Putnam
Latin America
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-98
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The repercussions of the Asian crisis have left a negra nube -- black
cloud -- looming over all emerging markets, particularly Latin America.
Brazil, Mexico, Argentina, and Chile are struggling to keep their
economies afloat in the face of declining prices for their commodity
exports, namely oil, copper and agricultural products. Within this
extremely difficult investment environment, Putnam Latin America Fund
reported a loss of 47.53% at NAV for the five months from the fund's
inception on March 23, 1998, through August 31, 1998, mirroring the
performance of the stock market indexes in these countries. For more
performance information, please see pages 5 and 6.
According to your fund's managers, Thomas Haslett and Stephen Oler, the
biggest problem facing the region is that the Latin American countries
have experienced significant deterioration in their balance of payments;
that is, more money is going out of these countries than is coming in.
Accompanying the worldwide slowdown in economic growth, the price of
exports such as oil have fallen. For countries that are extremely
dependent on foreign capital for revenue, a large drop in demand that
affects the price of oil has serious repercussions for the overall health
of each economy. In addition, immediately after Russia devalued the ruble
and defaulted on its loans, many investors were forced to sell off assets
in Latin America to cover their losses in Russia.
Let's examine in more detail what has happened with the fund's three
largest country holdings: Brazil (42.3%), Mexico (31.0%), and Argentina
(10.8%). Until the Asian crisis broke, Brazil was in the middle of
economic reform, involving the privatization of Telebras, the national
telephone system. This privatization process went especially well and the
fund's managers still consider that Telebras's earnings prospects are
excellent once Brazil gets over its current financial hurdle. Brazil
recently began an austerity program to help support the value of its
currency, the real. The early October presidential election is also likely
to have some effect on the currency's stability.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Telebras Co. ADR
Utilities
Telefonos de Mexico S.A. ADR Class L
Utilities
Grupo Modelo S.A. de C.V.
Food and beverages
Cifra S.A. de CV
Retail
Gerdau S.A.
Metals and Mining
Companhia Vale do Rio Doce ADR
Metals and Mining
Petroleo Brasileiro S/A-Petrobras ADR
Oil and Gas
Companhia Energetica de Minas Gerais ADR
Utilities
Telecomunicacoes de Sao Paulo S.A.
Telecommunications
YPF S.A. ADR
Oil and Gas
These holdings represent 37.3% of the fund's net assets as of 8/31/98.
Portfolio holdings will vary over time.
Mexico bounced back from the 1995 peso devaluation but has been crushed in
1998 by its dependence on oil exports as a major source of revenue. On the
more positive side, Mexico is the only country in Latin America that seems
to be open and flexible with its trading partners. There is also a strong
ray of hope from Mexico's participation in NAFTA and the irrefutable fact
that Mexico is in a "good neighborhood" -- close to the United States.
Until this year, Argentina was the fastest growing economy in the world.
But Argentina is closely tied to Brazil, and as Brazil struggles, so does
Argentina.
Going forward, the management team believes the best strategy is to remain
defensive, and so they continue to focus on high-yielding electric
utilities (Cemig in Brazil), bottling companies, and beer brewers (Femsa
in Mexico, and Brahma in Brazil). In lean times, these industries are more
resilient because demand for their products usually remains steady.
Latin American stocks are cheaper than they have been in many years, with
the exception of the decline in the aftermath of the 1995 peso
devaluation. The good news is that the economic fundamentals in Latin
America are more sound than they were three years ago. But before the
turmoil settles and Latin America can put a better foot forward, we need
to see stabilization in Japan and Russia. In times like these, it is
important to remember that markets run in cycles. What goes up eventually
comes down, and what is down eventually comes up. We reiterate our belief
that a balanced portfolio of international and domestic stock, bond, and
money market funds can help investors achieve their financial goals in all
kinds of market cycles and that Putnam Latin America Fund can provide a
worthwhile opportunity for international diversification.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
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. International investing
involves certain risks, including economic instability, political
developments, and currency fluctuations, not present with U.S.
investments. Funds investing in a single sector may be subject to more
volatility than those investing in a diverse group of sectors.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Latin America Fund is designed for investors seeking long-term capital
appreciation primarily through common stocks of companies located in Latin
America.
