Putnam
Emerging
Markets
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
2-28-99
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Putnam Emerging Markets Fund's class A shares were ranked in the top 25%
of the emerging-markets funds ranked by Lipper for the 3-year period ended
March 31, 1999. The fund ranked 19 out of 92 emerging-markets funds
ranked.*
* "Those persuaded by the long-run case for investing in the emerging
markets will be encouraged by the [World] Bank's assessment that after a
period of disruption, the secular growth trend is likely to be
re-established as the new century dawns."
-- Emerging Markets Investor, December 1998/January 1999
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
18 Financial statements
* Past performance is not indicative of future results. Lipper is an
industry research firm whose rankings are based on total return
performance, vary over time, and do not reflect the effects of sales
charges. Performance of other share classes will vary. For the 1-year
period, the fund ranked 73 out of 176 emerging-markets funds. The fund was
not ranked over longer periods.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The world's emerging markets are not out of the woods yet, but the
progress they have made since the dark days leading up to and immediately
following the 1997 Asian crisis gives cause for considerable optimism.
There are still trouble spots, of course, most notably Brazil and the
concern that its problems may extend to its trading partners, especially
Argentina.
Your fund's management team remains generally optimistic, however, about
prospects for emerging markets overall, especially given the progress
achieved in such areas as Eastern Europe and South Korea. In the following
report, your fund's managers discuss performance during the first half of
fiscal 1999 and examine prospects for the remainder of the year.
I am pleased to announce the addition of Paul C. Warren to the management
team. Immediately before joining Putnam in 1997, Paul was with IDS Fund
Management/Pilgrim Baxter Asia LLC and before that he was with Prudential
Asia Fund Management Ltd., Rothschild Asset Management, Salomon Brothers
Asia, and Morgan Grenfell. He has 17 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 21, 1999
Report from the Fund Managers
Thomas R. Haslett
J. Peter Grant
Stephen Oler
Carmel Peters
Paul C. Warren
Over the past six months, the stock markets of the world's developing
nations progressed from a state of outright panic to some degree of
stability and even recovery. Although the devaluation of the Brazilian
currency in early 1999 threatened to torpedo this new-found calm, most
emerging markets outside Latin America did not lose much momentum.
As investor sentiment moved from an outright shunning of emerging markets
to the realization that opportunities were returning, Putnam Emerging
Markets Fund sought to take advantage of the shift. During the six months
ended February 28, 1999, the fund recorded a 21.27% total return at net
asset value (14.38% at public offering price) against the 24.65% return of
the Morgan Stanley Capital International Emerging Markets Free Index. For
additional performance information, please see pages 9 and 10.
* SURPRISING CALM FOLLOWS BRAZILIAN DEVALUATION; EMPHASIS ON MEXICO
The actual devaluation of the Brazilian real occurred in January 1999, but
investors' anticipation of this event had been building for some time.
High interest rates were needed to justify the real's peg to the U.S.
dollar. This, along with Brazil's large fiscal deficit and apparent
political paralysis, led many investors to forecast a scenario similar to
one that had begun with the devaluation of the Thai baht in 1997 and then
continued with the devaluation of the Russian ruble in the summer of 1998.
Despite these concerns, the Brazilian market showed some resilience when
the actual devaluation occurred. Evidently the worry about a potential
devaluation had already been reflected in Brazilian stock prices.
Additionally most investors believed the currency depreciated far below
its actual worth and there were signs of relief after the nomination of a
more market-savvy central bank president.
As the fund ended the first half of fiscal 1999, a key concern was the
negative impact Brazil's economic problems could have on its main trading
partner, Argentina, as well as on other countries in Latin America.
Although we anticipate a contraction in the region's near-term growth, we
have sought to position the portfolio in companies with attractive
long-term growth potential and solid management teams. These include top
quality Brazilian utilities such as Companhia Energetica de Minas Gerais
(CEMG) as well as leading cellular telecommunications company Telesp
Celular.
Unlike the rest of Latin America, Mexico benefited from its close ties to
the buoyant U.S. economy. In fact, while economic growth in the rest of
the region will likely contract in 1999, Mexico is expected to enjoy
modest growth. Additionally Mexican companies, on average, had about 15%
earnings growth in 1998 and are expected to continue their growth in 1999.
In the fund, we continued to focus on Mexican blue-chip stocks such as
Telefonos de Mexico and Grupo Televisa. While these holdings, along with
others discussed in this report, were viewed favorably at the end of the
fiscal period, all are subject to review and adjustment in accordance with
the fund's investment strategy and may vary in the future.
