PUTNAM OTC EMERGING GROWTH FUND
SEMIANNUAL REPORT
JANUARY 31, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
Morningstar, an independent rating agency, awarded the fund's class A
shares four stars, out of a possible five stars, as of December 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.
SEMIANNUAL RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
- -
CLASS A CLASS B
TOTAL RETURN: NAV POP NAV CDSC
- ----------------------------------------------------------------------
- -
6 months ended 1/31/95
(change in value during
period plus reinvested
distributions) 13.95% 7.39% 13.57% 8.57%
- ----------------------------------------------------------------------
- -
<S> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
SHARE VALUE: NAV POP NAV NAV POP
- ----------------------------------------------------------------------
- -
7/31/94 $10.15 $10.77 $10.06 -- --
12/2/94 -- -- -- $11.10 $11.50
1/31/95 10.67 11.32 10.53 10.67 11.06
- ----------------------------------------------------------------------
- -
<S> <C> <C> <C> <C>
LONG-TERM
DISTRIBUTIONS: NUMBER INCOME CAPITAL GAINS TOTAL
- ----------------------------------------------------------------------
- -
Class A 1 -- $0.857 $0.857
Class B 1 -- 0.857 0.857
Class M 1 -- 0.857 0.857
- ----------------------------------------------------------------------
- -
<FN>
Performance data represent past results and will differ for each share
class; performance for class M shares, which became effective 12/2/94,
is not shown because of the brevity of the reporting period. For
performance over longer periods, see page 8. POP assumes 5.75% maximum
sales charge for class A shares and 3.50% for class M shares. CDSC for
class B shares assumes 5% maximum contingent deferred sales charge.
Morningstar rates funds in relation to other funds with similar
investment objectives, based on the fund's 3-, 5-, and 10-year average
annual returns, adjusted for risk factors and sales charges. The 4-
star rating for the period ended 12/31/94 puts the fund in the top
32.5% among all 1,132 equity funds rated. For the 3-, 5-, and 10-year
periods ended 12/31/9, there were 1,132, 863, and 437 funds,
respectively. The fund received 4 stars for 3-year, 4 stars for 5-year
and 4 stars for 10-year performance. Past performance is not
indicative of future results.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO]
(c) Karsh, Ottawa
DEAR SHAREHOLDER:
PUTNAM OTC EMERGING GROWTH FUND'S DOUBLE-DIGIT TOTAL RETURNS AT NET
ASSET VALUE WOULD BE COMMENDABLE IN ALMOST ANY MARKET ENVIRONMENT. IN
THE UNCERTAIN CLIMATE THAT PREVAILED DURING THE FIRST HALF OF FISCAL
1995, THEY ARE NOTEWORTHY INDEED.
OF COURSE, NO ONE CAN SAY WITH CERTAINTY HOW THE FUND WILL PERFORM IN
THE MONTHS AHEAD. BUT WE ANTICIPATE CONTINUATION OF THE LINGERING
MARKET VOLATILITY AS INVESTORS CONTINUE TO TAKE A WAIT-AND-SEE
APPROACH TOWARD EQUITIES. THE ARRIVAL OF SUMMER, AND THE END OF FISCAL
1995, MAY BRING A MORE UPBEAT MOOD IN THE STOCK MARKET AS MANY OF THE
CURRENT UNCERTAINTIES ARE RESOLVED.
AT THIS TIME, I WOULD LIKE TO ANNOUNCE THAT JAMES CALLINAN, WHO HAS
BEEN WITH PUTNAM SINCE 1987 AND HAS CO-MANAGED THE FUND SINCE JUNE
1994, TOOK OVER AS SOLE MANAGER AT THE END OF FEBRUARY. DANIEL MILLER
HAS MOVED ON TO OTHER RESPONSIBILITIES WITHIN THE SPECIALTY GROWTH
GROUP. IN THE REPORT THAT FOLLOWS, JIM REVIEWS THE FUND'S OUTSTANDING
PERFORMANCE OVER THE SEMIANNUAL PERIOD AND OUTLINES HIS PLANS FOR THE
SECOND HALF OF THE FISCAL YEAR.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
MARCH 15, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
JAMES L. CALLINAN
Your management team is pleased to report that Putnam OTC Emerging
Growth Fund delivered a particularly strong performance during the
first half of fiscal 1995. For the six months ended January 31, 1995,
the fund's class A shares had a total return of 13.95% at net asset
value. At maximum public offering price, total return for class A
shares was 7.39%. A buoyant technology sector -- one of the stock
market's few bright spots -- coupled with our own intensive research,
helped fuel your fund's exceptional performance.
These numbers stand in stark contrast to the modest returns of most
key market indexes. The Russell 2000 Index, for example, an unmanaged
list of predominantly small-capitalization stocks -- an index we
typically use as a benchmark for gauging your fund's performance --
returned a mere 1.97% over the same period. The NASDAQ Index, another
measure of small-cap stock performance, rose 2.89% over the period.
The broad- market Standard & Poor's(Registered Trademark) 500 Index
gained 4.16%. Full performance details can be found on page 8.
STRONGER EARNINGS DO NOT NECESSARILY MEAN STRONGER PRICES
During 1994, the American economy grew at a brisk pace. Quarterly
gross domestic product (GDP) increases were truly impressive,
unemployment remained low and consumer confidence soared. These
factors helped bolster corporate earnings for emerging growth and
mature companies.
