PUTNAM
OTC EMERGING
GROWTH FUND
ANNUAL REPORT
July 31, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
Putnam OTC Emerging Growth Fund has been a consistent top-quartile
performer. Lipper Analytical Services ranked the fund's class A shares
in the top 25% of its small-company growth fund category for three key
performance periods ended July 31, 1995: one year (40 of 272 funds),
five years (17 of 77 funds), and 10 years (3 of 35 funds).*
"Small-company stock funds started to flex their muscles in the first
half and could have a strong showing the rest of 1995.... It was the
powerful run in technology stocks that helped perk up some small-cap
funds. Many small-cap funds have a high percentage of tech stocks
because of tech companies' rapid revenue and earnings growth."
- -- The Detroit News, July 12, 1995
FISCAL 1995 RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
TOTAL RETURN: NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------
- --
(change in value during
period plus reinvested
distributions)
12 months ended
7/31/95 51.32% 42.61% 50.13% 45.13% -- --
Life of class M -- -- -- -- 37.79% 33.00%
- ----------------------------------------------------------------------
- --
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
7/31/95 14.17 15.03 13.92 14.11 14.62
- ----------------------------------------------------------------------
- --
LONG-TERM
DISTRIBUTIONS: NO. 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, is no guarantee of future
results, and will differ for each share class. For performance over
longer periods, see pages 9 and 10. POP assumes 5.75% maximum sales
charge for class A shares and 3.50% for class M shares, which became
effective 12/2/94. CDSC assumes 5% maximum contingent deferred sales
charge for class B shares, which became effective 7/15/93.
* Lipper Analytical Services is an independent research firm whose
rankings vary over time and do not include the effects of sales
charges. Class B shares were ranked 43 of 272 funds for one-year
performance as of 7/31/95 and were not tracked for longer
periods. Past performance is not indicative of future results.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
THE STOCK MARKET'S ROBUST RISE DURING THE FIRST HALF OF 1995 HAS LED
SOME ANALYSTS TO BRACE FOR A DECLINE AND OTHERS TO ANTICIPATE EVEN
GREATER STRENGTH. WE TAKE MORE OF A MIDDLE VIEW. ALTHOUGH WE THINK THE
PACE OF THE RISE IS PROBABLY UNSUSTAINABLE, WE BELIEVE A MODERATE
SHORT-TERM CORRECTION, FOLLOWED BY A PERIOD OF UNSETTLED PERFORMANCE,
IS A MORE LIKELY DEVELOPMENT.
OUR ASSESSMENT IS BASED ON THE SLOWING ECONOMY'S IMPACT ON CORPORATE
EARNINGS. EARNINGS DECLINES TEND TO MAKE INVESTORS SKITTISH, AND THERE
ARE LIKELY TO BE SOME DISAPPOINTMENTS OVER THE NEXT FEW MONTHS.
HOWEVER, LOWER INTEREST RATES SHOULD EVENTUALLY STIMULATE THE ECONOMY,
PROBABLY SOME TIME NEXT YEAR. RISING U.S. CORPORATE CASH FLOWS AND
PROFITS OF U.S. CORPORATIONS, AUGMENTED BY FOREIGN INVESTORS'
PURCHASES OF BARGAIN-PRICED U.S. STOCKS, MAY LEAD TO THE NEXT LEG OF A
BULL MARKET.
IN THE FOLLOWING REPORT, FUND MANAGER JAMES CALLINAN REVIEWS YOUR
FUND'S PERFORMANCE DURING THE FISCAL YEAR ENDED JULY 31, 1995, AND
PRESENTS HIS OUTLOOK FOR THE FISCAL YEAR AHEAD.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
SEPTEMBER 20, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
JAMES L. CALLINAN
The stock market rose to several record highs during the fiscal year
ended July 31, 1995, but Putnam OTC Emerging Growth Fund soared well
above them. Your fund's high-technology emphasis helped propel class A
share performance for the year to an extraordinary 51.32% at net asset
value (NAV) -- nearly double the 26.03% return reported for the
Standard & Poor's((Registered Trademark)) 500 Index over the same
period. Results at public offering price, as well as results for class
B and class M shares, were also impressive. For longer-term
performance information, see pages 9 and 10.
THE MOST OF A FAVORABLE ENVIRONMENT
Small-capitalization stocks -- the majority of your fund's holdings--
strengthened dramatically over the second half of the fiscal year.
Within the small-cap universe, we concentrate on stocks characterized
by rapid earnings growth and proprietary operating advantages, often a
reflection of a company's ability to exploit a specific market niche.
During periods of broad market strength, the achievements of small-
and mid-cap companies may be obscured by the successes of their larger
brethren. But when the economy slows and interest rates decline, small-
cap stocks often come into their own, as slower overall growth
highlights their relatively swift progress.
The dollar's strengthening has had an effect as well; while it was
weak relative to other currencies, larger multinational companies were
able to translate foreign profits into significant earnings gains.
Results for smaller companies, which tend to have less international
exposure, paled by comparison. But now, to some extent, the shoe is on
the other foot.
Falling interest rates have also contributed to the favorable climate
for smaller companies, which tend to do more short-term borrowing than
their larger siblings. In such an environment, your fund's focus on
quality companies with demonstrated ability to
<PAGE>
meet or exceed earnings estimates has produced outstanding results.
A TECHNOLOGY TOUR DE FORCE
The extraordinary momentum of technology stocks over the past few
months has been fueled by the growth of a nationwide data
communications network, increased consumer use of Internet and
software technology, and corporate adoption of distributed computing.
Not surprisingly, your fund's technology position, encompassing
computer software, on-line and other computer services, networking and
telecommunications equipment and semiconductors, was the largest
sector group in the portfolio at fiscal year's end.
U.S. Robotics, one of the country's leading manufacturers of modems,
is one of our most successful technology holdings -- the stock has
more than doubled in price since our first purchase in January 1995.
Given the increasing popularity of personal computers, the growing
rate of PC users who also use modems, and the current modem upgrade
cycle from speeds of 9600 bits per second (bps) and 14,400 bps to
28,800 bps and above, we believe the company's potential for
continuing growth could well exceed past achievements.
