Putnam 811-7237
Emerging
Markets
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
2-28-02
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholders:
In challenging times such as these, it is a pleasure to inform you that
over the first half of fiscal 2002, Putnam Emerging Markets Fund posted
a healthy gain. Since the stocks in which this fund invests usually lead
their markets, we are optimistic that their current strength is a
precursor to more positive times for the world's stock markets.
While emerging markets often present unusual opportunities, the
uncertainties inherent in such environments can generate more volatility
than some investors find comfortable. For this and other reasons
discussed during lengthy sessions between your fund's Board of Trustees
and Putnam Investment Management, your Board has agreed in principle to
a proposed merger of your fund into a more diversified international
fund. Please review the details on page 6 for more information.
We hope you'll read the management team's discussion, as it will provide
you with a good understanding of what has been driving your fund's
performance. As you do, you may notice that the team is listed, rather
than individual managers. This more accurately reflects the manner in
which your fund is managed, as well as Putnam's belief that mutual funds
are more effectively overseen by teams.
We know that Putnam Investments values its relationship with you and its
other shareholders, and appreciates your loyalty through the
restructuring of its staff and products to pursue superior investment
performance in the future.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
April 17, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the Putnam International Core Team
Emerging markets offered a refuge for U.S. investors during the recent
historic market turmoil and global political events. All world markets
plunged in September, both before and after the tragic terrorist attacks
in the United States, but have subsequently rallied. Emerging-market
stocks, however, excelled in the upswing. Putnam Emerging Markets Fund
performed in line with emerging markets in general, posting a solid gain
at net asset value and exceeding the return of its benchmark, the MSCI
Emerging Markets Free Index. The fund's results were also in line with
those of its Lipper category during this period. Performance details can
be found on page 8 of this report.
Total return for 6 months ended 2/28/02
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -----------------------------------------------------------------------
12.80% 6.36% 12.39% 7.39% 12.46% 11.47% 12.59% 8.64%
- -----------------------------------------------------------------------
Past performance does not indicate future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 8.
* EMERGING MARKETS DEMONSTRATED TRADITIONAL TRENDS, NEW RESILIENCE
At first glance, it might seem surprising for emerging markets,
traditionally considered volatile, to have performed so well during a
period of high risk and widespread uncertainty. But volatility applies
to upswings as well as downturns. Emerging markets, quick to reflect
negative trends in the global economy, are just as quick to respond to
more positive news. In 2001, stocks in emerging markets fell to deeply
depressed levels before September 11 as the global economy slowed.
Stocks fell further after September 11, but this marked the capitulation
seen in a typical cycle and became the point from which expectations
improved and most stocks rallied. Emerging markets led in this phase as
well.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electronics 15.9%
Telecommunications 12.8%
Banking 11.8%
Metals 8.3%
Oil and gas 7.3%
Footnote reads:
*Based on net assets as of 2/28/02. Holdings will vary over time.
After September, emerging markets were helped by a return to confidence
and by the significant policy response from the world's central banks.
The U.S. Federal Reserve Board reduced interest rates to their lowest
levels in 40 years, the European Central Bank trimmed rates by one
percentage point, and many others followed suit. This provided a
powerful stimulus and eased credit around the world.
Fund Profile
Putnam Emerging Markets Fund seeks long-term capital appreciation mainly
from stocks of companies operating in developing economies. The fund
managers look for attractively priced stocks of growing companies that
are well managed and seeking to be globally competitive. The fund is
appropriate for investors seeking long-term growth of capital who are
willing to accept the risks of investing in companies based in emerging
markets.
Emerging markets entered this period in relatively better condition than
during previous periods of global turmoil. Asian markets, for example,
had great difficulties in 1997 and 1998, but this helped to reduce
economic imbalances, such as high current account deficits. Mexico's
economy is now more integrated with that of the United States than it
was during the peso crisis of 1995. Argentina's default and devaluation
had been expected for such a long time that steps were taken throughout
South America to contain it. Even Brazil, Argentina's neighbor and
primary trading partner, was insulated from the effects. Recently, the
greatest concern for emerging markets has been their dependency on
exports to the United States, but given the resilience shown by the U.S.
economy, this offers advantages as well as risks.
* TEAM EMPHASIZED COUNTRY DECISIONS OVER SECTOR PLAYS
Before the beginning of the current fiscal year, we anticipated that the
global economy would contract. Consequently, we positioned the fund with
broad sector diversification. The portfolio had substantial weightings
in relatively defensive industries, such as telecommunications,
financials, and pharmaceuticals. At the same time, the fund also held a
number of technology stocks that had been beaten down pretty severely
early in 2001 and, we believed, offered compelling valuations.
"U.S. stocks enjoyed a premium to the rest of the world during the bull
market of the 1990s, but they may finally be losing some of their luster
in favor of better values in eurozone and emerging market stocks."
- -- Financial Times, January 22, 2002
We were less neutral in our view of country risks -- we considered
several markets to be more attractive than others. The market we favored
most was South Korea -- it was our largest overweighting decision and
the largest market weighting in the portfolio. This worked out well,
since South Korea had exceptional performance during the past six
months. The MSCI South Korea Index gained more than 50% in U.S.-dollar
terms. One of the fund's best-performing holdings was Samsung
Electronics, a conglomerate that is also among the world's leading
producers of semiconductors. We considered it undervalued relative to
global competitors in the industry. The outlook for semiconductor sales
improved significantly during the period. Although this holding, as well
as others mentioned in this report, were viewed favorably by fund
management at the end of the reporting period, all are subject to review
in accordance with the fund's strategy.
Most of the fund's other country exposures were more moderate and the
impact was mixed. We favored Mexico because of its close ties to the
United States through NAFTA and because, like South Korea, it is
increasingly stable politically and financially. Mexican equities
advanced during the period, but slightly underperformed the MSCI
Emerging Markets Free Index. Elsewhere in Latin America, we had no
exposure to Argentina's long-anticipated default and devaluation during
December and January. We maintained a moderate weighting in South
Africa, which lost ground because of a flight from its currency, the
rand. This was sparked in part by political instability in its neighbor,
Zimbabwe. In the middle of a severe economic crisis, Zimbabwe's
president Robert Mugabe, is clinging to power and a growing number of
refugees are fleeing to South Africa.
* STOCK SELECTIONS REFLECTED CONSIDERATION OF CURRENCIES, COMMODITY PRICES
Your fund enjoyed strong performance from a variety of holdings.
Although they represent different industries and markets, they all offer
the combination of growth potential and undervaluation that we seek when
choosing stocks. YUKOS Oil Company of Russia performed very well in
spite of relatively low prices for crude oil during the past six months.