In spite of strong earnings growth, most stocks did not make any
appreciable gains over the semiannual period. The Federal Reserve
Board continued its preemptive strikes against inflationary pressures
with successive rounds of interest-rate increases. The new year was
barely a month old when the Fed pushed up rates yet again, its seventh
increase since February 1994. Rising interest rates usually hurt
consumers and companies, and thus tend to hold down stock prices.
Furthermore, rising rates can be particularly hard on smaller
companies, whose stock prices tend to vacillate more dramatically than
larger issues. Your fund, however, managed to turn in its strong
performance, even under these challenging market conditions.
TECHNOLOGY COMPANIES -- POWERHOUSES FOR THE 1990s
While most stock prices staggered under the weight of rising interest
rates, some companies thrived in spite of poor market conditions.
Technology stocks were particularly strong. In our opinion, the
technology sector encompasses some of the most dynamic, innovative,
and internationally competitive companies operating today.
Animated by a new entrepreneurial spirit, advanced telecommunications
equipment, computer networking, and on-line services companies are
transforming the way we live, work, and spend our leisure time. And as
technology penetrates every corner of the world economy, these
companies' opportunities for profit and expansion may prove nearly
boundless.
Over the semiannual period, we focused on consumer-oriented technology
companies. We believe individual consumers represent a fertile ground
for market expansion, as opposed to the more thoroughly served
business-to-business market. One of your fund's larger single
positions is in America Online, Inc. (AOL), which provides on-line
services for consumers. Our AOL
BAR CHART
TOP INDUSTRY SECTORS*
- ----------------------------------------------------------------------
- -
HEALTH CARE 15.4%
COMPUTER SOFTWARE 10.5%
TELEPHONE SERVICE AND WIRELESS COMMUNICATIONS 9.8%
BROADCASTING 9.0%
BUSINESS SERVICES 8.6%
* Based on net assets on 1/31/95. Holdings will vary over time.
holdings, which make up around 2.6% of the fund's portfolio, nearly
doubled in value between November and December 1994. Other companies
in the fund's portfolio plying this on-line niche in various
capacities are Netmanage and FTP Software.
Entertainment is an important subset of the consumer technology
sector; accordingly, we purchased several positions in this burgeoning
field. The fund owns shares in Softkey, which produces low-priced CD-
ROM software titles for home computers. We recently took profits on
the fund's holdings in Alias Research, after its acquisition by
Silicon Graphics. Alias is a leading producer of 3-D animation
software (used to add visual effects to movies such as "The Mask" and
"Terminator 2").
We also bought shares of companies in the networking field, a result
of our belief that the trend toward increased personal-computer-based
business-to-business data communications is contributing to dramatic
growth in this industry. Networking companies in the fund's portfolio
include Shiva, Stratacom, Ascend, and Security Dynamics. These firms
produce software and hardware which facilitate remote access,
intelligent routing, and tight data security.
HEALTH CARE STOCKS CONTINUE STRONG
Health care stocks continued to appreciate over the semiannual period,
a trend the fund was positioned to benefit from. This sector has
rebounded from a difficult period in 1993 and the first half of 1994,
as President Clinton promised sweeping industry reforms. Facing this
government pressure for reform, health care companies undertook their
own cost-cutting measures. Today, the threat of radical restructuring
appears safely past, leaving health care companies in a much more
sound position than they were before their response to reform.
However, Congress may still reduce reimbursement levels to health care
providers.
We also bought issues in two important areas of the health care
sector. Your fund owns stocks of several health maintenance
organizations (HMOs), which have established unique strategies in bids
for increased market share. We believe this sort of specialization
will be increasingly important as HMOs compete
TOP 10 HOLDINGS (1/31/95)
- ----------------------------------------------------------------------
- -
AMERICA ONLINE, INC.
On-line computer services
- ----------------------------------------------------------------------
- -
H&R BLOCK, INC.
Operator of chain of tax preparation offices, on-line computer
services
- ----------------------------------------------------------------------
- -
MBNA Corp.
Issuer of credit cards through bank subsidiary
- ----------------------------------------------------------------------
- -
INFINITY BROADCASTING CORP. CLASS A
Owner and operator of radio and television stations
- ----------------------------------------------------------------------
- -
ROBERT HALF INTERNATIONAL, INC.
Personnel services
- ----------------------------------------------------------------------
- -
VENCOR, INC.
Provider of long-term hospital care
- ----------------------------------------------------------------------
- -
HOSPITALITY FRANCHISE SYSTEM, INC.
Franchising services for low-cost hotel chains
- ----------------------------------------------------------------------
- -
HEALTHSOURCE, INC.
Owner and manager of HMOs
- ----------------------------------------------------------------------
- -
CLEAR CHANNEL COMMUNICATIONS, INC.
Owner and operator of radio and television stations
- ----------------------------------------------------------------------
- -
PAGING NETWORK, INC.
Paging services
- ----------------------------------------------------------------------
- -
[FN]
These holdings represent 15.9% of the fund's net assets. Portfolio
holdings will vary over time.
[/FN]
for clients. Such innovative companies in the portfolio include Sierra
Health Services, Healthsource, and Oxford Health Plans.
In addition to HMOs, your fund's portfolio includes companies that
develop and manufacture medical devices. I-Stat Corp. has developed a
point-of-care blood analyzer. MediSense manufactures a glucose self-
monitoring system for diabetics. Idexx Labs supplies veterinary care
equipment. We believe such medical devices companies will enjoy
increasing demand for their products, both domestically and globally.
THE MONTHS AHEAD
The coming months may remain positive for emerging growth stocks, if
the economy remains relatively healthy and interest rates stabilize.