We are concentrating software holdings in two different areas. Both
offer strong growth potential, but for different reasons.
Consumer entertainment software, chiefly CD-ROM games, has been
growing at a rate of approximately 40% a year, and as
[BAR CHART]
TOP INDUSTRY SECTORS*
- ----------------------------------------------------------------------
- --
TECHNOLOGY (41.3%)
Computer software 14.3%
Networking equipment 11.6%
Computer services 7.9%
Semiconductors 7.5%
OTHER
Health care services/HMOs 11.0%
Broadcasting 6.7%
Medical equipment 4.5%
Wireless communications 4.1%
Business services 3.4%
* Based on net assets on 7/31/95. Holding will vary over time.
more adults become attracted to this highly affordable form of
recreation, growth could move even higher. The changing shape of this
industry seems to be following the pattern of the recording industry:
where there were once 40 to 50 record labels, there are now fewer than
10 major players. The possibility of such a scenario makes it
essential to identify those companies with the potential to go the
distance, and we believe we have done so: Electronic Arts, the leading
sports franchise in this field, and Sierra On-line, another major
entertainment software publisher, are among the fund's largest
holdings.
Client-server application software is our other major focus. As many
major companies have made the transition from large mainframe-based
systems to local area network systems, there was a concurrent shift
from expensive custom-designed software systems -- which were
customized or serviced primarily by the developing firm -- to more
versatile off-the- shelf applications that could be tailored by the
purchasing firm for a wide variety of business tasks.
Companies able to profit from this trend have demonstrated the
potential for outstanding growth over the past few years. Among those
we have targeted are Datalogix International, which provides
functional solutions targeted for process manufacturing companies;
Peoplesoft, which produces software for accounting, finance, and human
resources functions for the client-server market; and Baan Company,
whose integrated, customizable software combines tools for project
management, sales forecasting, component procurement, inventory
management, and many other organizational functions.
RESEARCH HELPS SPOTLIGHT EACH SECTOR'S STRENGTHS
Many of the companies in your fund's portfolio are smaller, younger
companies not widely followed by Wall Street analysts. Consequently,
members of the fund's management team personally research portfolio
companies, attending trade shows to gather intelligence on industry
trends, and making on-site visits to gain a better perspective of a
company's management
<PAGE>
TOP 10 HOLDINGS (7/31/95)
- --------------------------------------------------------------------
U.S. ROBOTICS CORP.
Modems and networking equipment
- --------------------------------------------------------------------
AMERICA ONLINE, INC.
On line computer services
- --------------------------------------------------------------------
PEOPLESOFT, INC.
Software
- --------------------------------------------------------------------
HBO & CO.
Provides computer systems to health-care industry
- --------------------------------------------------------------------
ASCEND COMMUNICATIONS, INC.
Networking equipment
- --------------------------------------------------------------------
INFINITY BROADCASTING CORP. (CLASS A)
Owner and operator of radio and television stations
- --------------------------------------------------------------------
VENCOR, INC.
Provider of long-term hospital care
- --------------------------------------------------------------------
HOSPITALITY FRANCHISE SYSTEM, INC.
Franchising services for low-cost hotel chains
- --------------------------------------------------------------------
ALTERNATIVE RESOURCES CORP.
Provides technical support to corporations
- --------------------------------------------------------------------
CASCADE COMMUNICATIONS CORP.
Develops wide area networks for corporations
- --------------------------------------------------------------------
These holdings represent 19.7% of the fund's net assets. Portfolio
holdings will vary over time.
approach. Of course, these visits supplement our in-depth analysis of
each company's profitability, competitive position, and long-term
growth potential.
This research style has been particularly valuable in the technology
sectors, but it is also useful in virtually every industry in which
your fund invests -- and that covers a great deal of ground. We try to
maintain a very broad level of diversification to help offset the
acknowledged volatility of small- and mid-cap stocks.
In the health-care sector, increased price competition has dampened
the performance of managed-care provider companies. However, in-depth
research has helped us identify companies that have achieved dominant
market positions -- and thus, should be able to maintain attractive
earnings over time. We believe that one of the many growth areas in
this sector is medical devices, and have targeted such companies as
Endosonics, with its recently approved balloon catheter and
<PAGE>
I-Stat Corp., with its innovative, point-of-care blood testing
products. Health-care information software, another attractive
opportunity within this sector, is also well represented in the
portfolio.
MAINTAINING -- AND BUILDING ON -- THE YEAR'S GAINS
The market and industry strengths we have been able to capitalize on
in fiscal 1995 may well remain in place for much of 1996. However,
changes in the pace of the economy could affect the demand for PCs
and, in turn, technology stock prices. Your fund's portfolio also
includes holdings in several industries that are considered
countercyclical, that is, industries that are more likely to perform
well in the event of an economic slowdown. So, while short-term
corrections remain an ever-present possibility, we believe your fund's
portfolio is well positioned to maintain -- and build on -- the
strength we have seen in fiscal 1995.
This fund invests in small to midsize companies. Such investments
increase the risk of price fluctuations. 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 7/31/95, there is no guarantee the fund will continue
to hold these securities in the future.
<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.
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 common stocks of small- to medium- sized emerging growth companies.
TOTAL RETURN FOR PERIODS ENDED 7/31/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------
- --
1 year 51.32% 42.61% 50.13% 45.13% -- --
- ----------------------------------------------------------------------
- --
5 years 145.75 131.62 -- -- -- --
Annual average 19.70 18.29 -- -- -- --
- ----------------------------------------------------------------------
- --
10 years 419.05 389.31 -- -- -- --
Annual average 17.90 17.21 -- -- -- --
- ----------------------------------------------------------------------
- --
Life of class B -- -- 54.91 51.91 -- --
Annual average -- -- 23.93 22.75 -- --
- ----------------------------------------------------------------------
- --
Life of class M -- -- -- -- 37.79% 33.00%
- ----------------------------------------------------------------------
- --
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 6/30/95
(most recent calendar quarter)
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------
- --
1 year 37.62% 29.66% 36.45% 31.45% -- --
- ----------------------------------------------------------------------
- --
5 years 109.17 97.22 -- -- -- --
Annual average 15.90 14.55 -- -- -- --
- ----------------------------------------------------------------------
- --
10 years 377.02 349.50 -- -- -- --
Annual average 16.91 16.22 -- -- -- --
- ----------------------------------------------------------------------
- --
Life of class B -- -- 38.00 34.00 -- --
Annual average -- -- 17.86 16.10 -- --
- ----------------------------------------------------------------------
- --
Life of class M -- -- -- -- 22.85% 18.57%
- ----------------------------------------------------------------------
- --
<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 data represent past results. Investment
returns and principal value will fluctuate so an investor's shares,
when sold, may be worth more or less than their original cost.
