the comparison by translating the fund's Overall Morningstar Risk
into a percentile, which is based on the fund's ranking among all funds
rated by Morningstar as of June 30, 2005. A higher Overall Morningstar Risk
generally indicates that a fund's monthly returns have varied more widely.
[GRAPHIC OMITTED: chart MORNINGSTAR RISK]
Fund's Overall
Morningstar Risk 2.93
Int'l stock
fund average 3.30
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.
Your fund's management
Your fund is managed by the members of the Putnam International Core Team.
Heather Arnold is the Portfolio Leader, and Joshua Byrne and Mark Pollard
are Portfolio Members of your fund. The Portfolio Leader and Portfolio
Members coordinate the team's management of the fund.
For a complete listing of the members of the Putnam International Core Team,
including those who are not Portfolio Leaders or Portfolio Members of your
fund, visit Putnam's Individual Investor Web site at www.putnam.com.
- ------------------------------------------------------------------------------
Fund ownership by the Portfolio Leader and Portfolio Members
The table below shows how much the fund's current Portfolio Leader and
Portfolio Members have invested in the fund (in dollar ranges). Information
shown is as of June 30, 2005, and June 30, 2004.
- -----------------------------------------------------------------------------------------------------------------
$1 - $10,001 - $50,001 - $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
- -----------------------------------------------------------------------------------------------------------------
Heather Arnold 2005 *
- -----------------------------------------------------------------------------------------------------------------
Portfolio Leader 2004 *
- -----------------------------------------------------------------------------------------------------------------
Joshua Byrne 2005 *
- -----------------------------------------------------------------------------------------------------------------
Portfolio Member 2004 *
- -----------------------------------------------------------------------------------------------------------------
Mark Pollard 2005 *
- -----------------------------------------------------------------------------------------------------------------
Portfolio Member N/A
- -----------------------------------------------------------------------------------------------------------------
N/A indicates the individual was not a Portfolio Leader or Portfolio Member as of 6/30/04.
- ------------------------------------------------------------------------------
Fund manager compensation
The total 2004 fund manager compensation that is attributable to your fund
is approximately $640,000. This amount includes a portion of 2004
compensation paid by Putnam Management to the fund managers listed in this
section for their portfolio management responsibilities, calculated based on
the fund assets they manage taken as a percentage of the total assets they
manage. The compensation amount also includes a portion of the 2004
compensation paid to the Chief Investment Officers of the team and the Group
Chief Investment Officer of the fund's broader investment category for their
oversight responsibilities, calculated based on the fund assets they oversee
taken as a percentage of the total assets they oversee. This amount does not
include compensation of other personnel involved in research, trading,
administration, systems, compliance, or fund operations; nor does it include
non-compensation costs. These percentages are determined as of the fund's
fiscal period-end. For personnel who joined Putnam Management during or
after 2004, the calculation reflects annualized 2004 compensation or an
estimate of 2005 compensation, as applicable.
- ------------------------------------------------------------------------------
Other Putnam funds managed by the Portfolio Leader and Portfolio Members
Joshua Byrne is also a Portfolio Leader of Putnam International Equity Fund.
Mark Pollard is also a Portfolio Member of Putnam International Equity Fund.
Heather Arnold, Joshua Byrne, and Mark Pollard may also manage other
accounts and variable trust funds advised by Putnam Management or an
affiliate.
- ------------------------------------------------------------------------------
Changes in your fund's Portfolio Leader and Portfolio Members
During the year ended June 30, 2005, Mark Pollard joined and Portfolio
Member Melissa Reilly left your fund's management team. For a portion of the
period, Heather Arnold and Mark Pollard alternately served as Portfolio
Leader. Currently, Heather Arnold is the Portfolio Leader.
- ------------------------------------------------------------------------------
Fund ownership by Putnam's Executive Board
The table below shows how much the members of Putnam's Executive Board have
invested in the fund (in dollar ranges). Information shown is as of June 30,
2005, and June 30, 2004.
- -----------------------------------------------------------------------------------------
$1 - $10,001 - $50,001 - $100,001
Year $0 $10,000 $50,000 $100,000 and over
- -----------------------------------------------------------------------------------------
Philippe Bibi 2005 *
- -----------------------------------------------------------------------------------------
Chief Technology Officer 2004 *
- -----------------------------------------------------------------------------------------
John Boneparth 2005 *
- -----------------------------------------------------------------------------------------
Head of Global Institutional Mgmt 2004 *
- -----------------------------------------------------------------------------------------
Joshua Brooks 2005 *
- -----------------------------------------------------------------------------------------
Deputy Head of Investments N/A
- -----------------------------------------------------------------------------------------
Kevin Cronin 2005 *
- -----------------------------------------------------------------------------------------
Head of Investments 2004 *
- -----------------------------------------------------------------------------------------
Charles Haldeman, Jr. 2005 *
- -----------------------------------------------------------------------------------------
President and CEO 2004 *
- -----------------------------------------------------------------------------------------
Amrit Kanwal 2005 *
- -----------------------------------------------------------------------------------------
Chief Financial Officer 2004 *
- -----------------------------------------------------------------------------------------
Steven Krichmar 2005 *
- -----------------------------------------------------------------------------------------
Chief of Operations 2004 *
- -----------------------------------------------------------------------------------------
Francis McNamara, III 2005 *
- -----------------------------------------------------------------------------------------
General Counsel 2004 *
- -----------------------------------------------------------------------------------------
Richard Monaghan 2005 *
- -----------------------------------------------------------------------------------------
Head of Retail Management 2004 *
- -----------------------------------------------------------------------------------------
Richard Robie, III 2005 *
- -----------------------------------------------------------------------------------------
Chief Administrative Officer 2004 *
- -----------------------------------------------------------------------------------------
Edward Shadek 2005 *
- -----------------------------------------------------------------------------------------
Deputy Head of Investments N/A
- -----------------------------------------------------------------------------------------
N/A indicates the individual was not a member of Putnam's Executive Board as
of 6/30/04.
Terms and definitions
- ------------------------------------------------------------------------------
Important terms
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual fund,
without a sales charge. NAVs fluctuate with market conditions. NAV is
calculated by dividing the net assets of each class of shares by the number
of outstanding shares in the class.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the 5.25% maximum sales charge for class A shares and
3.50% for class M shares (since reduced to 3.25%).
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.
- ------------------------------------------------------------------------------
Share classes
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 global
investment-grade fixed-income securities.
JP Morgan Global High Yield Index is an unmanaged index of global high-yield
fixed-income securities.
Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade
fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Morgan Stanley Capital International (MSCI) Europe Index is an unmanaged
index of Western European equity securities.
Morgan Stanley Capital International (MSCI) Pacific Index is an unmanaged
index of equity securities from developed countries in the Far East and
Australasia.
Russell 2000 Index is an unmanaged index of the 2,000 smallest companies in
the Russell 3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks 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 total return at net asset
value.
Trustee approval of management contract
- ------------------------------------------------------------------------------
General conclusions
The Board of Trustees of the Putnam funds oversees the management of each
fund and, as required by law, determines annually whether to approve the
continuance of your fund's management contract with Putnam Management and
its sub-management contract with Putnam Management's affiliate, Putnam
Investments Limited ("PIL"). In this regard, the Board of Trustees, with the
assistance of its Contract Committee consisting solely of Trustees who are
not "interested persons" (as such term is defined in the Investment Company
Act of 1940, as amended) of the Putnam funds (the "Independent Trustees"),
requests and evaluates all information it deems reasonably necessary under
the circumstances. Over the course of several months beginning in March and
ending in June 2005, the Contract Committee met five times to consider the
information provided by Putnam Management and other information developed
with the assistance of the Board's independent counsel and independent
staff. The Contract Committee reviewed and discussed key aspects of this
information with all of the Independent Trustees. Upon completion of this
review, the Contract Committee recommended and the Independent Trustees
approved the continuance of your fund's management contract and
sub-management contract, effective July 1, 2005. Because PIL is an affiliate
of Putnam Management and Putnam Management remains fully responsible for all
services provided by PIL, the Trustees have not evaluated PIL as a separate
entity and all subsequent references to Putnam Management below should be
deemed to include reference to PIL as necessary or appropriate in the
context.
This approval was based on the following conclusions:
* That the fee schedule currently in effect for your fund represents
reasonable compensation in light of the nature and quality of the services
being provided to the fund, the fees paid by competitive funds and the
costs incurred by Putnam Management in providing such services, and
* That such fee schedule represents an appropriate sharing between fund
shareholders and Putnam Management of such economies of scale as may exist
in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all
information provided to the Trustees and were not the result of any single
factor. Some of the factors that figured particularly in the Trustees'
deliberations and how the Trustees considered these factors are described
below, although individual Trustees may have evaluated the information
presented differently, giving different weights to various factors. It is
also important to recognize that the fee arrangements for your fund and the
other Putnam funds are the result of many years of review and discussion
between the Independent Trustees and Putnam Management, that certain aspects
of such arrangements may receive greater scrutiny in some years than others,
and that the Trustees' conclusions may be based, in part, on their
consideration of these same arrangements in prior years.