We might even enjoy a "soft landing" of the domestic economy, which
could provide a stimulus to stocks, including emerging growth issues.
Ultimately, we continue to believe emerging growth companies are among
today's -- and tomorrow's -- most attractive investment opportunities.
[FN]
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 January 31, 1995, there is no
guarantee the fund will continue to hold these securities in the
future.
[/FN]
<PAGE>
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 1/31/95
<TABEL>[CAPTION]
[S] [C] [C] [C] [C] [C] [C]
RUSSELL
CLASS A CLASS B 2000
NAV POP NAV CDSC INDEX CPI
- ----------------------------------------------------------------------
- --
6 months 13.95% 7.39% 13.57% 8.57% 1.97% 1.28%
- ----------------------------------------------------------------------
- --
1 year -1.40 -7.10 -2.10 -6.61 -6.01 2.80
- ----------------------------------------------------------------------
- --
5 years 114.62 102.32 -- -- 75.83 17.98
Annual average 16.50 15.13 -- -- 11.95 3.36
- ----------------------------------------------------------------------
- --
10 years 336.45 311.44 -- -- 160.13 42.46
Annual average 15.88 15.19 -- -- 10.03 3.60
- ----------------------------------------------------------------------
- --
Life of class B -- -- 17.19 13.29 8.14 4.09
Annual average -- -- 10.85 8.44 5.22 2.63
- ----------------------------------------------------------------------
- --
[/TABLE]
TOTAL RETURN FOR PERIODS ENDED 12/31/94
(most recent calendar quarter)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
CLASS A CLASS B
NAV POP NAV CDSC
- ----------------------------------------------------------------------
- --
1 year 2.24% -3.65% 1.55% -3.13%
- ----------------------------------------------------------------------
- --
5 years 93.19 81.97 -- --
Annual average 14.08 12.72 -- --
- ----------------------------------------------------------------------
- --
10 years 411.51 382.16 -- --
Annual average 17.73 17.04 -- --
- ----------------------------------------------------------------------
- --
Life of class B -- -- 18.63 14.68
Annual average -- -- 12.41 9.84
- ----------------------------------------------------------------------
- --
<FN>
Fund performance data 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. Effective 7/15/93, the fund began offering class B
shares and on 12/2/94, class M shares. Performance of share classes
will differ; performance for class M shares is not shown because of
the brevity of the period. Investment returns and principal value will
fluctuate so an investor's shares, when sold, may be worth more or
less than their original cost. Past performance is not indicative of
future results.
</TABLE>
<PAGE>
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1
fee than Class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares, not
including any initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus
the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the maximum 5.75% sales charge
for class A shares and 3.50% for class M shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the
time of the redemption of class B shares and assumes redemption at the
end of the period. Your fund's CDSC declines from a 5% maximum during
the first year to 1% during the sixth year. After the sixth year, the
CDSC no longer applies.
COMPARATIVE BENCHMARKS
RUSSELL 2000 INDEX is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance.*
STANDARD & POOR'S 500 INDEX is an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance.*
NASDAQ Industrial Index is an unmanaged index of common stocks traded
in the over-the-counter market.*
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
[FN]
* The fund's portfolio contains securities that do not match those in
the indexes. The indexes assume reinvestment of all distributions and
do not take into account brokerage commissions or other costs.
[/FN]
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
January 31, 1995 (Unaudited)
<TABLE><CAPTION>
<C> <S> <C>
COMMON STOCKS (95.1%)*
NUMBER OF SHARES VALUE
BROADCASTING (6.0%)
- ----------------------------------------------------------------------
-
145,625 Clear Channel Communications, Inc.+$
7,390,469
265,700 Emmis Broadcasting Corp. Class A+
4,251,200
279,700 Infinity Broadcasting Corp. Class A+
8,915,437
93,300 LIN Television Corp.+
2,419,969
149,400 Renaissance Communications Corp.+
4,220,550
183,000 SFX Broadcasting, Inc. Class A+
3,294,000
444,900 Westwood One, Inc.+
4,337,775
-
-----------
34,829,400
BUSINESS SERVICES (8.6%)
- ----------------------------------------------------------------------
-
345,000 Block (H&R), Inc.
12,333,750
25,600 Corporate Express, Inc.+
633,600
39,800 Cyrk International, Inc.+
1,014,900
295,600 Danka Business Systems ADR
6,983,550
190,000 Fiserv Inc.+
4,096,875
141,200 Interim Services, Inc.+
3,300,550
135,000 Manpower, Inc.
3,442,500
127,100 Olsten Corp. (The)
4,210,187
139,800 Paychex, Inc.
5,452,200
360,600 Robert Half International, Inc.+
8,383,950
6,200 Safecard Services, Inc.
115,475
-
-----------
49,967,537
CABLE TELEVISION (3.0%)
- ----------------------------------------------------------------------
-
38,600 Antec Corp.+
646,550
350,538 Century Communications Corp. Class A
2,672,852
365,200 Comcast Corp. Special Class A
5,478,000
45,000 Oak Industries, Inc.+
1,051,875
118,500 Starsight Telecast, Inc.+
962,813
50,000 TCA Cable TV, Inc.