</TABLE>
<PAGE>
[MOUNTAIN CHART]
GROWTH OF A $10,000 INVESTMENT
- ----------------------------------------------------------------------
- --
Date POP Russell 2000 Index CPI
7/31/85 $9,427 $10,000 $10,000
7/31/86 $12,358 $11,727 $10,158
7/31/87 $16,267 $14,526 $10,557
7/31/88 $14,677 $13,101 $10,993
7/31/89 $18,546 $15,497 $11,540
7/31/90 $19,911 $14,687 $12,096
7/31/91 $21,186 $16,113 $12,635
7/31/92 $23,204 $18,450 $13,033
7/31/93 $30,846 $22,777 $13,395
7/31/94 $32,335 $23,827 $13,766
7/31/95 $48,931 $29,779 $14,147
Past performance is no assurance of future results. A $10,000
investment in the fundOs class B shares at inception on 7/15/93 would
have been valued at $15,491 on 7/31/95 ($15,191 with a redemption at
the end of the period). A $10,000 investment in the fund's class M
shares at inception on 12/2/94 would have been valued at $13,779 on
7/31/95, based on net asset value, and $13,300 based on public
offering price.
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.
<PAGE>
COMPARATIVE INDEX RETURNS FOR PERIOD ENDED 7/31/95
<TABLE><CAPTION>
<S> <C> <C>
STANDARD & POOR'S RUSSELL
500 INDEX* 2000 INDEX*
- ----------------------------------------------------------------------
- --
1 year 26.03% 24.98%
- ----------------------------------------------------------------------
- --
5 years 83.26 102.76
Annual average 12.88 15.18
- ----------------------------------------------------------------------
- --
10 years 305.72 197.79
Annual average 15.03 11.53
- ----------------------------------------------------------------------
- --
Life of class B 31.86 32.55
Annual average 14.52 14.81
- ----------------------------------------------------------------------
- --
Life of class M 26.40 24.27
- ----------------------------------------------------------------------
- --
</TABLE>
COMPARATIVE BENCHMARKS
RUSSELL 2000 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 list of common stocks that
is frequently used as a general measure of stock market performance.*
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
* 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.
<PAGE>
RELATIVE RISK/REWARD POTENTIAL OF PUTNAM FUNDS
These illustrations provide a simplified guide to the risk/reward
potential for funds within each category of the Putnam Family of Funds
and are not intended as investment advice. Your investment advisor can
help you evaluate your risk tolerance.
These rankings are relative only to Putnam funds and should not be
compared to other investments. There is no guarantee that one Putnam
fund will be less volatile than another, since each fund has its own
investment risks. ThatOs why it is essential to read the fundOs
prospectus before investing.
PUTNAM GROWTH FUNDS
[GRAPHIC]
HIGHER RISK
HIGHER REWARD POTENTIAL
ASIA PACIFIC GROWTH(1)
OTC EMERGING GROWTH(2)
NEW OPPORTUNITIES(2)
EUROPE GROWTH(1)
OVERSEAS GROWTH(1)
VOYAGER
HEALTH SCIENCES
NATURAL RESOURCES
VISTA
GLOBAL GROWTH(1)
DIVERSIFIED EQUITY(1)
INVESTORS
LOWER RISK
LOWER REWARD POTENTIAL
PUTNAM GROWTH AND INCOME FUNDS
[GRAPHIC]
HIGHER RISK
HIGHER REWARD POTENTIAL
PUTNAM GROWTH AND INCOME FUND II
FUND FOR GROWTH AND INCOME
EQUITY INCOME
CONVERTIBLE INCOME-GROWTH
GEORGE PUTNAM
UTILITIES GROWTH AND INCOME
BALANCED RETIREMENT
LOWER RISK
LOWER REWARD POTENTIAL
(1) Foreign investments are subject to certain risks, such as
currency fluctuations and political developments, that are not
present with domestic investments.
(2) This fund invests all or a portion of its assets in small to
medium-sized companies, which increases the risk of price
fluctuations.
(3) While U.S. government backing of individual securities does not
insure your principal, which will fluctuate, it does guarantee
that the fundOs government-backed holdings will make timely
payments of interest and principal.
<PAGE>
PUTNAM INCOME FUNDS
[GRAPHIC]
HIGHER RISK
HIGHER REWARD POTENTIAL
HIGH YIELD ADVANTAGE(5)
HIGH YIELD(5)
GLOBAL GOVOT.(1)(5)
PREFERRED INCOME
INCOME
DIVERSIFIED INCOME(1)(3)(5)
FEDERAL INCOME(3)
AMERICAN GOVOT INCOME
U.S. GOVOT INCOME(3)
INTERMEDIATE U.S. GOVOT(3)
ADJUSTABLE RATE U.S. GOVOT(3)
MONEY MARKET(4)
LOWER RISK
LOWER REWARD POTENTIAL
PUTNAM TAX-FREE FUNDS(6)
[GRAPHIC]
HIGHER RISK
HIGHER REWARD POTENTIAL
TAX-FREE HIGH YIELD(5)
MUNICIPAL INCOME
SINGLE-STATE TAX-FREE FUNDS*
TAX EXEMPT INCOME
TAX-FREE INSURED(7)
INTERMEDIATE TAX EXEMPT
TAX EXEMPT MONEY MARKET(4)
LOWER RISK
LOWER REWARD POTENTIAL
* State tax-free funds available for Arizona, California, Florida,
Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio,
and Pennsylvania. Not available in all states.