- ------------------------------------------------------------------------------
Model fee schedules and categories; total expenses
The Trustees' review of the management fees and total expenses of the Putnam
funds focused on three major themes:
* Consistency. The Trustees, working in cooperation with Putnam Management,
have developed and implemented a series of model fee schedules for the
Putnam funds designed to ensure that each fund's management fee is
consistent with the fees for similar funds in the Putnam family of funds and
compares favorably with fees paid by competitive funds sponsored by other
investment advisers. Under this approach, each Putnam fund is assigned to
one of several fee categories based on a combination of factors, including
competitive fees and perceived difficulty of management, and a common fee
schedule is implemented for all funds in a given fee category. The Trustees
reviewed the model fee schedule currently in effect for your fund, including
fee levels and breakpoints, and the assignment of the fund to a particular
fee category under this structure. ("Breakpoints" refer to reductions in fee
rates that apply to additional assets once specified asset levels are
reached.) The Trustees concluded that no changes should be made in the
fund's current fee schedule at this time.
* Competitiveness. The Trustees also reviewed comparative fee and expense
information for competitive funds, which indicated that, in a custom peer
group of competitive funds selected by Lipper Inc., your fund ranked in the
14th percentile in management fees and in the first percentile in total
expenses (less any applicable 12b-1 fees) as of December 31, 2004 (the first
percentile being the least expensive funds and the 100th percentile being
the most expensive funds). The Trustees noted that expense ratios for a
number of Putnam funds, which show the percentage of fund assets used to pay
for management and administrative services, distribution (12b-1) fees and
other expenses, had been increasing recently as a result of declining net
assets and the natural operation of fee breakpoints. They noted that such
expense ratio increases were currently being controlled by expense
limitations implemented in January 2004 and which Putnam Management, in
consultation with the Contract Committee, has committed to maintain at least
through 2006. The Trustees expressed their intention to monitor this
information closely to ensure that fees and expenses of the Putnam funds
continue to meet evolving competitive standards.
* Economies of scale. The Trustees concluded that the fee schedule currently
in effect for your fund represents an appropriate sharing of economies of
scale at current asset levels. Your fund currently has the benefit of
breakpoints in its management fee that provide shareholders with significant
economies of scale, which means that the effective management fee rate of a
fund (as a percentage of fund assets) declines as a fund grows in size and
crosses specified asset thresholds. The Trustees examined the existing
breakpoint structure of the funds' management fees in light of competitive
industry practices. The Trustees considered various possible modifications
to the current breakpoint structure, but ultimately concluded that the
current breakpoint structure continues to serve the interests of fund
shareholders. Accordingly, the Trustees continue to believe that the fee
schedules currently in effect for the funds represent an appropriate sharing
of economies of scale at current asset levels. The Trustees noted that
significant redemptions in many Putnam funds, together with significant
changes in the cost structure of Putnam Management, have altered the
economics of Putnam Management's business in significant ways. In view of
these changes, the Trustees intend to consider whether a greater sharing of
the economies of scale by fund shareholders would be appropriate if and when
aggregate assets in the Putnam funds begin to experience meaningful growth.
In connection with their review of the management fees and total expenses of
the Putnam funds, the Trustees also reviewed the costs of the services to be
provided and profits to be realized by Putnam Management and its
affiliates from the relationship with the funds. This information included
trends in revenues, expenses and profitability of Putnam Management and its
affiliates relating to the investment management and distribution services
provided to the funds. In this regard, the Trustees also reviewed an
analysis of Putnam Management's revenues, expenses and profitability with
respect to the funds' management contracts, allocated on a fund-by-fund
basis.
- ------------------------------------------------------------------------------
Investment performance
The quality of the investment process provided by Putnam Management
represented a major factor in the Trustees' evaluation of the quality of
services provided by Putnam Management under your fund's management
contract. The Trustees were assisted in their review of the funds'
investment process and performance by the work of the Investment Oversight
Committees of the Trustees, which meet on a regular monthly basis with the
funds' portfolio teams throughout the year. The Trustees concluded that
Putnam Management generally provides a high quality investment process -- as
measured by the experience and skills of the individuals assigned to the
management of fund portfolios, the resources made available to such
personnel, and in general the ability of Putnam Management to attract and
retain high-quality personnel -- but also recognize that this does not
guarantee favorable investment results for every fund in every time period.
The Trustees considered the investment performance of each fund over
multiple time periods and considered information comparing the fund's
performance with various benchmarks and with the performance of competitive
funds. The Trustees noted the satisfactory investment performance of many
Putnam funds. They also noted the disappointing investment performance of
certain funds in recent years and continued to discuss with senior
management of Putnam Management the factors contributing to such
underperformance and actions being taken to improve performance. The
Trustees recognized that, in recent years, Putnam Management has made
significant changes in its investment personnel and processes and in the
fund product line to address areas of underperformance. The Trustees
indicated their intention to continue to monitor performance trends to
assess the effectiveness of these changes and to evaluate whether additional
remedial changes are warranted.
In the case of your fund, the Trustees considered that your fund's Class A
share performance at net asset value was in the following percentiles of its
Lipper Inc. peer group for the one-, three- and five-year periods ended
December 31, 2004 (the first percentile being the best performing funds and
the 100th percentile being the worst performing funds):
One-year period Three-year period Five-year period
- ------------------------------------------------------------------------------
51st 68th 68th
(Because of the passage of time, these performance results may differ from
the performance results for more recent periods shown elsewhere in this
report.)
As a general matter, the Trustees believe that cooperative efforts between
the Trustees and Putnam Management represent the most effective way to
address investment performance problems. The Trustees believe that investors
in the Putnam funds have, in effect, placed their trust in the Putnam
organization, under the oversight of the funds' Trustees, to make
appropriate decisions regarding the management of the funds. Based on the
responsiveness of Putnam Management in the recent past to Trustee concerns
about investment performance, the Trustees believe that it is preferable to
seek change within Putnam Management to address performance shortcomings. In
the Trustees' view, the alternative of terminating a management contract and
engaging a new investment adviser for an underperforming fund would entail
significant disruptions and would not provide any greater assurance of
improved investment performance.
- ------------------------------------------------------------------------------
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam Management
may receive in connection with the services it provides under the management
contract with your fund. These include principally benefits related to
brokerage and soft-dollar allocations, whereby a portion of the commissions
paid by a fund for brokerage is earmarked to pay for research services that
may be utilized by a fund's investment adviser. The Trustees believe that
soft-dollar credits and other potential benefits associated with the
allocation of fund brokerage, which pertains mainly to funds investing in
equity securities, represent assets of the funds that should be used for the
benefit of fund shareholders. This area has been marked by significant
change in recent years. In July 2003, acting upon the Contract Committee's
recommendation, the Trustees directed that allocations of brokerage to
reward firms that sell fund shares be discontinued no later than December
31, 2003. In addition, commencing in 2004, the allocation of brokerage
commissions by Putnam Management to acquire research services from
third-party service providers has been significantly reduced, and continues
at a modest level only to acquire research that is customarily not available
for cash. The Trustees will continue to monitor the allocation of the funds'
brokerage to ensure that the principle of "best price and execution" remains
paramount in the portfolio trading process.
The Trustees' annual review of your fund's management contract also included
the review of its distributor's contract and distribution plan with Putnam
Retail Management Limited Partnership and the custodian agreement and
investor servicing agreement with Putnam Fiduciary Trust Company, all of
which provide benefits to affiliates of Putnam Management.
- ------------------------------------------------------------------------------
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of their annual contract
review has included for many years information regarding fees charged by
Putnam Management and its affiliates to institutional clients such as
defined benefit pension plans, college endowments, etc. This information
included comparison of such fees with fees charged to the funds, as well as
a detailed assessment of the differences in the services provided to these
two types of clients. The Trustees observed, in this regard, that the
differences in fee rates between institutional clients and the mutual funds
are by no means uniform when examined by individual asset sectors,
suggesting that differences in the pricing of investment management services
to these types of clients reflect to a substantial degree historical
competitive forces operating in separate market places. The Trustees
considered the fact that fee rates across all asset sectors are higher on
average for mutual funds than for institutional clients, as well as the
differences between the services that Putnam Management provides to the
Putnam funds and those that it provides to institutional clients of the
firm, but have not relied on such comparisons to any significant extent in
concluding that the management fees paid by your fund are reasonable.
Other information for shareholders
- ------------------------------------------------------------------------------
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone numbers,
Social Security numbers, and the names of their financial advisors. We use
this information to assign an account number and to help us maintain
accurate records of transactions and account balances. It is our policy to
protect the confidentiality of your information, whether or not you
currently own shares of our funds, and in particular, not to sell
information about you or your accounts to outside marketing firms. We have
safeguards in place designed to prevent unauthorized access to our computer
systems and procedures to protect personal information from unauthorized
use. Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy solicitation.
In those cases, the service providers enter into confidentiality agreements
with us, and we provide only the information necessary to process
transactions and perform other services related to your account. We may also
share this information with our Putnam affiliates to service your account or
provide you with information about other Putnam products or services. It is
also our policy to share account information with your financial advisor, if
you've listed one on your Putnam account. If you would like clarification
about our confidentiality policies or have any questions or concerns, please
don't hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30
a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
- ------------------------------------------------------------------------------
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of
our shareholders. The Putnam funds' proxy voting guidelines and procedures,
as well as information regarding how your fund voted proxies relating to
portfolio securities during the 12-month period ended June 30, 2005, are
available on the Putnam Individual Investor Web site,
www.putnam.com/individual, and on the SEC's Web site, www.sec.gov. If you
have questions about finding forms on the SEC's Web site, you may call the
SEC at 1-800-SEC-0330. You may also obtain the Putnam funds' proxy voting
guidelines and procedures at no charge by calling Putnam's Shareholder
Services at 1-800-225-1581.