YUKOS has grown to become Russia's second-largest oil company and it is
expanding production while maintaining a low cost structure. YUKOS is
also leading the way in developing corporate governance practices in
Russia, particularly with regard to the interests of minority
shareholders.
Within our overweight position in South Korea, we owned several stocks
with strong returns. Humax Company makes reception equipment for
satellite television broadcasts and has been achieving brisk sales in
Europe. Hyundai Mobis manufactures replacement automotive parts, and has
been flourishing because of the growth of car ownership in South Korea.
Shinsegae is an established operator of department stores in South Korea
that is achieving new growth through its E-Marts, which follow the
successful retailing business model that Wal-Mart developed in the
United States. However, not all of the South Korean holdings fared well.
Korea Electric Power Corp. (Kepco) struggled because the Korean
currency, the won, weakened versus the U.S. dollar. Kepco purchases oil
priced in dollars; therefore, it has a large amount of
dollar-denominated debt.
While the dollar's strength hurt Kepco, two stocks we added during the
period, Gold Fields and Harmony, benefited from it. These South African
gold-mining companies benefited as the South African rand weakened and
gold priced in dollars became more valuable. Harmony is also attractive
to us on a fundamental basis, because it has been successful in reducing
its operating costs.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Samsung Electronics Company, Ltd.
South Korea
Electronics
Telefonos de Mexico SA de CV
(Telmex) ADR Class L
Mexico
Telecommunications
Anglo American PLC
United Kingdom
Metals
Taiwan Semiconductor
Manufacturing Company, Ltd.
Taiwan
Electronics
Petroleo Brasileiro SA ADR
Brazil
Oil and gas
China Mobile, Ltd.
Hong Kong
Telecommunications
YUKOS
Russia
Oil and gas
United Microelectronics Corp.
Taiwan
Electronics
Kookmin Bank
South Korea
Banking
Surgutneftegaz ADR
Russia
Oil and gas
Footnote reads:
These holdings represent 25.7% of the fund's net assets as of 2/28/02.
Portfolio holdings will vary over time.
Several holdings had disappointing results during the period but remain
attractive to us. These include Teva Pharmaceuticals and Check Point
Software, which are international businesses headquartered in Israel,
and Reliance Industries of Poland. Teva is a solid company but it has
had relatively few new product announcements lately, and there have been
concerns regarding its product that treats multiple sclerosis. Check
Point develops software for security-related purposes, but recent sales
growth has been sluggish. In our monitoring of the stocks during the
worsening conflict in Israel, we observe that business operations
influence their performance far more than political events. Lastly,
Reliance is a prospering chemical company that is making an investment
in a telecommunications venture, and this capital expenditure is
temporarily weighing on its balance sheet. We think Reliance's venture
will pay off in the long run.
* EMERGING MARKETS OPPORTUNITIES, RISKS PUT IN PERSPECTIVE
Your fund is beginning the second half of fiscal 2002 positioned for the
early stage of a global expansion, but we remain alert to the
possibility of an uneven upswing. We are emphasizing broad sector
diversification but continue to favor countries like South Korea and
Mexico. Generally speaking, equity valuations in emerging markets remain
well below those in developed markets. Consequently, in our opinion,
these markets offer greater potential for appreciation. Already, bonds
from emerging markets have performed strongly, narrowing their yield
spread over U.S. Treasuries. Historically, this has provided an
excellent background for emerging-market stocks and we think this will
again be the case. We also think that many emerging markets and the
companies within them are being viewed more favorably than in recent
years, in part because of the situation surrounding Enron. Many
investors are recognizing that they may have had an unwarranted bias
against the accounting practices used by businesses in emerging markets.
This reappraisal may be positive for future performance of
emerging-market stocks.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 2/28/02, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, such as currency fluctuations, economic
instability, and political developments. Additional risks may be
associated with emerging market securities, including illiquidity and
volatility.
MERGER PROPOSED FOR PUTNAM EMERGING MARKETS FUND
After careful study and a number of lengthy working sessions with Putnam
Investment Management, your fund's Trustees agreed in principle to the
merger of Putnam Emerging Markets Fund into Putnam International Growth
Fund. However, since this merger also requires the approval of
shareholders, proxy materials will be delivered within the next few
months so you can submit your vote.
Putnam International Growth Fund provides exposure to the emerging
markets sector, but is more broadly diversified, which should help to
reduce volatility. If the merger is approved, shareholders are also
expected to benefit from lower expenses provided by the larger asset
base of the merged funds. We encourage you to vote on this important
matter by returning your completed proxy material.
NEW REPORT COVER REFLECTS "BLEND" INVESTMENT STYLE
You may have noticed that the color of this report has changed. Its new
color -- blue -- indicates that your fund is managed in what we now
refer to as the "blend" investment style. Your fund, like other blend
funds, has always had the flexibility to invest in both growth stocks
(those of companies with strong potential for above-average growth) and
value stocks (those of well-established businesses that are priced
attractively). Blend funds search for companies whose long-term business
worth is believed to be more than their current stock prices indicate.
The blend approach makes it possible for your fund to outperform
regardless of whether growth stocks or value stocks are in favor.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these materials
to customers who share the same address. This change will automatically
apply to all shareholders except those who notify us. If you would prefer
to receive your own copy, please call Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 2/28/02
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
- ------------------------------------------------------------------------------
6 months 12.80% 6.36% 12.39% 7.39% 12.46% 11.47% 12.59% 8.64%
- ------------------------------------------------------------------------------
1 year -0.49 -6.19 -1.36 -6.29 -1.35 -2.34 -1.11 -4.62
- ------------------------------------------------------------------------------
5 years -26.16 -30.38 -28.85 -30.24 -28.91 -28.91 -28.11 -30.65
Annual average -5.88 -6.99 -6.58 -6.95 -6.60 -6.60 -6.39 -7.06
- ------------------------------------------------------------------------------
Life of fund 1.48 -4.37 -3.06 -3.06 -3.15 -3.15 -1.85 -5.29
Annual average 0.24 -0.72 -0.50 -0.50 -0.52 -0.52 -0.30 -0.88
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/28/02
MSCI Emerging
Markets Free Consumer
Index price index
- ------------------------------------------------------------------------------
6 months 12.45% 0.28%
- ------------------------------------------------------------------------------
1 year -2.16 1.02
- ------------------------------------------------------------------------------
5 years -29.80 11.39
Annual average -6.83 2.18
- ------------------------------------------------------------------------------
Life of fund -17.08 15.51
Annual average -2.99 2.37
- ------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return and principal
value will fluctuate and you may have a gain or a loss when you sell
your shares
Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for classes A and M
shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Performance for class B, C,
and M shares before their inception are derived from the historical
performance of class A shares, adjusted for the applicable sales charge
(or CDSC) and higher operating expenses for such shares. For a portion
of the period this fund was sold on a limited basis with limited assets
and expenses. Had expenses not been limited, returns would have been
lower. A 1% redemption fee on total assets redeemed or exchanged within
90 days of purchase will be imposed for all share classes.
