Putnam
Emerging
Markets
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Last summer, with virtually all of the world's emerging markets beset by
turbulence and uncertainty, it would have been difficult to imagine that a
scant year later we would be noting the remarkable resilience of some,
notably in Asia and Latin America. The unexpected vitality that many of
these markets are displaying has not occurred by accident: experienced
investors the world over keep a close watch on the fundamentals and
respond accordingly. Where they see opportunity, they invest; where they
see trouble, they do not invest.
Other areas, such as eastern Europe, Greece, and Turkey, represent
longer-term prospects that are being closely monitored by investors,
including the managers of Putnam Emerging Markets Fund. In the following
report, your fund's management team reviews the market environment and
fund performance during the fiscal year ended August 31, 1999, and looks
at prospects for the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 20, 1999
Report from the Fund Managers
Thomas R. Haslett
J. Peter Grant
Paul Warren
Stephen Oler
Carmel Peters
In analyzing the rebound of the emerging Asian markets, the Financial
Times noted in its August 31, 1999, edition that "rumors of the tiger's
extinction have been exaggerated." Paraphrased from Mark Twain's famous
declaration, this remark can be applied to all of the world's emerging
equity markets as these investments, left for dead a year ago, have
rebounded to offer some of the highest returns in the world.
Within this positive environment, Putnam Emerging Markets Fund delivered a
healthy performance for the year ended August 31, 1999. Using an
investment strategy that combines a top-down analysis of general
investment conditions along with bottom-up analysis of stocks, we believe
we positioned the portfolio in areas of relative strength -- areas that
benefited from the clear upturn in world economic growth -- and avoided
some of the pitfalls that remained.
Total return for 12 months ended 8/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------
62.45% 53.22% 61.37% 56.37% 61.34% 60.34% 61.59% 55.90%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 7.
*ASIAN REBOUND LED BY RESTRUCTURING AND SURPRISING GROWTH
Many of the Asian economies that were overwhelmed by the economic crisis
that began in 1997 have shown a surprisingly vigorous turnaround in
economic growth. As interest rates fell and stability returned,
authorities in countries such as South Korea were able to force large
companies to restructure and reform noncompetitive practices.
Additionally, as the Japanese yen strengthened in the past few months, a
major impediment to the competitiveness of Asian export growth was
removed.
[GRAPHIC OMITTED: horizontal bar chart COUNTRY ALLOCATION]
COUNTRY ALLOCATION*
South Korea 14.0%
Mexico 12.3%
Taiwan 12.1%
India 9.1%
Brazil 8.3%
Footnote reads:
*Based on net assets as of 8/31/99. Holdings will vary over time.
Another important development for the region has been the upturn in the
semiconductor business cycle. Prices for commodity-type memory chips such
as DRAMS -- which is a large market for Asian companies -- have improved
substantially as demand for high-tech goods grows around the world.
South Korea has been the top performing emerging market for some time. We
have also been impressed with the level of restructuring that has taken
place at the large industrial groups known as chaebol. Samsung
Electronics, while being a major beneficiary of the upturn in
semiconductor prices, has also been one of the most aggressive companies
leading the restructuring trend in the country. The fund also owned stakes
in other Korean bellwethers such as Korean Electric Power Company, Pohang
Iron and Steel, and Korea Telecom Corporation. Of course with the relief
afforded by stronger markets and capital inflows, the drive to restructure
may slow somewhat. Thus, we will continue to monitor the progress in the
Korean market.
Another direct beneficiary of the upturn in the chip cycle was Taiwan,
where we were successful in selecting some key holdings. For example, the
fund owned Taiwanese blue-chips such as Taiwan Semiconductor as well as
some strong performing but lesser known chip stocks such as Winbond
Electronics and United Microelectronics. While these holdings, along with
others discussed in this report, were viewed favorably at the end of the
period, all are subject to review and adjustment in accordance with the
fund's investment strategy and may vary in the future.
* TOUGH PERIOD FOR LATIN AMERICA OFFERS HOPE FOR FUTURE
While the Latin American markets we target in the fund have come through a
difficult time of economic adjustment and they face some difficult
short-term issues, we believe they also offer a great deal of promise for
emerging-market investors. Of course, one could argue that these markets
have withstood a barrage of negative developments that would have
paralyzed other regions that do not possess Latin America's underlying
strength. Currency devaluation in Brazil has created strife among the
members of the South American trading bloc, MERCOSUR. Political and
government policy uncertainty has persisted and should not abate ahead of
elections in Argentina and Mexico. Finally, higher U.S. interest rates and
a general aversion to the higher risks of Latin American equities has
dampened investor sentiment for the region. However, in spite of these
developments, the region's performance was surprisingly strong.