1,118,750
260,000 Tele-Communications Inc. Class A+
5,525,000
-
-----------
17,455,840
COMPUTER PERIPHERALS (1.6%)
- ----------------------------------------------------------------------
-
190,000 American Power Conversion Corp.+
2,968,750
120,000 Dialogic Corp.+
2,640,000
151,600 Network Peripherals, Inc.+
3,638,400
-
-----------
9,247,150
Computer Services (5.3%)
- ----------------------------------------------------------------------
-
107,200 Alternative Resources Corp.+
3,752,000
161,400 Applied Voice Technology, Inc.+
2,683,275
71,000 Broadway & Seymour, Inc.+
1,486,562
90,000 Business Objects S.A., ADR+
2,722,500
172,000 CMG Information Services, Inc.+
3,741,000
273,300 Cambridge Technology Partners, Inc.+
6,695,850
130,900 Cognex Corp.+$
2,781,625
25,000 Computer Horizons Corp.+
400,000
126,500 First Data Corp.
6,372,437
-
-----------
30,635,249
Computer Software (10.5%)
- ----------------------------------------------------------------------
-
240,150 Alias Research, Inc.+
5,073,169
243,400 Caere Corp.+
2,646,975
165,000 Cisco Systems, Inc.+
5,506,875
190,800 FTP Software, Inc.+
5,318,550
163,000 Infosoft International, Inc.+
5,460,500
252,500 Mercury Interactive Corp.+
3,219,375
180,000 Microcom, Inc.+
1,912,500
162,100 Netmanage, Inc.+
6,180,062
138,900 PLATINUM Technology Inc.+
2,882,175
139,800 PeopleSoft, Inc.+
4,526,025
198,500 Platinum Software Corp.+
1,786,500
110,000 Pyxis Corp.+
2,117,500
110,900 Security Dynamics Technologies, Inc.+
2,855,675
116,300 Softkey International, Inc.+
2,805,738
78,000 Synopsys, Inc.+
3,529,500
141,000 Wall Data, Inc.+
5,146,500
-
-----------
60,967,619
Consumer Services (3.9%)
- ----------------------------------------------------------------------
-
270,000 America Online, Inc.+
14,715,000
55,000 CUC International, Inc.+
1,904,375
207,400 Loewen Group, Inc.
5,807,200
-
-----------
22,426,575
Data Communications (0.8%)
- ----------------------------------------------------------------------
-
289,300 EIS International, Inc.+
4,610,719
Electronics (2.8%)
- ----------------------------------------------------------------------
-
119,400 Franklin Electronic Publishers, Inc.+
3,193,950
170,000 Maxim Integrated Products Inc.+
4,930,000
177,500 Medar, Inc.+
2,507,188
95,000 Xilinx, Inc.+
5,486,250
-
-----------
16,117,388
Entertainment (--%)
- ----------------------------------------------------------------------
-
20,250 National Gaming Corp.+
192,375
Environmental Services (0.1%)
- ----------------------------------------------------------------------
-
35,000 Molten Metal Technology, Inc.+
608,125
Finance (2.1%)
- ----------------------------------------------------------------------
-
124,600 Financial Federal Corp.+
2,367,400
385,000 MBNA Corp.
9,817,500
-
-----------
12,184,900
Financial Services (0.4%)
- ----------------------------------------------------------------------
-
70,000 First USA, Inc.$
2,415,000
Freight (0.1%)
- ----------------------------------------------------------------------
-
15,200 Fritz Companies, Inc.+
752,400
Health Care and HMOs (13.2%)
- ----------------------------------------------------------------------
-
246,000 Health Management Assoc., Inc.+
6,765,000
185,000 Healthsource, Inc.+
7,908,750
82,700 Homedco Group, Inc.+
3,426,881
203,900 Horizon Healthcare Corp.+
5,403,350
264,000 Lincare Holdings, Inc.+
6,864,000
120,000 Mid Atlantic Medical Services, Inc.+
2,850,000
80,400 Oxford Health Plans Inc.+
6,823,950
105,000 Pacificare Health Systems, Inc. Class B+
6,772,500
167,650 Quantum Health Resources, Inc.+
5,092,369
175,000 Rotech Medical Corp.+
4,812,500
180,000 Sierra Health Services+
5,467,500
31,500 Summit Care Corp.+
626,062
72,000 United American Healthcare+
2,016,000
262,200 Vencor, Inc.+
7,997,100
127,400 Vivra, Inc.+
3,853,850
11,700 Wellcare Management Group, Inc.+
308,588
-
-----------
76,988,400
Health Care Information Services (0.6%)
- ----------------------------------------------------------------------
-
113,500 Health Management Systems, Inc.+
3,291,500
Health Care Information Systems (0.5%)
- ----------------------------------------------------------------------
-
85,400 HBO & Co.
3,042,375
Health Care Services (1.1%)
- ----------------------------------------------------------------------
-
47,100 ABR Information Services, Inc.+
1,000,875
120,000 Coram Healthcare Corp.+
2,565,000
80,000 Emcare Holdings, Inc.+
1,090,000
30,000 Medaphis Corp.+
1,500,000
-
-----------
6,155,875
Hospital Management (0.4%)
- ----------------------------------------------------------------------
-
78,500 Community Health Systems+
2,188,187
Household Products (0.2%)
- ----------------------------------------------------------------------
-
36,600 Duracraft Corp.+
1,207,800
Insurance (0.1%)
- ----------------------------------------------------------------------
-
50,000 Paul Revere Corp.
850,000
Lodging (2.4%)
- ----------------------------------------------------------------------
-
285,000 Hospitality Franchise System, Inc.
7,980,000
296,100 La Quinta Inns, Inc.