LIPPER INFORMATION:
The average cumulative return for the 209 funds in the Lipper emerging
markets category over the 6 months ended 2/28/02 was 12.90%. Over the 1-
and 5-year and the life-of-fund periods ended 2/28/02, annualized returns
for the category were -0.04%, -5.37%, and -1.24%, respectively.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 2/28/02
Class A Class B Class C Class M
- ------------------------------------------------------------------------------
Distributions
(number) 1 -- -- --
- ------------------------------------------------------------------------------
Income $0.027 -- -- --
- ------------------------------------------------------------------------------
Capital gains -- -- -- --
- ------------------------------------------------------------------------------
Total $0.027 -- -- --
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------
8/31/01 $7.26 $7.70 $7.10 $7.14 $7.15 $7.41
- ------------------------------------------------------------------------------
2/28/02 8.16 8.66 7.98 8.03 8.05 8.34
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/02 (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
- ------------------------------------------------------------------------------
6 months 39.96% 31.89% 39.31% 34.31% 39.28% 38.28% 39.54% 34.70%
- ------------------------------------------------------------------------------
1 year 17.29 10.58 16.35 11.35 16.42 15.42 16.67 12.52
- ------------------------------------------------------------------------------
5 years -19.11 -23.75 -22.04 -23.56 -22.21 -22.21 -21.28 -24.00
Annual average -4.15 -5.28 -4.86 -5.23 -4.90 -4.90 -4.67 -5.34
- ------------------------------------------------------------------------------
Life of fund 7.70 1.49 2.89 2.89 2.64 2.64 4.13 0.48
Annual average 1.19 0.24 0.46 0.46 0.42 0.42 0.65 0.08
- ------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return and principal
value will fluctuate and you may have a gain or a loss when you sell
your shares.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
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 fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares are not subject to an initial sales charge and may be
subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption (except on certain
redemptions of shares bought without an initial sales charge).
COMPARATIVE BENCHMARKS
Morgan Stanley Capital International (MSCI) Emerging Markets Free Index
is an unmanaged index of securities from emerging markets available to
non-domestic investors. The index assumes reinvestment of all
distributions and interest payments and does not account for fees.
Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
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 are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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-end funds, a separate table is
provided for each share class.
THE FUND'S PORTFOLIO
February 28, 2002 (Unaudited)
COMMON STOCKS (98.4%) (a)
NUMBER OF SHARES VALUE
Brazil (10.6%)
- -------------------------------------------------------------------------------------------------------------------
26,916 Aracruz Celulose SA ADR $ 559,853
148,300 Banco Bradesco SA - Pfd. 867,913
8,666 Banco Itau SA - Pfd. 735,030
12,240 Brasil Telecom Paricipacoes SA ADR 492,660
13,519 Companhia Brasileira de Distribuicao Grupo
Pao de Acucar ADR (NON) 317,426
42,239 Companhia de Bebidas das Americas
(AmBev) ADR 849,849
9,500 Companhia Energetica de Minas Gerais 147,455
20,800 Companhia Energetica de Minas Gerais ADR 322,400
92,600 Companhia Paranaense de Energia-Copel ADR 726,910
27,265 Companhia Vale do Rio Doce (CVRD) ADR 693,894
12,400 Companhia Siderurgica Nacional 231,225
26,842 Gerdau SA- Pfd. 298,244
6,213 Petroleo Brasileiro SA - Pfd. 147,816
76,061 Petroleo Brasileiro SA ADR 1,820,140
31,068 Petroleo Brasileiro SA ADR 761,166
17,546 Tele Celular Sul Participacoes SA ADR 239,503
48,800 Tele Norte Leste Participacoes SA ADR 739,320
10,400 Telemar Norte Leste SA - Pfd. 268,601
16,500 Unibanco-Uniao de Bancos Brasileiros SA GDR 399,300
5,300 Votorantim Celulose e Papel SA ADR (NON) 98,580
-------------
10,717,285
Chile (1.1%)
- -------------------------------------------------------------------------------------------------------------------
18,375 Banco Santander Chile ADR 277,095
109,200 Compania de Petroleos de Chile SA (COPEC) 385,938
24,100 Empresa Nacional de Electricidad ADR 233,770
37,300 Entel SA 233,125
-------------
1,129,928
China (1.2%)
- -------------------------------------------------------------------------------------------------------------------
1,540,000 Aluminum Corporation of China, Ltd. (NON) 357,400
786,000 Beijing Datang Power Generation Company, Ltd. 299,823
208,000 China Resources Enterprise, Ltd. 193,356
1,294,000 China Shipping Development Co. 278,740
150,000 Huaneng Power International, Inc. Class H 105,781
-------------
1,235,100
Czech Republic (0.6%)
- -------------------------------------------------------------------------------------------------------------------
23,811 Ceske Radiokomunikace A.S. 284,942
8,800 Komercni Banka A.S. (NON) 313,756
-------------
598,698
Greece (0.4%)
- -------------------------------------------------------------------------------------------------------------------
1,700 OTP Bank GDR 123,250
3,800 OTP Bank GDR 144A 275,500
-------------
398,750
Hong Kong (3.6%)
- -------------------------------------------------------------------------------------------------------------------
276,000 China Everbright, Ltd. 178,713
376,000 China Merchants Holdings International
Company, Ltd. 279,622
623,000 China Mobile, Ltd. (NON) 1,797,323
104,000 Citic Pacific, Ltd. 202,023
293,500 CNOOC, Ltd. 314,232
354,000 Cosco Pacific, Ltd. 205,389
1,966,000 PetroChina Company, Ltd. 365,517
123,000 Shanghai Industrial Holdings, Ltd. 242,874
-------------
3,585,693
Hungary (1.3%)
- -------------------------------------------------------------------------------------------------------------------
13,900 Egis Rt 634,670
118,400 Magyar Tavkozlesi I Rt (Matav) 387,403
14,800 MOL Magyar Olaj-es Gazipari Rt 278,655
-------------
1,300,728
India (4.7%)
- -------------------------------------------------------------------------------------------------------------------
74,612 Associated Cement Company, Ltd. 250,597
68,200 Bharat Heavy Electricals, Ltd. 235,576
43,900 Bharat Petroleum Corporation, Ltd. 256,068
45,540 BSES, Ltd. 200,243
7,508 Dr. Reddy's Laboratories, Ltd. ADR (NON) 162,849
21,500 HDFC Bank, Ltd. ADR (NON) 346,150
139,776 Hindustan Lever, Ltd. 717,256
29,365 Housing Development Finance
Corporation, Ltd. 411,279
18,700 ICICI, Ltd. ADR 130,339
53,800 ICICI Bank, Ltd. ADR 294,286
10,657 Infosys Technologies, Ltd. (NON) 772,840
22,100 ITC, Ltd. 338,945
19,499 Ranbaxy Laboratories, Ltd. 328,235
53,600 Satyam Computer Services, Ltd. 294,591
-------------
4,739,254
Indonesia (0.8%)
- -------------------------------------------------------------------------------------------------------------------
735,000 PT Hanjaya Mandala Sampoerna Tbk 326,183
1,178,300 PT Telekomunikasi 144A 421,236
-------------
747,419
Israel (2.0%)
- -------------------------------------------------------------------------------------------------------------------
26,350 Check Point Software Technologies, Ltd. (NON) 735,692
6,100 Orbotech, Ltd. (NON) 157,929
10,900 Taro Pharmaceuticals Industries, Ltd. (NON) 328,199
14,400 Teva Pharmaceutical Industries, Ltd. ADR 821,232
-------------
2,043,052
Malaysia (4.0%)
- -------------------------------------------------------------------------------------------------------------------
80,000 Genting Berhad 261,053
272,000 IJM Corporation Berhad 309,221
204,000 IOI Corporation Berhad 258,758
209,500 Malayan Banking Berhad 476,888
75,000 Perusahaan Otomobil Nasional Berhad 189,474
594,400 Public Bank Berhad 455,185
141,000 Resorts World Berhad 296,842
275,000 Sime Darby Berhad 360,395
212,000 Tanjong PLC 510,474
148,000 Telekom Malaysia Berhad 362,211
