Putnam
Asia Pacific
Fund II
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-98
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
Dear Shareholder:
We shall make no pretense in this initial report to shareholders of Putnam
Asia Pacific Fund II that there is anything particularly cheery to say
about investments in Asia and the Pacific Basin at present. The fund's
performance from its inception on March 23, 1998, through the end of its
abbreviated initial fiscal year on August 31, 1998, in concert with
results of most other investments in the region, would quickly give lie to
such a notion.
It might be helpful, however, to note that these economies and markets are
not all under the same degree of duress. Investing in Malaysia, for
example, is now virtually impossible because of capital controls and
regulations. Adjacent Singapore, which normally would be fundamentally
viable on its own merits, is suffering from the travails of its neighbors,
Malaysia and Indonesia, mainly because its banks' loan portfolios are
heavily exposed to these shaky economies. However, fund management
believes that down the road, when stabilization does occur, Singapore has
the potential to show one of the more dramatic rebounds.
In Hong Kong, property prices, the main drivers of investor confidence,
continue to fall. Pressure on the Hong Kong dollar's peg to the U.S.
dollar is pushing real interest rates dramatically higher. China's economy
is slowing and so far efforts to restimulate it have not had much
noticeable impact.
South Korea is better off than the Southeast Asian markets because of the
more industrialized nature of its economy. India, despite its troubles, is
experiencing a 4% to 5% annual economic growth rate in contrast to zero or
negative growth elsewhere. Taiwan has weathered the storm fairly well, but
investment options for outsiders are limited by fairly strict controls.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Singapore Telecommunications, Ltd. (Singapore)
Telecommunications
Hutchison Whampoa, Ltd. (Hong Kong)
Conglomerates
Mahanagar Telephone Nigam Ltd. GDR (India)
Telecommunications
Samsung Electronics Co. GDR (South Korea)
Electronics and electrical equipment
Korea Electric Power Corp. (South Korea)
Utilities
Hong Kong Telecommunications Ltd. (Hong Kong)
Telecommunications
Fubon Insurance Co. GDR (Taiwan)
Insurance and finance
Bajaj Auto Ltd. 144A GDR (India)
Automotive
Taiwan Semiconductor Manufacturing Co. (Taiwan)
Electronics and electrical equipment
Singapore Airlines Ltd. (Singapore)
Transportation
These holdings represent 30.6% of the fund's net assets as of 8/31/98.
Portfolio holdings will vary over time.
Your fund's managers believe the international financial situation has
moved past its first phase of dramatic adjustment to the crisis and is now
in the beginning of a phase of reliquifying banking systems in the region.
They believe the challenge now is to get the region's banking system
moving again to overcome the serious area-wide credit crunch. Of course,
positive change hinges greatly on improvement in Japan, Asia's main
consumer and creditor.
In terms of investments for your fund's portfolio, the management team is
moving cautiously, placing greater emphasis on markets that offer at least
some measure of stability and staying away from industries such as real
estate that are highly sensitive to interest-rate changes. In the main,
the managers are focusing on industries such as telecommunications that
have the best potential for growth and on companies with strong
managements. Given the nature of the challenge, they believe the fund is
positioned as strategically as possible for the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 21, 1998
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 8/31/98, there is no guarantee the fund will
continue to hold these securities in the future. Foreign investments may
be subject to certain risks, such as currency fluctuations, economic
instability, and political developments, that are not present with
domestic investments. Investing in a single sector increases the
possibility of greater price fluctuations and does not provide the
diversification of a multisector investment. This fund invests a portion
of its assets in small-size companies. Such investments increase the risk
of greater price fluctuations.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Asia Pacific Fund II is designed for investors seeking long-term capital
appreciation primarily through equities of Asian issuers.
TOTAL RETURN FOR PERIOD ENDED 8/31/98
MSCI Asia Free Consumer
NAV POP ex-Japan Index Price Index
- ------------------------------------------------------------------------------
Life of fund (since 3/23/98) -38.47% -42.02% -42.74% 0.74%
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIOD ENDED 9/30/98
(most recent calendar quarter)
NAV POP
- ------------------------------------------------------------------------------
Life of fund (since 3/23/98) -30.47% -34.48%
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. Returns at public
offering price reflect the current maximum initial sales charge of 5.75%.
All returns assume reinvestment of distributions at NAV. Investment
returns and principal will fluctuate so that an investor's shares when
redeemed may be worth more or less than their original cost. The
short-term results of a relatively new fund are not necessarily indicative
of its long-term prospects.
This performance information may not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be less or more than those shown.