[GRAPHIC OMITTED: horizontal bar chart COUNTRY ALLOCATIONS]
COUNTRY ALLOCATIONS*
Mexico 14.4%
South Korea 9.1%
Greece 8.3%
Brazil 8.0%
Taiwan 7.5%
Footnote reads:
*Based on net assets as of 2/28/99. Holdings will vary over time.
* GROWTH CONTINUES IN EASTERN EUROPE
Although the former Soviet Union once dominated Eastern Europe, what has
become clear is that markets from Poland to the Czech Republic are coming
into their own. As Russia sank into an economic and political morass,
Eastern Europe gained strength from its ties to a relatively stronger
Western Europe and the possibility that countries such as Poland could one
day join the new European Economic and Monetary Union (EMU). The fund
benefited from holdings in prominent Eastern European companies such as
Ceske Radiokomunikace, a cellular telephone company in the Czech Republic.
To the south, Greece, which had been left out of EMU last year, showed
surprising resolve to make the hard economic decisions necessary to join
EMU at a later date. As Greek interest rates fell in anticipation of
future convergence with European rates, the fund's substantial Greek bank
holdings were the prime beneficiaries. Turkish banking stocks advanced on
similar convergence sentiment, raising the value of banking stocks such as
Yapi Kredi.
In addition to the fund's extremely low exposure to the Russian market, we
continued to de-emphasize the South African market. Falling commodity
prices and poor political and macroeconomic fundamentals warranted a
relatively low weighting of the fund's assets in South Africa.
* FUND BENEFITS FROM REBOUNDS IN SOUTH KOREA AND SEMICONDUCTOR STOCKS
In the second half of 1998, several of the Asian markets enjoyed
substantial rebounds as economies and companies showed some signs of
stabilization and reform. Additionally a surprising spike in the value of
the Japanese yen helped make Asian exports more competitive on the open
market. Of course, in the portfolio, we continued to play down markets in
Southeast Asia, such as Indonesia, which still either exhibit poor
macroeconomic fundamentals and political uncertainty or offer companies
with limited growth prospects.
Instead, your fund took advantage of the rebound in some parts of Asia
through investments in South Korea (which had the highest one-year return
of all developed and emerging markets at more than 100%) and Taiwan. After
a long lull, semiconductor and electronics stocks made a solid comeback as
memory chip prices improved. The fund held significant stakes in leading
companies such as Taiwan Semiconductor and Samsung Electronics of South
Korea. We also targeted South Korean blue-chip companies such as Korea
Electric Power and Pohang Iron & Steel.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Telefonos de Mexico S.A. ADR Class L
Utilities
Samsung Electronics Co.
Electronics and electrical equipment
Commercial Bank of Greece, S.A.
Insurance and finance
Korea Electric Power Corp.
Utilities
Telefonica de Argentina S.A. ADR
Utilities
Bank of Greece S.A.
Insurance and finance
Taiwan Semiconductor Manufacturing Co.
Electronics and electrical equipment
Grupo Televisa S.A.GDR
Broadcasting
Ceske Radiokomunikace 144A GDR
Telecommunications
Hellenic Telecommunication Organization S.A.
Satellite services
Footnote reads:
These holdings represent 21.5% of the fund's net assets as of 2/28/99.
Portfolio holdings will vary over time.
* OUTLOOK IS OPTIMISTIC, TEMPERED BY CAUTION
We are encouraged by the fact that the extreme amounts of market
volatility we witnessed in 1998 have subsided. Reviewing the emerging
markets, we are once again seeing differentiation between poorer and
stronger performers; companies are now being valued on their own merits,
rather than being devalued by waves of negative sentiment. However, as we
move through 1999, the slowing of the Chinese economy remains a great
concern. Should the Chinese authorities deem it necessary to devalue their
currency, renewed volatility may engulf the emerging markets once again.
Whatever lies in store for the world's developing economies, we will
continue to employ our investment strategy of combining top-down analysis
of each country's investment conditions along with bottom-up analysis of
each stock within each country. This strategy prompts us to select
countries that we believe offer (within the context of emerging-markets
investing) the best mix of rewards and risks and helps us to identify
companies priced below the economic value of their businesses. While
short-term volatility is an ongoing issue in these markets, we believe
that our approach steers the fund toward valuable long-term opportunities.