142,000 Tenaga Nasional Berhad 392,368
155,040 YTL Corporation Berhad 190,128
-------------
4,062,997
Mexico (12.1%)
- -------------------------------------------------------------------------------------------------------------------
64,450 America Movil SA de CV ADR Ser. L 1,166,545
50,187 Cemex SA de CV ADR 1,224,563
31,725 Coca-Cola Femsa SA de CV ADR 785,194
252,700 Consorcio ARA SA de CV (NON) 481,676
76,678 Fomento Economico Mexicano SA de CV 302,478
11,500 Fomento Economico Mexicano SA de
CV ADR 457,700
27,200 Grupo Aeroportuario del Sureste SA de
CV ADR (NON) 360,400
360,300 Grupo Elektra SA de CV 252,607
1,026,940 Grupo Financiero BBVA Bancomer SA de CV (NON) 1,069,858
24,849 Grupo Financiero BBVA Bancomer SA de
CV ADR (NON) 1,070,992
83,604 Grupo Modelo SA de CV Ser. C 200,573
91,250 Telefonos de Mexico SA de CV (Telmex)
ADR Class L 3,493,963
183,800 Wal-Mart de Mexico SA de CV Ser. C 479,207
305,600 Wal-Mart de Mexico SA de CV Ser. V 897,199
-------------
12,242,955
Philippines (0.8%)
- -------------------------------------------------------------------------------------------------------------------
1,139,000 Ayala Land, Inc. 153,648
117,300 Bank of the Philippine Islands 155,941
181,800 Manila Electric Co. Class B (NON) 170,604
16,400 Philippine Long Distance Telephone Co. ADR 161,212
1,120,000 SM Prime Holdings, Inc. 148,895
-------------
790,300
Poland (1.3%)
- -------------------------------------------------------------------------------------------------------------------
18,995 Bank Polska Kasa Opieki Grupa Pekao SA (NON) 467,625
88,400 Reliance Industries, Ltd. 558,311
82,928 Telekomunikacja Polska SA (NON) 293,472
-------------
1,319,408
Russia (4.1%)
- -------------------------------------------------------------------------------------------------------------------
5,000 Lukoil ADR 239,375
82,697 Surgutneftegaz ADR 1,240,455
56,900 Unified Energy Systems ADR 842,831
260,010 YUKOS (NON) 1,779,222
-------------
4,101,883
South Africa (6.3%)
- -------------------------------------------------------------------------------------------------------------------
70,799 ABSA Group, Ltd. 169,359
11,600 Anglo American Platinum Corp. 476,705
50,200 Barloworld, Ltd. 279,756
61,900 Bidvest Group, Ltd. 232,142
382,100 FirstRand, Ltd. 231,018
44,700 Gold Fields, Ltd. 386,976
33,600 Harmony Gold Mining Company, Ltd. ADR 354,816
7,189 Impala Platinum Holdings, Ltd. 374,174
51,500 Imperial Holdings, Ltd. 216,605
100,500 Johnnies Industrial Corp. 378,664
141,900 Remgro, Ltd. 795,759
879,100 Sanlam, Ltd. 620,088
88,406 Sappi, Ltd. 1,169,709
287,930 Standard Bank Investment Corporation, Ltd. 688,761
-------------
6,374,532
South Korea (23.3%)
- -------------------------------------------------------------------------------------------------------------------
2,870 Cheil Communications, Inc. 379,429
35,200 Cheil Industries, Inc. 404,200
3,700 CJ39 Shopping (NON) 216,628
35,200 Daelim Industrial Co. (NON) 425,474
16,700 Daishin Securities Co. 314,142
29,372 Hana Bank 438,239
12,100 Humax Company, Ltd. 466,193
26,730 Hyundai Mobis 499,787
32,720 Hyundai Motor Company, Ltd. 899,757
2,115 Kangwon Land, Inc. 289,201
38,505 Kookmin Bank 1,684,248
56,570 Korea Electric Power Corp. (NON) 938,061
34,620 Korea Telecom Corp. ADR 772,026
58,300 Korea Tobacco & Ginseng Corp. 144A GDR 358,545
7,600 LG Chemical, Ltd. (NON) 213,583
21,370 LG Electronics 637,694
18,600 LG Investment and Securities (NON) 290,164
410 Lotte Chilsung Beverage Co. 168,188
3,230 Nong Shim Company, Ltd. 195,210
6,920 Pohang Iron & Steel Company, Ltd. 765,868
22,500 Pohang Iron & Steel Company, Ltd. ADR 623,700
23,400 Poongsan Corp. (NON) 208,597
35,460 Samsung Corp. 301,371
11,200 Samsung Electro-Mechanics Co. 497,515
24,912 Samsung Electronics Company, Ltd. 6,455,254
2,740 Samsung Electronics Company, Ltd. - Pfd. 315,668
10,200 Samsung Fire & Marine Insurance 500,869
77,000 Samsung Heavy Industries (NON) 298,414
14,200 Samsung Securities Company, Ltd. (NON) 551,394
38,100 Shinhan Financial Group Company, Ltd. 515,215
4,760 Shinsegae Department Store 658,065
5,800 Sindo Ricoh Company, Ltd. (NON) 240,115
6,050 SK Telecom Company, Ltd. 1,188,336
23,800 SK Telecom Company, Ltd. ADR 522,410
39,520 Woongjin.com Company, Ltd. 255,565
-------------
23,489,125
Taiwan (12.0%)
- -------------------------------------------------------------------------------------------------------------------
38,594 ASE Test, Ltd. (NON) 509,827
166,750 Asustek Computer, Inc. 807,621
710,181 Bank Sinopac (NON) 280,228
281,000 Cathay Financial Holding Company, Ltd. (NON) 408,291
908,000 China Steel Corp. 475,989
603,684 Chinatrust Commercial Bank 417,935
318,000 Compal Electronics, Inc. 416,752
629,412 Far Eastern Textile, Ltd. 233,116
294,400 Formosa Chemicals & Fibre Corp. 297,755
316,000 Formosa Plastic Corp. 397,026
455,000 Fubon Financial Holding Company, Ltd. (NON) 440,741
154,388 Hon Hai Precision Industry Company, Ltd. 703,763
516,000 Nan Ya Plastic Corp. 468,957
152,000 Quanta Computer, Inc. 523,989
433,000 Siliconware Precision Industries Co. (NON) 331,843
240,723 Taiwan Cellular Corp. (NON) 288,045
1,227,322 Taiwan Semiconductor Manufacturing
Company, Ltd. (NON) 2,867,248
1,331,759 United Microelectronics Corp. (NON) 1,696,001
61,000 Via Technologies, Inc. 253,732
447,000 Yuanta Core Pacific Securities Co. (NON) 312,009
-------------
12,130,868
Thailand (2.7%)
- -------------------------------------------------------------------------------------------------------------------
404,000 Advanced Info Service Public Company, Ltd. 420,833
398,600 Bangkok Bank Public Company, Ltd. (NON) 615,968
76,600 Bec World Public Company, Ltd. 431,401
144,000 Land and Houses Public Company, Ltd. (NON) 169,780
30,700 Land and Houses Public Company, Ltd. (NON) 39,710
104,900 PTT Exploration & Production Public
Companies, Ltd. 276,179
25,100 Siam Cement PLC (NON) 432,125
466,000 Siam Commercial Bank Public Company, Ltd. (NON) 290,717
-------------
2,676,713
Turkey (0.7%)
- -------------------------------------------------------------------------------------------------------------------
26,589,000 Aksigorta A.S. 158,541
38,733,600 Haci Omer Sabanci Holding (NON) 158,607
80,191,800 Hurriyet Gazetecilik ve Matbaacilik A.S. (NON) 259,240
22,187,900 Tupras Turkiye Petrol Rafine 140,268
-------------
716,656
United Kingdom (4.1%)
- -------------------------------------------------------------------------------------------------------------------
183,414 Anglo American PLC 3,115,423
240,580 Old Mutual PLC 144A 319,837
6,600 South African Breweries, Ltd. 144A 43,685
93,300 South African Breweries PLC 617,546
-------------
4,096,491
United States (0.7%)
- -------------------------------------------------------------------------------------------------------------------
26,900 Euronet Services, Inc. (NON) 487,697
12,300 UTStarcom, Inc. (NON) 249,075
-------------
736,772
-------------
Total Common Stocks (cost $79,682,971) $ 99,234,607
SHORT-TERM INVESTMENTS (6.9%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 4,894,817 Short-term investments held as collateral
for loaned securities with yields ranging
from 1.74% to 1.95% and due dates
ranging from March 1, 2002 to
March 28, 2002 (d) $ 4,891,352
2,059,000 Interest in $1,000,000,000 joint tri-party
repurchase agreement dated February 28, 2002
with S.B.C Warburg, Inc. due March 1, 2002
with respect to various U.S. Government
obligations-- maturity value of $2,059,109
for an effective yield of 1.90% 2,059,000
-------------
Total Short-Term Investments (cost $6,950,352) $ 6,950,352
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $86,633,323) (b) $ 106,184,959
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $100,828,321.
(b) The aggregate identified cost on a tax basis is $89,610,132,
resulting in gross unrealized appreciation and depreciation of
$21,717,541 and $5,142,714, respectively, or net unrealized appreciation
of $16,574,827.
(NON) Non-income-producing security.
(d) See footnote 1 to the financial statements.