[GRAPHIC OMMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of
a $10,000 investment since
3/23/98
Fund's class A MSCI Asia Consumer Price
Date shares at POP ex-Japan Index Index
3/23/98 9,425 10,000 10,000
4/30/98 8,841 9,124 10,018
5/31/98 7,741 7,732 10,036
6/30/98 6,844 6,864 10,048
7/31/98 6,810 6,690 10,060
8/31/98 $5,798 $5,726 $10,074
Past performance is no assurance of future results.
PRICE INFORMATION
5 months ended 8/31/98
- ---------------------------------------------------------------------
Share value: NAV POP
- ---------------------------------------------------------------------
3/23/98 $8.50 $9.02
- ---------------------------------------------------------------------
8/31/98 5.23 5.55
- ---------------------------------------------------------------------
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge.
COMPARATIVE BENCHMARKS
Morgan Stanley Capital International (MSCI) Asia Free ex-Japan Index is an
arithmetic, market value-weighted average of the performance of securities
listed on the stock exchanges of those countries, excluding issues
denominated in yen. The index assumes reinvestment of all distributions
and interest payments and does not take in account brokerage fees or
taxes. Securities in the fund do not match those in the index and
performance of the fund will differ. It is not possible to invest directly
in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
For the period March 23, 1998 (commencement of operations)
to August 31, 1998
To the Trustees of Putnam Fund Trust and
Shareholders of Asia Pacific Fund II
(a series of Putnam Fund Trust)
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, 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 Asia
Pacific Fund II (the "fund") at August 31, 1998, and the results of its
operations, the changes in its net assets and the financial highlights for
the period indicated, in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing
standards which 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 audit, which included
confirmation of investments owned at August 31, 1998 by correspondence
with the custodian, provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 13, 1998
<TABLE>
<CAPTION>
Portfolio of investments owned
August 31, 1998
COMMON STOCKS (81.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
China (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Beijing Datang Power Generation Co., Ltd. (NON) $ 9,538
Hong Kong (20.5%)
- --------------------------------------------------------------------------------------------------------------------------
13,000 Asia Satellite Telecommunications Holdings Ltd. 13,675
9,000 Cathay Pacific Airways (NON) 6,563
7,000 Cheung Kong Infrastructure Holdings (NON) 12,197
5,000 China Light & Power Co. 21,038
10,000 China Telecom Ltd. (NON) 13,165
3,000 Elec & Eltek International Holdings Ltd. 12,720
8,000 Hong Kong Electric Holdings Ltd. (NON) 23,749
21,200 Hong Kong Telecommunications Ltd. (NON) 37,487
11,000 Hutchison Whampoa, Ltd. (NON) 47,705
64,000 IDT International Ltd. 5,617
18,000 Johnson Electric Holdings Ltd. 30,434
8,000 Smartone Telecommunications (NON) 16,831
8,000 Varitronix International Ltd. 14,765
5,000 VTech Holdings, Ltd. 17,553
----------
273,499
India (16.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,300 Bajaj Auto Ltd. 144A GDR 36,340
2,800 BSES Ltd. GDR (NON) 30,100
3,600 Indian Hotels, Co. Ltd. GDR 23,850
3,000 Larsen & Toubro Ltd. (NON) 23,625
4,200 Mahanagar Telephone Nigam Ltd. GDR 42,756
1,000 Ranbaxy Laboratories GDR Ltd. 12,950
1,800 State Bank of India GDR 14,166
2,800 Tata Engineering & Locomotive Co., Ltd. GDR (NON) 7,560
2,800 Videsh Sanchar Nigam Ltd. GDR (NON) 24,500
----------
215,847
Malaysia (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
13,000 Berjaya Sports Toto Berhad 8,458
87,000 IJM Copr. Berhad 14,151
17,000 Jaya Tiasa Holdings Bhd 11,020
21,000 PPB Oil Palms Berhad (NON) 8,891
----------
42,520
Pakistan (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
31,000 Pakistan Telecom Ltd. 144A GDR 14,314
Philippines (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
54,000 Ayala Land, Inc. 8,546
185,000 Cosmos Bottling Corp. 10,608
202,500 International Container Terminal Services, Inc. (NON) 7,338
1,600 Manila Electric Co. Class B 2,642
1,600 Philippine Long Distance Telephone Co. ADR 26,606
110,000 SM Prime Holdings Inc. 13,372
----------
69,112
Singapore (11.4%)
- --------------------------------------------------------------------------------------------------------------------------
12,000 Natsteel Electronics Ltd. 23,966
9,000 Overseas Union Bank Ltd. 11,932
8,000 Singapore Airlines Ltd. 34,302
40,000 Singapore Telecommunications, Ltd. 58,449
9,000 Venture Manufacturing Ltd. 22,849
----------
151,498
South Korea (8.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,000 Honam Petrochemical Corp. 6,120
3,000 Korea Electric Power Corp. 38,724
240 Pohang Iron & Steel Company, Ltd. 9,270
400 Pohang Iron & Steel Company, Ltd. ADR 4,450
1,400 Samsung Electronics Co. GDR 39,909
40 Samsung Fire & Marine Insurance 7,418
700 SK Telecom Co., Ltd. ADR 4,200
----------
110,091
Taiwan (12.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,000 Acer Inc. (NON) 13,875
1,200 Ase Test Limited (NON) 31,200
3,500 Asustek Computer, Inc. GDR (NON) 23,730
3,780 Fubon Insurance Co. GDR 36,477
2,668 Siliconware Precision Industries Co. GDR (NON) 20,010
3,335 Taiwan Semiconductor Manufacturing Co. (NON) 35,434
----------
160,726
Thailand (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,500 Advanced Info Service Public Co., Ltd. (NON) 10,172
4,000 Electricity Generating Public Co. Ltd. (NON) 5,553
10,000 International Broadcasting Corporation Public
Company Ltd. 3,650
1,500 PTT Exploration & Production PLC 9,909
3,000 Thai Union Frozen Products Public Company Ltd. 10,627
----------
39,911
----------
Total Common Stocks (cost $1,426,711) $1,087,056
SHORT-TERM INVESTMENTS (8.8%) (a)(cost $117,019)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$117,000 Interest in $750,000,000 joint tri-party repurchase agreement
dated August 31, 1998 with Goldman Sachs & Co. due
September 1, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $117,019 for an effective
yield of 5.78% $ 117,019
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,543,730) (b) $1,204,075
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,330,707.