TOTAL RETURN FOR PERIOD ENDED 8/31/98
MSCI Latin
America Consumer
NAV POP Index Price Index
- ------------------------------------------------------------------------------
Life of fund (since 3/23/98) -47.53% -50.55% -45.39% 0.74%
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIOD ENDED 9/30/98
(most recent calendar quarter)
NAV POP
- ------------------------------------------------------------------------------
Life of fund (since 3/23/98) -44.47% -47.67%
- ------------------------------------------------------------------------------
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. Performance data reflect an expense limitation
currently in effect. Without the expense limitation, total returns would
have been lower.
This performance information does not reflect any market volatility that
may have occurred since the date of the information shown. As a result,
more recent returns may be more or less than those shown.
[GRAPHIC OMITTED: 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 Latin America Consumer Price
Date shares at POP Index Index
3/23/98 9,425 10,000 10,000
4/30/98 9,435 9,780 10,018
5/31/98 7,982 8,513 10,036
6/30/98 7,395 7,998 10,048
7/31/98 7,783 8,387 10,060
8/31/98 $4,945 $5,461 $10,074
Past performance is no assurance of future results.
PRICING INFORMATION
for the period 3/23/98 to 8/31/98
- ------------------------------------------------------------------------------
Share value: NAV POP
- ------------------------------------------------------------------------------
3/23/98 $8.50 $9.02
- ------------------------------------------------------------------------------
8/31/98 4.46 4.73
- ------------------------------------------------------------------------------
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.
The MSCI (Morgan Stanley Capital International) Latin America Index is an
index of approximately 218 securities representing 7 Latin American
markets, with all values expressed in U.S. dollars. This index assumes
reinvestment of all distributions and interest payments and does not take
into account brokerage fees or taxes. Securities in the fund do not match
those in the indexes 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 Putnam Latin America Fund
(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 Putnam
Latin America Fund (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 9, 1998
<TABLE>
<CAPTION>
Portfolio of investments owned
August 31, 1998
COMMON STOCKS (93.4%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Argentina (10.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,300 Banco Frances del Rio de la Plata ADR $ 23,644
300 Inversiones Y Representaciones S.A. GDR 7,125
3,000 Perez Companc S.A. Class B 11,882
7,600 Siderca S.A. 7,488
1,200 Telefonica de Argentina S.A. ADR 26,850
1,700 Transportadora de Gas del Sur ADR 16,150
1,300 YPF S.A. ADR 28,762
--------------
121,901
Brazil (42.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,100 Banco Bradesco S.A. BRC 12,670
115 Banco Bradesco S.A. BRC Rights 13
30 Banco Itau S.A. BRC 13,001
80 Brasmotor S.A. 8,498
500 Brazil Realty S.A. 144A GDR 8,000
225 Centrais Eletricas 144A GDR 9,675