5,810,963
-
-----------
13,790,963
Medical Equipment and Supplies (4.2%)
- ----------------------------------------------------------------------
-
410,000 Bioject Medical Technologies, Inc.+$
922,500
225,000 Corvita Corp.+
1,096,875
284,800 Health Management, Inc.+
5,464,600
293,500 I-Stat Corp.+
5,429,750
104,300 Idexx Laboratories, Inc.+
3,702,650
102,000 Igen, Inc.+
599,250
141,000 Medisense Inc.+
2,731,875
50,000 Omnicare, Inc.
2,318,750
70,600 STERIS Corp.+
2,479,825
-
-----------
24,746,075
Medical Management Services (0.3%)
- ----------------------------------------------------------------------
-
143,200 Ren Corp-USA+
1,986,900
Networking (1.7%)
- ----------------------------------------------------------------------
-
225,000 Plaintree Systems, Inc.+
2,557,553
137,000 Stratacom, Inc.+
4,897,750
46,700 US Robotics, Inc.+
2,264,950
-
-----------
9,720,253
Networking Equipment (1.5%)
- ----------------------------------------------------------------------
-
103,000 Ascend Communications, Inc.+
5,253,000
100,800 Shiva Corp.+
3,326,400
-
-----------
8,579,400
Oil and Gas (0.8%)
- ----------------------------------------------------------------------
-
126,800 Newpark Resources, Inc.+
2,393,350
105,000 Petro Geo-Services AS ADR+
2,349,375
-
-----------
4,742,725
Pharmaceuticals and Biotechnology (1.8%)
- ----------------------------------------------------------------------
-
185,000 Elan Corp., PLC ADR
6,521,250
70,200 Gilead Sciences, Inc.+
912,600
36,300 Immulogic Pharmaceutical Corp.+
254,100
200,000 Penederm, Inc.+
1,450,000
125,600 Theratech, Inc.+
1,106,850
-
-----------
10,244,800
Recreation and Gaming (1.2%)
- ----------------------------------------------------------------------
-
177,900 Mirage Resorts, Inc.+
3,980,513
253,650 Rio Hotel & Casino, Inc.+
2,916,975
-
-----------
6,897,488
Restaurants (3.3%)
- ----------------------------------------------------------------------
-
327,500 Apple South, Inc.
3,889,063
136,000 Applebee's International, Inc.
2,320,500
73,700 Buffets, Inc.+
718,575
77,200 DF&R Restaurants, Inc.+
1,167,650
90,600 Landry's Seafood Restaurants, Inc.+
2,604,750
180,500 Outback Steakhouse, Inc.+
4,783,250
98,700 Papa John's International, Inc.+
3,183,075
105,100 Taco Cabana, Inc.+
794,819
-
-----------
19,461,682
Retail (4.4%)
- ----------------------------------------------------------------------
-
265,000 Bed Bath & Beyond, Inc.+$
7,088,750
19,200 Ernst Home Center, Inc.+
168,000
65,000 Gymboree Corp.+
1,560,000
105,000 Heilig-Meyers Co.
2,677,500
251,500 Office Depot, Inc.+
6,539,000
85,000 Sunglass Hut International+
1,976,250
114,700 Talbots, Inc.
3,484,013
45,000 The Sports Authority, Inc.+
793,125
69,400 Tommy Hilfiger+
1,414,025
-
-----------
25,700,663
Semiconductors (2.2%)
- ----------------------------------------------------------------------
-
238,000 Analog Devices Inc.+
5,117,000
160,500 Exar Corp.+
3,290,250
155,000 Zilog Inc.+
4,495,000
-
-----------
12,902,250
Specialty Consumer Products (0.2%)
- ----------------------------------------------------------------------
-
50,600 Hollywood Entertainment Corp.+
1,290,300
Telephone Services (4.9%)
- ----------------------------------------------------------------------
-
196,000 ALC Communications Corp.+
5,684,000
119,000 Century Telephone Enterprises, Inc.
3,748,500
115,000 Communications Central, Inc.+
1,983,750
166,500 LCI International, Inc.+
3,767,063
94,400 MFS Communications Company, Inc.+
3,587,200
50,000 Natural Microsystems Corp.+
775,000
145,300 Telephone & Data Systems, Inc.
6,356,875
161,700 Transaction Network Services Inc.+
2,425,500
-
-----------
28,327,888
Wireless Communications (4.9%)
- ----------------------------------------------------------------------
-
65,100 Cellular Communications, Inc. Class A+
3,271,275
311,375 Centennial Cellular Corp. Class A
5,215,531
20,000 Commnet Cellular, Inc.+
462,500
210,400 Paging Network, Inc.+
7,153,600
90,000 Pricellular Corp. Class A+
765,000
170,200 United States Cellular Corp.+
5,063,450
255,650 Vanguard Cellular Systems, Inc.+
6,455,162
-
-----------
28,386,518
- ----------------------------------------------------------------------
-
Total Common Stocks (cost $447,347,065)
$552,912,319
- ----------------------------------------------------------------------
-
</TABLE>
<PAGE>
<TABLE><CAPTION>
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS (0.8%)* (cost $1,983,203)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------
-
86,800 Cellular Communications, Inc. $0.01 cv., pfd.$
4,361,700
- ----------------------------------------------------------------------
-
CONVERTIBLE BONDS AND NOTES (0.2%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------
-
$500,000 Careline, Inc. cv. sr. sub. notes
8s, 2001, 144A $403,125
710,000 Summit Health Ltd. cv. sub. notes
7 1/2s, 2003 970,925
-
---------
Total Convertible Bonds and Notes
(cost $1,470,428) $1,374,050
- ----------------------------------------------------------------------
-
SHORT-TERM INVESTMENTS (1.3%)* (cost $7,437,182)
PRINCIPAL AMOUNT VALUE
$7,436,000 Interest in $605,000,000 joint repurchase
agreement dated January 31, 1995 with
Goldman Sachs & Co., due February 1, 1995
with respect to various U.S. Treasury
Obligations -- maturity value of $7,437,182
for an effective yield of 5.72% $7,437,182
- ----------------------------------------------------------------------
-
Total Investments (cost $458,237,878)***
$566,085,251
- ----------------------------------------------------------------------
-
<FN>
NOTES
* Percentages indicated are based on net assets of $581,251,554,
which correspond to a net asset value per class A share, class B
share, and class M share of $10.67, $10.53, and $10.67,
respectively.