- ------------------------------------------------------------------------------
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q.
Shareholders may obtain the fund's Forms N-Q on the SEC's Web site at
www.sec.gov. In addition, the fund's Forms N-Q may be reviewed and copied at
the SEC's public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation of
the public reference room.
Financial statements
- ------------------------------------------------------------------------------
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
ofthe 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, 2005, 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, 2005, by
correspondence with the custodian, provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 11, 2005
The fund's portfolio 6/30/05
- ----------------------------------------------------------------------------------------
COMMON STOCKS (98.1%) *
- ----------------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------------------------
Belgium (3.4%)
InBev NV 183,621 $6,212,201
KBC Groupe SA 97,165 7,659,495
Umicore NV/SA 47,387 3,782,168
17,653,864
- ----------------------------------------------------------------------------------------
Denmark (1.5%)
TDC A/S 183,000 7,836,994
- ----------------------------------------------------------------------------------------
Finland (4.1%)
Nokia OYJ 848,750 14,128,823
Orion-Yhtymae OYJ Class B 175,000 3,375,501
Sampo OYJ Class A 278,100 4,334,753
21,839,077
- ----------------------------------------------------------------------------------------
France (20.3%)
Autoroutes du Sud de la France (ASF) 84,335 4,807,590
BNP Paribas SA 143,358 9,804,083
Business Objects SA + 132,863 3,508,881
Christian Dior SA 65,191 5,039,061
Credit Agricole SA 323,057 8,164,923
France Telecom SA 390,012 11,333,840
France Telecom SA 144A 159,239 4,627,522
Renault SA 71,056 6,246,178
Renault SA 144A 5,360 471,171
Schneider Electric SA 50,604 3,804,616
Societes Des Autoroutes Paris-Rhin-Rhone 17,631 1,044,816
Societes Des Autoroutes Paris-Rhin-Rhone 144A 36,981 2,191,499
Total SA 88,910 20,827,141
Veolia Environnement 312,016 11,684,077
Vivendi Universal SA 422,365 13,230,677
106,786,075
- ----------------------------------------------------------------------------------------
Germany (6.9%)
BASF AG 121,700 8,068,605
Henkel KGaA 37,600 3,162,476
Henkel KGaA (Preference) 34,500 3,082,880
Hypo Real Estate Holding 130,800 4,957,623
Metro AG 86,200 4,266,062
Schwarz Pharma AG 66,500 3,003,940
Siemens AG 132,580 9,650,626
36,192,212
- ----------------------------------------------------------------------------------------
Greece (0.7%)
National Bank of Greece SA 40,100 1,357,591
National Bank of Greece SA 144A 66,210 2,241,549
3,599,140
- ----------------------------------------------------------------------------------------
Hungary (0.9%)
OTP Bank Rt. 142,829 4,823,974
- ----------------------------------------------------------------------------------------
Ireland (4.4%)
Allied Irish Banks PLC 290,354 6,210,505
CRH PLC 174,747 4,638,955
Depfa Bank PLC 361,322 5,812,194
Eircom Group PLC 1,531,108 3,406,891
Iaws Group PLC 204,187 2,856,432
22,924,977
- ----------------------------------------------------------------------------------------
Italy (1.2%)
Mediaset SpA 552,427 6,502,920
- ----------------------------------------------------------------------------------------
Netherlands (10.7%)
ING Groep NV 297,874 8,382,668
Koninklijke (Royal) KPN NV 536,923 4,498,460
Koninklijke (Royal) KPN NV 144A 646,682 5,418,045
Koninklijke (Royal) Philips Electronics NV 112,976 2,841,747
Royal Dutch Petroleum Co. 349,631 22,761,564
Royal Numico NV + 116,302 4,639,605
SBM Offshore NV 115,493 7,908,250
56,450,339
- ----------------------------------------------------------------------------------------
Norway (2.2%)
Norsk Hydro ASA 68,172 6,230,601
Smedvig ASA Class A 279,350 5,625,194
11,855,795
- ----------------------------------------------------------------------------------------
Spain (2.6%)
Altadis SA 92,894 3,883,998
Iberdrola SA 233,909 6,152,315
Indra Sistemas SA Class A 175,973 3,476,394
13,512,707
- ----------------------------------------------------------------------------------------
Sweden (5.9%)
Assa Abloy AB Class B 515,400 6,616,334
Hennes & Mauritz AB Class B 119,540 4,200,474
Nordea AB 895,000 8,117,435
SKF AB Class B 470,260 4,797,224
Telefonaktiebolaget LM Ericsson AB Class B 2,363,764 7,556,479
31,287,946
- ----------------------------------------------------------------------------------------
Switzerland (10.8%)
Credit Suisse Group 96,155 3,774,805
Novartis AG 396,405 18,839,789
Roche Holding AG 117,344 14,807,432
Swatch Group AG (The) Class B 23,359 3,275,080
Swiss Re 101,498 6,224,640
Zurich Financial Services AG 57,879 9,946,469
56,868,215
- ----------------------------------------------------------------------------------------
United Kingdom (22.5%)
AstraZeneca PLC 162,988 6,737,067
Barclays PLC 991,242 9,838,213
Burberry Group PLC 361,897 2,605,967
Enterprise Inns PLC 191,020 2,846,178
GlaxoSmithKline PLC 461,361 11,134,658
Imperial Tobacco Group PLC 190,726 5,123,598
International Power PLC 1,788,073 6,597,641
Lloyds TSB Group PLC 1,213,694 10,261,893
Punch Taverns PLC 416,407 5,449,676
Reckitt Benckiser PLC 258,514 7,597,735
Royal Bank of Scotland Group PLC 311,942 9,396,422
Royal Bank of Scotland Group PLC 144A 134,670 4,056,575
Shell Transport & Trading Co. PLC 582,701 5,646,338
Tesco PLC 1,618,541 9,221,682
Vodafone Group PLC 9,017,703 21,918,244
118,431,887
- ----------------------------------------------------------------------------------------
Total common stocks (cost $441,164,367) $516,566,122
- ----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (2.0%) * (cost $10,371,752)
- ----------------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------------------------
Putnam Prime Money Market Fund (e) 10,371,752 $10,371,752
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS
- ----------------------------------------------------------------------------------------
Total investments (cost $451,536,119) $526,937,874
* Percentages indicated are based on net assets of $526,401,300.
+ Non-income-producing security.