Putnam Emerging Markets Fund's class A shares were ranked in the top 29%
of the emerging markets funds ranked by Lipper for the 2-year period ended
September 30, 1999. The fund was 41 out of 142 funds.*
Footnote reads:
*Past performance is no guarantee 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 45 out
of 177 (26%) emerging markets funds. For the 3-year period, the fund ranked
44 out of 110 (40%) funds. The fund was not ranked over longer time periods.
Despite these problems, Latin American equities are extremely inexpensive
and we believe much of these negative developments are already reflected
in their share prices. Stocks in the region are trading at an average of
10 times future earnings (significantly less than for emerging Asia) with
earnings-per-share growth expected to be above 15% next year. Merger and
acquisition activity in the region has also been robust. Additionally, to
an even greater extent than other emerging market regions, we believe that
Latin America is well positioned to benefit from accelerating world
economic growth and improved commodity prices.
We targeted large cyclical companies in the region. Cemex, of Mexico, is
the largest cement producer in Latin America and the third largest in the
world. Additionally, the fund owned stakes in Brazilian companies
Companhia Siderurgica, a steel manufacturer, and Companhia Vale Do Rio
Doce, a leading iron ore producer. All of these companies also book their
profits in dollars, rather than weaker local currencies.
"A year after the Russian default and a little over two years since the fall
of the Thai baht, emerging markets have been among the best performing in
1999."
- -- Financial Times, August 31, 1999
We also continue to target companies such as telecommunications and mobile
telephony in areas enjoying worldwide growth. We still hold significant
positions in Latin American investment staples such as Telefonos de Mexico
and Telesp Celular of Brazil. Both of these companies have solid
management teams and still possess attractive growth prospects.
* OTHER REGIONS OFFER GROWTH AND POTENTIAL
Developing markets in other areas of the world offered a mixed bag of
results. In the final few months of the fund's reporting period, the
Indian market posted solid returns (in local currency terms) based on
improving macroeconomic fundamentals and the belief the recent election
would result in political continuity. Stocks such as software company
Infosys Technologies and Hindalco Industries performed well as investors
sought technology and cyclical names.
The end of the war in Kosovo relieved pressure on the Greek and Eastern
European markets. The Greek market performed particularly well this year
and interest rates have fallen, which has helped larger banks such as
Commercial Bank of Greece perform well. The fund remains underweighted in
Greece relative to the benchmark index as company valuations appear
stretched.
The fund maintained a significant position in Turkey, which was tragically
hit by a severe earthquake in mid August. Despite this setback, we
continue to believe improved macro economic fundamentals should help
Turkish stocks over time.
* LONG-TERM OPTIMISM TEMPERED BY SHORT-TERM CONSIDERATIONS
It is clear that economic recovery has taken hold in Asia and we believe
it should solidify next year in Latin America. Certainly, we are heartened
by the uptick in world growth, the improvement in oil and other commodity
prices, and the rising demand for goods from many of the developing
regions. All of which could directly benefit the markets on which we
focus. Areas such as Eastern Europe should also benefit from the improved
economic prospects of the Western European economy.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Samsung Electronics Co.
South Korea
Electronics and electrical equipment
Telefonos de Mexico S.A.,
ADR Class L
Mexico
Utilities
Korea Electric Power Corp.
South Korea
Utilities
Commercial Bank Of Greece, S.A.
Greece
Insurance and finance
Taiwan Semiconductor
Manufacturing Co.
Taiwan
Electronics and electrical equipment
Grupo Televisa S.A.GDR
Mexico
Broadcasting
Cemex S.A. de C.V., Class B
Mexico
Building and construction
Telesp Celular Participacoes S.A. ADR
Brazil
Telecommunications
United Microelectronics Corp. Ltd.
Taiwan
Electronics and electrical equipment
Hindustan Lever Ltd.
India
Consumer durable goods
Footnote reads:
These holdings represent 20.8% of the fund's net assets as of 8/31/99.
Portfolio holdings will vary over time.
At the same time, we are also mindful of some important short-term issues.
Should U.S. interest rates move higher, emerging market stocks could
suffer. In addition, trading in emerging markets securities could remain
volatile as investor concerns about Y2K escalate toward the end of 1999.
We should also note that shortly after the close of the fund's reporting
period Taiwan sustained a major earthquake. While the loss of life and the
safety of survivors are the primary concerns, from an economic point of
view, DRAM spot prices spiked higher in the immediate aftermath of the
earthquake. Although the estimates of disruption in the production of
memory chips and technological components have varied, it appears at this
time to be a short-term concern. We will continue to monitor the situation
closely.