+ Non-income-producing security.
*** The aggregate identified cost on a tax basis is $459,542,212,
resulting in gross unrealized appreciation and depreciation of
$125,751,914 and $19,208,875, respectively, or net unrealized
appreciation of $106,543,039.
ADR or ADS after the name of a foreign holding stands for
American Depository Receipt or American Depository Shares,
respectively, representing ownership of foreign securities on
deposit with a domestic custodian bank.
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.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1995 (Unaudited)
<TABLE><CAPTION>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
- -
Investments in securities, at value (identified cost
$458,237,878) (Note 1) $566,085,251
- ----------------------------------------------------------------------
- -
Cash 985
- ----------------------------------------------------------------------
- -
Dividends, interest and other receivables 53,610
- ----------------------------------------------------------------------
- -
Receivable for shares of the fund sold 9,370,369
- ----------------------------------------------------------------------
- -
Receivable for securities sold 24,579,025
- ----------------------------------------------------------------------
- -
TOTAL ASSETS $600,089,240
- ----------------------------------------------------------------------
- -
LIABILITIES
- ----------------------------------------------------------------------
- -
Payable for securities purchased $14,042,775
- ----------------------------------------------------------------------
- -
Payable for shares of the fund repurchased 3,947,546
- ----------------------------------------------------------------------
- -
Payable for compensation of Manager (Note 2) 341,616
- ----------------------------------------------------------------------
- -
Payable for compensation of Trustees (Note 2) 301
- ----------------------------------------------------------------------
- -
Payable for administrative services (Note 2) 6,296
- ----------------------------------------------------------------------
- -
Payable for distribution fees (Note 2) 173,808
- ----------------------------------------------------------------------
- -
Payable for investor servicing and custodian fees (Note 2) 175,647
- ----------------------------------------------------------------------
- -
Other accrued expenses 149,697
- ----------------------------------------------------------------------
- -
TOTAL LIABILITIES 18,837,686
- ----------------------------------------------------------------------
- -
NET ASSETS $581,251,554
- ----------------------------------------------------------------------
- -
REPRESENTED BY
- ----------------------------------------------------------------------
- -
Paid-in capital (Note 4) $448,671,033
- ----------------------------------------------------------------------
- -
Distributions in excess of net investment income (2,219,697)
- ----------------------------------------------------------------------
- -
Accumulated net realized gain on investment transactions 26,952,845
- ----------------------------------------------------------------------
- -
Net unrealized appreciation of investments 107,847,373
- ----------------------------------------------------------------------
- -
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $581,251,554
- ----------------------------------------------------------------------
- -
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ----------------------------------------------------------------------
- -
Net asset value and redemption price of class A shares
($503,540,121 divided by 47,188,505 shares) $10.67
- ----------------------------------------------------------------------
- -
Offering price per class A share (100/94.25 of $10.67)* $11.32
- ----------------------------------------------------------------------
- -
Net asset value and offering price of class B shares
($77,628,908 divided by 7,375,492 shares)** $10.53
- ----------------------------------------------------------------------
- -
Net asset value and offering price of class M shares
($82,525 divided by 7,737 shares) $10.67
- ----------------------------------------------------------------------
- -
Offering price per class M share (100/96.5 of $10.67)* $11.06
- ----------------------------------------------------------------------
- -
<FN>
* 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.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Six months ended January 31, 1995 (Unaudited)
<TABLE><CAPTION>
<S> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------
- -
Dividends (net of foreign tax of $8,951) $585,565
- ----------------------------------------------------------------------
- -
Interest 521,359
- ----------------------------------------------------------------------
- -
Total investment income 1,106,924
- ----------------------------------------------------------------------
- -
EXPENSES:
- ----------------------------------------------------------------------
- -
Compensation of Manager (Note 2) 1,891,829
- ----------------------------------------------------------------------
- -
Investor servicing and custodian fees (Note 2) 398,521
- ----------------------------------------------------------------------
- -
Compensation of Trustees (Note 2) 10,116
- ----------------------------------------------------------------------
- -
Reports to shareholders 33,216
- ----------------------------------------------------------------------
- -
Auditing 12,306
- ----------------------------------------------------------------------
- -
Legal 7,587
- ----------------------------------------------------------------------
- -
Postage 3,127
- ----------------------------------------------------------------------
- -
Registration fees 32,402
- ----------------------------------------------------------------------
- -
Administrative services (Note 2) 5,339
- ----------------------------------------------------------------------
- -
Distribution fees -- Class A (Note 2) 606,724
- ----------------------------------------------------------------------
- -
Distribution fees -- Class B (Note 2) 310,207
- ----------------------------------------------------------------------
- -
Distribution fees -- Class M (Note 2) 65
- ----------------------------------------------------------------------
- -
Other 15,182