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 or Global Depositary Receipts, respectively,
representing ownership of foreign securities on deposit with a
custodian bank.
The fund had the following industry group concentrations greater
than 10% at February 28, 2002 (as a percentage of net assets):
Electronics 15.9%
Telecommunications 12.8
Banking 11.8
- ------------------------------------------------------------------------------
Forward Currency Contracts to Sell at February 28, 2002 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- ------------------------------------------------------------------------------
Mexican Pesos $1,523,251 $1,483,437 3/20/02 $(39,814)
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
February 28, 2002 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value, including $4,647,955 of
securities on loan (identified cost $86,633,323) (Note 1) $106,184,959
- -------------------------------------------------------------------------------------------
Foreign currency (cost $1,556,149) 1,551,116
- -------------------------------------------------------------------------------------------
Dividends and interest receivable 166,969
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 321,338
- -------------------------------------------------------------------------------------------
Receivable for securities sold 327,592
- -------------------------------------------------------------------------------------------
Total assets 108,551,974
Liabilities
- -------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 95,163
- -------------------------------------------------------------------------------------------
Payable for securities purchased 1,829,609
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 207,014
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 236,398
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 129,109
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 15,376
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,070
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 50,244
- -------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 39,814
- -------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 4,891,352
- -------------------------------------------------------------------------------------------
Other accrued expenses 228,504
- -------------------------------------------------------------------------------------------
Total liabilities 7,723,653
- -------------------------------------------------------------------------------------------
Net assets $100,828,321
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $140,502,039
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (947,315)
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (58,227,220)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 19,500,817
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $100,828,321
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($53,162,851 divided by 6,516,841 shares) $8.16
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $8.16)* $8.66
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($34,407,701 divided by 4,309,722 shares)** $7.98
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($3,254,379 divided by 405,472 shares)** $8.03
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,079,959 divided by 258,409 shares) $8.05
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $8.05)* $8.34
- -------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($7,923,431 divided by 972,925 shares) $8.14
- -------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended February 28, 2002 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $44,537) $ 493,106
- -------------------------------------------------------------------------------------------
Interest 27,744
- -------------------------------------------------------------------------------------------
Securities lending 19,396
- -------------------------------------------------------------------------------------------
Total investment income 540,246
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 439,452
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 270,975
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 7,442
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,794
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 58,256
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 149,633
- -------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 14,655
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 6,438
- -------------------------------------------------------------------------------------------
Other 78,377
- -------------------------------------------------------------------------------------------
Total expenses 1,028,022
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (57,566)
- -------------------------------------------------------------------------------------------
Net expenses 970,456
- -------------------------------------------------------------------------------------------
Net investment loss (430,210)
- -------------------------------------------------------------------------------------------
Net realized loss on investments (net of foreign tax of $18,745)
(Notes 1 and 3) (6,403,511)
- -------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (173,657)
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and
liabilities in foreign currencies during the period (37,773)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period
(net of foreign tax of $5,699) 17,520,522
- -------------------------------------------------------------------------------------------
Net gain on investments 10,905,581
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $10,475,371
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
February 28 August 31
2002* 2001
- --------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
- --------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------
Net investment loss $ (430,210) $ (221,526)
- --------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (6,577,168) (23,975,161)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies 17,482,749 (22,669,891)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 10,475,371 (46,866,578)
- --------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- --------------------------------------------------------------------------------------------------
From net investment income
Class A (173,004) --
- --------------------------------------------------------------------------------------------------
Class Y (48,146) --
- --------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (1,625,247) (6,996,590)
- --------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 8,628,974 (53,863,168)
Net assets
- --------------------------------------------------------------------------------------------------
Beginning of period 92,199,347 146,062,515
- --------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income and accumulated net investment loss
of $947,315 and $295,955, respectively) $100,828,321 $92,199,347
- --------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share February 28
operating performance (Unaudited) Year ended August 31
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.26 $10.67 $9.35 $5.81 $10.94 $10.28
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(a) (.03) .01 (.10) --(d)(e) .01(d) (.02)(d)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .96 (3.42) 1.51 3.61 (4.94) .81
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .93 (3.41) 1.41 3.61 (4.93) .79
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.03) -- (.03) (.07) -- (.01)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.20) (.12)
- ------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.06) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.03) -- (.09) (.07) (.20) (.13)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.16 $7.26 $10.67 $9.35 $5.81 $10.94
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 12.80* (31.96) 14.93 62.45 (45.69) 7.82