(e) See Note 5 to the financial statements regarding investments in 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, 2005 (as a percentage of net assets):
Banking 17.6%
Pharmaceuticals 11.0
Oil and gas 10.5
Telecommunications 10.2
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities 6/30/05
- -----------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------
Investment in securities (Note 1):
Unaffiliated issuers (identified cost $441,164,367) $516,566,122
Affiliated issuers (identified cost $10,371,752) (Note 5) 10,371,752
- -----------------------------------------------------------------------------------------
Cash 279,227
- -----------------------------------------------------------------------------------------
Foreign currency (cost $40,090) (Note 1) 39,597
- -----------------------------------------------------------------------------------------
Dividends, interest and other receivables 904,745
- -----------------------------------------------------------------------------------------
Receivable for shares of the fund sold 160,588
- -----------------------------------------------------------------------------------------
Receivable for securities sold 109,601
- -----------------------------------------------------------------------------------------
Foreign tax reclaim receivable 830,266
- -----------------------------------------------------------------------------------------
Total assets 529,261,898
- -----------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,063,415
- -----------------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 5) 1,065,217
- -----------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 174,674
- -----------------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 139,245
- -----------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,453
- -----------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 368,339
- -----------------------------------------------------------------------------------------
Other accrued expenses 48,255
- -----------------------------------------------------------------------------------------
Total liabilities 2,860,598
- -----------------------------------------------------------------------------------------
Net assets $526,401,300
- -----------------------------------------------------------------------------------------
REPRESENTED BY
- -----------------------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) $606,812,134
- -----------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,748,036
- -----------------------------------------------------------------------------------------
Accumulated net realized loss on investments
and foreign currency transactions (Note 1) (160,541,612)
- -----------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 75,382,742
- -----------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $526,401,300
- -----------------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -----------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($328,279,179 divided by 15,793,584 shares) $20.79
- -----------------------------------------------------------------------------------------
Offering price per class A share
(100/94.75 of $20.79)* $21.94
- -----------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($177,711,378 divided by 8,871,538 shares)** $20.03
- -----------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($5,181,515 divided by 251,728 shares)** $20.58
- -----------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($15,227,474 divided by 738,744 shares) $20.61
- -----------------------------------------------------------------------------------------
Offering price per class M share
(100/96.75 of $20.61)* $21.30
- -----------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class R share
($1,754 divided by 85 shares) $20.75
- -----------------------------------------------------------------------------------------
* 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 6/30/05
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,533,094) $13,186,173
- ---------------------------------------------------------------------------------------------------------------
Interest (including interest income of $107,950 from investments in affiliated issuers) (Note 5) 112,197
- ---------------------------------------------------------------------------------------------------------------
Securities lending 770
- ---------------------------------------------------------------------------------------------------------------
Other income (Note 6) 193,848
- ---------------------------------------------------------------------------------------------------------------
Total investment income 13,492,988
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
- ---------------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,396,008
- ---------------------------------------------------------------------------------------------------------------
Investor servicing fees (Note 2) 1,481,914
- ---------------------------------------------------------------------------------------------------------------
Custodian fees (Note 2) 647,147
- ---------------------------------------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 33,746
- ---------------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 30,705
- ---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 806,068
- ---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,104,915
- ---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 54,522
- ---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 131,266
- ---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 7
- ---------------------------------------------------------------------------------------------------------------
Other 312,043
- ---------------------------------------------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 6) 23,269
- ---------------------------------------------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 6) (23,269)
- ---------------------------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Notes 2 and 5) (279,462)
- ---------------------------------------------------------------------------------------------------------------
Total expenses 9,718,879
- ---------------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (452,216)
- ---------------------------------------------------------------------------------------------------------------
Net expenses 9,266,663
- ---------------------------------------------------------------------------------------------------------------
Net investment income 4,226,325
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 83,459,136
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (129,467)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in foreign currencies during the year (11,037)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (3,296,455)
- ---------------------------------------------------------------------------------------------------------------
Net gain on investments 80,022,177
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $84,248,502
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
- ----------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS
- ----------------------------------------------------------------------------------------------------
Year ended Year ended
6/30/05 6/30/04
- ----------------------------------------------------------------------------------------------------
Operations:
Net investment income $4,226,325 $2,363,997
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 83,329,669 134,931,376
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies (3,307,492) 6,774,598
- ----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 84,248,502 144,069,971
- ----------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- ----------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------
Class A (4,235,243) (5,679,885)
- ----------------------------------------------------------------------------------------------------
Class B (1,201,201) (2,300,297)
- ----------------------------------------------------------------------------------------------------
Class C (31,377) (41,785)
- ----------------------------------------------------------------------------------------------------
Class M (78,348) (430,745)
- ----------------------------------------------------------------------------------------------------
Class R (15) (16)
- ----------------------------------------------------------------------------------------------------
Redemption fees (Note 1) 15,967 48,654
- ----------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (125,583,398) (240,656,370)
- ----------------------------------------------------------------------------------------------------
Total decrease in net assets (46,865,113) (104,990,473)
- ----------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------
Beginning of year 573,266,413 678,256,886
- ----------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $4,748,036 and $3,073,616, respectively) $526,401,300 $573,266,413
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 OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------
Year ended
6/30/05 6/30/04 6/30/03 6/30/02 6/30/01
- ------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $18.05 $14.84 $16.65 $18.63 $26.71
- ------------------------------------------------------------------------------------------------------------
Investment operations:
Net investment income (a) .22 (d,f) .12 (d) .20 .17 .12
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.78 3.37 (1.79) (2.02) (6.05)
- ------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.00 3.49 (1.59) (1.85) (5.93)
- ------------------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.26) (.28) (.22) (.13) (.01)
- ------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (2.14)
- ------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.28) (.22) (.13) (2.15)
- ------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- --
- ------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.79 $18.05 $14.84 $16.65 $18.63
- ------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 16.66 (f) 23.59 (9.47) (9.96) (23.32)
- ------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $328,279 $313,766 $369,565 $570,806 $786,342
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.44 (d) 1.44 (d) 1.43 1.32 1.23
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.13 (d,f) .69 (d) 1.40 1.01 .52
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.35 82.35 79.66 76.68 88.89
(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 involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, the expenses of the fund for the periods ended June 30, 2005
and June 30, 2004 reflect a reduction of 0.05% and 0.03%, respectively,
of average net assets for class A shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to $0.01 per share and 0.04% of average net assets for class A
shares (Note 6).
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 OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------
Year ended
6/30/05 6/30/04 6/30/03 6/30/02 6/30/01
- -------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.40 $14.31 $16.04 $17.95 $25.99
- -------------------------------------------------------------------------------------------------------------------
Investment operations:
Net investment income (loss) (a) .04 (d,f) -- (d,e) .09 .04 (.05)
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.70 3.24 (1.73) (1.95) (5.85)
- -------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.74 3.24 (1.64) (1.91) (5.90)
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.11) (.15) (.09) -- --
- -------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (2.14)
- -------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.15) (.09) -- (2.14)
- -------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.03 $17.40 $14.31 $16.04 $17.95
- -------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 15.73 (f) 22.69 (10.21) (10.64) (23.87)
- -------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $177,711 $229,608 $266,777 $378,679 $580,207
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 2.19 (d) 2.19 (d) 2.18 2.07 1.98
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .23 (d,f) (.04) (d) .68 .23 (.24)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.35 82.35 79.66 76.68 88.89
(a) Per share net investment income (loss) has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, the expenses of the fund for the periods ended June 30, 2005
and June 30, 2004 reflect a reduction of 0.05% and 0.03%, respectively,
of average net assets for class B shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to $0.01 per share and 0.03% of average net assets for class B
shares (Note 6).
The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period)
CLASS C
- --------------------------------------------------------------------------------------------------------------------
PER-SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------
Year ended
6/30/05 6/30/04 6/30/03 6/30/02 6/30/01
- --------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.88 $14.68 $16.43 $18.39 $26.56
- --------------------------------------------------------------------------------------------------------------------
Investment operations:
Net investment income (loss) (a) .06 (d,f) (.01) (d) .10 .03 (.03)
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.75 3.33 (1.77) (1.99) (6.00)
- --------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.81 3.32 (1.67) (1.96) (6.03)
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.11) (.12) (.08) -- --
- --------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (2.14)
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.12) (.08) -- (2.14)
- --------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.58 $17.88 $14.68 $16.43 $18.39
- --------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 15.73 (f) 22.65 (10.15) (10.66) (23.85)
- --------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,182 $5,482 $7,455 $10,751 $17,113
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 2.19 (d) 2.19 (d) 2.18 2.07 1.98
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .33 (d,f) (.06) (d) .69 .20 (.12)
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.35 82.35 79.66 76.68 88.89
(a) Per share net investment income (loss) has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, the expenses of the fund for the periods ended June 30, 2005
and June 30, 2004 reflect a reduction of 0.05% and 0.03%, respectively,
of average net assets for class C shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to $0.01 per share and 0.04% of average net assets for class C
shares (Note 6).
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 OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------
Year ended
6/30/05 6/30/04 6/30/03 6/30/02 6/30/01
- --------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $17.84 $14.68 $16.46 $18.39 $26.50
- --------------------------------------------------------------------------------------------------------------------
Investment operations:
Net investment income (loss) (a) .09 (d,f) (.01) (d) .13 .08 .01
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.77 3.37 (1.78) (2.00) (5.98)
- --------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.86 3.36 (1.65) (1.92) (5.97)
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.09) (.20) (.13) (.01) --
- --------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (2.14)
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.20) (.13) (.01) (2.14)
- --------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.61 $17.84 $14.68 $16.46 $18.39
- --------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 16.05 (f) 22.97 (9.98) (10.43) (23.67)
- --------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $15,227 $24,410 $34,460 $34,312 $54,103
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.94 (d) 1.94 (d) 1.93 1.82 1.73
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .46 (d,f) .01 (d) .98 .47 .04
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.35 82.35 79.66 76.68 88.89
(a) Per share net investment income (loss) has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, the expenses of the fund for the periods ended June 30, 2005
and June 30, 2004 reflect a reduction of 0.05% and 0.03%, respectively,
of average net assets for class M shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to $0.01 per share and 0.03% of average net assets for class M
shares (Note 6).
The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period)
CLASS R
- --------------------------------------------------------------------------------------------------
PER-SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------
Year ended Period
6/30/05 12/1/03+ - 6/30/04
- --------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $18.03 $16.95
- --------------------------------------------------------------------------------------------------
Investment operations:
Net investment income (a) .20 (d,f) .04 (d)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.75 1.32
- --------------------------------------------------------------------------------------------------
Total from
investment operations 2.95 1.36
- --------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.23) (.28)
- --------------------------------------------------------------------------------------------------
Total distributions (.23) (.28)
- --------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e)
- --------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.75 $18.03
- --------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 16.38 (f) 8.08 *
- --------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2 $1
- --------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.69 (d) .99 *(d)
- --------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.03 (d,f) .26 *(d)
- --------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.35 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 involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, the expenses of the fund for the periods ended June 30, 2005
and June 30, 2004 reflect a reduction of 0.05% and 0.03%, respectively,
of average net assets for class R shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Reflects a non-recurring accrual related to Putnam Management's
settlement with the SEC regarding brokerage allocation practices, which
amounted to $0.01 per share and 0.04% of average net assets for class R
shares (Note 6).
The accompanying notes are an integral part of these financial statements.
Notes to financial statements 6/30/05
Note 1: Significant accounting policies
Putnam Europe Equity Fund (the "fund"), a Massachusetts business trust, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The fund seeks capital
appreciation by investing primarily in common stocks and other securities of
European companies.
The fund offers class A, class B, class C, class M, and class R shares.
