Putnam OTC Emerging Growth Fund
ANNUAL REPORT
July 31, 1994
[ARTWORK]
BOSTON * LONDON * TOKYO
<PAGE>
Performance highlights
"Many growth investors now believe the market is coming back to
them. They argue that a slowing economy will begin to hurt
economically sensitive issues, turning attention back to the
growth sector."
- --The Wall Street Journal, July 25, 1994.
Lipper Analytical Services, an independent research firm,
ranked the fund in the top 12% of funds with similar investment
objectives for its 10-year return through July 31, 1994.*
Performance should always be considered in light of a fund's
investment strategy. Putnam OTC Emerging Growth Fund is
designed for investors seeking above-average growth potential
through investments in small- and medium-sized emerging growth
companies.
FISCAL 1994 RESULTS AT A GLANCE
- ----------------------------------------------------------------
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Class A Class B
Total return- NAV POP NAV CDSC
- ----------------------------------------------------------------
12 months ended 7131/94
(change in value during
period plus reinvested
distributions) 4.83% -1.17% 4.15% -0.56%
- ----------------------------------------------------------------
Share value: NAV POP NAV
- ----------------------------------------------------------------
7/31/93 $10.72 $11.37 $10.70
7/31/94 10.15 10.77 10.06
- ----------------------------------------------------------------
Long-term
Distributions: Number Income capital gains Total
- ----------------------------------------------------------------
Class A 1 - $1.20 $1.20
Class B 1 - 1.20 1.20
- ----------------------------------------------------------------
</TABLE>
Performance data represent past results and will differ for
each share class. For performance over longer periods, see page
8. POP assumes 5.75% maximum sales charge. CDSC assumes 5%
maximum contingent deferred sales charge.
* Lipper rankings vary over time and do not include the effects
of sales charges. For the 1-, 5-, and 10 year periods, the
fund's class A shares were ranked 74th out of 180, 26th out of
66, and 3rd out of 25 funds, respectively Past performance is
not indicative of future results.
<PAGE>
From the Chairman
[Photo]
(c) Karsh, Ottawa
Dear Shareholder: A spirit of guarded optimism lifted stock
markets worldwide as your fund reached the close of its fiscal
year on July 31,1994. Although the upturn came too late to
alter performance results perceptibly, it was the first sign in
many months that the markets at home and abroad recognized the
fundamental strengths of the world's major economies.
Putnam Management believes U.S. economic indicators such as
corporate earnings, productivity, inventories, and employment
will continue to favor growth investments, though further
interest rate increases could slow the pace of economic
expansion more than desired.
I am pleased to report that during the fiscal year, James
Callinan joined Daniel Miller in the day-to-day management of
Putnam OTC Emerging Growth Fund. Jim has been an equity
research analyst at Putnam since 1987, covering the computer
services, applications software, and financial services
industries and has seven years of investment experience.
In the report that follows, Dan and Jim discuss the fiscal year
just ended and prospects for fiscal 1995.
Respectfully yours,
[Signature]
George Putnam
Chairman of the Trustees
September 14, 1994
Report from the fund managers
Daniel L. Miller
James L. Callinan
Investor sentiment swung from one extreme to the other during
Putnam OTC Emerging Growth Fund's fiscal year ended July 31,
1994. After a strong first half for investors in the fund, the
market reacted to higher interest rates and heightened federal
regulation by punishing the very stocks it had embraced a scant
few months before. By period's end, some 80% of the NASDAQ-
traded stocks on which your fund focuses were down at least 20%
from their recent highs.
Although diversified across a number of industries, your fund
was nevertheless affected by the poor performance of nearly all
traditional emerging growth stocks. The fund's 21.15% total
return for class A shares at net asset value for the first six
months of the period was reduced to 4.83% by the end of the
period. Although disappointing, this performance compares
favorably with the 4.61% increase in the Russell 2000 index, an
unmanaged list of predominately small-capitalization stocks. We
have chosen to use the Russell index as a gauge of fund
performance because, in our view, it more closely matches the
fund's portfolio than the Standard & Poor's 500 Index
previously used. For more complete details, please turn to the
performance summary on pages 8 and 9
POTHOLES ALONG THE INFORMATION HIGHWAY
Unlike the national highway system, which was built by the
federal government, the information highway is being forged by
private enterprise. The principal participants are companies
engaged in wireless communications, telephones, computer
software, and cable communications. With healthy cash flows and
mind-numbing technological advances, these businesses are
competing fiercely to control the future of information
exchange. At stake is an emerging multibillion-dollar business
of providing telephone, computer, telefaxing, paging, and
multimedia services to homes and businesses.
In the fall of 1993, industry competition began to manifest
itself in mergers and acquisitions the likes of which this
economy had not seen since the late 1980s. Industry giants like
Bell Atlantic Corp. and AT&T made headlines daily with
multibillion-dollar merger announcements. Investor optimism
soared, and with it so did the prices of stocks, many of which
were already trading at very high multiples. The situation was
ripe for a sell-off.
When the Federal Reserve Board raised interest rates in
February, investors took their cue to lock in profits and
return to more stable investments, fearing that higher interest
rates would weaken the fundamentals of many rapidly expanding
companies. Later the same month, the Federal Communications
Commission adopted rules to cut cable television prices by 7%.
The announcement, coupled with declining stock prices, prompted
executives at Bell Atlantic Corp. to rescind their $33 billion
bid for TeleCommunications, Inc.--a psychological blow felt
throughout the industry.
While perhaps temporarily delayed, the national network of
information exchange will continue to develop, in our view.
Those companies able to find niche markets stand to reap
immense profits. As a reflection of our commitment to this
sector, we added to several existing positions during the
period, taking advantage of prices that were off by more than
20% from their recent highs. Rather than try to predict events,
we have focused on quality management, selecting companies like
TeleCommunications, Inc. and its programming subsidiary Liberty
Media Corp., organizations that have steered their way through
numerous industry permutations, advances, and setbacks.