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 2/28/99, 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. Additional risks, including liquidity and volatility, may be
associated with emerging-markets securities.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Emerging Markets Fund is designed for investors seeking capital
appreciation through common stocks of companies operating primarily in
developing economies.
TOTAL RETURN FOR PERIODS ENDED 2/28/99
Class A Class B Class M
(inception date) (12/28/95) (10/30/96) (10/30/96)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 21.27% 14.38% 20.77% 15.77% 20.71% 16.47%
- ------------------------------------------------------------------------------
1 year -26.91 -31.12 -27.41 -31.04 -27.42 -29.98
- ------------------------------------------------------------------------------
Life of fund -14.12 -19.07 -16.00 -18.43 -15.64 -18.60
Annual average -4.69 -6.46 -5.35 -6.22 -5.22 -6.29
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/28/99
MSCI
Emerging Markets Consumer
Free Index price index
- ------------------------------------------------------------------------------
6 months 24.65% 0.80%
- ------------------------------------------------------------------------------
1 year -27.12 1.73
- ------------------------------------------------------------------------------
Life of fund -30.35 7.30
Annual average -10.78 2.25
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50% respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC , if any, currently
applicable to each class and in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 2/28/99
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.066 $0.002 $0.013
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.066 $0.002 $0.013
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
8/31/98 $5.81 $6.16 $5.74 $5.76 $5.97
- ------------------------------------------------------------------------------
2/28/99 6.98 7.41 6.93 6.94 7.19
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/99
(most recent calendar quarter)
Class A Class B Class M
(inception date) (12/28/95) (10/30/96) (10/30/96)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 28.14% 20.76% 27.84% 22.84% 27.57% 23.06%
- ------------------------------------------------------------------------------
1 year -23.32 -27.75 -23.68 -27.49 -23.76 -26.40
- ------------------------------------------------------------------------------
Life of fund -5.50 -10.95 -7.52 -10.19 -7.14 -10.39
Annual average -1.72 -3.49 -2.37 -3.24 -2.25 -3.31
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance summary for method of performance calculation.
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.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
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.
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 for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's 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.
COMPARATIVE BENCHMARKS
Morgan Stanley Capital International (MSCI) Emerging Markets Free Index*
is an unmanaged list of equity securities from emerging markets available
to non-domestic investors with all values expressed in U.S. dollars.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in 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.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund +
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
+ Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
**An investment in a money market fund is neither insured nor guaranteed by
the U.S. government. These funds are managed to maintain a price of $1.00
per share, although there is no assurance that this price will be
maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you invest
or send money.
<TABLE>
<CAPTION>
Portfolio of investments owned
February 28, 1999 (Unaudited)
COMMON STOCKS (98.0%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Argentina (4.9%)
- --------------------------------------------------------------------------------------------------------------------------
16,000 Banco Rio de La Plata S.A. ADR $ 151,000
117,200 Perez Companc S.A. Class B 477,195
39,900 Telefonica de Argentina S.A. ADR 1,167,075
63,900 Transportadora de Gas del Sur ADR 631,013
20,000 YPF S.A. ADR 580,000
--------------
3,006,283
Brazil (8.0%)
- --------------------------------------------------------------------------------------------------------------------------