Class A and class M shares are sold with a maximum front-end sales charge of
5.25% and 3.25%, respectively, and do not pay a contingent deferred sales
charge. Prior to April 1, 2005, the maximum front-end sales charge for class
M shares was 3.50%. Class B shares, which convert to class A shares after
approximately eight years, do not pay a front-end sales charge and are
subject to a contingent deferred sales charge, if those shares are redeemed
within six years of purchase. Class C shares are subject to the same fees 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 R shares,
which are offered to qualified employee-benefit plans are sold without a
front-end sales charge or a contingent deferred sales charge. The expenses
for class A, class B, class C, class M and class R shares may differ based
on each class' distribution fee, which is identified in Note 2.
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. Prior
year redemption fee balances have been reclassified to conform with current
year financial statement presentation.
Investment income, realized and unrealized gains and losses and expenses of
the fund are borne pro-rata based on the relative net assets of each class
to the total net assets of the fund, except that each class bears expenses
unique to that class (including the distribution fees applicable to such
classes). Each class votes as a class only with respect to its own
distribution plan or other matters on which a class vote is required by law
or determined by the Trustees. Shares of each class would receive their
pro-rata share of the net assets of the fund, if the fund were liquidated.
In addition, the Trustees declare separate dividends on each class of
shares.
In the normal course of business, the fund enters into contracts that may
include agreements to indemnify another party under given circumstances. The
fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be, but have not yet been, made against the
fund. However, the fund expects the risk of material loss to be remote.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with accounting
principles generally accepted in the United States of America and requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and the
reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are readily
available are valued at the last reported sales price on their principal
exchange, or official closing price for certain markets. If no sales are
reported -- as in the case of some securities traded over-the-counter -- a
security is valued at its last reported bid price. Many securities markets
and exchanges outside the U.S. close prior to the close of the New York
Stock Exchange and therefore the closing prices for securities in such
markets or on such 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. At June 30, 2005, fair value
pricing was used for certain foreign securities in the portfolio. 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 certain 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 Pursuant to an exemptive order from the Securities
and Exchange Commission, the fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements, into
a joint trading account along with the cash of other registered investment
companies and certain other accounts managed by Putnam Investment
Management, LLC ("Putnam Management"), the fund's manager, an indirect
wholly-owned subsidiary of Putnam, LLC. These balances may be invested in
issues of high-grade short-term investments having maturities of up to 397
days for collateral received under security lending arrangements and up to
90 days for other cash investments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value
of which at the time of purchase is required to be in an amount at least
equal to the resale price, including accrued interest. Collateral for
certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are 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.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, and other assets and liabilities are recorded in the books and
records of the fund after translation to U.S. dollars based on the exchange
rates on that day. The cost of each security is determined using historical
exchange rates. Income and withholding taxes are translated at prevailing
exchange rates when 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.
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,
2005, the fund had no securities out on loan.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code of 1986 (the "Code") applicable to
regulated investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise tax under
Section 4982 of the Code, as amended. Therefore, no provision has been made
for federal taxes on income, capital gains or unrealized appreciation on
securities held nor for excise tax on income and capital gains.
At June 30, 2005, the fund had a capital loss carryover of $157,246,888
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
- -------------------------------------
$11,858,511 June 30, 2010
- -------------------------------------
145,388,377 June 30, 2011
- -------------------------------------
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
These differences include temporary and permanent differences of losses on
wash sale transactions, foreign currency gains and losses, both 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, 2005, the fund reclassified $2,994,279 to increase
undistributed net investment income with an increase to accumulated net
realized loss of $2,994,279.
The tax basis components of distributable earnings and the federal tax cost
as of period end were as follows:
Unrealized appreciation $81,733,846
Unrealized depreciation (9,626,818)
----------
Net unrealized appreciation 72,107,028
Undistributed ordinary income 4,748,033
Capital loss carryforward (157,246,888)
Cost for federal income tax purposes $454,830,846
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 Investments Limited ("PIL"), an affiliate of
Putnam Management is authorized by the Trustees to manage a separate portion
of the assets of the fund as determined by
Putnam Management from time to time. Putnam Management pays a quarterly
sub-management fee to PIL for its services at an annual rate of 0.35% of the
average net assets of the portion of the fund managed by PIL.
Putnam Management has agreed to waive fees and reimburse expenses of the
fund through June 30, 2006 to the extent necessary to ensure that the fund's
expenses do not exceed the simple average of the expenses of all front-end
load funds viewed by Lipper Inc. as having the same investment
classification or objective as the fund. The expense reimbursement is based
on a comparison of the fund's expenses with the average annualized operating
expenses of the funds in its Lipper peer group for each calendar quarter
during the fund's last fiscal year, excluding 12b-1 fees and without giving
effect to any expense offset and brokerage service arrangements that may
reduce fund expenses.
Prior to December 31, 2004, Putnam Management agreed to limit its
compensation (and, to the extent necessary, bear other expenses) 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, 2005, Putnam Management waived $272,034 of its
management fee from the fund.
For the period ended June 30, 2005, Putnam Management has assumed $23,269 of
legal, shareholder servicing and communication, audit and Trustee fees
incurred by the fund in connection with certain legal and regulatory matters
(including those described in Note 6).
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. PFTC
receives fees for custody services based on the fund's asset level, the
number of its security holdings and transaction volumes. Putnam Investor
Services, a division of PFTC, provides investor servicing agent functions to
the fund. Putnam Investor Services receives fees for investor servicing
based on the number of shareholder accounts in the fund and the level of
defined contribution plan assets in the fund. During the year ended June 30,
2005, the fund paid PFTC $2,129,061 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, 2005, the fund's expenses were
reduced by $452,216 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $319, 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. George Putnam
III, who is not an independent Trustee, also receives the foregoing fees for
his services as Trustee.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees
fees payable on or after July 1, 1995. The deferred fees remain invested in
certain Putnam funds until distribution in accordance with the Deferral
Plan.
The fund has adopted an unfunded 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
Trustees have terminated the Pension Plan with respect to any Trustee first
elected after 2003.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B, class C, class M and class R shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam,
LLC and Putnam Retail Management GP, Inc., for services provided and
expenses incurred in distributing shares of 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, 2005, Putnam Retail Management, acting as
underwriter, received net commissions of $11,380 and $1,869 from the sale of
class A and class M shares, respectively, and received $211,513 and $209 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 period ended June 30, 2005, Putnam Retail Management, acting as
underwriter, received $14 and no monies on class A and class M redemptions,
respectively.
3: Purchases and sales of securities
During the year ended June 30, 2005, cost of purchases and proceeds from
sales of investment securities other than short-term investments aggregated
$309,717,045 and $444,252,525, respectively. There were no purchases or
sales of U.S. government securities.
Note 4: Capital shares
At June 30, 2005, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- ---------------------------------------------------------------------------
CLASS A Shares Amount
- ---------------------------------------------------------------------------
Year ended 6/30/05:
Shares sold 2,892,196 $58,173,584
- ---------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 175,934 3,594,342
- ---------------------------------------------------------------------------
3,068,130 61,767,926
- ---------------------------------------------------------------------------
Shares repurchased (4,656,698) (91,959,548)
- ---------------------------------------------------------------------------
Net decrease (1,588,568) $(30,191,622)
Year ended 6/30/04:
Shares sold 6,880,863 $107,995,968
- ---------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 283,197 4,913,464
- ---------------------------------------------------------------------------
7,164,060 112,909,432
- ---------------------------------------------------------------------------
Shares repurchased (14,684,020) (242,633,634)
- ---------------------------------------------------------------------------
Net decrease (7,519,960) $(129,724,202)
- ---------------------------------------------------------------------------
CLASS B Shares Amount
- ---------------------------------------------------------------------------
Year ended 6/30/05:
Shares sold 316,638 $6,069,875
- ---------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 55,452 1,095,737
- ---------------------------------------------------------------------------
372,090 7,165,612
- ---------------------------------------------------------------------------
Shares repurchased (4,699,531) (89,973,740)
- ---------------------------------------------------------------------------
Net decrease (4,327,441) $(82,808,128)
Year ended 6/30/04:
Shares sold 561,241 $9,254,098
- ---------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 124,975 2,098,306
- ---------------------------------------------------------------------------
686,216 11,352,404
- ---------------------------------------------------------------------------
Shares repurchased (6,127,641) (99,946,633)
- ---------------------------------------------------------------------------
Net decrease (5,441,425) $(88,594,229)
- ---------------------------------------------------------------------------
CLASS C Shares Amount
- ---------------------------------------------------------------------------
Year ended 6/30/05:
Shares sold 40,576 $820,426
- ---------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 1,245 25,281
- ---------------------------------------------------------------------------
41,821 845,707
- ---------------------------------------------------------------------------
Shares repurchased (96,698) (1,905,876)
- ---------------------------------------------------------------------------
Net decrease (54,877) $(1,060,169)
Year ended 6/30/04:
Shares sold 23,394 $380,777
- ---------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 2,017 34,793
- ---------------------------------------------------------------------------
25,411 415,570
- ---------------------------------------------------------------------------
Shares repurchased (226,669) (3,710,347)
- ---------------------------------------------------------------------------
Net decrease (201,258) $(3,294,777)
- ---------------------------------------------------------------------------
CLASS M Shares Amount
- ---------------------------------------------------------------------------
Year ended 6/30/05:
Shares sold 105,532 $2,095,512
- ---------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 1,975 40,114
- ---------------------------------------------------------------------------
107,507 2,135,626
- ---------------------------------------------------------------------------
Shares repurchased (736,852) (13,659,601)
- ---------------------------------------------------------------------------
Net decrease (629,345) $(11,523,975)
Year ended 6/30/04:
Shares sold 1,459,182 $22,336,997
- ---------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 5,917 101,777
- ---------------------------------------------------------------------------
1,465,099 22,438,774
- ---------------------------------------------------------------------------
Shares repurchased (2,443,954) (41,482,952)
- ---------------------------------------------------------------------------
Net decrease (978,855) $(19,044,178)
- ---------------------------------------------------------------------------
CLASS R Shares Amount
- ---------------------------------------------------------------------------
Year ended 6/30/05:
Shares sold 24 $481
- ---------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 1 15
- ---------------------------------------------------------------------------
25 496
- ---------------------------------------------------------------------------
Shares repurchased -- --
- ---------------------------------------------------------------------------
Net increase 25 $496
For the period 12/1/03 (commencement
of operations) to 6/30/04:
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, 2005, Putnam, LLC owned 61 class R shares of the fund (71.8% of
class R shares outstanding), valued at $1,266.