1,650 Centrais Geradoras do Sul do Brasil S.A. (NON) 8,456
2,614 Cia Cervejaria Brahma ADR 24,180
2,000 Companhia Brasileira de Distribuicao Grupo
Pao de Acucar ADR 27,000
50 Companhia Cimento Portland Itau 6,798
250 Companhia de Saneamento Basico do Estado
de Sao Paulo 21,138
1,768 Companhia Energetica de Minas Gerais ADR 31,381
2,600 Companhia Paranaense de Energia-Copel ADR 14,300
2,500 Companhia Vale do Rio Doce ADR 32,500
1,600 Empresa Bras Aeronautica 21,754
3,500 Gerdau S.A. 34,202
3,200 Petroleo Brasileiro S/A-Petrobras ADR 32,000
18,000 Sadia S.A. Industria de Comercio 8,872
2,500 Souza Cruz S.A. 15,296
1,550 Telebras Co. ADR 109,566
206 Telecomunicacoes de Sao Paulo S.A. 30,634
600 Uniao de Bancos Brasileiros S.A. GDR 9,000
--------------
478,934
Chile (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
900 Chilectra S.A. 144A ADR 14,850
850 Cia de Telecomunicationes de Chile S.A. ADR 13,016
1,200 Distribucion y Servicio D&S S.A. ADR (NON) 10,950
1,200 Madeco S. A. ADR 5,775
--------------
44,591
Dominican Republic (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,800 TRICOM, S.A. 25,412
Mexico (31.0%)
- --------------------------------------------------------------------------------------------------------------------------
7,100 Alfa S.A. de C.V. Class A 16,015
8,000 Cemex S.A. de C.V. Class B (NON) 19,649
8,869 Cemex, S.A. de C.V. 17,782
32,000 Cifra S.A. de CV 34,647
1,000 Coca-Cola Femsa S.A. ADR 10,875
14,000 Corporacion Moctezuma, S.A. de C.V. (NON) 9,123
54,000 Empaques Ponderosa, S.A. de C.V. (NON) 25,985
10,000 Fomento Economico Mexicano, S.A. de C.V. 16,842
1,200 Grupo Accion, S.A. de C.V. 144A ADR (NON) 4,200
16,000 Grupo Financiero Banamex Accival, S.A.
de C.V. Class B (NON) 13,474
1,500 Grupo Imsa S.A. de C.V. ADR (NON) 10,500
5,000 Grupo Modelo S.A. de C.V. 35,689
1,600 Grupo Televisa S.A.GDR (NON) 27,600
6,700 Gupo Carso S.A. de C.V. 16,456
8,400 Kimberly-Clark de Mexico, S.A. de C.V. Class A 18,442
1,000 Panamerican Beverages, Inc. Class A 15,938
3,400 Sanluis Corp. S.A. de C.V. 4,636
1,500 Telefonos de Mexico S.A. ADR Class L 53,530
--------------
351,383
Peru (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,500 Compania de Minas Buenaventura S.A. ADR 11,438
1,200 Telefonica del Peru S.A. ADR 15,450
--------------
26,888
Singapore (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
7,000 Marco Polo Developments Ltd. 9,517
--------------
Total Common Stocks (cost $1,986,509) $ 1,058,626
SHORT-TERM INVESTMENTS (5.2%) (a) (cost $59,009)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$59,000 Interest in $140,000,000 joint 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 $59,009 for an
effective yield of 5.78% $ 59,009
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,045,518) (b) $ 1,117,635
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,133,219.
(b) The aggregate identified cost on a tax basis is $2,045,523 resulting in gross unrealized appreciation and
depreciation of $898 and $928,786, respectively, or net unrealized depreciation of $927,888.
(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, respectively representing ownership of foreign securities on deposit with a domestic custodian bank.