45,720 Aracruz Celulose S.A. ADR 588,645
63,000 Banco Bradesco S.A. ADR 236,250
45,500 Cia Cervejaria Brahma ADR 346,938
50,307 Companhia Energetica de Minas Gerais ADR 653,991
4,918 Companhia Paulista de Forca e Luz CPFL 266,361
26,798 Companhia Vale do Rio Doce ADR 334,975
21,100 Embratel Participacoes S.A. ADR (NON) 287,488
19,600 Empresa Bras Aeronautica 135,269
41,200 Gerdau S.A. 284,138
25,800 Petroleo Brasileiro S/A-Petrobras ADR 196,725
41,300 Souza Cruz S.A. 264,483
56,800 Tele Norte Leste Participacoes S.A. ADR (NON) 568,000
14,720 Telesp Celular Participacoes S.A. ADR (NON) 309,120
26,700 Telesp Participacoes S.A. ADR 440,550
--------------
4,912,933
Chile (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
27,100 Banco Santander Chile ADR (NON) 387,869
15,800 Chilectra S.A. 144A ADR 308,100
32,900 Cia de Telecomunicationes de Chile S.A. ADR 727,913
17,900 Enersis S.A. ADR 436,313
28,200 Madeco S.A. ADR 193,875
4,400 Sociedad Quimica y Minera de Chile SA 132,000
--------------
2,186,070
China (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
502,000 Beijing Datang Power Generation Co., Ltd. (NON) 110,159
750,000 Zhejiang Expressway Co. Ltd. 121,983
--------------
232,142
Czech Republic (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
34,900 Ceske Radiokomunikace 144A GDR 1,073,175
Egypt (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
40,200 EFG-Hermes Holdings, S.A.E. 144A GDR (NON) 532,650
Estonia (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
8,300 Estonian Telekom GDR 144A 171,603
Greece (8.3%)
- --------------------------------------------------------------------------------------------------------------------------
15,870 Bank of Greece S.A. 1,165,928
10,919 Commercial Bank Of Greece, S.A. 1,346,962
38,400 Hellenic Telecommunication Organization S.A. 1,015,824
6,388 Hellenic Telecommunication Organization SA GDR (NON) 85,440
25,300 Panafon Hellenic Telecom SA (NON) 810,592
19,400 STET Hellas Telecommunications S.A. ADR (NON) 631,713
--------------
5,056,459
Hong Kong (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Asia Satellite Telecommunications Holdings Ltd. 177,488
212,000 China Telecom Ltd. (NON) 376,275
50,000 Dao Heng Bank Group Ltd. 136,182
66,000 Johnson Electric Holdings Ltd. 174,648
385,000 Legend Holdings Ltd. (NON) 150,332
--------------
1,014,925
Hungary (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
20,400 Magyar Tavkozlesi Rt ADR 555,900
40,200 MOL Magyar Olaj-es Gazipari 144A GDR 974,850
15,400 OTP Bank Rt 615,866
45,850 Pick Szeged Rt. 144A GDR 270,515
--------------
2,417,131
India (6.7%)
- --------------------------------------------------------------------------------------------------------------------------
38,300 Bajaj Auto Ltd. SPONS GDR 433,160
58,300 Bharat Heavy Electricals Ltd. (BHEL) 322,960
96,000 BSES Ltd. GDR (NON) 347,613
22,200 Hindustan Lever Ltd. 955,101
63,800 Hindustan Petroleum Corp. Ltd. 310,524
5,400 Housing Development Finance Corporation Ltd. 289,490
626 Larsen & Toubro Ltd. GDR 2,692
112,200 Mahanagar Telephone Nigam Ltd. 419,200
9,200 NIIT Ltd. 531,277
22,600 Videsh Sanchar Nigam GDR 216,395
24,300 Videsh Sanchar Nigam Ltd. GDR (NON) 232,673
--------------
4,061,085
Indonesia (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
20,300 PT Telekomunikasi Indonesia ADR 129,413
Israel (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
480,500 Bank Leumi Le-Israel 716,845
8,600 ECI Telecom Ltd. 316,050
17,500 Formula Systems Ltd. (NON) 453,747
5,500 Gilat Satellite Networks Ltd. (NON) 325,875
--------------
1,812,517
Malaysia (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
194,000 Berjaya Sports Toto Berhad 230,518
1,050,000 IJM Copr. Berhad 528,706
128,000 Jaya Tiasa Holdings Bhd 149,986
57,000 Malakoff Berhard 113,329
678,000 PPB Oil Palms Berhad (NON) 390,847
--------------
1,413,386
Mexico (14.4%)
- --------------------------------------------------------------------------------------------------------------------------
190,700 Alfa S.A. de C.V. Class A 473,369
69,900 Carso Global Telecom (NON) 300,988
160,000 Cemex S.A. de C.V. Class B (NON) 496,859
39,900 Coca-Cola Femsa S.A. ADR 551,119
129,900 Corporacion Interamericana de Entretenimiento S.A. (NON) 342,188
320,200 Corporacion Moctezuma, S.A. de C.V. (NON) 302,357
354,400 Fomento Economico Mexicano, S.A. de C.V. 938,963