Note 5: Investment in Putnam Prime Money Market Fund
Pursuant to an exemptive order from the Securities and Exchange Commission,
the fund invests in Putnam Prime Money Market Fund, an open-end management
investment company managed by Putnam Management. Management fees paid by the
fund are reduced by an amount equal to the management and administrative
services fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. For the year ended
June 30, 2005, management fees paid were reduced by $7,428 relating to the
fund's investment in Putnam Prime Money Market Fund. Income distributions
earned by the fund are recorded as income in the statement of operations and
totaled $107,950 for the year ended June 30, 2005. During the year ended
June 30, 2005, cost of purchases and cost of sales of investments in Putnam
Prime Money Market Fund aggregated $196,488,134 and $193,619,039,
respectively.
Note 6: Regulatory matters and litigation
Putnam Management has entered into agreements with the Securities and
Exchange Commission and the Massachusetts Securities Division settling
charges connected with excessive short-term trading by Putnam employees and,
in the case of the charges brought by the Massachusetts Securities Division,
by participants in some Putnam-administered 401(k) plans. Pursuant to these
settlement agreements, Putnam Management will pay a total of $193.5 million
in penalties and restitution, with $153.5 million being paid to shareholders
and the funds. The restitution amount will be allocated to shareholders
pursuant to a plan developed by an independent consultant, with payments to
shareholders following approval of the plan by the SEC and the Massachusetts
Securities Division.
The Securities and Exchange Commission's and Massachusetts Securities
Division's allegations and related matters also serve as the general basis
for numerous lawsuits, including purported class action lawsuits filed
against Putnam Management and certain related parties, including certain
Putnam funds. Putnam Management will bear any costs incurred by Putnam funds
in connection with these lawsuits. Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients, including
the Putnam funds.
On March 23, 2005, Putnam Management entered into a settlement with the
Securities and Exchange Commission resolving its inquiry into Putnam
Management's alleged failure to fully and effectively disclose a former
brokerage allocation practice to the Board of Trustees and shareholders of
the Putnam Funds. This practice, which Putnam Management ceased as of
January 1, 2004, involved allocating a portion of the brokerage on mutual
fund portfolio transactions to certain broker-dealers who sold shares of
Putnam mutual funds. Under the settlement order, Putnam Management has paid
a civil penalty of $40 million and disgorgement of $1 to the Securities and
Exchange Commission. These amounts, which are included in Other income on
the Statement of operations, subsequently will be distributed to certain
Putnam funds pursuant to a plan to be approved by the Securities and
Exchange Commission. As part of the settlement, Putnam Management neither
admitted nor denied any wrongdoing.
Putnam Investments has recorded a charge of $30million for the estimated
cost that it believes will be necessary to address issues relating to the
calculation of certain amounts paid by the Putnam mutual funds in previous
years. The previous payments were cost reimbursements by the Putnam funds to
Putnam for transfer agent services relating to defined contribution
operations. Putnam currently anticipates that any payments made by Putnam
related to this issue will be paid to the Putnam funds. Review of this issue
is ongoing.
Putnam Management and Putnam Retail Management are named as defendants in
a civil suit in which the plaintiffs allege that the management and
distribution fees paid by certain Putnam funds were excessive and seek
recovery under the Investment Company Act of 1940. Putnam Management and
Putnam Retail Management have contested the plaintiffs' claims and the
matter is currently pending in the U.S. District Court for the District of
Massachusetts. Based on currently available information, Putnam Management
believes that this action is without merit and that it is unlikely to have a
material effect on Putnam Management's and Putnam Retail Management's
ability to provide services to their clients, including the fund.
Federal tax information (Unaudited)
For the period, interest and dividends from foreign countries were
$14,692,217 or $0.573 per share. Taxes paid to foreign countries were
$1,533,094 or $0.060 per share (for all classes of shares).
For its tax year ended June 30, 2005, 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 2006 will show the tax status of all
distributions paid to your account in calendar 2005.
Shareholder meeting results (Unaudited)
A special meeting of shareholders of the fund was held on November 11, 2004.
At that meeting consideration of certain proposals was adjourned to a final
meeting held on January 10, 2005.
- ------------------------------------------------------------------------------
November 11, 2004 meeting
At the meeting, each of the nominees for Trustees was elected as follows:
- --------------------------------------------------------
Votes
Votes For Withheld
- --------------------------------------------------------
Jameson A. Baxter 17,936,823 870,676
- --------------------------------------------------------
Charles B. Curtis 17,939,043 868,456
- --------------------------------------------------------
Myra R. Drucker 17,956,305 851,194
- --------------------------------------------------------
Charles E. Haldeman, Jr. 17,947,375 860,124
- --------------------------------------------------------
John A. Hill 17,938,408 869,091
- --------------------------------------------------------
Ronald J. Jackson* 17,954,306 853,193
- --------------------------------------------------------
Paul L. Joskow 17,943,176 864,323
- --------------------------------------------------------
Elizabeth T. Kennan 17,921,426 886,073
- --------------------------------------------------------
John H. Mullin, III 17,929,950 877,549
- --------------------------------------------------------
Robert E. Patterson 17,942,953 864,546
- --------------------------------------------------------
George Putnam, III 17,897,296 910,203
- --------------------------------------------------------
A.J.C. Smith+ 17,911,884 895,615
- --------------------------------------------------------
W. Thomas Stephens 17,927,889 879,610
- --------------------------------------------------------
Richard B. Worley 17,953,168 854,331
- --------------------------------------------------------
A motion with respect to a proposal to approve an amendment to the fund's
Agreement and Declaration of Trust was not brought before the meeting and
accordingly no vote was taken with respect to the proposal.
* Mr. Jackson retired from the Board of Trustees on June 10, 2005.
+ Mr. Smith retired from the Board of Trustees on January 14, 2005.
All tabulations are rounded to the nearest whole number.
- ------------------------------------------------------------------------------
January 10, 2005 meeting
A proposal to amend the fund's fundamental investment restriction with
respect to borrowing to allow the fund the investment flexibility permitted
by the Investment Company Act was defeated as follows:
- --------------------------------------------------------
Votes For Votes Against Abstentions
- --------------------------------------------------------
11,766,415 1,198,777 6,026,229
- --------------------------------------------------------
A proposal to amend the fund's fundamental investment restriction with
respect to making loans to enhance the fund's ability to participate in an
interfund borrowing and lending program was defeated as follows:
- --------------------------------------------------------
Votes For Votes Against Abstentions
- --------------------------------------------------------
11,845,783 1,102,612 6,043,026
- --------------------------------------------------------
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments to enhance the fund's ability to
invest in registered investment companies such as Putnam Prime Money Market
Fund was defeated as follows:
- --------------------------------------------------------
Votes For Votes Against Abstentions
- --------------------------------------------------------
12,280,983 738,460 5,971,978
- --------------------------------------------------------
All tabulations are rounded to the nearest whole number.
Brokerage commissions (Unaudited)
Brokerage commissions are paid to firms that execute trades on behalf of
your fund. When choosing these firms, Putnam is required by law to seek the
best execution of the trades, taking all relevant factors into
consideration, including expected quality of execution and commission rate.
Listed below are the largest relationships based upon brokerage commissions
for your fund and the other funds in Putnam's International group for the
year ended June 30, 2005. The other Putnam mutual funds in this group are
Putnam Global Equity Fund, Putnam International Capital Opportunities Fund,
Putnam International Equity Fund, Putnam International Growth and Income
Fund, Putnam International New Opportunities Fund, Putnam VT Global Equity
Fund, Putnam VT International Equity Fund, Putnam VT International Growth
and Income Fund, and Putnam VT International New Opportunities Fund.
The top five firms that received brokerage commissions for trades executed
for the International group are (in descending order) UBS Warburg, Merrill
Lynch, Goldman Sachs, Credit Suisse First Boston, and Citigroup Global
Markets. Commissions paid to these firms together represented approximately
51% of the total brokerage commissions paid for the year ended June 30,
2005.