TOP FIVE INDUSTRY SECTORS*
- ----------------------------------------------------------------
Health Care 14.6%
Business services 9.4%
Computer software 9.3%
Broadcasting 7.3%
Retail 6.8%
- ----------------------------------------------------------------
*Based on net assets at 7/31/94
GROWING PAINS FOR GAMING STOCKS
Gaming stocks have also had their share of rough and tumble in
recent months. Throughout the industry, companies have come up
against a number of political and legal hurdles, as well as
increased competition. In regions of the country where state
boundaries are drawn by rivers, as in Missouri, casinos on
opposite river banks are competing fiercely for business.
Casinos built on Native American reservations have also been
hurt by political delays and tribal infighting. Finally,
political pressure has mounted in states where vocal minorities
have complained about the social implications of gambling.
We believe the construction of gaming establishments will
continue and these temporary obstacles will eventually be
overcome. Despite the strengthening economy, we have not seen
significant improvement in the fiscal status of many state
budgets. Thus, the tax revenue available from gaming
establishments should continue to be an attractive source of
municipal finance. As a result, we have maintained an exposure
to this sector, but at a reduced level.
INNOVATORS IN HEALTH CARE
The fund's health care holdings exemplify our focus on
companies committed to cost containment. The health care
industry is benefiting from an aging population but is
experiencing pressure from both private firms and government to
contain costs. In our view, only those that deliver cost
savings to the system will survive and eventually flourish.
Currently, the most profitable and fastest growing companies
are providing medical services. Health maintenance
organizations (HMOs), for example, have dramatically reduced
the cost of providing health care by accommodating many more
patients than the average family practice. An excellent example
and a recent addition to the portfolio is United American
Healthcare, a provider of administrative, management, and
consulting services to HMOs. Based in Detroit, the company has
carved a lucrative market arranging health care for Medicaid
recipients and is poised for huge growth as millions more
Medicaid recipients are shifted to managed health care.
Top 10 Holdings (7/31/94)
- ----------------------------------------------------------------
Liberty Media Corp. class A
Cable television systems
Bed, Bath & Beyond, Inc.
Home furnishings retailer
Hospitality Franchise System, Inc.
Franchising services for low-cost hotel chains
Infinity Broadcasting Corp.
Owner and operator of radio stations
Robert Half International, Inc.
Personnel services
America Online, Inc.
Online computer services
Clear Channel Communications, Inc.
Owner and operator of radio and TV stations
Paging Network, Inc.
Paging services
Danka Business Systems ADR
Retailer and distributor of office equipment
PeopleSoft, Inc.
Developer of client/server software
These holdings represent 19.7% of the fund's net assets.
Portfolio holdings are subject to change.
RENEWED FOCUS ON FUNDAMENTALS
While this year's declines have undoubtedly shaken investor
confidence, we believe the market's focus should soon be back
on company fundamentals and away from interest rates and
inflation. Meanwhile, we believe we have singled out the
leading growth companies from a broad spectrum of product and
service industries and are taking advantage of the recent
downturn by buying stocks at depressed values. This combination
of factors could result in strong performance for your fund in
the coming fiscal year.
Although the stocks of the companies discussed here met the
fund's selection criteria at the time of purchase, Putnam
Management's views on these companies should not be taken as
investment advice. There is no guarantee that these stocks will
be held in the future.
Performance summary
This section provides, at a glance, information about your
fund's performance. 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 back
into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might
have grown each year over varying periods. For comparative
purposes, we show how the fund performed relative to
appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 7/31/94
- ----------------------------------------------------------------
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Class A Class B Russell S&P500
NAV POP NAV CDSC 2000 Index
- ----------------------------------------------------------------
1 year 4.83% - 1.17% 4.15% -0.56% 4.61 % 5.19%
- ----------------------------------------------------------------
5 years 74.35 64.35 -- -- 53.75 54.69
Annual average 11.76 10.45 -- -- 8.98 9.12
- ----------------------------------------------------------------
10 years 374.38 346.99 -- -- 211.11 326.18
Annual average 16.85 16.15 -- -- 12.02 15.60
- ----------------------------------------------------------------
Life of class B
(7/15/93) -- -- 3.18 -0.54 6.06 4.63
Annual average -- -- 3.06 -0.52 5.82 4.45
- ----------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 6/30/94
(most recent calendar quarter)
- ----------------------------------------------------------------
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Class A Class B
NAV POP NAV CDSC
- ----------------------------------------------------------------
1 year 4.21% -1.74% -- --
- ----------------------------------------------------------------
5 years 80.57 70.16 -- --
Annual average 12.55 11.22 -- --
- ----------------------------------------------------------------
10 years 350.90 325.06 -- --
Annual average 16.25 15.57 -- --
- ----------------------------------------------------------------
Life of class B (7/15/93) -- -- 1.13% -3.43%
- ----------------------------------------------------------------
</TABLE>
Performance data represent past results and do not take into
account any adjustment for taxes payable on reinvested
distributions or, for class A shares, distribution fees prior
to implementation of the class A distribution plan in 1990.
Performance of share classes will differ. Investment returns
and net asset value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original
cost.
GROWTH OF A $10,000 INVESTMENT
[MOUNTAIN CHART]
Past performance is no assurance of future results. A $10,000
investment in the fund's class B shares at inception on July
15, 1993, would have been valued at $10,318 by July 31, 1994
($9,946 with a redemption at the end of the period). All data
as of 7/31.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
shares, not including any initial or contingent deferred sales
charge.
Public offering price (POP) is the price of a mutual fund share
plus the maximum sales charge levied at the time of purchase.
POP performance figures shown here assume the maximum 5.75%
sales charge.
Class A shares are generally subject to an initial sales
charge.
Class B shares may be subject to a sales charge upon
redemption.