- ----------------------------------------------------------------------
- -
TOTAL EXPENSES 3,326,621
- ----------------------------------------------------------------------
- -
NET INVESTMENT LOSS (2,219,697)
- ----------------------------------------------------------------------
- -
Net realized gain on investments (Notes 1 and 3) 34,171,377
- ----------------------------------------------------------------------
- -
Net unrealized appreciation of investments during the period34,857,857
- ----------------------------------------------------------------------
- -
NET GAIN ON INVESTMENTS 69,029,234
- ----------------------------------------------------------------------
- -
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $66,809,537
- ----------------------------------------------------------------------
- -
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31 JULY 31
---------------- -----------
1995* 1994
- ----------------------------------------------------------------------
- -
INCREASE (DECREASE) IN NET ASSETS
- ----------------------------------------------------------------------
- -
Operations:
- ----------------------------------------------------------------------
- -
Net investment loss $(2,219,697) $(4,301,979)
- ----------------------------------------------------------------------
- -
Net realized gain on investments 34,171,377 48,499,047
- ----------------------------------------------------------------------
- -
Net unrealized appreciation
(depreciation) of investments 34,857,857 (31,492,905)
- ----------------------------------------------------------------------
- -
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 66,809,537 12,704,163
- ----------------------------------------------------------------------
- -
Distributions to shareholders
- ----------------------------------------------------------------------
- -
From net realized gain on investments:
- ----------------------------------------------------------------------
- -
Class A (36,729,076) (40,874,837)
- ----------------------------------------------------------------------
- -
Class B (5,126,420) (874,297)
- ----------------------------------------------------------------------
- -
Class M (2,324) --
- ----------------------------------------------------------------------
- -
Increase from capital share
transactions (Note 4) 101,478,893 119,011,352
- ----------------------------------------------------------------------
- -
TOTAL INCREASE IN NET ASSETS 126,430,610 89,966,381
- ----------------------------------------------------------------------
- -
NET ASSETS
- ----------------------------------------------------------------------
- -
Beginning of period 454,820,944 364,854,563
- ----------------------------------------------------------------------
- -
END OF PERIOD (including distributions
in excess of net investment income of
$2,219,697 and $0, respectively) $581,251,554 $454,820,944
- ----------------------------------------------------------------------
- -
<FN>
* Unaudited
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS*
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD FOR THE PERIOD
DECEMBER 2, 1994 SIX JULY 15, 1993 SIX
(COMMENCEMENT MONTHS YEAR (COMMENCEMENT MONTHS
OF OPERATIONS) ENDED ENDED OF OPERATIONS ENDED
TO JANUARY 31 JANUARY 31 JULY 31 TO JULY 31 JANUARY 31 YEAR ENDED JULY 31
1995**+ 1995+ 1994 1993** 1995+ 1994 1993
Class M Class B Class A
NET ASSET VALUE,
BEGINNING OF PERIOD $11.10 $10.06 $10.70 $10.80 $10.15 $10.72 $9.05
INVESTMENT OPERATIONS
Net investment loss (.02) (.06) (.07) (.01) (.04) (.06) (.06)
Net realized and
unrealized gain (loss)
on investments .45 1.39 .63 (.09) 1.42 .69 2.87
TOTAL FROM INVESTMENT
OPERATIONS .43 1.33 .56 (.10) 1.38 .63 2.81
LESS DISTRIBUTIONS FROM:
Net investment income -- -- -- -- -- -- --
Net realized gain on
investments (.86) (.86) (1.20) -- (.86) (1.20) (1.14)
TOTAL DISTRIBUTIONS (.86) (.86) (1.20) -- (.86) (1.20) (1.14)
NET ASSET VALUE,
END OF PERIOD $10.67 $10.53 $10.06 $10.70 $10.67 $10.15 $10.72
TOTAL INVESTMENT RETURN
AT NET ASSET VALUE
(%)(b) 4.20(C) 13.57(C) 4.15 (.92)(C) 13.95(C) 4.83 32.93
NET ASSETS, END OF
PERIOD (in thousands) $83 $77,629 $42,115 $455 $503,540 $412,706 $364,400
Ratio of expenses to
average net assets (%) .32(c) .96(c) 1.94 .09(c) .57(c) 1.16 1.26
Ratio of net investment
income (loss) to
average net assets (%)(.25)(c) (.75)(c) (1.71) (.09) (c) (.37)(c) (.97) (.90)
Portfolio turnover (%)49.27(c) 49.27(c) 76.66 108.20(c) 49.27(c) 76.66 108.20
</TABLE>
<PAGE>
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
<C> <C> <C> <C> <C> <C> <C> <C>
ELEVEN
MONTHS
ENDED
YEAR ENDED JULY 31 JULY 31
- ----------------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987** 1986 1985
Class A
- ----------------------------------------------------------------------------------
$8.35 $8.20 $8.09 $6.40 $7.84 $6.56 $5.10 $4.17
- ----------------------------------------------------------------------------------
(.04) (.01) (.03) (.03) (.04)(a) (.02)(a) (.02) (.03)
.83 .46 .60 1.72 (.77) 1.87 1.57 .99
- ----------------------------------------------------------------------------------
.79 .45 .57 1.69 (.81) 1.85 1.55 .96
- ----------------------------------------------------------------------------------
-- -- -- -- -- -- -- (.03)
(.09) (.30) (.46) -- (.63) (.57) (.09) --
- ----------------------------------------------------------------------------------
(.09) (.30) (.46) -- (.63) (.57) (.09) (.03)
- ----------------------------------------------------------------------------------
$9.05 $8.35 $8.20 $8.09 $6.40 $7.84 $6.56 $5.10
- ----------------------------------------------------------------------------------
9.53 6.40 7.36 26.36 (9.77) 31.64 31.09 23.05(c)
- ----------------------------------------------------------------------------------
$267,338 $234,055 $195,802 $180,775 $143,506 $157,094 $41,014 $20,248
- ----------------------------------------------------------------------------------
1.39 1.48 1.50 1.63 1.59(a) 1.49(a) 1.46 1.55(c)
- ----------------------------------------------------------------------------------
(.59) (.46) (.47) (.41) (.74)(a) (.62)(a) (.63) (.86)(c)
- ----------------------------------------------------------------------------------
66.75 54.06 42.66 73.58 76.91 92.76 91.92 55.17(c)
- ----------------------------------------------------------------------------------
<FN>
+ Unaudited.