Commissions paid to the next 10 firms together represented approximately 34%
of the total brokerage commissions paid during the period. These firms are
(in alphabetical order) ABN AMRO U.S., Bear Stearns & Company, Deutsche Bank
Securities, Dresdner Kleinwort Wasserstein, Hong Kong Shanghai Banking
Corp., JP Morgan Clearing, Lehman Brothers, Morgan Stanley Dean Witter, RBC
Capital Markets, and Sanford Bernstein.
Additional information about brokerage commissions is available on the
Securities and Exchange Commission (SEC) Web site at www.sec.gov. Putnam
funds disclose commissions by firm to the SEC in semiannual filings on form
N-SAR.
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), the Mutual Fund Directors Forum, Advocate Health Care and
BoardSource, formerly the National Center for Nonprofit Boards. She is
Chairman Emeritus of the Board of Trustees, Mount Holyoke College, having
served as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms.Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and corporate
finance, including Vice President and Principal of the Regency Group, and
Vice President of and Consultant to First Boston Corporation. She is a
graduate of Mount Holyoke College.
- ------------------------------------------------------------------------------
Charles B. Curtis (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 &
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
SEC.
- ------------------------------------------------------------------------------
Myra R. Drucker (1/16/48), Trustee since 2004
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a member of
the Investment Committee of the Kresge Foundation (a charitable trust). She
is also an ex-officio member of the New York Stock Exchange (NYSE) Pension
Managers Advisory Committee, having served as Chair for seven years and a
member of the Executive Committee of the Committee on Investment of Employee
Benefit Assets. She is Chair of the Advisory Board of Hamilton Lane Advisors
(an investment management firm) and a member of the Advisory Board of RCM
(an investment management firm). Until August 31, 2004, Ms. Drucker was
Managing Director and a member of the Board of Directors of General Motors
Asset Management and Chief Investment Officer of General Motors Trust Bank.
Ms. Drucker also served as a member of the NYSE Corporate Accountability and
Listing Standards Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker held
various executive positions in the investment management industry. Ms.
Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company's pension assets. Ms. Drucker
was also Staff Vice President and Director of Trust Investments for
International Paper (a paper, paper distribution, packaging and forest
products company) and previously served as Manager of Trust Investments for
Xerox Corporation. Ms. Drucker received a B.A. degree in Literature and
Psychology from Sarah Lawrence College and pursued graduate studies in
economics, statistics and portfolio theory at Temple University.
- ------------------------------------------------------------------------------
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company and various private companies controlled by First Reserve
Corporation, as well as a Trustee of TH Lee, Putnam Investment Trust (a
closed-end investment company advised by an affiliate of Putnam Management).
He is also a Trustee of Sarah Lawrence College. Until 2005, he was a
Director of Continuum Health Partners of New York.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy Associate
Director of the Office of Management and Budget and Deputy Director of the
Federal Energy Administration. He is active in various business
associations, including the Economic Club of New York, and lectures on
energy issues in the United States and Europe. Mr. Hill holds a B.A. degree
in Economics from Southern Methodist University and pursued graduate studies
there as a Woodrow Wilson Fellow.
- ------------------------------------------------------------------------------
Paul L. Joskow (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) and TransCanada Corporation (an energy
company focused on natural gas transmission and power services). Prior to
February 2005, he served on the board of the Whitehead Institute for
Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February 2002,
he was a Director of State Farm Indemnity Company (an automobile insurance
company), and, prior to March 2000, he was a Director of New England
Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and competition
policy. He is active in industry restructuring, environmental, energy,
competition and privatization policies -- serving as an advisor to
governments and corporations worldwide. Dr. Joskow holds a Ph.D. and M. Phil
from Yale University and a B.A. from Cornell University.
- ------------------------------------------------------------------------------
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities. Until 2005, she was a Director of Talbots, Inc. She has served as
Director on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic Preservation,
of Centre College and of Midway College in Midway, Kentucky. She is also a
member of The Trustees of Reservations. Dr. Kennan has served on the
oversight committee of the Folger Shakespeare Library, as President of Five
Colleges Incorporated, as a Trustee of Notre Dame University and is active
in various educational and civic associations.
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.
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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.
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Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman of
Cabot Properties, Inc. (a private equity firm investing in commercial real
estate).
Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin Diabetes
Center and as a Director of Brandywine Trust Group, LLC. Prior to June 2003,
he was a Trustee of Sea Education Association. Prior to December 2001, he
was President and Trustee of Cabot Industrial Trust (apublicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited Partnership
(a registered investment adviser involved in institutional real estate
investments). Prior to 1990, he served as Executive Vice President of Cabot,
Cabot & Forbes Realty Advisors, Inc. (the predecessor company of Cabot
Partners).
Mr. Patterson practiced law and held various positions in state government
and was the founding Executive Director of the Massachusetts Industrial
Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard
Law School.
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W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company).
Mr. Stephens serves as a Director of TransCanada Pipelines Limited. Until
2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public
utility company), Qwest Communications, and Norske Canada, Inc. (a paper
manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well, Inc. (a
diversified printing company). He served as Chairman of Mail-Well until 2001
and as CEO of MacMillan-Bloedel, Ltd. (a forest products company) until
1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
- ------------------------------------------------------------------------------
Richard B. Worley (11/15/45), Trustee since 2004
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues) and
is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment Officer of
Morgan Stanley Dean Witter Investment Management and as a Managing Director
of Morgan Stanley, a financial services firm. Mr. Worley also was the
Chairman of Miller Anderson & Sherrerd, an investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
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Charles E. Haldeman, Jr.* (10/29/48), Trustee since 2004
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr.Haldeman was also a partner
and director of Cooke & Bieler, Inc. (an investment management firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
- ------------------------------------------------------------------------------
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 adviser).
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 LLP
(formerly known as Dechert Price & Rhoads) in Philadelphia. He is a graduate
of Harvard College, Harvard Business School and Harvard Law School.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of June 30, 2005, there were 108 Putnam Funds. All Trustees serve as
Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation,
retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent
company of Putnam, LLC and its affiliated companies. Messrs. Haldeman and
Putnam III are deemed "interested persons" by virtue of their positions as
officers of the fund, Putnam Management or Putnam Retail Management and as
shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the
President of your fund and each of the other Putnam funds. Mr. Haldeman is
President and Chief Executive Officer of Putnam Investments.
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
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Prior to 2004, Managing Director,
Putnam Investments
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)
Senior Vice President, Staff Counsel
and Compliance Liaison
Since 2004
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. During 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
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Vice President, Clerk and Assistant Treasurer
Since 1993
Wanda M. McManus (1/4/47)
Vice President, Senior Associate Treasurer
and Assistant Clerk
Since 2005
Nancy T. Florek (6/13/57)
Vice President, Assistant Clerk,
Assistant Treasurer and Proxy Manager
Since 2005
The address of each Officer is One Post Office Square, Boston, MA 02109.
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
Floating Rate Income Fund
Global Income Trust*
High Yield Advantage Fund*+
High Yield Trust*
Income Fund
Limited Duration Government
Income Fund++
Money Market Fund[S]
U.S. Government Income Trust
* 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.
++ Formerly Putnam Intermediate U.S. Government Income Fund.
[S] 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.
Tax-free Income Funds
AMT-Free Insured Municipal Fund**
Tax Exempt Income Fund
Tax Exempt Money Market Fund[S]
Tax-Free High Yield Fund
State tax-free income funds:
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio, and Pennsylvania
Asset Allocation Portfolios
Putnam Asset Allocation Portfolios--three investment portfolios that spread
your money across a variety of stocks, bonds, andmoney market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
Putnam RetirementReady[R] Funds
Putnam RetirementReady Funds -- ten investment portfolios that offer
diversification among stocks, bonds, and money market instruments and adjust
to become more conservative over time based on a target date for withdrawing
assets.
The ten funds:
Putnam RetirementReady 2050 Fund
Putnam RetirementReady 2045 Fund
Putnam RetirementReady 2040 Fund
Putnam RetirementReady 2035 Fund
Putnam RetirementReady 2030 Fund
Putnam RetirementReady 2025 Fund
Putnam RetirementReady 2020 Fund
Putnam RetirementReady 2015 Fund
Putnam RetirementReady 2010 Fund
Putnam RetirementReady Maturity Fund
** Formerly Putnam Tax-Free Insured Fund.
With the exception of money market funds, a 2% redemption fee may 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.putnam.com.
Services for shareholders
- ------------------------------------------------------------------------------
Investor services
Help your investment grow Set up a program for systematic investing with as
little as $25 a month from a Putnam fund or from your own savings or
checking account. (Regular investing does not guarantee a profit or protect
against loss in a declining market.)
Switch funds easily* You can move money from one Putnam fund to another
within the same class of shares without a service charge.
Access your money easily You can have checks sent regularly or redeem shares
any business day at the then-current net asset value, which may be more or
less than the original cost of the shares. Class B and class C shares carry
a sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial
advisor or directly from Putnam. To open an account by mail, send a check
made payable to the name of the fund along with a completed fund
application. To add to an existing account, complete the investment slip
found at the top of your Confirmation of Activity statement and return it
with a check payable to your fund.
- ------------------------------------------------------------------------------
For more information
Visit www.putnam.com A secure section of our Web site contains complete
information on your account, including balances and transactions, updated
daily. You may also conduct transactions, such as exchanges, additional
investments, and address changes. Log on today to get your password.