510,000 Grupo Financiero Banamex Accival, S.A. de C.V. Class B (NON) 785,410
32,300 Grupo Imsa S.A. de C.V. ADR (NON) 427,975
116,800 Grupo Mexico S.A. (NON) 323,656
40,100 Grupo Televisa S.A.GDR (NON) 1,127,813
206,500 Gupo Carso S.A. de C.V. 692,518
35,900 Telefonos de Mexico S.A. ADR Class L 2,053,031
--------------
8,816,246
Peru (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
30,600 Telefonica del Peru S.A. ADR 361,463
Philippines (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
77,800 Bank of the Philippine Islands (NON) 183,472
1,224,800 Benpres Holdings Corp. GDR (NON) 164,148
1,878,400 Cosmos Bottling Corp. 135,555
3,706,850 International Container Terminal Services, Inc. (NON) 204,450
92,600 Manila Electric Co. Class B 288,778
11,200 Philippine Long Distance Telephone Co. ADR 261,237
1,439,800 SM Prime Holdings Inc. 278,312
--------------
1,515,952
Poland (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
35,600 Agora SA SPON GDR 144A 386,260
10,300 Agora SA GDR 111,755
32,800 @Entertainment, Inc. (NON) 330,050
--------------
828,065
Portugal (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
21,400 Investec Consultadoria International S.A. (NON) 742,589
24,900 Semapa -- Sociedade de Investimento e Gestao SGPS SA 410,899
--------------
1,153,488
South Africa (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
21,300 DataTec Ltd. (NON) 325,414
2,684 Edgars Stores Ltd. 11,458
550,376 FirstRand Ltd. (NON) 582,809
38,643 Liberty Life Association of Africa Ltd. 532,899
678,200 Sanlam Ltd. (NON) 484,624
36,700 South African Breweries, Ltd. 533,991
--------------
2,471,195
South Korea (9.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,700 Hanjin Heavy Industries 6,953
9,460 Hankuk Glass Industry Co. Ltd. 177,980
49,000 Hanwha Chemical Corp. 230,470
41,500 Housing & Commercial Bank GDR 643,292
4,400 Korea Chemical Co. Ltd. 205,153
49,900 Korea Electric Power Corp. (NON) 1,179,640
7,800 Korea Telecom Corp. (NON) 229,693
5,000 LG Information & Communication 145,603
7,860 Pohang Iron & Steel Company, Ltd. 414,314
26,274 Samsung Electronics Co. 1,852,613
713 Samsung Fire & Marine Insurance 227,460
10,600 Samsung Securities Co. Ltd. 241,481
--------------
5,554,652
Taiwan (7.5%)
- --------------------------------------------------------------------------------------------------------------------------
261,812 Acer, Inc. (NON) 294,073
12,200 Ase Test Limited (NON) 495,625
54,000 Asustek Computer, Inc. GDR (NON) 441,417
650,000 Bank Sinopac (NON) 282,395
80,000 Cathay Life Insurance Co., Ltd. 265,213
74,200 Hon Hai Precision Industry 359,431
100,000 Nien Hsing Textile Corp., Ltd. 183,167
430,000 Pacific Electrical Wire & Cable 234,332
165,792 President Chain Store Corp. 459,278
205,000 Siliconware Precision Industries Co. GDR (NON) 418,937
430,550 Taiwan Semiconductor Manufacturing Co. (NON) 1,153,604
--------------
4,587,472
Thailand (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
41,200 Advanced Info Service Public Co., Ltd. 286,877
148,700 Bangkok Bank Public Co., Ltd. 250,886
77,300 Electricity Generating Public Co. Ltd. (NON) 167,683
20,000 PTT Exploration & Production PLC 130,691
17,700 Siam Cement Public Company Ltd. (The) (NON) 365,945
104,600 Thai Farmers Bank Public Co. 175,080
--------------
1,377,162
Turkey (6.7%)
- --------------------------------------------------------------------------------------------------------------------------
14,987,000 Akbank T.A.S. 406,714
45,000,000 Dogan Sirketler Grubu Holding A.S. (NON) 432,509
2,625,000 Enka Holding Yatirim A.S. 408,127
107,500 Haci Omer Sabanci Holdings ADR 618,125
508,400 Migros Turk T.A.S. 661,100
5,900,000 Tupras -- Turkiye Petrol Rafinerileri A.S. 379,435
3,255,200 Vestel Elektronik Sanayi ve Ticaret A.S. (NON) 326,670
48,960 Yapi ve Kredi Bankasi A.S. GDR (NON) 869,036
--------------
4,101,716
United Kingdom (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
189,500 Billiton PLC (NON) 407,461
65,800 Coca-Cola Beverages PLC (NON) 100,154
37,200 Coca-Cola Beverages PLC 144A 56,622
76,491 Lonrho PLC 497,120
--------------
1,061,357
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $60,012,163) (b) $ 59,848,540
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $61,068,490.
(b) The aggregate identified cost on a tax basis is $60,994,094, resulting in gross unrealized appreciation and
depreciation of $8,356,062 and $9,501,616, respectively, or net unrealized depreciation of $1,145,554.