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $53,163 $48,028 $83,533 $60,669 $29,239 $49,581
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.03* 2.07 1.90 2.10(d) 2.10(d) 2.10(d)
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.35)* .11 (.87) .06(d) .06(d) (.23)(d)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 46.64* 106.90 139.96 163.86 112.35 141.81
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses reflect a reduction of 0.23%, 0.20%
and 0.29% based on average net assets per class A share for the periods
ended August 31, 1999, August 31, 1998 and August 31, 1997,
respectively.
(e) Amount represents less than $0.01 per share.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 Oct. 30, 1996+
operating performance (Unaudited) Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.10 $10.53 $9.26 $5.74 $10.87 $9.95
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment loss (a) (.05) (.05) (.18) (.05)(d) (.07)(d) (.09)(d)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .93 (3.38) 1.48 3.57 (4.86) 1.14
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .88 (3.43) 1.30 3.52 (4.93) 1.05
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- (.01) --(e) -- (.01)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.20) (.12)
- ------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.02) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions -- -- (.03) -- (.20) (.13)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.98 $7.10 $10.53 $9.26 $5.74 $10.87
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 12.39* (32.57) 13.96 61.37 (45.99) 10.67*
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $34,408 $31,940 $52,534 $44,838 $21,722 $38,044
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.40* 2.82 2.65 2.85(d) 2.85(d) 2.39* (d)
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.73)* (.64) (1.63) (.69)(d) (.72)(d) (.76)* (d)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 46.64* 106.90 139.96 163.86 112.35 141.81
- ------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment loss has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses reflect a reduction of 0.23%, 0.20%
and 0.29% based on average net assets per class B share for the periods
ended August 31, 1999, August 31, 1998 and August 31, 1997,
respectively.
(e) Amount represents less than $0.01 per share.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS C
- ----------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 Year ended July 26, 1999+
operating performance (Unaudited) August 31 to August 31
- ----------------------------------------------------------------------------------------
2002 2001 2000 1999
- ----------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.14 $10.58 $9.35 $9.56
- ----------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------
Net investment loss (a) (.05) (.05) (.18) (.02)(d)
- ----------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .94 (3.39) 1.49 (.19)
- ----------------------------------------------------------------------------------------
Total from
investment operations .89 (3.44) 1.31 (.21)
- ----------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------
From net
investment income -- -- (.02) --
- ----------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.06) --
- ----------------------------------------------------------------------------------------
Total distributions -- -- (.08) --
- ----------------------------------------------------------------------------------------
Net asset value,
end of period $8.03 $7.14 $10.58 $9.35
- ----------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 12.46* (32.51) 13.89 (2.20)*
- ----------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,254 $3,366 $6,160 $81
- ----------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.40* 2.82 2.65 .29* (d)
- ----------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.72)* (.62) (1.64) (.25)* (d)
- ----------------------------------------------------------------------------------------
Portfolio turnover (%) 46.64* 106.90 139.96 163.86
- ----------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment loss has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses reflect a reduction of 0.23% based
on average net assets per class C share for the period ended August 31,
1999.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 Oct. 30, 1996+
operating performance (Unaudited) Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.15 $10.58 $9.29 $5.76 $10.89 $9.95
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment loss (a) (.04) (.03) (.15) (.03)(d) (.05)(d) (.07)(d)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .94 (3.40) 1.48 3.57 (4.88) 1.14
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .90 (3.43) 1.33 3.54 (4.93) 1.07
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- (.01) (.01) -- (.01)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.20) (.12)
- ------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions -- -- (.04) (.01) (.20) (.13)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.05 $7.15 $10.58 $9.29 $5.76 $10.89
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 12.59* (32.42) 14.24 61.59 (45.91) 10.88*
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,080 $1,848 $3,835 $3,817 $1,993 $4,043
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.28* 2.57 2.40 2.60(d) 2.60(d) 2.18* (d)
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.60)* (.40) (1.37) (.41)(d) (.43)(d) (.53)* (d)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 46.64* 106.90 139.96 163.86 112.35 141.81
- ------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment loss has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses reflect a reduction of 0.23%, 0.20%
and 0.29% based on average net assets per class M share for the periods
ended August 31, 1999, August 31, 1998 and August 31, 1997,
respectively.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS Y
- --------------------------------------------------------------
Six months
ended For the period
Per-share February 28 May 1, 2001+
operating performance (Unaudited) to August 31
- --------------------------------------------------------------
2002 2001
- --------------------------------------------------------------
Net asset value,
beginning of period $7.26 $7.87
- --------------------------------------------------------------
Investment operations:
- --------------------------------------------------------------
Net investment income (loss)(a) (.02) .01
- --------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .95 (.62)
- --------------------------------------------------------------
Total from
investment operations .93 (.61)
- --------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------
From net
investment income (.05) --
- --------------------------------------------------------------
Total distributions (.05) --
- --------------------------------------------------------------
Net asset value,
end of period $8.14 $7.26
- --------------------------------------------------------------
Total return at
net asset value (%)(b) 12.84* (7.75)*
- --------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------
Net assets, end of period
(in thousands) $7,923 $7,016
- --------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .90* .61*
- --------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.23)* .06*
- --------------------------------------------------------------
Portfolio turnover (%) 46.64* 106.90
- --------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
NOTES TO FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
Note 1
Significant accounting policies
Putnam Emerging Markets Fund (the "fund") is one of a series of Putnam
Investment Funds (the "trust") which is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The objective of the fund is to seek long-term
capital appreciation by investing in common stocks and other equity
securities of emerging market companies.