Contingent deferred sales charge (CDSC) is a charge applied at
the time of the redemption of shares and assumes redemption at
the end of the period. Your fund's CDSC declines from a 5%
maximum during the first year to 1% during the sixth year.
After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Russell 2000 Small Stock Index is an unmanaged list of common
stocks that is frequently used as a measure of the performance
of small company stocks. Standard & Poor's 500 Index is an
unmanaged 11st of common stocks frequently used as a gauge of
general stock market performance. The indexes assume
reinvestment of all distributions and do not take into account
brokerage commissions or other costs. The fund's portfolio
contains securities that do not match those in the indexes.
Consumer Price Index (CPI) is a commonly used measure of
inflation: it does not represent an investment return.
<PAGE>
Life cycle investing
As we move through life, our investment needs change. As these
needs change, so does the way we allocate our assets. Here are
some basic rules for setting up and maintaining an investment
program and some examples of how assets might be allocated.
DETERMINE YOUR INVESTMENT OBJECTIVES.
Objectives may include a new home, college education expenses,
or retirement.
EVALUATE YOUR RISK TOLERANCE.
Generally, risk tolerance is higher for younger investors with
longer timelines and lower for older investors who may depend
on their investment for current income.
ALLOCATE YOUR INVESTABLE SAVINGS.
Your investment advisor will help you determine how much of
your investable dollars should be allocated to each investment
category.
CHOOSE THE APPROPRIATE PUTNAM FUNDS.
Using Putnam's free exchange privilege, you can adjust your own
Putnam portfolio of funds within the same class of shares as
your financial needs change -- without a service fee.*
Look at the facing page for some ways you can allocate your
assets, then turn the page to see how the Putnam Fund
Selector(tm) can help you make your choices.
* Putnam reserves the right to change or terminate the
exchange privilege. In some cases, a sales charge may
apply. See prospectus for details.
<PAGE>
Four ways to allocate assets
[PIE CHARTS]
SEEKING MAXIMUM GROWTH
30% -- 40% Growth and income
40% -- 50% Growth
5% -- 20% Income or tax-free income
Risk tolerance: Generally investors with a higher risk
tolerance (often in their 20s and early 30s.)
SEEKING GROWTH AND SOME INCOME
40% -- 50% Growth and income
30% -- 40% Growth
10% -- 30% Income or tax-free income
Risk tolerance: Generally investors with a high to moderate
risk tolerance (often in their late 30s and early 40s.)
SEEKING INCOME AND SOME GROWTH
WITH PROTECTION AGAINST INFLATION
30% -- 40% Growth and income
10% -- 20% Growth
25% -- 60% Income or tax-free income
Risk tolerance: Generally investors with a moderate risk
tolerance (often in their late 40s and early 50s.)
SEEKING HIGH CURRENT INCOME AND
PROTECTION AGAINST INFLATION
20% -- 30% Growth and income
5% -- 10% Growth
40% -- 70% Income or tax-free income
Risk tolerance: Generally investors with a low risk tolerance
(often over 60 and retired.)
The Putnam Fund Selector(tm)
The Putnam Fund Selector shows the many opportunities for
investors within every investment strategy. All investors
should first accumulate a base of conservative, cash-equivalent
investments. Then, with the help of your investment advisor,
diversify your portfolio by investing in the Putnam Family of
Funds.
[TRIANGLE ARTWORK]
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Fund*
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH
AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds(+)
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio and Pennsylvania
LIFESTAGE(sm) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios
that spread your money across a variety of stocks, bonds, and
money market investments to help maximize your return and
reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS(++)
Putnam money market funds:
Money Market Fund(+++)
California Tax Exempt Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts**
* Formerly Energy-Resources Trust
+ Not available in all states.
++ Relative to above.
+++ Formerly Putnam Daily Dividend Trust
** Not offered by Putnam Investments. Certificates of deposit
offer a fixed rate of return and may be insured, up to certain
limits, by federal/state agencies. Savings accounts may also be
insured up to certain limits.
Please call your financial advisor or Putnam to obtain a
prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Read it carefully
before you invest or send money.
<PAGE>
Report of Independent Accountants
for the fiscal year ended July 31, 1994
To the Trustees and Shareholders of
Putnam OTC Emerging Growth Fund
We have audited the accompanying statement of assets and
liabilities of Putnam OTC Emerging Growth Fund, including the
portfolio of investments owned, as of July 31, 1994, and the
related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in
the period then ended, and the "Financial Highlights" for each
of the nine years in the period then ended, and for the eleven-
month period ended July 31, 1985 for class A shares and for the
year ended July 31, 1994 and for the period July 15, 1993
(commencement of operations) to July 31, 1993 for class B
shares. These financial statements and "Financial Highlights"
are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial
statements and "Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and "Financial Highlights" are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of July 31, 1994, by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and "Financial