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that
spread
your money across a variety of stocks, bonds, and money market
investments. The three portfolios are:
PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO
PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
Please call your financial advisor -- or Putnam at 1-800-225-1581 --
to obtain a prospectus for any Putnam fund. The prospectus contains
more complete information, including risk considerations, charges, and
expenses. Read it carefully before you invest or send money.
(4) The fund is managed to maintain a steady price of $1.00 per
share, although there is no assurance this price can be
maintained in the future. An investment in the fund is neither
insured nor guaranteed by the U.S. government.
(5) The lower credit ratings of high-yield corporate and municipal
bonds reflect a greater possibility that adverse changes in the
economy or their issuers may affect their ability to pay
principal and interest on the bonds.
(6) Income may be subject to state and local taxes. Capital gains, if
any, are taxable for federal and, in most cases, state purposes.
(7) Bond insurance does not guarantee principal or protect against
changes in market price.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
for the fiscal year ended July 31, 1995
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, 1995, 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 periods indicated therein.
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, 1995, 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,
1995, 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 periods
indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 18, 1995
<PAGE>
Portfolio of investments owned
July 31, 1995
<TABLE><CAPTION>
<S> <C> <C>
COMMON STOCKS (92.3%)*
NUMBER OF SHARES VALUE
BROADCASTING (6.7%)
- ----------------------------------------------------------------------
--
6,400 American Radio Systems Corp.+ $ 148,800
118,125 Clear Channel Communications, Inc.+ 7,899,609
317,700 Emmis Broadcasting Corp. Class A+ 8,975,025
120,000 Evergreen Media Corp. Class A+ 3,960,000
374,550 Infinity Broadcasting Corp. Class A+ 13,858,350
183,300 LIN Television Corp.+ 6,919,575
154,400 Renaissance Communications Corp.+ 5,905,800
188,000 SFX Broadcasting, Inc. Class A+ 5,170,000
444,900 Westwood One, Inc.+ 7,007,175
-----------
59,844,334
BUSINESS SERVICES (3.4%)
- ----------------------------------------------------------------------
--
409,400 Alternative Resources Corp.+ 12,282,000
96,300 Corporate Express, Inc.+ 2,443,612
200,000 Fiserv Inc.+ 5,650,000
360,600 Robert Half International, Inc.+ 9,961,575
50,000 SOS Staffing Services, Inc.+ 393,750
-----------
30,730,937
CABLE TELEVISION (1.2%)
- ----------------------------------------------------------------------
--
354,325 Century Communications Corp. Class A 3,144,634
300,000 Tele-Communications Inc. Class A+ 7,500,000
-----------
10,644,634
COMPUTER EQUIPMENT (0.1%)
- ----------------------------------------------------------------------
--
25,000 Oak Technology, Inc.+ 1,156,250
COMPUTER SERVICES (7.9%)
- ----------------------------------------------------------------------
--
445,000 America Online, Inc. 24,530,625
221,300 Block (H & R), Inc. 8,298,750
49,800 Broadway & Seymour, Inc.+ 1,357,050
86,650 CMG Information Services, Inc. 2,317,887
238,300 Cambridge Technology Partners, Inc.+ 7,804,325
337,500 Computer Horizons Corp.+ 6,707,812
186,500 First Data Corp. 10,886,937
227,200 Paychex, Inc. 8,463,200
-----------
70,366,586
COMPUTER SOFTWARE (14.3%)
- ----------------------------------------------------------------------
--
140,000 Adobe Systems, Inc. 8,645,000
146,900 Baan Co., N.V.+ 4,902,788
170,200 Business Objects S.A., ADR+ 6,191,025
140,800 CBT Group PLC ADR (Ireland)+ 6,380,000
122,300 Datalogix International, Inc.+ 3,072,787
36,800 Discreet Logic, Inc. (Canada)+ 1,545,600
293,700 Electronic Arts+ 10,609,912
13,300 HNC Software, Inc.+ 322,525
<PAGE>
COMMON STOCKS
NUMBER OF SHARES VALUE
COMPUTER SOFTWARE (continued)
- ----------------------------------------------------------------------
--
1,020,000 Incontext Systems, Inc.+ $ 1,715,790
158,000 Inso Corporation+ 10,981,000
82,100 Intuit, Inc.+ 7,081,125
96,000 Macromedia, Inc.+ 4,584,000
60,000 Manugistics Group, Inc.+ 915,000
262,500 Mercury Interactive Corp.+ 6,562,500
75,500 Novadigm, Inc.+ 1,566,625
214,800 PeopleSoft, Inc.+ 15,358,200
86,500 Project Software & Development, Inc.+ 2,313,875
43,200 SAP Aktiengesellschaft 144A ADS (Germany)+ 2,311,200
191,300 Security Dynamics Technologies, Inc.+ 7,508,525
3,100 Seer Technologies, Inc.+ 65,100
313,240 Sierra On-Line, Inc.+ 11,433,260
191,100 Softkey International, Inc.+ 8,288,963
57,300 Spyglass, Inc.+ 2,549,850
50,000 Tivoli Systems, Inc.+ 2,212,500
25,200 Unison Software, Inc.+ 378,000
-----------
127,495,150
CONSUMER GOODS (0.1%)
- ----------------------------------------------------------------------
--
100,000 Action Performance Cos. Inc.+ 1,075,000
CONSUMER SERVICES (2.1%)
- ----------------------------------------------------------------------
--
290,000 CUC International, Inc.+ 8,736,250
272,400 Loewen Group, Inc. 9,636,150
-----------
18,372,400
ELECTRONICS AND ELECTRICAL EQUIPMENT (0.9%)
- ----------------------------------------------------------------------
--
242,500 Franklin Electronic Publishers, Inc.+ 7,638,750
FINANCE (0.2%)
- ----------------------------------------------------------------------
--
124,600 Financial Federal Corp.+ 2,211,650
FINANCIAL SERVICES (1.3%)
- ----------------------------------------------------------------------
--
40,000 General Acceptance Corp.+ 1,180,000
300,000 MBNA Corp. 10,762,500
-----------
11,942,500
HEALTH CARE SERVICES AND HMOS (7.1%)
- ----------------------------------------------------------------------
--
270,000 Health Management Assoc., Inc.+ 8,673,750
200,000 Healthsource, Inc.+ 7,275,000
300,000 Lincare Holdings, Inc.+ 10,425,000
135,800 Oxford Health Plans Inc.+ 7,010,675
60,000 Pacificare Health Systems, Inc. Class B+ 3,630,000
155,800 Rotech Medical Corp.+ 4,557,150
153,000 Sierra Health Services+ 4,054,500
412,500 Vencor, Inc.+ 13,354,688
139,300 Vivra, Inc.+ 4,144,175
-----------
63,124,938
<PAGE>
COMMON STOCKS
NUMBER OF SHARES VALUE
HEALTH CARE INFORMATION SERVICES (2.6%)
- ----------------------------------------------------------------------
--
28,800 Cerner Corp.+ $ 1,774,800
37,000 CyCare Systems, Inc.+ 1,239,500
274,300 HBO & Co. 15,155,075
168,300 Health Management Systems, Inc.+ 5,217,300
-----------
23,386,675
HEALTH CARE SERVICES (3.9%)
- ----------------------------------------------------------------------
--
123,900 ABR Information Services, Inc.+ 2,601,900