Of course, no matter what occurs in the near future, investors should
remember that emerging-markets investments are a volatile asset class.
That is why we will continue to adhere to our investing strategy of
selecting countries that within the context of emerging-markets investing
we believe offer the best mix of rewards and risks. This, in turn, helps
us to identify companies priced below the economic value of their
businesses. We believe this approach steers the fund toward valuable
long-term investment 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 8/31/99, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, including those related to economic instability,
unfavorable political developments and currently fluctuations. 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 long-term capital appreciation
through common stocks of companies operating primarily in developing economies.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 8/31/99
Class A Class B Class C Class M
(inception dates) (12/28/95) (10/30/96) (7/26/99) (10/30/96)
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 62.45% 53.22% 61.37% 56.37% 61.34% 60.34% 61.59% 55.90%
- ---------------------------------------------------------------------------------------------
Life of fund 15.04 8.41 12.24 9.24 12.05 12.05 12.92 8.96
Annual average 3.89 2.23 3.20 2.44 3.15 3.15 3.37 2.37
- ---------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/99
MSCI Emerging Markets Consumer
Free Index price index
- ---------------------------------------------------------------------------
1 year 72.28% 2.33%
- ---------------------------------------------------------------------------
Life of fund -3.90 8.93
Annual average -1.08 2.36
- ---------------------------------------------------------------------------
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. For class C shares,
returns for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
CDSC currently applicable to class C shares, which is 1% for the first
year and is eliminated thereafter, and the higher operating expenses
applicable to class C 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. Performance data reflect an expense limitation
currently or previously in effect. Without the expense limitation, total
returns would have been lower.
[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 12/28/95
Fund's class A MSCI Emerging Markets Consumer price
Date shares at POP Free Index index
12/28/95 9,425 10,000 10,000
8/31/96 11,397 10,574 10,248
8/31/97 12,288 11,059 10,476
8/31/98 6,674 5,578 10,645
8/31/99 $10,841 $9,610 $10,893
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $11,224 ($10,924 with the contingent deferred sales
charge); a $10,000 investment in the fund's class C shares would have been
valued at $11,205 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$11,292 ($10,896 at public offering price). See first page of performance
section for performance calculation method.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 1 1 -- 1
- --------------------------------------------------------------------------------------
Income $0.066 $0.002 -- $0.013
- --------------------------------------------------------------------------------------
Capital gains
Long-term -- -- -- --
- --------------------------------------------------------------------------------------
Short-term -- -- -- --
- --------------------------------------------------------------------------------------
Total $0.066 $0.002 -- $0.013
- --------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------------
8/31/98 $5.81 $6.16 $5.74 -- $5.76 $5.97
- --------------------------------------------------------------------------------------
7/26/99* -- -- -- $9.56 -- --
- --------------------------------------------------------------------------------------
8/31/99 9.35 9.92 9.26 9.35 9.29 9.63
- --------------------------------------------------------------------------------------
*Inception of class C shares.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (12/28/95) (10/30/96) (7/26/99) (10/30/96)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 50.33% 41.67% 49.29% 44.29% 49.18% 48.18% 49.11% 43.84%
- ------------------------------------------------------------------------------------------
Life of fund 10.86 4.47 8.00 5.00 7.85 7.85 8.55 4.74
Annual average 2.78 1.17 2.07 1.31 2.03 2.03 2.20 1.24
- ------------------------------------------------------------------------------------------
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 section for performance calculation method.
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
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 or C shares and assumes redemption at the end of
the period. Your funds' class B CDSC declines from a 5% maximum during the
first year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies. The CDSC for class C shares is 1% for one year after
purchase.