Highlights" referred to above present fairly, in all material
respects, the financial position of Putnam OTC Emerging Growth
Fund as of July 31, 1994, the results of its operations for the
year then ended, the changes in its net assets for each of the
two years in the period then ended, and the "Financial
Highlights" for each of the nine years in the period then
ended, and for the eleven-month period ended July 31, 1985 for
class A shares and for the year ended July 31, 1994 and for the
period July 15, 1993 (commencement of operations) to July 31,
1993 for class B shares, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 19, 1994
<PAGE>
Portfolio of investments owned
July 31, 1994
<TABLE><CAPTION>
<S> <C>
<C>
COMMON STOCKS (88.7%) (a)
NUMBER OF SHARES VALUE
Health Care and HMOs (14.6%)
- ----------------------------------------------------------------
260,000 Careline, Inc. (b) $ 1,901,250
25,600 Coventry Corp. (b) 876,800
292,500 Health Management Assoc., Inc. (b) 6,105,938
210,000 Healthsource, Inc. (b) 5,932,500
259,800 Homecare Management, Inc. (b) 3,604,725
165,000 Homedco Group, Inc. (b) 4,867,500
155,000 Horizon Healthcare Corp. (b) 3,623,125
258,000 Lincare Holdings, Inc. (b) 5,514,750
129,100 Mid Atlantic Medical Services, Inc. (b) 5,357,650
101,400 Oxford Health Plans Inc. (b) 5,931,900
88,050 Pacificare Health Systems,
Inc. Class B (b) 4,468,538
134,800 Quantum Health Resources, Inc. (b) 4,448,400
54,600 Ren Corp. USA (b) 552,825
150,000 Rotech Medical Corp. (b) 2,850,000
50,900 Summit Care 948,013
23,800 United Amencan Healthcare (b) 425,425
170,000 Vencor, 6,587,500
102,400 Vivra, Inc. (b) 2,380,800
--------------
66,377,639
Business Services (9.4%)
- ----------------------------------------------------------------
161,800 Danka Business Systems ADR (c) 6,937,175
270,000 Fiserv Inc. (b) 5,940,000
151,900 Interim Services, Inc. (b) 3,569,650
140,000 Kelly Services, Inc. Class A 4,130,000
130,000 Manpower, Inc. 3,120,000
165,000 Olsten Corp. (The) 5,568,750
120,000 Paychex, Inc. 4,020,000
225,000 Robert Half Intemational, Inc. (b) 9,815,625
--------------
43,101,200
Computer Software (9.3%)
- ----------------------------------------------------------------
170,300 Alias Research, Inc. (b) 2,128,750
76,300 Compuware Corp. (b) 3,004,313
176,800 FTP Software, Inc. (b) 2,210,000
185,000 Infosoft International, Inc. (b) 4,393,750
32,300 Intuit, Inc. (b) 1,162,800
125,600 Mercury Interactive Corp. (b) 1,193,200
185,000 Netmanage, Inc. (b) 2,566,875
14,600 Parametric Technology Corp. (b) 361,350
195,000 PeopleSoft, Inc. (b) 6,776,250
63,800 Powersoft Corp. (b) 2,743,400
121,100 Sybase, Inc. (b) 4,768,313
150,000 Synopsys, Inc. (b) 5,775,000
145,000 Wall Data, Inc. (b) 5,183,750
--------------
42,267,751
Broadcasting (7.3%)
- ----------------------------------------------------------------
191,625 Clear Channel Communications, Inc. (b) 8,862,656
183,600 Emmis Broadcasting Corp. Class A (b) 2,616,300
340,000 Infinity Broadcasting Corp. Class A (b) 9,817,500
120,000 Renaissance Communications Corp. (b) $ 2,820,000
175,000 SFX Broadcasting, Inc. Class A (b) 2,668,750
240,000 Westcott Communications, Inc. (b) 2,475,000
454,900 Westwood One, Inc. (b) 3,752,925
--------------
33,013,131
Retail (6.8%)
- ----------------------------------------------------------------
350,000 Bed Bath & Beyond, Inc. (b) 10,587,500
13,400 Gymboree Corp. (b) 549,400
225,000 Heilig-Meyers Co. 5,962,500
262,500 Office Depot, Inc. (b) 5,545,313
100,300 Stein Mart, Inc. (b) 1,654,950
140,700 Talbots, Inc. 4,590,338
50,200 Tommy Hilfiger (b) 2,033,100
--------------
30,923,101
Cable Television (5.9%)
- ----------------------------------------------------------------
190,000 Antec Corp. (b) 5,379,374
226,214 Century Communications Corp. Class A 1,894,542
290,000 Comcast Corp. Special Class A 4,821,250
477,200 Liberty Media Corp. Class A (b) 10,677,350
115,000 Starsight Telecast, Inc. (b) 1,725,000
99,700 TCA Cable TV, Inc. 2,218,325
--------------
26,715,841
Restaurants (5.7%)
- ----------------------------------------------------------------
307,500 Apple South, Inc. 4,689,374
41,900 Bertucci's Inc. (b) 382,337
235,000 Buffets, Inc. (b) 4,009,687
196,700 DF&R Restaurants, Inc. (b) 4,474,925
196,000 Landry's Seafood Restaurants, Inc. (b) 3,822,000
233,700 Outback Steakhouse, Inc. (b) 5,900,925
210,000 Taco Cabana, Inc. (b) 2,782,500
--------------
26,061,748
Wireless Communications (4.3%)
- ----------------------------------------------------------------
18,300 Cellular Communications, Inc. Class A (b) 953,887
239,750 Centennial Cellular Corp. Class A 3,716,125
265,000 Paging Network, Inc. (b) 7,055,625
140,000 United States Cellular Corp. (b) 3,902,500
101,200 Vanguard Cellular Systems, Inc. (b) 3,820,300
--------------
19,448,437
Consumer Services (4.2%)
- ----------------------------------------------------------------
160,000 America Online, Inc. (b) 8,900,000
195,000 CUC International, Inc. (b) 5,874,374
145,000 Loewen Group, Inc. 3,534,375
28,000 Stewart Enterprises, Inc. Class A 605,500
--------------
18,914,249
Lodging (3.8%)
- ----------------------------------------------------------------
44,300 Doubletree Corp. (b) $ 797,400
385,000 Hospitality Franchise System, Inc. (b) 10,298,750
184,400 La Quinta Inns, Inc. 5,255,400
54,600 Supertel Hospitality, Inc. (b) 737,100
--------------
17,088,650
Telephone Services (3.4%)
- ----------------------------------------------------------------
162,500 ALC Communications Corp. (b) 5,260,937