(b) The aggregate identified cost on a tax basis is $1,543,730, resulting in gross unrealized appreciation and
depreciation of $18,286 and $357,941, respectively, or net unrealized depreciation of $339,655.
(NON) Non-income-producing security.
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.
ADR or GDR after the name of a foreign holding stands for American Depository Receipts or Global Depository
Receipts, representing ownership of foreign securities on deposit with a domestic custodian bank.
The fund had the following industry group concentrations greater than 10% at August 31, 1998 (as a percentage
of net assets):
Electronics and electrical equipment 18.0%
Telecommunications 17.2
- -----------------------------------------------------------------------------
Forward Currency Contracts to Sell at August 31, 1998
(aggregate face value $84,296)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------
Malaysian Ringgit $29,060 $29,050 2/3/99 $ (10)
Philippine Peso 52,744 55,246 2/3/99 2,502
- ----------------------------------------------------------------------------
$ 2,492
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,543,730) (Note 1) $1,204,075
- -----------------------------------------------------------------------------------------------
Cash 983
- -----------------------------------------------------------------------------------------------
Dividends receivable 1,856
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 100
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 278,956
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 2,502
- -----------------------------------------------------------------------------------------------
Receivable from manager (Note 2) 12,936
- -----------------------------------------------------------------------------------------------
Total assets 1,501,408
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 134,750
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 30,888
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 79
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 10
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 62
- -----------------------------------------------------------------------------------------------
Other accrued expenses 4,912
- -----------------------------------------------------------------------------------------------
Total liabilities 170,701
- -----------------------------------------------------------------------------------------------
Net assets $1,330,707
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $2,158,915
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 13,148
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (503,975)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (337,381)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,330,707
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,330,707 divided by 254,679 shares) $5.23
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $5.23)* $5.55
- -----------------------------------------------------------------------------------------------
* 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
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period March 23, 1998 (commencement of operations)
to August 31, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax $1,709) $ 21,954
- -----------------------------------------------------------------------------------------------
Interest 7,353
- -----------------------------------------------------------------------------------------------
Total investment income 29,307
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 8,103
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,859
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 833
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 27
- -----------------------------------------------------------------------------------------------
Reports to shareholders 2,898
- -----------------------------------------------------------------------------------------------
Auditing 17,022
- -----------------------------------------------------------------------------------------------
Legal 2,811
- -----------------------------------------------------------------------------------------------
Registration fees 645
- -----------------------------------------------------------------------------------------------
Other 20
- -----------------------------------------------------------------------------------------------
Fees waived and reimbursed by manager (Note 2) (20,848)
- -----------------------------------------------------------------------------------------------
Total expenses 13,370
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,069)
- -----------------------------------------------------------------------------------------------
Net expenses 11,301
- -----------------------------------------------------------------------------------------------
Net investment income 18,006
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (503,975)
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (4,858)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period (Note 1) 2,274
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (339,655)
- -----------------------------------------------------------------------------------------------
Net loss on investments (846,214)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(828,208)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
March 23, 1998
(commencement
of operations)
to August 31, 1998
- -----------------------------------------------------------------------------------------------
<S> <C>
Decrease in net assets
- -----------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------
Net investment income $ 18,006
- -----------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency transactions (508,833)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (337,381)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (828,208)
- -----------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 158,915
- -----------------------------------------------------------------------------------------------
Total decrease in net assets (669,293)
Net assets
- -----------------------------------------------------------------------------------------------
Beginning of period (Note 5) 2,000,000
- -----------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $13,148) $1,330,707