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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended August 31, 1999
To the Trustees of Putnam Investment Funds
and Shareholders of Putnam Emerging Markets Fund
(a series of Putnam Investment Funds)
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Emerging
Markets Fund (the "fund") at August 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods 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 audits. We conducted our audits 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 audits, which included
confirmation of investments owned at August 31, 1999 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 11, 1999
</TABLE>
<TABLE>
<CAPTION>
The fund's portfolio
August 31, 1999
COMMON STOCKS (98.6%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Argentina (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
24,642 Banco De Galicia Buenos Aires S.A. de C.V. ADR, Class B $ 475,899
48,500 Perez Companc S.A., Class B 282,298
15,700 Telecom Argentina S.A. ADR (NON) 443,525
18,365 Telefonica de Argentina S.A. ADR 546,359
--------------
1,748,081
Brazil (8.3%)
- --------------------------------------------------------------------------------------------------------------------------
38,220 Aracruz Celulose S.A. ADR 757,234
825 Banco Itau S.A. BRC $6.86 no par value (NPV) 383,621
46,007 Companhia Energetica de Minas Gerais ADR 701,607
32,632 Companhia Siderurgica Nacional 792,613
49,301 Companhia Vale do Rio Doce ADR (NON) 1,059,972
159,300 Empresa Bras Aeronautica 442,777
29,700 Gerdau S.A. 450,000
52,000 Petroleo Brasileiro SA-Petrobras ADR 682,500
17,600 Tele Centro Sul Participacoes S.A. 962,500
68,020 Telesp Celular Participacoes S.A. ADR 1,572,963
78,900 Telesp Participacoes S.A. ADR (NON) 1,287,056
--------------
9,092,843
Chile (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
44,500 Banco Santiago S.A. 934,500
18,100 Chilectra S.A. 144A ADR 352,950
51,900 Cia de Telecomunicationes de Chile S.A. ADR 1,167,750
29,800 Compania Cervecera Unidas 780,388
--------------
3,235,588
China (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,474,000 Beijing Yanhua Petrochemical Co., Ltd. Class H 311,323
1,010,000 Shandong International Power Development Co. Ltd. 201,615
1,513,000 Shanghai Petrochemical Co. Ltd. (NON) 325,406
900,000 Yanzhou Coal Mining Co. Ltd. 396,984
--------------
1,235,328
Croatia (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
48,500 Pliva D GDR 144A (NON) 660,813
Czech Republic (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
22,900 Ceske Radiokomunikace 144A GDR (NON) 835,850
Egypt (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
45,100 EFG-Hermes Holdings, S.A.E. 144A GDR 451,000
Greece (4.2%)
- --------------------------------------------------------------------------------------------------------------------------
24,250 Commercial Bank Of Greece, S.A. 2,354,944
24,250 Commercial Bank Of Greece, S.A. Rights
(expiration date 10/1/99) 526,815
54,400 Hellenic Telecommunication Organization S.A. 1,128,888
6,388 Hellenic Telecommunication Organization S.A. GDR 65,876
10,900 Panafon Hellenic Telecom S.A. 318,083
10,900 STET Hellas Telecommunications S.A. ADR (NON) 186,663
--------------
4,581,269
Hong Kong (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 Beijing Enterprises Holdings Ltd. 359,314
392,000 China Merchants Holdings Ltd. 330,672
375,000 China Telecom Ltd. 1,166,321
558,000 Hengan Intl. Group Co., Ltd. (NON) 206,605
70,500 Johnson Electric Holdings Ltd. 317,780
302,000 Legend Holdings Ltd. 291,701
406,000 Tianjin Development Hldgs Ltd. (NON) 284,965
--------------
2,957,358
Hungary (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
30,400 Magyar Tavkozlesi Rt ADR 923,400
19,900 MOL Magyar Olaj-es Gazipari 144A GDR 499,988
37,800 Tiszai Vegyi Kombinat Rt (NON) 589,862
--------------
2,013,250
India (9.1%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Bharat Heavy Electricals Ltd. (BHEL) 292,166
10,000 Cipla Ltd. 639,401
45,000 Gujarat Ambuja Cements Ltd. (NON) 550,576
24,000 Hindalco Industries. Ltd. 507,650
22,900 Hindustan Lever Ltd. (NON) 1,406,187