179,400 Communications Central Inc. (b) 2,332,200
130,000 MFS Communications Company, Inc. (b) 3,835,000
100,000 Telephone & Data Systems, Inc. 4,075,000
--------------
15,503,137
Pharmaceuticals and Biotechnology (2.2%)
- ----------------------------------------------------------------
18,800 Biogen, Inc. (b) 817,800
82,600 Cor Therapeutics, Inc. (b) 1,011,850
170,000 Elan Corp. PLC ADR (b)(c) 5,801,250
50,200 Immulogic Phammaceutical Corp. (b) 326,300
95,500 Penedemm, Inc. (b) 775,938
125,000 Theratech, Inc. (b) 1,468,750
--------------
10,201,888
Electronics (2.0%)
- ----------------------------------------------------------------
180,000 Level One Communications, Inc. (b) 3,600,000
90,000 Maxim Integrated Products Inc. (b) 4,342,500
102,500 Medar, Inc. (b) 1,191,563
--------------
9,134,063
Recreation & Gaming (1.7%)
- ----------------------------------------------------------------
198,000 Boomtown, Inc. (b) 3,217,500
175,100 Mirage Resorts, Inc. (b) 3,217,463
106,950 Rio Hotel & Casino, Inc. (b) 1,390,350
--------------
7,825,313
Networking (1.6%)
- ----------------------------------------------------------------
75,000 Stratacom, Inc. (b) 2,306,250
247,000 Wellfleet Communications, Inc. (b) 4,970,875
--------------
7,277,125
Financial Services (1.2%)
- ----------------------------------------------------------------
119,800 First USA, Inc. 4,013,300
35,000 Sunamerica, Inc. 1,588,125
--------------
5,601,425
Computer Services (1.1%)
- ----------------------------------------------------------------
317,300 Cambridge Technology Partners, Inc. (b) 4,878,487
--------------
Medical Equipment and Supplies (0.7%)
- ----------------------------------------------------------------
92,900 Ballard Medical Products Co. $ 801,262
314,700 Bioject Medical Technologies, Inc. (b) 1,140,787
700 Haemonetics Corp. (b) 10,500
62,600 Igen, Inc. (b) 406,900
55,000 Medisense Inc. (b) 804,375
--------------
3,163,824
Insurance (0.7%)
- ----------------------------------------------------------------
10,000 Life Partners Group, Inc. 178,750
111,100 National Re Corp. 2,930,263
--------------
3,109,013
Health Care Infommation Systems (0.6%)
- ----------------------------------------------------------------
63,500 Clinicom, Inc. (b) 1,111,250
59,700 HBO & Co. 1,701,450
--------------
2,812,700
Automotive Parts (0.5%)
- ----------------------------------------------------------------
280,000 Finishmaster, Inc. (b) 2,450,000
--------------
Gas (0.4%)
- ----------------------------------------------------------------
80,400 Westem Gas Resources, Inc. 1,819,050
Computer Peripherals (0.4%)
- ----------------------------------------------------------------
104,000 American Power Conversion Corp. (b) 1,716,000
Household Products (0.3%)
- ----------------------------------------------------------------
30,400 Duracraft Corp. (b) 1,216,000
Apparel (0.2%)
- ----------------------------------------------------------------
73,400 Authentic Fitness Corp. (b) 981,724
Publishing (0.2%)
- ----------------------------------------------------------------
42,500 Marvel Enterainment Group, Inc. (b) 770,313
Environmental Services (0.1 %)
- ----------------------------------------------------------------
32,700 Molten Metal Technology, Inc. (b) 588,600
Finance (0.1%)
- ----------------------------------------------------------------
31,500 Financial Federal Corp. (b) 500,063
--------------
Total Common Stocks (cost $332,862,203) $403,460,472
- ----------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS ( 1.0%) (cost $1,983,203) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------
$ 86,800 CellularCommunications, Inc.
$0.01 cv. pfd. $ 4,524,450
- ----------------------------------------------------------------
CONVERTIBLE BONDS (0.2%) (cost $1,000,000) (a)(d)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------
$ 1,000,000 Careline, Inc. cv. deb. 8s, 2001 $ 850,000
- ----------------------------------------------------------------
SHORT-TERM INVESTMENTS (5.5%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------
$10,000,000 Ford Motor Credit Co. 4.25s,
August 8, 1994 $ 9,991,736
15,097,000 Interest in $530,000,000 joint repurchase
agreement dated July 29, 1994 with Bankers
Trust New York Corp. due August 1, 1994
with respect to various U.S. Treasury
obligations maturity value of $15,102,284
for an effective yield of 4.2% 15,102,284
- ----------------------------------------------------------------
Total Short-Term Investments
(cost $25,094,020) $ 25,094,020
- ----------------------------------------------------------------
Total Investments
(cost $360,939,426)(e) $433,928,942
- ----------------------------------------------------------------
</TABLE>
(a) Percentages indicated are based on net assets of
$454,820,944, which correspond to a net asset value per
class A and class B share of $10.15 and $10.06
respectively.
(b) Non-income-producing security.
(c) ADR after the name of a foreign holding stands for
American Depository Receipt representing ownership of
foreign securities on deposit with a domestic custodian
bank.
(d) Security exempt from registration under Rule 144A of the
Securities Act of 1933. This security may be resold in
transactions exempt from registration, normally to
qualified institutional buyers. At July 31, 1994, this
security was valued at $850,000 or 0.2% of net assets.
(e) The aggregate identified cost for federal income tax
purposes is $362,887,323, resulting in gross unrealized
appreciation and depreciation of $94,702,078 and
$23,660,459, respectively, or net unrealized appreciation
of $71,041,619.