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 $2,045,518) (Note 1) $1,117,635
- -----------------------------------------------------------------------------------------------
Cash 971
- -----------------------------------------------------------------------------------------------
Dividends receivable 7,251
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 250
- -----------------------------------------------------------------------------------------------
Receivable from Manager (Note 2) 11,323
- -----------------------------------------------------------------------------------------------
Total assets 1,137,430
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,033
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 129
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 79
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7
- -----------------------------------------------------------------------------------------------
Other accrued expenses 2,963
- -----------------------------------------------------------------------------------------------
Total liabilities 4,211
- -----------------------------------------------------------------------------------------------
Net assets $1,133,219
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $2,145,978
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 14,203
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments
and foreign currency transactions (Note 1) (99,123)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (927,839)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,133,219
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($1,133,219 divided by 254,309 shares) $4.46
- -----------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $4.46)* $4.73
- -----------------------------------------------------------------------------------------------
* 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 of $1,970) $26,657
- -----------------------------------------------------------------------------------------------
Interest 605
- -----------------------------------------------------------------------------------------------
Total investment income 27,262
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,996
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,829
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 478
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 27
- -----------------------------------------------------------------------------------------------
Reports to shareholders 2,302
- -----------------------------------------------------------------------------------------------
Registration fees 8
- -----------------------------------------------------------------------------------------------
Auditing 17,022
- -----------------------------------------------------------------------------------------------
Legal 2,844
- -----------------------------------------------------------------------------------------------
Postage 4
- -----------------------------------------------------------------------------------------------
Other 2
- -----------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (19,319)
- -----------------------------------------------------------------------------------------------
Total expenses 13,193
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,526)
- -----------------------------------------------------------------------------------------------
Net expenses 11,667
- -----------------------------------------------------------------------------------------------
Net investment income 15,595
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (99,123)
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,392)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period (Note 1) 44
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (927,883)
- -----------------------------------------------------------------------------------------------
Net loss on investments (1,028,354)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(1,012,759)
- -----------------------------------------------------------------------------------------------
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 $15,595
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency transactions (100,515)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (927,839)
- ---------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (1,012,759)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 145,978
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets (866,781)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 2,000,000
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $14,203) $1,133,219
- ---------------------------------------------------------------------------------------------------------------
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 (a)(d) .06
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (4.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (4.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.46
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) (47.53)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,133
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .73*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) .87*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.39*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation,
expenses for the fund reflect a reduction of $0.08 per share. (See Note 1).
</TABLE>
Notes to financial statements
August 31, 1998
Note 1
Significant accounting policies
Putnam Latin America Fund (the "fund") is a series of Putnam Funds Trust
(the "Trust") which is registered under the Investment Company Act of
1940, as amended, as an open-end diversified management investment
company. The objective of the fund is to seek long-term capital
appreciation by investing primarily in equity securities of which at least
65% is of Latin America companies.
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 its principle exchange, or if no sales are reported
- -- as is 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. All other investments are stated at fair market value following
procedures approved by the Trustees. Foreign 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). 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) Federal taxes It is the policy of the fund to distribute all of its
taxable (for tax exempt and municipal bond funds exclude "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.
G) 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. These differences include temporary and
permanent differences of foreign taxes, foreign currency translation, wash
sales and post October deferrals. 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 $1,392 to decrease
undistributed net investment income, with a decrease to accumulated net
realized losses of $1,392. The calculation of net investment income per
share in the financial highlights table excludes these adjustments.
H) 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, .80% of the next 500 million, .775% of the next 5
billion, .755% of the next 5 billion, .74% of the next 5 billion and 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 $1,526
under expense offset arrangements with PFTC. 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 .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. 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
Purchases and sales
During the period ended August 31, 1998 purchases and sales of investment
securities other than short-term investments aggregated $2,719,171 and
$633,539, 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 were as follows:
Period ended
March 23, 1998
(commencement
of operations) to
August 31, 1998
- ---------------------------------------------------------------------
Shares Amount
- ---------------------------------------------------------------------
Shares sold 19,623 $149,023
- ---------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ---------------------------------------------------------------------
19,623 149,023
Shares repurchased (608) (3,045)
- ---------------------------------------------------------------------
Net increase 19,015 $145,978
- ---------------------------------------------------------------------
Note 5
Initial capitalization and
offering of shares
The fund had an 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 23, 1998.
At August 31, 1998, Putnam Investments, Inc. owned 235,294 shares of the
fund (92.5% of shares outstanding), valued at $1,049,411.
Federal tax information
(Unaudited)
For the period, dividends from foreign countries were $26,657 or $.105
per share. Taxes paid to foreign countries were $1,970 or $0.008 per
share.
The Form 1099 you receive in January 1999 will show the tax status of
all distributions paid to your account in calendar 1998.
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 Haslett
Vice President and Fund Manager
Stephen Oler
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 Latin America
Fund. 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.
45966-21A 10/98