38,500 Hindustan Petroleum Corp. Ltd. (NON) 227,762
138,000 Housing Development Finance Corporation Ltd. (NON) 821,641
23,600 Indian Hotels Co Ltd. GDR 309,954
5,500 Infosys Technologies Ltd. 709,677
25,900 ITC Ltd. 613,185
60,726 Larsen & Toubro Ltd. GDR (NON) 547,793
55,700 Mahanagar Telephone Nigam Ltd. (NON) 259,249
50,000 Mahindra & Mahindra Ltd. (NON) 474,654
9,900 NIIT Ltd. (NON) 483,594
18,200 Ranbaxy Laboratories Ltd. (NON) 475,926
30,000 Satyam Computer Services Ltd. 606,705
19,400 Videsh Sanchar Nigam Ltd. GDR (NON) 266,750
10,600 Zee Telefilms Ltd. (NON) 793,779
--------------
9,986,649
Indonesia (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
746,000 PT Astra International Inc. (NON) 263,296
163,500 PT Gudang Garam 395,393
224,000 PT Indofood Sukses 240,106
6,600 PT Indosat ADR 101,888
170,000 PT Semen Gresik 333,336
785,700 PT Telekomunikasi Indonesia 302,985
25,120 PT Telekomunikasi Indonesia ADR 193,110
--------------
1,830,114
Israel (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
569,500 Bank Leumi Le-Israel 985,257
17,000 ECI Telecom Ltd. 482,375
21,400 Formula Systems Ltd. (NON) 536,907
11,700 Gilat Satellite Networks Ltd. (NON) 551,363
248,800 M.A. Industries 439,242
3,000 Orbotech Ltd. (NON) 160,313
58,700 Sapiens International Corp. (NON) 498,950
--------------
3,654,407
Korea (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
19,136 AP SK Corp. 462,184
Malaysia (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 Berjaya Sports Toto Berhad 416,853
111,000 Commerce Asset-Holding Berhad 255,599
67,000 Edaran Otomobil Nasional Berhad 246,849
600,000 IJM Copr. Berhad 483,171
177,000 Jaya Tiasa Holdings Berhad 330,719
511,000 Public Bank Berhad 430,327
144,000 Resorts World Berhad 365,694
106,000 Telekom Malaysia 315,219
171,000 UMW Holdings Berhad 369,010
87,000 WTK Holdings Berhad 238,112
--------------
3,451,553
Mexico (12.3%)
- --------------------------------------------------------------------------------------------------------------------------
214,200 Alfa S.A. de C.V., Class A 813,534
83,873 Carso Global Telecom 465,712
396,967 Cemex S.A. de C.V., Class B 1,766,752
212,358 Corporacion Interamericana de Entretenimiento S.A. 570,256
391,906 Corporacion Moctezuma, S.A. de C.V. (NON) 503,142
255,101 Fomento Economico Mexicano, S.A. de C.V. 839,238
366,400 Grupo Financiero Bancomer, S.A. de C.V. 705,595
34,464 Grupo Imsa S.A. de C.V. ADR 551,424
239,697 Grupo Mexico S.A. 1,039,875
208,100 Grupo Modelo S.A. de C.V. 557,709
51,400 Grupo Televisa S.A.GDR 1,869,675
46,200 Telefonos de Mexico S.A., ADR Class L 3,436,125
61,500 TV Azteca, S.A. de C.V. 311,344
--------------
13,430,381
Philippines (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
100,700 Bank of the Philippine Islands 289,894
1,086,100 Benpres Holdings Corp. GDR (NON) 213,929
300 Cosmos Bottling Corp. 19
3,988,600 International Container Terminal Services, Inc. (NON) 428,070
113,700 Manila Electric Co., Class B 338,803
205,500 San Miguel Corp. 334,716
1,691,800 SM Prime Holdings Inc. 311,872
--------------
1,917,303
Poland (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
35,800 Agora S.A. (NON) 393,800
19,000 Agora S.A. GDR (NON) 209,000
64,300 Orbis S.A. (NON) 540,962
120,500 Reliance Industries Ltd. 540,029
--------------
1,683,791
Russia (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
73,400 Surgutneftegaz-sp ADR (NON) 550,500
28,500 Vimpel Communications ADR (NON) 443,531
--------------
994,031
Singapore (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
9,500 Asia Pulp & Paper Co. Ltd. ADR 72,438
532,000 Del Monte Pacific Ltd. 144A (NON) 271,320
--------------
343,758
South Africa (7.0%)
- --------------------------------------------------------------------------------------------------------------------------
122,100 ABSA Group Ltd. 628,058
224,700 Billiton PLC 912,094
25,800 DataTec Ltd. 330,715
29,259 Impala Platinum Holdings Ltd. 937,634
105,900 Johnnies Industrial Corp. 722,243
111,200 Kersaf Investments Ltd. 467,826
93,291 Lonrho PLC 855,487
651,700 Old Mutual PLC 144A 1,386,781
117,000 Sappi Ltd. 1,078,669
159,500 Theta Group Ltd. (NON) 331,582