<PAGE>
Statement of assets and liabilities
July 31, 1994
<TABLE><CAPTION>
<S> <C>
Assets
- --------------------------------------------------------------
Investments in securities, at value
(identified cost $360,939,426) (Note 1) $433,928,942
Cash 569
Dividends, interest and other receivables 60,377
Receivable for shares of the fund sold 8,699,367
Receivable for securities sold 19,399,954
Total assets 462,089,209
Liabilities
- --------------------------------------------------------------
Payable for securities purchased $ 6,305,124
Payable for shares of the fund repurchased 287,636
Payable for compensation of Manager (Note 2) 263,006
Payable for administrative services (Note 2) 3,655
Payable for distribution fees (Note 2) 119,346
Payable for investor servicing and
custodian fees (Note 2) 132,562
Other accrued expenses 156,936
Total liabilities 7,268,265
Net assets $454,820,944
Represented by
- ---------------------------------------------------------------
Paid-in capital (Notes 4 and 5) $347,192,140
Accumulated net realized gain on
investment transactions 34,639,288
Net unrealized appreciation of investments 72,989,516
Total-Representing net assets applicable
to capital shares outstanding $454,820,944
- ----------------------------------------------------------------
Net asset value and redemption price of
class A shares ($412,706,000 divided by
40,664,721 shares) $10.15
Offering price per class A share
( 100/94.25 of $10.15)* $10.77
Net asset value and offering price of
class B shares ($42,114,944 divided by
4,187,198 shares)** $10.06
- ----------------------------------------------------------------
</TABLE>
* 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.
<PAGE>
Statement of operations
Year ended July 31, 1994
<TABLE><CAPTION>
<S> <C>
Investment income:
- ----------------------------------------------------------------
Dividends (net of foreign tax of $1,905) $ 585,277
Interest 258,420
Total investment income $ 843,697
Expenses:
- ----------------------------------------------------------------
Compensation of Manager (Note 2) $ 3,021,394
Investor servicing and custodian fees (Note 2) 666,934
Compensation of Trustees (Note 2) 18,976
Reports to shareholders 61,142
Auditing 22,526
Legal 18,401
Postage 63,601
Registration fees 37,866
Administrative services (Note 2) 7,398
Distribution fees class A (Note 2) 1,030,800
Distribution fees class B (Note 2) 183,195
Other 13,443
Total expenses 5,145,676
Net investment loss (4,301,979)
- ----------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 48,499,047
Net unrealized depreciation of
investments during the year (31,492,905)
Net gain on investments 17,006,142
Net increase in net assets resulting
from operations $ 12,704,163
- ----------------------------------------------------------------
</TABLE>
<PAGE>
Statement of changes in net assets
<TABLE><CAPTION>
<S> <C> <C>
Year ended July 31
1994 1993
- ----------------------------------------------------------------
Increase in net assets
- ----------------------------------------------------------------
Operations:
Net investment loss $ (4,301,979)$ (2,815,418)
Net realized gain on investments 48,499,047 28,164,696
Net unrealized appreciation
(depreciation) of investments (31,492,905) 64,246,684
- ----------------------------------------------------------------
Net increase in net assets
resulting from operations 12,704,163 89,595,962
- ----------------------------------------------------------------
Distributions to shareholders
- ----------------------------------------------------------------
From net realized gain on investments
Class A (40,874,837) (34,268,397)
Class B (874,297) --
Increase from capital share
transactions (Note 4) 119,011,352 42,189,208
Total increase in net assets 89,966,381 97,516,773
- ----------------------------------------------------------------
Net assets
- ----------------------------------------------------------------
Beginning of year 364,854,563 267,337,790
End of year (including accumulated
net investment loss of $0 and
$8,612,015, respectively) $454,820,944 $364,854,563
- ----------------------------------------------------------------
</TABLE>
<PAGE>
Financial Highlights*
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C>
For the period
July 15, 1993
(commencement
Year ended of operations)
July 31 to July 31
- ----------------------------------------------------------------
1994 1993(+)
- ----------------------------------------------------------------
Class B
- ----------------------------------------------------------------
Net Asset Value,
Beginning of Period $ 10.70 $ 10.80
- ----------------------------------------------------------------
Investment operations
Net Investment Loss (.07) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments .63 (.09)
- ----------------------------------------------------------------
Total from
Investment Operations .56 (.10)
- ----------------------------------------------------------------
Less Distributions from:
Net Investment Income -- --
Net Realized Gain on Investments (1.20) --
- ----------------------------------------------------------------
Total Distributions (1.20) --
Net Asset Value, End of Period $10.06 $10.70
- ----------------------------------------------------------------
Total Investment Return at
Net Asset Value (%) (b) 4.15 (.92)(c)
- ----------------------------------------------------------------
Net Assets, End of Period
(in thousands) $42,115 $455
- ----------------------------------------------------------------
Ratio of Expenses to
Average Net Assets (%) 1.94 .09(c)
- ----------------------------------------------------------------
Ratio of Net Investment Income
(Loss) to Average Net Assets (%) (1.71) (.09)(c)
- ----------------------------------------------------------------
Portfolio Turnover (%) 76.66 108.20(c)
- ----------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
Financial Highlights*--(continued)
<C> <C> <C> <C>
Year ended July 31
- ----------------------------------------------------------------
1994 1993 1992 1991
Class A
- ----------------------------------------------------------------
$ 10.72 $9.05 $8.35 $8.20
- ----------------------------------------------------------------
(.06) (.06) (.04) (.01)
.69 2.87 .83 .46
- ----------------------------------------------------------------
.63 2.81 .79 .45
-- -- -- --
(1.20) (1.14) (.09) (.30)
- ----------------------------------------------------------------
(1.20) (1.14) (.09) (.30)
- ----------------------------------------------------------------
$10.15 $ 10.72 $9.05 $8.35
- ----------------------------------------------------------------
4.83 32.93 9.53 6.40
- ----------------------------------------------------------------
$412,706 $364,400 $267,338 $234,055
- ----------------------------------------------------------------
1.16 1.26 1.39 1.48
- ----------------------------------------------------------------
(.97) (.90) (.59) (.46)
- ----------------------------------------------------------------
76.66 108.20 66.75 54.06
- ----------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C> <C>
Financial Highlights*--(continued)
Eleven
months
ended
Year ended July 31 July 31
- ----------------------------------------------------------------
1990 1989 1988 1987(+) 1986 1985
- ----------------------------------------------------------------
Class A
- ----------------------------------------------------------------
$8.09 $6.40 $7.84 $6.56 $5.10 $4.17
- ----------------------------------------------------------------
(.03) (.03) (.04)(a) (.02)(a) (.02) (.03)
.60 1.72 (.77) 1.87 1.57 .99
- ----------------------------------------------------------------
.57 1.69 (.81) 1.85 1.55 .96
- ----------------------------------------------------------------
-- -- -- -- -- (.03)
- ----------------------------------------------------------------
(.46) -- (.63) (.57) (.09) --
- ----------------------------------------------------------------
(.46) -- (.63) (.57) (.09) (.03)
- ----------------------------------------------------------------
$8.20 $8.09 $6.40 $7.84 $6.56 $5.10
- ----------------------------------------------------------------
7.36 26.36 (9.77) 31.64 31.09 23.05(c)
- ----------------------------------------------------------------
$ 195,802 $ 180,775 $ 143,506 $ 157,094 $41,014 $20,248
- ----------------------------------------------------------------
1.50 1.63 1.59(a) 1.49(a) 1.46 1.55(c)
- ----------------------------------------------------------------
(.47) (.41) (.74)(a) (.62)(a) (.63) (.86)(c)
- ----------------------------------------------------------------
42.66 73.58 76.91 92.76 91.92 55.17(c)
- ----------------------------------------------------------------
</TABLE>
* Table has been restated to reflect a 4-for-1 share split,
class A only, declared by the fund to shareholders of
record on October 27, 1989. payable on October 18, 1989.