90,000 American HomePatient, Inc.+ 2,632,500
80,000 American Oncology Resources, Inc.+ 2,650,000
50,300 APPS Dental, Inc.+ 1,043,725
235,000 Coram Healthcare Corp.+ 3,084,375
278,500 Emcare Holdings, Inc.+ 5,291,500
200,000 Genesis Health Ventures, Inc.+ 6,000,000
144,800 Health Management, Inc.+ 1,972,900
100,000 Omnicare, Inc.+ 3,100,000
169,100 Renal Treatment Centers, Inc.+ 4,354,325
117,250 Ren Corp. USA+ 2,242,406
34,973,631
HOSPITAL MANAGEMENT (1.8%)
- ----------------------------------------------------------------------
--
200,500 Community Health Systems+ 7,869,625
360,100 Horizon/CMS Healthcare Corp.+ 8,147,263
50,000 Ramsay Managed Care, Inc.+ 206,250
-----------
16,223,138
LODGING (2.5%)
- ----------------------------------------------------------------------
--
300,000 Hospitality Franchise System, Inc. 13,200,000
296,100 La Quinta Inns, Inc. 8,327,813
23,100 Red Lion Hotels, Inc.+ 490,875
-----------
22,018,688
MEDICAL EQUIPMENT AND SUPPLIES (4.5%)
- ----------------------------------------------------------------------
--
50,000 ATS Medical, Inc.+ 450,000
29,300 Angeion Corp.+ 197,775
110,000 Boston Scientific Corp.+ 4,015,000
280,000 Endosonics Corp.+ 2,835,000
165,000 I-Stat Corp.+ 6,146,250
228,600 Idexx Laboratories, Inc.+ 7,029,450
37,600 Instent, Inc.+ 498,200
316,000 Medisense Inc.+ 7,307,500
213,400 Shared Medical Systems Corp. 8,882,775
75,000 Spine-Tech, Inc.+ 900,000
30,000 Target Therapeutics, Inc.+ 1,500,000
-----------
39,761,950
<PAGE>
COMMON STOCKS
NUMBER OF SHARES VALUE
NETWORKING EQUIPMENT (11.6%)
- ----------------------------------------------------------------------
--
200,000 Ascend Communications, Inc.+ $14,500,000
230,000 Cascade Communications Corp.+ 11,672,500
175,000 Cisco Systems, Inc.+ 9,756,250
800,000 Gandalf Technologies, Inc.+ 8,450,000
250,000 Natural Microsystems Corp.+ 5,750,000
50,000 Pairgain Technologies, Inc.+ 1,325,000
24,800 Premisys Communications, Inc.+ 2,008,800
180,400 Shiva Corp.+ 8,726,850
287,100 U.S. Robotics Corp.+ 41,773,050
-----------
103,962,450
PHARMACEUTICALS AND BIOTECHNOLOGY (0.3%)
- ----------------------------------------------------------------------
--
114,800 Penederm, Inc.+ 545,300
125,600 Theratech, Inc.+ 1,915,400
-----------
2,460,700
RECREATION AND GAMING (0.3%)
- ----------------------------------------------------------------------
--
228,650 Rio Hotel & Casino, Inc.+ 3,029,613
RESTAURANTS (2.9%)
- ----------------------------------------------------------------------
--
402,800 Apple South, Inc. 8,609,850
185,200 Landry's Seafood Restaurants, Inc.+ 3,460,925
45,500 Logan's Roadhouse, Inc.+ 807,625
250,500 Outback Steakhouse, Inc.+ 8,736,188
103,700 Papa Johns International, Inc.+ 4,303,550
-----------
25,918,138
RETAIL (2.1%)
- ----------------------------------------------------------------------
--
305,000 Bed Bath & Beyond, Inc.+ 9,455,000
331,500 Office Depot, Inc.+ 9,737,813
-----------
19,192,813
SEMICONDUCTORS (7.5 %)
- ----------------------------------------------------------------------
--
288,000 Analog Devices Inc.+ 10,440,000
80,000 Atmel Corp.+ 5,450,000
201,600 Cognex Corp.+ 10,130,400
249,400 Credence Systems Corp.+ 8,729,000
95,000 Integrated Process Equipment Corp.+ 4,275,000
175,000 Maxim Integrated Products Inc.+ 10,346,875
14,800 OnTrak Systems, Inc.+ 432,900
100,600 S3, Inc.+ 4,049,150
119,975 Silicon Valley Group, Inc.+ 5,593,834
60,000 Xilinx, Inc.+ 7,192,500
-----------
66,639,659
<PAGE>
COMMON STOCKS
NUMBER OF SHARES VALUE
TELEPHONE SERVICES (2.9%)
- ----------------------------------------------------------------------
--
211,000 ALC Communications Corp.+ $11,156,625
124,000 Century Telephone Enterprises, Inc. 3,534,000
236,500 LCI International, Inc.+ 8,100,125
31,500 MIDCOM Communications, Inc.+ 504,000
125,700 Transaction Network Services Inc.+ 2,702,550
-----------
25,997,300
WIRELESS COMMUNICATIONS (4.1%)
- ----------------------------------------------------------------------
--
65,100 Cellular Communications, Inc. Class A+ 3,385,200
311,375 Centennial Cellular Corp. Class A+ 4,982,000
275,400 Paging Network, Inc.+ 10,878,300
220,300 Telephone & Data Systems, Inc. 8,536,625
330,650 Vanguard Cellular Systems, Inc. 8,762,225
-----------
36,544,350
- ----------------------------------------------------------------------
--
TOTAL COMMON STOCKS (cost $548,233,289) $824,712,234
- ----------------------------------------------------------------------
--
PREFERRED STOCKS (1.1%)* (COST $7,103,089)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------
--
6,500 Sap Ag Systeme Preference Bearer (Germany) $10,242,139
- ----------------------------------------------------------------------
--
CONVERTIBLE PREFERRED STOCKS (0.5%)* (COST $1,983,203)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------
--
86,800 Cellular Communications, Inc. $0.01 cv. pfd. $ 4,513,600
- ----------------------------------------------------------------------
--
CONVERTIBLE BONDS AND NOTES (0.2%)*
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------
--
500,000 Careline, Inc. cv. sr. sub. notes
8s, 2001 144A $ 530,625
310,000 Summit Health Ltd. cv. sub. notes
7 1/2s, 2003 413,463
1,100,000 Theratx Inc. cv. sub. 8s, 2002 1,089,000
- ----------------------------------------------------------------------
--
TOTAL CONVERTIBLE BONDS AND NOTES
(cost $2,023,708) $ 2,033,088
- ----------------------------------------------------------------------
--
</TABLE>
<TABLE><CAPTION>
<S> <C> <C> <C>
WARRANTS (--%)* (COST $--)
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ----------------------------------------------------------------------
--
33,000 ATS Medical, Inc. 8/2/97 $ 29,313
- ----------------------------------------------------------------------
--
</TABLE>
<PAGE>
<TABLE><CAPTION>
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.4%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------
--
$15,000,000 Federal Home Loan Mortgage Corp. 5.59s,
October 6, 1995 $14,846,275
20,000,000 General Motors Acceptance Corp. 5.90s,
August 1, 1995 20,000,000
15,000,000 Household Finance Corp. 5.67s,
October 19, 1995 14,813,362
7,403,000 Interest in $672,198,000 joint repurchase
agreement dated July 31, 1995 with Morgan
(J.P.) & Co., Inc. due August 1, 1995 with
respect to various U.S. Treasury obligations--
maturity value of $7,404,193 or an effective
yield of 5.8% 7,404,193
- ----------------------------------------------------------------------
--
TOTAL SHORT-TERM INVESTMENTS
(cost $57,063,830) $57,063,830
- ----------------------------------------------------------------------
--
TOTAL INVESTMENTS (cost $616,407,119)*** $898,594,204
- ----------------------------------------------------------------------
--
<FN>