(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 and GDR after the name of a foreign holding stands for American Depository Receipts and Global Depository
Receipts, respectively, representing ownership of foreign securities on deposit with a domestic custodian bank.
The fund had the following industry group concentrations greater than 10% at February 28, 1999 (as a
percentage of net assets):
Insurance and Finance 22.2%
Telecommunications 15.3
Utilities 11.7
- -------------------------------------------------------------------------------
Swap Contracts Outstanding at February 28, 1999 (Unaudited)
Notional Termination Unrealized
Amount Date Appreciation
- -------------------------------------------------------------------------------
Agreement with Salomon Brothers
International Ltd. Dated April 13, 1998
to receive (pay) quarterly the notional
amount multiplied by the return of
SK Telecom Co. Limited (South Korea)
and pay the notional amount
multiplied by three month LIBOR
adjusted by a specified spread. $417,782 Apr-00 $192,434
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 28, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $60,012,163) (Note 1) $59,848,540
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $1,125,708) 1,149,023
- -----------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 315,590
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 181,472
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 2,493,331
- -----------------------------------------------------------------------------------------------
Receivable for open swap contract (Note 1) 192,434
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 2,881
- -----------------------------------------------------------------------------------------------
Total assets 64,183,271
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 2,081,646
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 64,661
- -----------------------------------------------------------------------------------------------
Payable to subcustodian 708,592
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 110,042
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 72,134
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,068
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 782
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 35,935
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 3,662
- -----------------------------------------------------------------------------------------------
Other accrued expenses 32,259
- -----------------------------------------------------------------------------------------------
Total liabilities 3,114,781
- -----------------------------------------------------------------------------------------------
Net assets $61,068,490
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $99,507,611
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (529,754)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investment income
and foreign currency transactions (Note 1) (37,939,079)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 29,712
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $61,068,490
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($34,621,139 divided by 4,963,503 shares) $6.98
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $6.98)* $7.41
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($24,409,984 divided by 3,521,957 shares)** $6.93
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,037,367 divided by 293,408 shares) $6.94
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $6.94)* $7.19
- -----------------------------------------------------------------------------------------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended February 28, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $31,220) $ 553,284
- -----------------------------------------------------------------------------------------------
Interest 161,605
- -----------------------------------------------------------------------------------------------
Total investment income 714,889
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 367,982
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 217,279
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,186
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,353
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 43,700
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 121,530
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 7,786
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 610
- -----------------------------------------------------------------------------------------------
Reports to shareholders 15,509
- -----------------------------------------------------------------------------------------------
Auditing 22,742
- -----------------------------------------------------------------------------------------------
Legal 1,274
- -----------------------------------------------------------------------------------------------
Postage 14,855
- -----------------------------------------------------------------------------------------------
Other 13,180
- -----------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (97,044)
- -----------------------------------------------------------------------------------------------
Total expenses 739,942
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,115)
- -----------------------------------------------------------------------------------------------
Net expenses 738,827
- -----------------------------------------------------------------------------------------------
Net investment loss (23,938)
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (15,323,396)
- -----------------------------------------------------------------------------------------------
Net realized loss on forward currency transactions (Note 1) (340,893)
- -----------------------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 651,637
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (51,446)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and swap
contracts during the period 26,830,831
- -----------------------------------------------------------------------------------------------
Net gain on investments 11,766,733
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $11,742,795
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
February 28, August 31,
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (23,938) $ (246,436)
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (15,012,652) (22,357,747)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies 26,779,385 (22,208,746)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 11,742,795 (44,812,929)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (360,212) --
- ---------------------------------------------------------------------------------------------------------------
Class B (7,594) --
- ---------------------------------------------------------------------------------------------------------------
Class M (4,040) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A -- (927,370)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (762,785)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (76,991)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (3,256,752) 7,866,413
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 8,114,197 (38,713,662)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 52,954,293 91,667,955
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income and accumulated net investment
loss of $529,754 and $133,970, respectively) $61,068,490 $52,954,293
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 Dec. 28, 1995+
operating performance (Unaudited) Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $5.81 $10.94 $10.28 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (c)(d) .01 .01 (.02) .01
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.23 (4.94) .81 1.77
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.24 (4.93) .79 1.78
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.07) -- (.01) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.20) (.12) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) (.20) (.13) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.98 $5.81 $10.94 $10.28
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 21.27* (45.69) 7.82 20.94*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $34,621 $29,239 $49,581 $2,925
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.04* 2.10 2.10 1.25*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)(c) .12* .06 (.23) .11*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 90.01* 112.35 141.81 45.90*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset
arrangements. (Note 2)
(c) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation,
expenses for the fund reflect a reduction of $.09 per share for class A for the period ended August
31, 1996. Expenses for the period ended August 31, 1997 reflect a reduction of $.04, $.03 and $.03 per
share for class A, class B and class M, respectively. Expenses for the period ended August 31, 1998
reflect a reduction of $.02, $.02 and $.02 per share for class A, Class B and Class M, respectively.