+ Per share net investment income for year ended July 31,
1987 for class A and for the period ended July 31, 1993
for class B has been determined on the basis of the
weighted average number of shares outstanding during the
period.
(a) Reflects an expense limitation applicable during the
period. As a result of such limitation the net investment
loss of the fund for the fiscal year ended July 31, 1988,
and July 31, 1987 reflects per share expense reductions of
less than $0.01.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Not annualized.
<PAGE>
Notes to financial statements July 31, 1994
Note 1 Significant accounting policies
The fund is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management
investment company. The fund seeks capital appreciation through
investments in emerging growth stocks traded in the over-the-
counter (OTC) market.
The fund offers both class A and class B shares. The fund
commenced its public offering of class B shares on July 15,
1993. Class A shares are sold with a maximum front-end sales
charge of 5.75%. Class B shares do not pay a front-end sales
charge, but pay a higher ongoing distribution fee than class A
shares, and may be subject to a contingent deferred sales
charge, if those shares are redeemed within six years of
purchase. Expenses of the fund are borne pro-rata by the
shareholders of both classes of shares, except that each class
bears expenses unique to that class including the distribution
fees applicable to such class and 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 policies are in conformity with
generally accepted accounting principles.
A) Security valuation Investments for which market quotations
are readily available are stated at market value, which is
determined using the last reported sale price, or, if no sales
are reported--as in the case of some securities traded over-the-
counter--the last reported bid price, except that certain U.S.
government obligations are stated at the mean between the last
reported bid and asked prices. Short-term investments having
remaining maturities of 60 days or less are stated at amortized
cost, which approximates market value, and other investments
are stated at fair value following procedures approved by the
Trustees.
B) Joint trading account Pursuant to an exemptive order issued
by the Securities and Exchange Commission, the fund may
transfer unreinvested cash balances into a joint trading
account, along with the cash of other registered investment
companies managed by Putnam Investment Management, Inc.
("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. and certain other
accounts. 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. The fund's Manager is
responsible for determining that the value of these underlying
securities is at all times at least equal to the resale price,
including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the
order to buy or sell is executed).
Interest income is recorded on the accrual basis and dividend
income is recorded on the ex-dividend date, except that certain
dividends from foreign securities are recorded as soon as the
fund is informed of the ex-dividend date.
E) Federal taxes It is the policy of the fund to distribute all
of its 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. Therefore, no provision has been made for federal
taxes on income, capital gains or unrealized appreciation of
securities held, and excise tax on income and capital gains.
F) Distributions to shareholders Distributions to shareholders
are recorded by the fund on the ex-dividend date. The amount
and character of income and gains to be distributed are
determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These
differences include treatment of wash sales. Reclassifications
are made to the Fund's capital accounts to reflect income and
gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended
July 31, 1994, the Fund reclassified $4,301,979 to increase
undistributed net investment income, and $4,301,979 to decrease
paid-in capital.
Note 2 Management fee, administrative services, and other
transactions
Compensation of Putnam Management, the fund's Manager, a wholly-
owned subsidiary of Putnam Investments, Inc., for management
and investment advisory services is paid monthly based on the
average net assets of the fund for the month at an annual rate
of 0.70% of the first $500 million of average net assets, 0.60%
of the next $500 million, 0.55% of the next $500 million, and
0.50% of any amount over $1.5 billion, subject, under current
law, to reduction in any year to the extent that expenses
(exclusive of brokerage commissions, taxes, interest,
distribution-related expenses and extraordinary expenses) of
the fund exceed 2.5% of the first $30 million of average net
assets, 2.0% of the next $70 million and 1.5% of any excess
over $100 million, and by the amount of certain brokerage
commissions and fees (less expenses) received by the affiliates
of the Manager on the fund's portfolio transactions. Prior to
July 8, 1993, such fee was based on the annual rate of 0.75% of
average net assets of the fund, subject to the same reductions.
The fund also reimburses the Manager 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. For the year ended July 31, 1994, the
fund incurred $7,398 for these services.
Trustees of the fund receive an annual Trustee's fee of $1,120
and an additional fee for each Trustees' meeting attended.
Trustees who are not interested persons of the Manager and who
serve on committees of the Trustees receive additional fees for
attendance at certain committee meetings.
Custodial functions for the fund's assets are being provided by
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are
provided by Putnam Investor Services, a division of PFTC. Fees
paid for these investor servicing and custodial functions for
the year ended July 31, 1994, amounted to $666,934.