* 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 28, 1989.
** Per share investment income, for the year ended July 31, 1987 for
class A, for the period ended July 31, 1993 for class B, and for
the period ended January 31, 1995 for class M 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.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
January 31, 1995 (Unaudited)
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 common stocks
of small to medium-sized emerging growth companies traded in the over-
the-counter (OTC) market.
The fund offers class A, class B and class M shares. The fund
commenced its public offering of class M shares on December 2, 1994.
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. Class M shares are sold with a
maximum front-end sales charge of 3.50%, and an ongoing distribution
fee that is higher than class A shares and lower than class B shares.
Expenses of the fund are borne pro-rata by the shareholders of each
class 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 uninvested
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.
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.
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.
Investor servicing and custodian fees reported in the Statement of
operations for the six months ended January 31, 1995 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.
During the six months ended January 31, 1995, Putnam Mutual Funds
Corp., acting as an underwriter, received net commissions of $125,905
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 six months ended January 31, 1995, Putnam Mutual Funds
Corp., acting as the underwriter, received $4,927 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 up to 1.00% of the fund's average net assets
attributable to class B shares.
Putnam Mutual Funds Corp., acting as an 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 $41,491 in
contingent deferred sales charges from such redemptions for the six
months ended January 31, 1995.
The fund has adopted a separate distribution plan with respect to its
class M shares (the "Class M Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Class M Plan is to
compensate Putnam Mutual Funds Corp., for services provided and
expenses incurred by it in distributing class M shares. The Class M
Plan provides for payments by the fund to Putnam Mutual Funds Corp. at
an annual rate of .75% of the funds average net assets attributable to
class M shares.
During the period December 2, 1994 (commencement of operations) to
January 31, 1995, Putnam Mutual Funds Corp., acting as an underwriter
received net commissions of $163 from the sale of class M shares of
the fund.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended January 31, 1995, purchases and sales of
investment securities other than short-term investments aggregated
$335,516,520 and $254,732,606 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 January 31, 1995, there was an unlimited number of shares of
beneficial interest authorized, divided into three classes of shares,
class A, class B and class M capital shares. Transactions in capital
shares were as follows:
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JANUARY 31
- -------------------------------------------------------------------
1995
- -------------------------------------------------------------------
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------
Shares sold 27,540,565 $300,920,456
Shares issued in connection
with reinvestment of
distributions 3,373,279 34,441,185
- -------------------------------------------------------------------
30,913,844 335,361,641
- -------------------------------------------------------------------
Shares repurchased (24,390,060) (267,997,380)
- -------------------------------------------------------------------
NET INCREASE 6,523,784 $67,364,261
- -------------------------------------------------------------------
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
- -------------------------------------------------------------------
SIX MONTHS ENDED JANUARY 31
- -------------------------------------------------------------------
1995
- -------------------------------------------------------------------
CLASS B SHARES AMOUNT
- -------------------------------------------------------------------
Shares sold 4,704,164 $50,719,812
Shares issued in connection
with reinvestment of
distributions 470,569 4,743,387
- -------------------------------------------------------------------
5,174,733 55,463,199
- -------------------------------------------------------------------
Shares repurchased (1,986,439) (21,431,130)
- -------------------------------------------------------------------
NET INCREASE 3,188,294 $34,032,069
- -------------------------------------------------------------------
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
- -------------------------------------------------------------------
FOR THE PERIOD
DECEMBER 2, 1994
(COMMENCEMENT
OF OPERATIONS) TO
JANUARY 31
- -------------------------------------------------------------------
1995
- -------------------------------------------------------------------
CLASS M SHARES AMOUNT
- -------------------------------------------------------------------
Shares sold 7,510 $80,238
Shares issued in connection
with reinvestment of
distributions 227 2,325
- -------------------------------------------------------------------
7,737 82,563
- -------------------------------------------------------------------
Shares repurchased -- --
- -------------------------------------------------------------------
NET INCREASE 7,737 $82,563
- -------------------------------------------------------------------
</TABLE>
<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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
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
John J. Morgan
Vice President
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. For more information or to request a prospectus, call toll
free 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or
guaranteed or endorsed by, any financial institution, are not insured
by the Federal Deposit Insurance Corporation (FDIC), the Federal
Reserve Board or any other agency, and involve risk, including the
possible loss of principal amount invested.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
024/227-16921
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APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OThe accompanying notes are an integral part of these
financial statementsO) are omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points and similar graphic symbols are omitted.
(7) Page numbering is different.