Expenses for the period ended February 28, 1999 reflect a reduction of $.01, $.01 and $.01
per share for class A, Class B and Class M, respectively.
(d) Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
(e) Distributions from net investment income were less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 Year ended Oct. 30, 1996+
operating performance (Unaudited) August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $5.74 $10.87 $9.95
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (c)(d) (.02) (.07) (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.21 (4.86) 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.19 (4.93) 1.05
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income --(e) -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.20) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (.20) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.93 $5.74 $10.87
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 20.77* (45.99) 10.67*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $24,410 $21,722 $38,044
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.42* 2.85 2.39*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)(c) (.26)* (.72) (.76)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 90.01* 112.35 141.81
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset
arrangements. (Note 2)
(c) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation,
expenses for the fund reflect a reduction of $.09 per share for class A for the period ended August
31, 1996. Expenses for the period ended August 31, 1997 reflect a reduction of $.04, $.03 and $.03 per
share for class A, class B and class M, respectively. Expenses for the period ended August 31, 1998
reflect a reduction of $.02, $.02 and $.02 per share for class A, Class B and Class M, respectively.
Expenses for the period ended February 28, 1999 reflect a reduction of $.01, $.01 and $.01
per share for class A, Class B and Class M, respectively.
(d) Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
(e) Distributions from net investment income were less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 Year ended Oct. 30, 1996+
operating performance (Unaudited) August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $5.76 $10.89 $9.95
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (c)(d) (.01) (.05) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.20 (4.88) 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.19 (4.93) 1.07
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.01) -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.20) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.01) (.20) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.94 $5.76 $10.89
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 20.71* (45.91) 10.88*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,037 $1,993 $4,043
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) (c) 1.29* 2.60 2.18*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (c) (.13)* (.43) (.53)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 90.01* 112.35 141.81
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset
arrangements. (Note 2)
(c) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation,
expenses for the fund reflect a reduction of $.09 per share for class A for the period ended August
31, 1996. Expenses for the period ended August 31, 1997 reflect a reduction of $.04, $.03 and $.03 per
share for class A, class B and class M, respectively. Expenses for the period ended August 31, 1998
reflect a reduction of $.02, $.02 and $.02 per share for class A, Class B and Class M, respectively.
Expenses for the period ended February 28, 1999 reflect a reduction of $.01, $.01 and $.01
per share for class A, Class B and Class M, respectively.
(d) Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
(e) Distributions from net investment income were less than $0.01 per share.
</TABLE>
Notes to financial statements
February 28, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Emerging Markets Fund (the "fund") is one of a series of Putnam
Investment Funds (the "trust") which is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-ended management
investment company. The objective of the fund is to seek long-term capital
appreciation by investing in common stocks and other equity securities of
emerging market companies.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than
class A shares, and are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class M shares are
sold with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with 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, or, if no sales are reported -- as in the case of
some securities traded over-the-counter -- the last reported bid price.
Investments for which market quotations are not readily available (and in
certain circumstances debt securities which trade on an exchange) are
stated at fair value on the basis of valuations furnished by pricing
services approved by the Trustees, which determines valuations for
institutional size trading units of such securities using methods based on
market transactions for comparable securities and various relationships
between securities that are generally recognized by institutional traders.
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 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). 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 realized 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) Swap contracts The fund may engage in swap agreements, which are
agreements to exchange the return generated by one instrument for the
return generated by another instrument. The fund may enter into equity
swap agreements, to manage its exposure to equity markets, which involve a
commitment by one party to pay interest in exchange for a market linked
return based on a notional amount. To the extent that the total return of
the security or index underlying the transaction exceeds or falls short of
the offsetting interest rate obligation, the fund will receive a payment
from or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss. Payments received
or made at the end of the measurement period are recorded as realized
gains or losses. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or in the price
of the underlying security or index, the possibility that there is no
liquid market for these agreements or that the counterparty may default on
its obligation to perform.
H) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended February 28, 1999, the fund had no borrowings against the line of
credit.
I) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains. At August 31, 1998, the fund had a capital loss carryover of
approximately $3,889,000 available to offset future net capital gain, if
any, which will expire on August 31, 2006.
J) 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.
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.
K) 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.
L) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $3,662. These expenses are being amortized on
projected net asset levels over a five-year period. The fund will
reimburse Putnam Management for the payment of these expenses.
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: 1.20% of the first $500
million of average net assets, 1.10% of the next $500 million, 1.05% of
the next $500 million, 1.00% of the next $5 billion, 0.975% of the next $5
billion, 0.955% of the next $5 billion, 0.94% of the next $5 billion and
0.93% thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through December 31, 1999, 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 1.85% 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 February 28, 1999, 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 six months ended February 28, 1999, fund expenses were reduced by
$1,115 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 $700 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 distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans 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 Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class M shares,
respectively. The Trustees have approved payment by the fund to an annual
rate of 0.25%, 1.00% and 0.75% of the average net assets attributable to
class A, class B and class M shares respectively.
For the six months ended February 28, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $13,245 and $318 from
the sale of class A and class M shares, respectively and received $42,550
in contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended February 28, 1999, Putnam Mutual
Funds Corp., acting as underwriter received $3,297 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended February 28, 1999, purchases and sales of
investment securities other than short-term investments aggregated
$52,784,646 and $52,358,044, 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 February 28, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
February 28, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 6,153,929 $40,122,686
- -----------------------------------------------------------------------------
Shares issued
in connection with
reinvestment of
distributions 45,699 319,892
- -----------------------------------------------------------------------------
6,199,628 40,442,578
Shares
repurchased (6,264,437) (41,606,339)
- -----------------------------------------------------------------------------
Net decrease (64,809) $(1,163,761)
- -----------------------------------------------------------------------------
Year ended
August 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 5,346,691 $51,791,477
- -----------------------------------------------------------------------------
Shares issued
in connection with
reinvestment of
distributions 100,050 898,446
- -----------------------------------------------------------------------------
5,446,741 52,689,923
Shares
repurchased (4,951,391) (47,956,548)
- -----------------------------------------------------------------------------
Net increase 495,350 $ 4,733,375
- -----------------------------------------------------------------------------
Six months ended
February 28, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 838,011 $ 5,587,709
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,002 6,984
- -----------------------------------------------------------------------------
839,013 5,594,693
Shares
repurchased (1,101,589) (7,345,717)
- -----------------------------------------------------------------------------
Net decrease (262,576) $(1,751,024)
- -----------------------------------------------------------------------------
Year ended
August 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,742,794 $26,471,596
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 80,287 715,358
- -----------------------------------------------------------------------------
2,823,081 27,186,954
Shares
repurchased (2,538,162) (23,909,221)
- -----------------------------------------------------------------------------
Net increase 284,919 $ 3,277,733
- -----------------------------------------------------------------------------
Six months ended
February 28, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 42,925 $ 282,854
- -----------------------------------------------------------------------------
Shares issued
in connection with
reinvestment of
distributions 561 3,915
- -----------------------------------------------------------------------------
43,486 286,769
Shares
repurchased (95,817) (628,736)
- -----------------------------------------------------------------------------
Net decrease (52,331) $(341,967)
- -----------------------------------------------------------------------------
Year ended
August 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 298,328 $3,017,025
- -----------------------------------------------------------------------------
Shares issued
in connection with
reinvestment of
distributions 8,480 75,725
- -----------------------------------------------------------------------------
306,808 3,092,750
Shares
repurchased (332,188) (3,237,445)
- -----------------------------------------------------------------------------
Net decrease (25,380) $ (144,695)
- -----------------------------------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get 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.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Website.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
* DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+ Regular investing, of course, does not guarantee a profit or protect
against a loss in a declining market.
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
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
Brett C. Browchuk
Vice President
John J. Morgan, Jr.
Vice President
Justin M. Scott
Vice President
Thomas R. Haslett
Vice President and Fund Manager
J. Peter Grant
Vice President and Fund Manager
Stephen Oler
Vice President and Fund Manager
Carmel Peters
Vice President and Fund Manager
Paul C. Warren
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Emerging
Markets 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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
- ---------------------
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PUTNAM
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SA004 51050 2AY/2CK/2CL 4/99