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share March 23, 1998+
operating performance to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .06(c)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (3.33)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (3.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.23
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (38.47)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,331
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .73*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .99*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 202.60*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the
fund reflect a reduction of $.07 per share. (see Note 2)
</TABLE>
Notes to financial statements
August 31, 1998
Note 1
Significant accounting policies
Putnam Asia Pacific Fund II (The "fund") is a series of Putnam Funds Trust
("the Trust") which is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment
company. The fund seeks long-term capital appreciation by investing
primarily in common stocks and other securities of companies located in
Asia and in the Pacific Basin.
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 generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price on the principal market in which the securities are
traded, or, if no sales are reported -- as in the case of some securities
traded over-the-counter -- the last reported bid price. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value, and other investments are
stated at fair value following procedures approved by the Trustees.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
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 accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date.
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 accrued 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 exchange gains or losses on closed
forward currency contracts, disposition of foreign currencies 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.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, 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, foreign
currency gains and losses and post-October loss deferals.
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 period ended August 31,
1998, the fund reclassified $4,858 to decrease undistributed net
investment income and $4,858 to decrease accumulated net realized losses.
The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
I) Expenses of the Trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
Trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 1.00% of the first $500
million of average net assets, 0.90% of the next $500 million, 0.85% of
the next $500 million, 0.80% of the next $5 billion, 0.775% of the next $5
billion, 0.755% of the next $5 billion, 0.74% of the next $5 billion,
0.73% thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through December 31, 1998, to the extent
that expenses of the fund (exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expense, credits from
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments,
Inc. and payments under the Trust's distribution plan) would exceed an
annual rate of 1.65% of the fund's average net assets.
As part of the subcustodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At August 31, 1998, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
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. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the period ended August 31, 1998, fund expenses were reduced by $2,069
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $100 has
been allocated to the fund and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are 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 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 Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the Plan is
to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plan provides for payment by
the fund to Putnam Mutual Funds Corp. at an annual rate of up to 0.35% of
the fund's average net assets. The fund is not currently making any
payments pursuant to the plan.
For the period ended August 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received no net commissions from the sale of shares of the
fund. A deferred sales charge of up to 1% is assessed on certain
redemptions of shares. For the period ended August 31, 1998, Putnam Mutual
Funds Corp., acting as underwriter received no monies on redemptions.
Note 3
Purchase and sales of securities
During the period ended August 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $4,828,576 and
$3,027,210, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Note 4
Capital shares
At August 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period
March 23, 1998
(commencement
of operations)
to August 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 104,744 $659,238
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
104,744 659,238
Shares repurchased (85,359) (500,323)
- -----------------------------------------------------------------------------
Net increase 19,385 $158,915
- -----------------------------------------------------------------------------
Note 5
Initial capitalization and
offering of shares
The fund was established as a Massachusetts business trust on January 22,
1996. During the period January 22, 1996 to March 23, 1998, the fund had
no operations other than those related to organizational matters,
including the initial capital contribution of $2,000,000 and the issuance
of 235,294 shares to Putnam Mutual Funds Corp., a wholly-owned subsidiary
of Putnam Investments, Inc. on March 20, 1998.
At August 31, 1998, Putnam Investments, Inc. owned 243,504 shares of the
fund (95.61% of class shares outstanding), valued at $1,273,526.
Federal tax information
(Unaudited)
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
For the period, interest and dividends from foreign countries were
$24,034. Taxes paid to foreign countries were $1,709.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
John J. Morgan, Jr.
Vice President
Carol McMullen
Vice President
Brett C. Browchuk
Vice President
Thomas R. Haslett
Vice President and Fund Manager
Carmel Peters
Vice President and Fund Manager
Deborah Farrell
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Asia Pacific
Fund II. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
45969-21B 10/98