Investor servicing and custodian fees reported in the Statement
of operations for the year ended July 31, 1994 have been
reduced by credits allowed by PFTC.
The fund has adopted a distribution plan with respect to its
class A shares (the "Class A Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the
Class A Plan is to compensate Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments, Inc., for
services provided and expenses incurred by it in distributing
class A shares. The Trustees have approved payment by the fund
to Putnam Mutual Funds Corp. at an annual rate of 0.25% of the
fund's average net assets attributable to class A shares. For
the year ended July 31, 1994 the Fund paid $1,030,800 in
distribution fees for its class A shares.
During the year ended July 31, 1994, Putnam Mutual Funds Corp.,
acting as the underwriter, received net commissions of $318,818
from the sale of class A shares of the fund.
A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares purchased as part of an
investment of $1 million or more. For the year ended July 31,
1994, Putnam Mutual Funds Corp., acting as the underwriter,
received $1,544 on such redemptions.
The fund has adopted a separate distribution plan with respect
to its class B shares (the "Class B Plan") pursuant to Rule 12b-
1 under the Investment Company Act of 1940. The purpose of the
Class B Plan is to compensate Putnam Mutual Funds Corp. for
services provided and expenses incurred by it in distributing
class B shares. The Class B Plan provides for payments by the
fund to Putnam Mutual Funds Corp. at an annual rate of 1.00% of
the fund's average net assets attributable to class B shares.
For the year ended July 31, 1994, the fund paid Putnam Mutual
Funds Corp. distribution fees of $183,195 for its class B
shares.
Putnam Mutual Funds Corp., acting as the underwriter, also
receives the proceeds of the contingent deferred sales charges
levied on class B share redemptions within six years of
purchase. The charge is based on declining rates, which begin
at 5.0% of the net asset value of the redeemed shares. Putnam
Mutual Funds Corp. received $17,203 in contingent deferred
sales charges from such redemptions for the year ended July 31,
1994.
Note 3 Purchases and sales of securities
During the year ended July 31, 1994, purchases and sales of
investment securities other than short-term investments
aggregated $353,268,346 and $321,350,448, respectively. There
were no purchases or sales of U.S. government obligations
during the year. In determining the net gain or loss on
securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4 Capital shares
At July 31 1994, there was an unlimited number of shares of
beneficial interest authorized, divided into two classes of
shares, class A and class B capital stock. Transactions in
capital shares were as follows:
<TABLE><CAPTION>
<S> <C> <C>
Year ended July 31
- ----------------------------------------------------------------
1994
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 35,574,488 $398,868,016
Shares issued in connection
with reinvestment of
distributions 3,401,323 38,094,733
38,975,811 436,962,749
Shares repurchased (32,315,571) (363,980,902)
Net increase 6,660,240 $ 72,981,847
- ----------------------------------------------------------------
Year ended July 31
- ----------------------------------------------------------------
1993
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 20,810,332 $202,860,662
Shares issued in connection
with reinvestment of
distributions 3,401,605 31,845,075
24,211,937 234,705,737
Shares repurchased (19,732,401) (192,968,623)
Net increase 4,479,536 $ 41,737,114
- ----------------------------------------------------------------
Year ended July 31
- ----------------------------------------------------------------
1994
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 5,142,922 $ 56,801,328
Shares issued in connection
with reinvestment of
distributions 70,735 787,991
5,213,657 57,589,319
Shares repurchased (1,068,955) (11,559,814)
Net increase 4,144,702 $46,029,505
- ----------------------------------------------------------------
July 15, 1993
(commencement of operations)
to July 31
- ----------------------------------------------------------------
1993
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 42,496 $452,094
Shares issued in connection with
reinvestment of distributions -- --
42,496 452,094
Shares repurchased -- --
Net increase 42,496 $452,094
- ----------------------------------------------------------------
</TABLE>
Note 5 Reclassification of Capital Account
Effective August 1, 1993, Putnam OTC Emerging Growth Fund has
adopted the provisions of Statement of Position 93-2
"Determination, Disclosure and Financial Statement Presentation
of Income, Capital Gain and Return of Capital Distributions by
Investment Companies (SOP)." The purpose of this SOP is to
report the accumulated net investment income (loss) and
accumulated net realized gain (loss) accounts in such manner as
to approximate amounts available for future tax distributions
(or to offset future realized capital gains), and to achieve
uniformity in the presentation of distributions by investment
companies.
As a result of the SOP, the Fund has reclassified $8,612,015 to
decrease accumulated net investment loss and increased
accumulated net realized gain by $1,361,537, with a decrease of
$9,973,552 to additional paid-in capital. These
reclassifications represent the cumulative amounts necessary to
report these balances through July 31, 1993, the close of the
fund's prior fiscal year-end, for financial reporting and tax
purposes.
<PAGE>
Federal tax information
Of the total distribution made, $1.20 per share for each class
A and class B was classified as long-term capital gain, whether
received in cash or additional fund shares, and regardless of
how long you had owned your shares before the distribution was
made.
The Form 1099 you receive in January 1995 will show you the tax
status of all distributions paid to your account in calendar
1994.
If you're a shareholder in an IRA or other tax-sheltered
retirement plan, this statement is for information only and
will serve as a record of distributions reinvested in your
account during the fiscal year. Money invested in these plans
generally is not subject to federal income tax until you
withdraw it.
As required by law, your fund reports to the Internal Revenue
Service on a calendar year basis the amount of distributions
paid to each shareholder.
<PAGE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Donald S. Perkins
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Matthew A. Weatherbie
Vice President
Daniel L. Miller
Vice President and Fund Manager
James L. Callinan
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
OTC Emerging Growth 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.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Providence, RI
Permit No. 2720
024/227-013751
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal
type.
(3) Headers (e.g. the names of the fund) and footers (e.g.
page numbers and "The accompanying notes are an integral part
of these financial statements") are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(5) Bullet points and similar graphic symbols are omitted.
(6) Page Numbering is different.