* Percentages indicated are based on net assets of $893,496,284,
which correspond to a net asset value per class A, class B and
class M shares of $14.17, $13.92 and $14.11, respectively.
+ Non-income-producing security.
*** The aggregate identified cost on a tax cost basis is
$619,208,455, resulting in gross unrealized appreciation and
depreciation of $285,453,208, and $6,067,459, respectively, or
net unrealized appreciation of $279,385,749.
144A after the name of a security represents those securities
exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
ADR or ADS after the name of a holding stands for American
Depository Receipt, or American Depository Shares, respectively,
representing ownership of foreign securities on deposit with a
domestic custodian bank.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1995
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
--
Investments in securities, at value
(identified cost $616,407,119) (Note 1) $898,594,204
- ----------------------------------------------------------------------
--
Cash 182
- ----------------------------------------------------------------------
--
Dividends, interest and other receivables 71,715
- ----------------------------------------------------------------------
--
Receivable for shares of the fund sold 5,414,767
- ----------------------------------------------------------------------
--
Receivable for securities sold 6,092,149
- ----------------------------------------------------------------------
--
TOTAL ASSETS 910,173,017
LIABILITIES
- ----------------------------------------------------------------------
--
Payable for securities purchased 10,085,060
- ----------------------------------------------------------------------
--
Payable for shares of the fund repurchased 5,280,101
- ----------------------------------------------------------------------
--
Payable for compensation of Manager (Note 2) 474,686
- ----------------------------------------------------------------------
--
Payable for compensation of Trustees (Note 2) 312
- ----------------------------------------------------------------------
--
Payable for administrative services (Note 2) 1,379
- ----------------------------------------------------------------------
--
Payable for distribution fees (Note 2) 272,702
- ----------------------------------------------------------------------
--
Payable for investor servicing and custodian fees (Note 2) 345,487
- ----------------------------------------------------------------------
--
Other accrued expenses 217,006
- ----------------------------------------------------------------------
--
TOTAL LIABILITIES 16,676,733
- ----------------------------------------------------------------------
--
NET ASSETS $893,496,284
- ----------------------------------------------------------------------
--
REPRESENTED BY
- ----------------------------------------------------------------------
--
Paid-in capital (Notes 1 and 4) $547,695,801
- ----------------------------------------------------------------------
--
Accumulated net realized gain on investment
transactions (Note 1) 63,613,398
- ----------------------------------------------------------------------
--
Net unrealized appreciation of investments 282,187,085
- ----------------------------------------------------------------------
--
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $893,496,284
- ----------------------------------------------------------------------
--
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ----------------------------------------------------------------------
--
Net asset value and redemption price of class A shares
($730,187,839 divided by 51,527,311 shares) $14.17
- ----------------------------------------------------------------------
--
Offering price per class A share (100/94.25 of $14.17)* $15.03
- ----------------------------------------------------------------------
--
Net asset value and offering price of class B shares
($160,197,014 divided by 11,511,384 shares)** $13.92
- ----------------------------------------------------------------------
--
Net asset value and redemption price of class M shares
($3,111,431 divided by 220,445 shares) $14.11
- ----------------------------------------------------------------------
--
Offering price per class M share (100/96.50 of $14.11)* $14.62
- ----------------------------------------------------------------------
--
<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
Year ended July 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------
--
Dividends (net of foreign tax of $15,216) $1,127,522
- ----------------------------------------------------------------------
--
Interest 2,095,035
- ----------------------------------------------------------------------
--
TOTAL INVESTMENT INCOME 3,222,557
EXPENSES:
- ----------------------------------------------------------------------
--
Compensation of Manager (Note 2) 4,264,012
- ----------------------------------------------------------------------
--
Investor servicing and custodian fees (Note 2) 923,969
- ----------------------------------------------------------------------
--
Compensation of Trustees (Note 2) 22,090
- ----------------------------------------------------------------------
--
Reports to shareholders 74,124
- ----------------------------------------------------------------------
--
Auditing 27,438
- ----------------------------------------------------------------------
--
Legal 19,031
- ----------------------------------------------------------------------
--
Postage 114,970
- ----------------------------------------------------------------------
--
Registration fees 66,753
- ----------------------------------------------------------------------
--
Administrative services (Note 2) 14,634
- ----------------------------------------------------------------------
--
Distribution fees -- class A (Note 2) 1,354,780
- ----------------------------------------------------------------------
--
Distribution fees -- class B (Note 2) 854,216
- ----------------------------------------------------------------------
--
Distribution fees -- class M (Note 2) 7,794
- ----------------------------------------------------------------------
--
Other 29,571
- ----------------------------------------------------------------------
--
TOTAL EXPENSES 7,773,382
- ----------------------------------------------------------------------
--
NET INVESTMENT LOSS (4,550,825)
- ----------------------------------------------------------------------
--
Net realized gain on investments (Notes 1 and 3) 75,353,276
- ----------------------------------------------------------------------
--
Net realized loss on foreign currency translation (Note 3) (366)
- ----------------------------------------------------------------------