The fund offers class A, class B, class C, class M and class Y shares.
Class A shares are sold with a maximum front-end sales charge of 5.75%.
Class B shares, which convert to class A shares after approximately
eight years, do not pay a front-end sales charge but pay a higher
ongoing distribution fee than class A shares, and are subject to a
contingent deferred sales charge, if those shares are redeemed within
six years of purchase. Class 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. Class Y shares, which
are sold at net asset value, are generally subject to the same expenses
as class A, class B, class C and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans
that invest at least $150 million in a combination of Putnam funds and
other accounts managed by affiliates of Putnam Investment Management,
LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned
subsidiary of Putnam, LLC. A redemption fee of 1.00% of the total
redemption amount will apply to any shares purchased after March 15,
2001 that are held for less than 90 days.
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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. Other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Management. 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. Non-cash dividends, if any, are recorded at the fair
market value of the securities received.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when 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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
The fund may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on either income or gain earned
or repatriated. The fund accrues and applies such taxes to net
investment income, net realized gains and net unrealized gains as income
and/or capital gains are earned.
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. These contracts are used 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) Security lending The fund may lend securities, through its agent
Citibank N.A., to qualified borrowers in order to earn additional
income. The loans are collateralized by cash and/or securities in an
amount at least equal to the market value of the securities loaned. The
market value of securities loaned is determined daily and any additional
required collateral is allocated to the fund on the next business day.
The risk of borrower default will be borne by Citibank N.A., the fund
will bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At February 28, 2002, the value
of securities loaned amounted to $4,647,955. The fund received cash
collateral of $4,891,352, which is pooled with collateral of other
Putnam funds into 31 issuers of high-grade short-term investments.
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 maintains an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended February 28, 2002, 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, 2001, the fund had a capital loss carryover of
approximately $28,067,000 available to the extent allowed by tax law to
offset future capital gains, if any. The amount of the carryover and the
expiration dates are:
Loss Carryover Expiration
- -------------- ------------------
$ 494,000 August 31, 2006
25,247,000 August 31, 2007
2,326,000 August 31, 2009
J) Distribution to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
K) Expenses of the trust Expenses directly charged or attributable to
any fund will be paid from the assets of that fund. Generally, expenses
of the trust will be allocated among and charged to the assets of each
fund on a basis that the Trustees deem fair and equitable, which may be
based on the relative assets of each fund or the nature of the services
performed and relative applicability to each fund.
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.
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 Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
Under the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the
extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At February 28, 2002, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the six months ended February 28,
2002, the fund's expenses were reduced by $57,566 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $554 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in 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 Retail Management, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, 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 Retail Management 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 at 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 six months ended February 28, 2002, Putnam Retail Management,
acting as underwriter received net commissions of $7,989 and $74 from
the sale of class A and class M shares, respectively, and received
$33,858 and $55 in contingent deferred sales charges from redemptions of
class B and class C shares, respectively. A deferred sales charge of up
to 1.00% and 0.65% is assessed on certain redemptions of class A and
class M shares, respectively. For the six months ended February 28,
2002, Putnam Retail Management, acting as underwriter received $752 and
no monies on class A and class M redemptions, respectively
Note 3
Purchases and sales of securities
During the six months ended February 28, 2002, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $40,303,163 and $40,287,293, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At February 28, 2002, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended February 28, 2002
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,332,705 $ 10,069,683
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 21,644 161,678
- ---------------------------------------------------------------------------
1,354,349 10,231,361
Shares
repurchased (1,457,480) (10,544,474)
- ---------------------------------------------------------------------------
Net decrease (103,131) $ (313,113)
- ---------------------------------------------------------------------------
Year ended August 31, 2001
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 7,613,668 $ 64,826,538
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ---------------------------------------------------------------------------
7,613,668 64,826,538
Shares
repurchased (8,822,394) (74,546,115)
- ---------------------------------------------------------------------------
Net decrease (1,208,726) $ (9,719,577)
- ---------------------------------------------------------------------------
Six months ended February 28, 2002
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 545,399 $ 4,109,407
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ---------------------------------------------------------------------------
545,399 4,109,407
Shares
repurchased (732,990) (5,053,263)
- ---------------------------------------------------------------------------
Net decrease (187,591) $ (943,856)
- ---------------------------------------------------------------------------
Year ended August 31, 2001
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,712,536 $ 14,303,317
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ---------------------------------------------------------------------------
1,712,536 14,303,317
Shares
repurchased (2,204,059) (17,739,608)
- ---------------------------------------------------------------------------
Net decrease (491,523) $ (3,436,291)
- ---------------------------------------------------------------------------
Six months ended February 28, 2002
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 87,809 $ 649,631
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ---------------------------------------------------------------------------
87,809 649,631
Shares
repurchased (153,816) (1,068,406)
- ---------------------------------------------------------------------------
Net decrease (66,007) $ (418,775)
- ---------------------------------------------------------------------------
Year ended August 31, 2001
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 391,413 $ 3,283,948
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ---------------------------------------------------------------------------
391,413 3,283,948
Shares
repurchased (502,053) (3,917,789)
- ---------------------------------------------------------------------------
Net decrease (110,640) $ (633,841)
- ---------------------------------------------------------------------------
Six months ended February 28, 2002
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 46,769 $ 358,079
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ---------------------------------------------------------------------------
46,769 358,079
Shares
repurchased (46,759) (322,167)
- ---------------------------------------------------------------------------
Net increase 10 $ 35,912
- ---------------------------------------------------------------------------
Year ended August 31, 2001
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 143,987 $ 1,206,915
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ---------------------------------------------------------------------------
143,987 1,206,915
Shares
repurchased (248,249) (1,985,506)
- ---------------------------------------------------------------------------
Net decrease (104,262) $ (778,591)
- ---------------------------------------------------------------------------
Six months ended February 28, 2002
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 546,733 $ 4,133,322
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,454 48,146
- ---------------------------------------------------------------------------
553,187 4,181,468
Shares
repurchased (547,144) (4,166,883)
- ---------------------------------------------------------------------------
Net increase 6,043 $ 14,585
- ---------------------------------------------------------------------------
For the period May 1, 2001
(commencement of operations)
to August 31, 2001
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,127,616 $ 8,849,889
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ---------------------------------------------------------------------------
1,127,616 8,849,889
Shares
repurchased (160,734) (1,278,179)
- ---------------------------------------------------------------------------
Net increase 966,882 $ 7,571,710
- ---------------------------------------------------------------------------
Note 5
Actions by Trustees
On March 15, 2002, the Trustees approved, in principle, the merger of
Putnam Emerging Markets Fund into Putnam International Growth Fund. The
transaction is scheduled to occur in later 2002. It is subject to a
number of conditions and there is no guarantee it will occur.