--------------
7,651,089
South Korea (14.0%)
- --------------------------------------------------------------------------------------------------------------------------
3,074 Dacom Corp. 306,098
21,500 Daelim Industrial Co. 304,280
270 Hanwha Chemical Corp. (NON) 2,711
19,700 Housing & Commercial Bank GDR (NON) 460,781
14,500 Hyundai Electronics Industries Co. (NON) 460,807
21,800 Hyundai Industrial Development & Contruction 339,933
10,400 Hyundai Motor Co Ltd. 322,577
65,100 Korea Electric Power Corp. 2,427,464
17,100 Korea Telecom Corp. (NON) 1,072,376
6,400 Korea Telecom Corp. ADR (NON) 208,000
17,400 L.G. Chemical Ltd. 555,917
17,200 L.G. Electronics 728,816
8,860 Pohang Iron & Steel Company, Ltd. 1,204,137
22,832 Samsung Electronics Co. 4,334,222
10,430 Samsung Fire & Marine Insurance (NON) 515,314
50,000 Shinhan Bank 538,137
6,200 Shinsegae Department Store Co. 488,120
740 SK Telecom Co., Ltd. 740,629
3,800 Trigem Computer, Inc. 283,391
--------------
15,293,710
Taiwan (12.1%)
- --------------------------------------------------------------------------------------------------------------------------
39,445 Acer Inc. (NON) 420,089
210,000 Acer Peripherals Inc. 546,530
177,120 Advanced Semiconductor Engineering Inc. (NON) 533,595
31,500 Ase Test Limited 724,500
91,484 Asustek Computer, Inc. GDR 986,988
755,770 Bank Sinopac 467,290
133,000 Cathay Life Insurance Co., Ltd. 400,678
787,900 China Steel Corp. GDR 616,401
527,600 Chinatrust Commercial Bank 529,264
28,240 Evergreen Marine Corp. 29,309
316,100 Far Eastern Textile Ltd. 459,691
300,000 Formosa Plastics Corp. 577,287
134,480 Hon Hai Precision Industry 878,150
208,000 Nan Ya Plastic Corp. 344,480
226,334 President Chain Store Corp. 664,008
66,960 Taishin Intl. Bank 43,091
507,836 Taiwan Semiconductor Manufacturing Co. 2,162,709
575,850 United Microelectronics Corp. Ltd. 1,471,415
150,000 United World Chinese Commercial Bank 202,050
45,300 Windbond Electronics Corp. (NON) 860,700
299,000 Yageo Corp. 317,010
--------------
13,235,235
Thailand (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
40,500 Advanced Info Service Public Co., Ltd. (NON) 555,924
198,900 Bangkok Bank Public Co., Ltd. (NON) 506,074
350,000 International Broadcasting Corporation Public Company Ltd. 223,773
160,000 National Finance PLC (NON) 74,113
275,400 National Financial Insurance 127,567
270,000 National Petrochemical Co. (NON) 227,231
29,500 PTT Exploration & Production PLC (NON) 232,490
880 Quanta Computer Inc. 8,606
16,800 Siam Cement Public Company Ltd. (The) (NON) 434,906
466,200 Siam Commercial Bank Public Co. Ltd. (NON) 529,220
242,600 TelecomAsia Corporation Public Co. Ltd. (NON) 232,660
371,000 Thai Farmers Bank Public Co. (NON) 532,490
--------------
3,685,054
Turkey (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
56,794,600 Akbank T.A.S. 753,948
121,300 Haci Omer Sabanci Holdings ADR 642,890
54,099,000 Hurriyet Gazetecilik Ve Matbaacilik A.S. 383,373
941,900 Migros Turk T.A.S. 376,171
7,145,900 Tupras -- Turkiye Petrol Rafinerileri A.S. 456,623
3,085,200 Vestel Elektronik Sanayi ve Ticaret A.S. (NON) 329,731
38,745 Yapi ve Kredi Bankasi A.S. GDR 499,811
--------------
3,442,547
--------------
Total Common Stocks (cost $88,967,766) $ 107,873,186
CONVERTIBLE PREFERRED STOCKS (0.4%) (a) (cost $391,818)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
114,000 Compal Electronics Inc. $3.2735 c.v. pfd. $ 392,103
WARRANTS (0.2%) (a) (NON) (cost $--) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
404,300 Siam Commercial Banks 5/10/02 $ 181,998
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $89,359,584) (b) $ 108,447,287
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $109,405,423.
(b) The aggregate identified cost on a tax basis is $91,524,788, resulting in gross unrealized appreciation and
depreciation of $22,889,860 and $5,967,361, respectively, or net unrealized appreciation of $16,922,499.
(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 Depositary Receipts and Global Depositary Receipts
respectively, representing ownership of foreign securities on deposit with a domestic custodian bank.