--
Net unrealized appreciation of investments during the year 209,197,569
- ----------------------------------------------------------------------
--
NET GAIN ON INVESTMENTS 284,550,479
- ----------------------------------------------------------------------
--
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $279,999,654
- ----------------------------------------------------------------------
--
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
Year ended July 31
------------------------------
1995 1994
- ----------------------------------------------------------------------
--
INCREASE IN NET ASSETS
- ----------------------------------------------------------------------
--
Operations:
- ----------------------------------------------------------------------
--
Net investment loss $(4,550,825) $(4,301,979)
- ----------------------------------------------------------------------
--
Net realized gain on investments and
foreign currency translation 75,352,910 48,499,047
- ----------------------------------------------------------------------
--
Net unrealized appreciation (depreciation)
of investments 209,197,569 (31,492,905)
- ----------------------------------------------------------------------
--
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 279,999,654 12,704,163
- ----------------------------------------------------------------------
--
Distributions to shareholders:
- ----------------------------------------------------------------------
--
From net realized gain on investments
- ----------------------------------------------------------------------
--
Class A (36,734,356) (40,874,837)
- ----------------------------------------------------------------------
--
Class B (5,130,340) (874,297)
- ----------------------------------------------------------------------
--
Class M (2,324) --
- ----------------------------------------------------------------------
--
Increase from capital share transactions
(Note 4) 200,542,706 119,011,352
- ----------------------------------------------------------------------
--
TOTAL INCREASE IN NET ASSETS 438,675,340 89,966,381
- ----------------------------------------------------------------------
--
NET ASSETS
- ----------------------------------------------------------------------
--
Beginning of year 454,820,944 364,854,563
- ----------------------------------------------------------------------
--
END OF YEAR (including accumulated net
investment loss of $0 and $0, respectively)$893,496,284 $454,820,944
- ----------------------------------------------------------------------
--
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C>
FOR THE PERIOD
DECEMBER 2, 1994
(COMMENCEMENT
OF OPERATIONS) TO
JULY 31 YEAR ENDED JULY 31
- ----------------------------------------------------------------------
--
1995 1995 1994
- ----------------------------------------------------------------------
--
CLASS M CLASS B
- ----------------------------------------------------------------------
--
NET ASSET VALUE, BEGINNING OF PERIOD $11.10 $10.06 $10.70
- ----------------------------------------------------------------------
--
INVESTMENT OPERATIONS
Net investment loss (.05) (.10) (.07)
Net realized and unrealized gain
(loss) on investments 3.92 4.82 .63
- ----------------------------------------------------------------------
--
TOTAL FROM INVESTMENT OPERATIONS 3.87 4.72 .56
- ----------------------------------------------------------------------
--
LESS DISTRIBUTIONS FROM:
Net investment income -- -- --
Net realized gain on investments (.86) (.86) (1.20)
- ----------------------------------------------------------------------
--
TOTAL DISTRIBUTIONS (.86) (.86) (1.20)
- ----------------------------------------------------------------------
--
NET ASSET VALUE, END OF PERIOD $14.11 $13.92 $10.06
- ----------------------------------------------------------------------
--
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(a) 37.79(b) 50.13 4.15
- ----------------------------------------------------------------------
--
Net assets, end of period
(in thousands) $3,111 $160,197 $42,115
- ----------------------------------------------------------------------
--
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (%) 1.10(b) 1.90 1.94
- ----------------------------------------------------------------------
--
Ratio of net investment income
(loss) to average net assets (%) (.66)(b) (1.37) (1.71)
- ----------------------------------------------------------------------
--
Portfolio turnover (%) 116.10 116.10 76.66
- ----------------------------------------------------------------------
--
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C>
FOR THE PERIOD
JULY 15, 1993
(COMMENCEMENT
OF OPERATIONS) TO
JULY 31 YEAR ENDED JULY 31
- ----------------------------------------------------------------------
--
1993* 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------
--
CLASS B CLASS A
- ----------------------------------------------------------------------
--
$10.80 $10.15 $10.72 $9.05 $8.35 $8.20
- ----------------------------------------------------------------------
--
(.01) (.07) (.06) (.06) (.04) (.01)
(.09) 4.95 .69 2.87 .83 .46
- ----------------------------------------------------------------------
--
(.10) 4.88 .63 2.81 .79 .45
- ----------------------------------------------------------------------
--
-- -- -- -- -- --
-- (.86) (1.20) (1.14) (.09) (.30)
- ----------------------------------------------------------------------
--
-- (.86) (1.20) (1.14) (.09) (.30)
- ----------------------------------------------------------------------
--
$10.70 $14.17 $10.15 $10.72 $9.05 $8.35
- ----------------------------------------------------------------------
--
(.92)(b) 51.32 4.83 32.93 9.53 6.40
- ----------------------------------------------------------------------
--
$455 $730,188 $412,706 $364,400 $267,338 $234,055
- ----------------------------------------------------------------------
--
.09(b) 1.14 1.16 1.26 1.39 1.48
- ----------------------------------------------------------------------
--
(.09)(b) (.62) (.97) (.90) (.59) (.46)
- ----------------------------------------------------------------------
--
108.20 116.10 76.66 108.20 66.75 54.06
- ----------------------------------------------------------------------
--
<FN>
* Per share investment income 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) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges
(b) Not annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
July 31, 1995
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. Putnam Management is responsible for determining that the
<PAGE>
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
losses on wash sale transactions and non-taxable dividends.