SERVICES FOR SHAREHOLDERS
HELP YOUR INVESTMENT GROW
Set up a program for systematic investing with as little as $25 a month
from a Putnam fund or from your own savings or checking account.
(Regular investing does not guarantee a profit or protect against loss
in a declining market.)
SWITCH FUNDS EASILY
You can move money from one Putnam fund to another within the same class
of shares without a service charge. (This privilege is subject to change
or termination.)
ACCESS YOUR MONEY EASILY
You can have checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares. Class B and class C shares carry a sales
charge that is applied to certain withdrawals.
HOW TO BUY ADDITIONAL SHARES
You may buy shares through your financial advisor or directly from
Putnam. To open an account by mail, send a check made payable to the
name of the fund along with a completed fund application. To add to an
existing account, complete the investment slip found at the top of your
Confirmation of Activity statement and return it with a check payable to
your fund.
VISIT US AT WWW.PUTNAMINVESTMENTS.COM
A secure section of our Web site contains complete information on your
account, including balances and transactions, updated daily. You may
also conduct transactions, such as exchanges, additional investments,
and address changes. Log on today to get your password.
USE OUR TOLL-FREE NUMBER
1-800-225-1581 Ask a helpful Putnam representative or your financial
advisor for details about any of these or other services, or see your
prospectus.
VISIT WWW.PUTNAMINVESTMENTS.COM
Get up-to-date information about your funds, learn more about investing
and retirement planning, and access news and economic outlooks from
Putnam's Web site. The site features:
* Secure access (with your Social Security number and password) to your
account with all of your information, including a record of your
balances and transactions, updated daily.
* On-line transactions, such as exchanges, additional investments, and
address changes.
* Complete fund information, daily pricing, and long-term performance.
* Instant access to your quarterly statements, and annual and
semiannual fund reports.
You can also read economic commentary from Putnam senior economic
advisor Dr. Robert Goodman, use our glossary to decode investment terms,
get our update on the markets, and much more.
New enhancements are added to the site regularly. Bookmark us at
WWW.PUTNAMINVESTMENTS.COM
PUTNAM IS A LEADER IN GLOBAL MONEY MANAGEMENT
Putnam Investments traces its heritage to the early 19th century when
ship captains hired trustees to manage their money while they were away
at sea. In a landmark 1830 decision that involved one such trustee,
Massachusetts Supreme Judicial Court Justice Samuel Putnam established
The Prudent Man Rule, a legal foundation for responsible money
management. In 1937, his great-great grandson founded Putnam with The
George Putnam Fund of Boston, the first fund to offer a balanced
portfolio of stocks and bonds. Today, Putnam Investments is one of the
largest investment management firms in the world, and this balanced
approach remains the foundation of everything we do.
With more than 60 years of experience, Putnam now has over $339 billion
in assets under management, 124 mutual funds, over 14 million
shareholder accounts, and nearly 3,000 institutional and 401(k) clients.
We're one of the largest mutual fund companies in the United States.
Putnam has won the DALBAR award for service ten times in the past eleven
years. Putnam offers products in every investment category, including
growth, value, and blend as well as international and fixed-income.
Teamwork is a cornerstone of Putnam's investment philosophy. Our funds
are managed by teams in a collaborative environment that promotes an
active exchange of information.
Putnam's disciplined investment philosophy is based on style
consistency. We aim for less volatility over the short term and strong,
consistent performance over time. Our truth in labeling approach ensures
that we adhere to every fund's stated objective, style, and risk
positioning.
We are committed to the role of the financial advisor, who continually
provides sound, sensible guidance, information, and expertise to help
investors reach their financial goals.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark
of a well-rounded financial program. We presently manage over 100 mutual
funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
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, III
President
Charles E. Porter
Executive Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Justin Scott
Vice President
Richard A. Monaghan
Vice President
Michael T. Healy
Vice President
Richard G. Leibovitch
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 and
Putnam's Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
Visit www.putnaminvestments.com or call a representative at 1-800-225-1581.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA004-79263 2AY/2CK/2CL 4/02
PUTNAM INVESTMENTS
[SCALE LOGO OMITTED]
- -------------------------------------------------------------------------------
Putnam Emerging Markets Fund
Supplement to Semiannual Report dated 2/28/02
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to clients that meet the eligibility requirements
specified in the fund's prospectus for such shares. Performance of class Y
shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, C, and M shares, which are discussed more extensively in the semiannual
report.
SEMIANNUAL RESULTS AT A GLANCE
- -------------------------------------------------------------------------------
Total return for periods ended 2/28/02
NAV
6 months 12.84%
1 year -0.46
5 years -26.13
Annual average -5.88
Life of fund (since class A inception, 12/28/95) 1.52
Annual average 0.24
Share value: NAV
8/31/01 $7.26
2/28/02 $8.14
- -------------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 $0.048 -- $0.048
- -------------------------------------------------------------------------------
Please note that past performance is not indicative of future results. More
recent returns may be more or less than those shown. Returns shown for
class Y shares for periods prior to their inception are derived from the
historical performance of class A shares, and are not adjusted to reflect
the initial sales charge currently applicable to class A shares. These
returns have not been adjusted to reflect differences in operating expenses
which, for class Y shares, typically are lower than the operating expenses
applicable to class A shares. All returns assume reinvestment of
distributions at net asset value. Investment return and principal value
will fluctuate so your shares, when redeemed, may be worth more or less
than their original cost. See full report for information on comparative
benchmarks. If you have questions, please consult your fund prospectus or
call Putnam toll free at 1-800-752-9894.