The fund had the following industry group (concentration)(concentrations) greater than 10% at August 31, 1999 (as a
percentage of net assets):
Insurance and finance 15.3%
Telecommunications 13.2
Electronics and electrical equipment 11.2
<CAPTION>
- ----------------------------------------------------------------------------------------------------
SWAP Contracts outstanding at August 31, 1999
Notional Termination Unrealized
Amount Date Depreciation
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agreement with Salomon Brothers
International Ltd. Dated August 17, 1999
to receive (pay) quarterly the notional
amount multiplied by the return of
Cathay Life Insurance (Taiwan) and
pay the notional amount multiplied by
three months LIBOR adjusted by
a specified spread. $484,212 Aug-00 $(22,782)
Agreement with Salomon Brothers
International Ltd. Dated August 17, 1999
to receive (pay) quarterly the notional amount
multiplied by the return of United World Chinese
Commercial Bank (Taiwan) and pay the notional
amount multiplied by three months LIBOR
adjusted by a specified spread. $313,592 Aug-00 $ (5,438)
- ----------------------------------------------------------------------------------------------------
$(28,220)
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $89,359,584) (Note 1) $108,447,287
- -----------------------------------------------------------------------------------------------
Foreign currency 1,718,495
- -----------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 258,557
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 340,720
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 3,906,371
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 2,706
- -----------------------------------------------------------------------------------------------
Total assets 114,674,136
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 2,217,381
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 980,689
- -----------------------------------------------------------------------------------------------
Payable to subcustodian 1,586,834
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 198,346
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 120,972
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,948
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,172
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 70,594
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 3,662
- -----------------------------------------------------------------------------------------------
Payable for open swap contract (Note 1) 28,220
- -----------------------------------------------------------------------------------------------
Other accrued expenses 53,895
- -----------------------------------------------------------------------------------------------
Total liabilities 5,268,713
- -----------------------------------------------------------------------------------------------
Net assets $109,405,423
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $126,608,115
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 704,491
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investment income and
foreign currency transactions (Note 1) (36,945,910)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 19,038,727
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $109,405,423
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($60,668,774 divided by 6,485,645 shares) $9.35
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $9.35)* $9.92
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($44,837,969 divided by 4,842,957 shares)** $9.26
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($81,451 divided by 8,709 shares)** $9.35
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,817,229 divided by 411,112 shares) $9.29
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $9.29)* $9.63
- -----------------------------------------------------------------------------------------------
* 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
Year ended August 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $60,767) $ 1,487,253
- -----------------------------------------------------------------------------------------------
Interest 204,747
- -----------------------------------------------------------------------------------------------
Total investment income 1,692,000
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 900,899
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 558,194
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,062
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,749
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 109,510
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 315,982
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 28
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 23,042
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 785
- -----------------------------------------------------------------------------------------------
Reports to shareholders 37,557
- -----------------------------------------------------------------------------------------------
Registration fees 7,012
- -----------------------------------------------------------------------------------------------
Auditing 48,719
- -----------------------------------------------------------------------------------------------
Legal 3,861
- -----------------------------------------------------------------------------------------------
Postage 35,964
- -----------------------------------------------------------------------------------------------
Other 21,723
- -----------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (183,915)
- -----------------------------------------------------------------------------------------------
Total expenses 1,901,172
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (3,419)
- -----------------------------------------------------------------------------------------------
Net expenses 1,897,753
- -----------------------------------------------------------------------------------------------
Net investment loss (205,753)
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (13,658,701)
- -----------------------------------------------------------------------------------------------
Net realized loss on forward currency transactions (Note 1) (153,171)
- -----------------------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 1,502,577
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (285,474)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (73,103)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
swap contracts during the year 45,861,503
- -----------------------------------------------------------------------------------------------
Net gain on investments 33,193,631
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $32,987,878
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (205,753) $ (246,436)
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (12,594,769) (22,357,747)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies 45,788,400 (22,208,746)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 32,987,878 (44,812,929)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (360,213) --
- ---------------------------------------------------------------------------------------------------------------
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 from capital share transactions (Note 4) 23,835,099 7,866,413
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 56,451,130 (38,713,662)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 52,954,293 91,667,955
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income and accumulated net investment loss of
$704,491 and $133,970, respectively) $109,405,423 $52,954,293
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 28, 1995+
operating performance 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) --(e) .01 (.02) .01
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.61 (4.94) .81 1.77
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.61 (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 $9.35 $5.81 $10.94 $10.28
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 62.45 (45.69) 7.82 20.94*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $60,669 $29,239 $49,581 $2,925
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 2.10 2.10 2.10 1.25*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)(c) (.06) .06 (.23) .11*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.86 112.35 141.81 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 August 31, 1999 reflect a reduction of $.01, $.02, $.00 and $.02
per share for class A, class B, class C 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) Net investment income and/or 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Oct. 30, 1996+
operating performance Year ended 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) (.05) (.07) (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.57 (4.86) 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.52 (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 $9.26 $5.74 $10.87
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 61.37 (45.99) 10.67*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $44,838 $21,722 $38,044
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 2.85 2.85 2.39*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)(c) (.69) (.72) (.76)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.86 112.35 141.81
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 August 31, 1999 reflect a reduction of $.01, $.02, $.00 and $.02
per share for class A, class B, class C 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) Net investment income and/or 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 C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $9.56
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (c)(d) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.20)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $81
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .29*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (c) (.25)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.86
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 August 31, 1999 reflect a reduction of $.01, $.02, $.00 and $.02
per share for class A, class B, class C 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) Net investment income and/or 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Oct. 30, 1996+
operating performance Year ended 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) (.03) (.05) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.57 (4.88) 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.54 (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 $9.29 $5.76 $10.89
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 61.59 (45.91) 10.88*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,817 $1,993 $4,043
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) (c) 2.60 2.60 2.18*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (c) (.41) (.43) (.53)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.86 112.35 141.81
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 August 31, 1999 reflect a reduction of $.01, $.02, $.00 and $.02
per share for class A, class B, class C 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) Net investment income and/or distributions from net investment income were less than $0.01 per share.