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, 1995, the fund reclassified $4,550,825 to
decrease accumulated net investment loss, $4,511,780 to decrease
accumulated net realized gain, and $39,045 to decrease paid-in
capital. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, 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 Putnam Management on the fund's
portfolio transactions.
<PAGE>
The fund also reimburses Putnam Management 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 $1,570 and an
additional fee for each Trustees' meeting attended. Trustees who are
not interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance at
certain committee meetings.
During the year ended July 31, 1995, the fund adopted a Trustee Fee
Deferral Plan (the "Plan") which allows the Trustees to defer the
receipt of all or a portion of Trustees' fees payable on or after July
1, 1995. The deferred fees remain in the fund and are invested in the
fund or in other Putnam funds until distribution in accordance with
the Plan.
Custodial functions for the fund's assets are being provided by Putnam
Fiduciary Trust Company (PFTC), as subsidiary of Putnam Investments,
Inc. Investor servicing agent functions are provided by Putnam
Investor Services, a division of PFTC.
Investor service and custodian fees reported in the Statement of
operations for the year ended July 31, 1995 have been reduced by
credits allowed by PFTC. These credits amounted to $467,279 for the
year ended July 31, 1995.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred
by it in distributing shares of the fund. The Plans provide for
payments by the fund to Putnam Mutual Funds Corp. at an annual rate of
0.25%, 1.00% and 0.75% of the average net assets attributable to class
A, class B and class M shares, respectively.
For the year ended July 31, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $394,657 from the sale of
class A shares and $6,001 for the sale of class M shares. There were
$141,913 in contingent deferred sales charges from redemptions of
class B shares. A deferred sales charge of up to 1% is assessed on
certain redemptions of class A shares purchased as part of an
investment of $1 million or more. For the year ended July 31, 1995,
Putnam Mutual Funds Corp., acting as underwriter received $7,188 on
class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended July 31, 1995, purchases and sales of investment
securities other than short-term investments aggregated $837,926,118
and $689,781,514, 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.
<PAGE>
NOTE 4
CAPITAL SHARES
At July 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 stock. Transactions in capital
shares were as follows:
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED JULY 31
- ----------------------------------------------------------------------
- --
1995
- ----------------------------------------------------------------------
- --
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
- --
Shares sold 62,802,583 $720,693,980
Shares issued in connection with
reinvestment of distributions 3,374,263 34,451,229
- ----------------------------------------------------------------------
- --
66,176,846 755,145,209
- ----------------------------------------------------------------------
- --
Shares repurchased (55,314,256) (640,833,768)
- ----------------------------------------------------------------------
- --
NET INCREASE 10,862,590 $114,311,441
- ----------------------------------------------------------------------
- --
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
- ----------------------------------------------------------------------
- --
1995
- ----------------------------------------------------------------------
- --
CLASS B SHARES AMOUNT
- ----------------------------------------------------------------------
- --
Shares sold 12,005,769 $137,390,437
Shares issued in connection with
reinvestment of distributions 470,958 4,757,351
- ----------------------------------------------------------------------
- --
12,476,727 142,147,788
- ----------------------------------------------------------------------
- --
Shares repurchased (5,152,541) (58,329,878)
- ----------------------------------------------------------------------
- --
NET INCREASE 7,324,186 $83,817,910
- ----------------------------------------------------------------------
- --
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 JULY 31
1995
- ----------------------------------------------------------------------
- --
CLASS M SHARES AMOUNT
- ----------------------------------------------------------------------
- --
Shares sold 440,064 $5,188,635
Shares issued in
connection with
reinvestment of
distributions 228 2,324
- ----------------------------------------------------------------------
- --
440,292 5,190,959
- ----------------------------------------------------------------------
- --
Shares repurchased (219,847) (2,777,604)
- ----------------------------------------------------------------------
- --
NET INCREASE 220,445 $2,413,355
- ----------------------------------------------------------------------
- --
</TABLE>
<PAGE>
FEDERAL TAX INFORMATION
Pursuant to section 852 of the Internal Revenue Code, the Fund hereby
designates $0.857 per share (or if different, the amount necessary to
offset net capital gain earned by the Fund) for all share classes as
capital gain dividends for its taxable year ended July 1995.
The Form 1099 you receive in January 1996 will show the tax status of
all distributions paid to your account in calendar 1995.
<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
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
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
Daniel L. Miller
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
19844-024/227/673
<PAGE>
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.