Use our toll-free number 1-800-225-1581 Ask a helpful Putnam representative
or your financial advisor for details about any of these or other services,
or see your prospectus.
* This privilege is subject to change or termination. An exchange of funds
may result in a taxable event. In addition, a 2% redemption fee will be
applied to shares exchanged or sold within 5 days of purchase, and certain
funds have imposed a 1% redemption fee on total assets redeemed or exchanged
between 6 and 90 days of purchase.
Putnam puts your interests first
In January 2004, Putnam began introducing 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. Visit
www.putnam.com for details.
- ------------------------------------------------------------------------------
Cost-cutting initiatives
Reduced sales charges The maximum sales charge for class A shares has been
reduced to 5.25% for equity funds (formerly 5.75%) and 3.75% for most income
funds (formerly 4.50%). The maximum sales charge for class M shares has been
reduced to 3.25% for equity funds (formerly 3.50%).*
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 refused.)
Ongoing expenses will be limited Through calendar 2005, 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.
- ------------------------------------------------------------------------------
Improved disclosure
Putnam fund prospectuses and shareholder reports have been 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, turnover
comparisons, brokerage commissions, and employee and trustee ownership of
Putnam funds. Disclosure of breakpoint discounts has also been enhanced to
alert investors to potential cost savings.
- ------------------------------------------------------------------------------
Protecting investors' interests
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 (other than money market funds)
redeemed or exchanged within five calendar days of purchase.
* The maximum sales charge for class A shares of Putnam Limited Duration
Government Income Fund (formerly Putnam Intermediate U.S. Government Income
Fund) and Putnam Floating Rate Income Fund remains 3.25%.
Fund information
Founded over 65 years ago, Putnam Investments was built around the concept
that a balance between risk and reward is the hallmark of a well-rounded
financial program. We manage over 100 mutual funds in growth, value,
blend, fixed income, and international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Investment Sub-Manager
Putnam Investments Limited
57-59 St. James Street
London, England SW1A 1LD
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
Myra R. Drucker
Charles E. Haldeman, Jr.L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
W. Thomas Stephens
Richard B. Worley
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
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
T. Gallagher
Senior Vice President, Staff
Counsel and Compliance Liaison
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
Charles A. Ruys de Perez
Vice President and
Chief Compliance Officer
Judith Cohen
Vice President, Clerk and
Assistant Treasurer
Wanda M. McManus
Vice President, Senior Associate
Treasurer and Assistant Clerk
Nancy T. Florek
Vice President, Assistant Clerk,
Assistant Treasurer
and Proxy Manager
This report is for the information of shareholders of Putnam Europe Equity
Fund. It may also be used as sales literature when preceded or accompanied
by the current prospectus, the most recent copy of Putnam's Quarterly
Performance Summary, and Putnam's Quarterly Ranking Summary. For more recent
performance, please visit www.putnam.com. Investors should carefully
consider the investment objective, risks, charges, and expenses of a fund,
which are described in its prospectus. For this and other information or to
request a prospectus, call 1-800-225-1581 toll free. Please read the
prospectus carefully before investing. The fund's Statement of Additional
Information contains additional information about the fund's Trustees and is
available without charge upon request by calling 1-800-225-1581.
[blank page]
[LOGO OMITTED]
PUTNAM INVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
www.putnam.com
1-800-225-1581
Founded in 1937, Putnam Investments began with the principle that a balance
between risk and reward is the mark of a well-rounded financial program.
Today, we manage money with a focus on seeking consistent results over time.
This balanced approach continues to underscore everything we do.
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
[GRAPHIC OMITTED: SCALE]
Not FDIC Insured May Lose Value No Bank Guarantee
AN005 226464 8/05
Item 2. Code of Ethics:
- ----------------------------------------------------------------------------
(a) 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.
(c) In July 2004, Putnam Investment Management, LLC, the Fund's investment
manager, Putnam Retail Management Limited Partnership, the Fund's principal
underwriter, and Putnam Investments Limited, the sub-manager for a portion
of the assets of certain funds as determined by Putnam Management from time
to time, adopted several amendments to their Code of Ethics. Some of these
amendments were adopted as a result of Putnam Investment Management's
partial settlement order with the SEC on November 13, 2003. Insofar as such
Code of Ethics applies to the Fund's principal executive officer, principal
financial officer and principal accounting officer, the amendments provided
for the following: (i) a 90-day blackout period for all shares of Putnam
open-end funds (except for money market funds) purchased or sold (including
exchanges into or out of a fund) by Putnam employees and certain family
members; (ii) a one-year holding period for all access persons that operates
in the same manner as the 90-day rule; (iii) delivery by Putnam employees to
the Code of Ethics Administrator of both quarterly account statements for
all brokerage accounts (irrespective of activity in the accounts) and
account statements for any Putnam funds not held at Putnam or for any funds
sub-advised by Putnam; (iv) a prohibition of Putnam employees from making
more than 25 trades in individual securities in their personal accounts in
any given quarter; (v) the extension of the existing prohibition of access
persons from a purchase and sale or sale and purchase of an individual
security within 60 days to include trading based on tax-lot election; (vi)
the inclusion of trades in Marsh & McLennan Companies, Inc. (ultimate parent
company of Putnam Investment Management) securities in pre-clearance and
reporting requirements; (vii) a prohibition of limit and good-until-canceled
orders as inconsistent with the requirements of daily pre-clearance; (viii)
new limits and procedures for accounts managed by outside managers and
brokers, in order for trading in such accounts to be exempt from
pre-clearance requirements; (ix) a new gift and entertainment policy that
imposes a reporting obligation on all meals and entertainment and new limits
on non-meal entertainment; (x) a number of alternatives for the reporting of
irregular activity.
In December 2004, additional amendments to the Code of Ethics were adopted.
Insofar as such Code of Ethics applies to the Fund's principal executive
officer, principal financial officer and principal accounting officer, the
amendments provided for the following: (i) implementation of minimum
monetary sanctions for violations of the Code; (ii) expansion of the
definition of "access person" under the Code include all Putnam employees
with access to non-public information regarding Putnam-managed mutual fund
portfolio holdings; (iii) lengthening the period during which access persons
are required to complete quarterly reports; (iv) reducing the maximum number
of trades than can be made by Putnam employees in their personal accounts in
any calendar quarter from 25 trades to 10 trades; and (v) lengthening the
required holding period for securities by access persons from 60 days to 90
days.
In March 2005, additional amendments to the Code of Ethics were adopted,
that went into effect on April 1, 2005. Insofar as such Code of Ethics
applies to the Fund's principal executive officer, principal financial
officer and principal accounting officer, the amendments (i) prohibit Putnam
employees and their immediate family members from having any direct or
indirect personal financial interest in companies that do business with
Putnam (excluding investment holdings in public companies that are not
material to the employee), unless such interest is disclosed and approved by
the Code of Ethics Officer; (ii) prohibit Putnam employees from using Putnam
assets, letterhead or other resources in making political or campaign
contributions, solicitations or endorsements;(iii) require Putnam employees
to obtain pre-clearance of personal political or campaign contributions or
other gifts to government officials or political candidates in certain
jurisdictions and to officials or candidates with whom Putnam has or is
seeking to establish a business relationship and (iv) require Putnam
employees to obtain pre-approval from Putnam's Director of Government
Relations prior to engaging in lobbying activities.
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, Mr. Stephens and Mr. Worley 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-Related All Other
Fiscal year ended Audit Fees Fees Tax Fees Fees
- ----------------- ---------- ------------ ------- ---------
June 30, 2005 $64,103* $-- $4,774 $299
June 30, 2004 $57,486* $-- $4,213 $118
*: Includes fees of $ 613 and $ 252 billed by the fund's independent
auditor to the fund for audit procedures necessitated by regulatory and
litigation matters for the fiscal years ended June 30, 2005 and June 30,
2004, respectively. These fees were reimbursed to the fund by Putnam.
For the fiscal years ended June 30, 2005 and June 30, 2004, the fund's
independent auditors billed aggregate non-audit fees in the amounts of $
195,398 and $ 137,958 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 Fees represent fees billed for services relating to an
analysis of recordkeeping fees and 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 All Other Total Non-Audit
Fiscal year ended Fees Tax Fees Fees Fees
- ----------------- ---------- ------------ ------- ---------
June 30, 2005 $-- $-- $-- $--
June 30, 2004 $-- $-- $-- $--
Item 5. Audit Committee:
- ----------------------------------------------------------------------------
Not applicable
Item 6. Schedule of Investments:
- ----------------------------------------------------------------------------
Not applicable
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- ----------------------------------------------------------------------------
Management Investment Companies:
- --------------------------------
Not applicable
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- ----------------------------------------------------------------------------
Companies and Affiliated Purchasers:
- -----------------------------------
Not applicable
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, that the design and operation of
such procedures are generally effective to provide reasonable
assurance that information required to be disclosed by the registrant
in this report is recorded, processed, summarized and reported within
the time periods specified in the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 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
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
------------------------
Michael T. Healy
Principal Accounting Officer
Date: August 29, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
------------------------
Charles E. Porter
Principal Executive Officer
Date: August 29, 2005
By (Signature and Title): /s/Steven D. Krichmar
------------------------
Steven D. Krichmar
Principal Financial Officer
Date: August 29, 2005