</TABLE>
Notes to financial statements
August 31, 1999
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 mostly in common stocks and other equity
securities of emerging market companies.
The fund offers class A, class B, class C, and class M shares. The fund
began offering class C shares on July 26, 1999. 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 C shares are
subject to the same fees and expenses as class B shares, except that class
C shares have a one year 1.00% contingent deferred sales charge and do not
convert to class A shares. Class M shares are sold with a maximum
front-end sales charge of 3.50% and pay an ongoing distribution fee that
is higher than class A shares but lower than class B and class C 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). Gains or losses on securities sold are determined on
the identified cost basis.
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 an
agreement 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 year ended
August 31, 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, 1999, the fund had a capital loss carryover of approximately
$29,135,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ---------------
$3,889,000 August 31, 2006
$25,246,000 August 31, 2007
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. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, post-October loss
deferrals, organization costs, foreign taxes, realized and unrealized
gains and losses on passive foreign investment companies, and on swap
adjustment. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. For the year ended August
31, 1999, the fund reclassified $1,497,236 to decrease distributions in
excess of net investment income and $8,653 to increase paid-in-capital,
with an increase to accumulated net realized loss of $1,505,889. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
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: 1.00% of the first $500
million of average net assets, 0.90% of the next $500 million, 0.85% of
the next $500 million, 0.80% of the next $5 billion, 0.775% of the next $5
billion, 0.755% of the next $5 billion, 0.74% of the next $5 billion and
0.73% thereafter.
Prior to July 1, 1999 the fund was 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 August 31, 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 year ended August 31, 1999, fund expenses were reduced by $3,419
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 $564 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
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, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund to an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the year ended August 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $42,567 and $2,892 from the sale
of class A and class M shares, respectively and received $89,167 and $13
in contingent deferred sales charges from redemptions of class B and class
C shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For the year ended August 31, 1999, Putnam
Mutual Funds Corp., acting as underwriter, received $3,519 on class A
redemptions.
Note 3
Purchase and sales of securities
During the year ended August 31, 1999, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $151,349,228 and $123,295,453, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At August 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 11,334,932 $86,575,553
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 45,700 319,903
- -----------------------------------------------------------------------------
11,380,632 86,895,456
Shares
repurchased (9,923,299) (74,002,428)
- -----------------------------------------------------------------------------
Net increase 1,457,333 $12,893,028
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,807,669 $32,248,790
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,002 6,983
- -----------------------------------------------------------------------------
3,808,671 32,255,773
Shares
repurchased (2,750,247) (22,052,112)
- -----------------------------------------------------------------------------
Net increase 1,058,424 $10,203,661
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to August 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 8,855 $83,255
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
8,855 83,255
Shares
repurchased (146) (1,365)
- -----------------------------------------------------------------------------
Net increase 8,709 $81,890
- -----------------------------------------------------------------------------
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 409,484 $3,517,717
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 561 3,915
- -----------------------------------------------------------------------------
410,045 3,521,632
- -----------------------------------------------------------------------------
Shares
repurchased (344,672) (2,865,112)
- -----------------------------------------------------------------------------
Net increase 65,373 $ 656,520
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
For the period, interest and dividends from foreign countries were
$1,549,348. Taxes paid to foreign countries were $60,767.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
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 Web site.
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.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity 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
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
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
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
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
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
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[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 not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
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
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' Web site: 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
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN004-55086 2AY/2CK/2CL 10/99
