Putnam
OTC &
Emerging
Growth Fund*
SEMIANNUAL REPORT
January 31, 1997
* Formerly Putnam OTC Emerging Growth Fund
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "The best earnings news will likely come from small-capitalization stocks,
which have lagged the big stocks. . . .
The opportunities will be in stocks that have demonstrated an ability to grow
consistently at a faster-than-average price."
-- Business Week, January 6, 1997
* "We continue to emphasize extensive research as we target dynamic,
innovative emerging-growth companies for investment."
-- Michael J. Mufson, Fund Manager
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
20 Financial statements
31 Results of February 6, 1997 shareholder meeting
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Sticking with an effective investment strategy through both fair weather and
foul is one of the trademarks of the Putnam funds. Nowhere is this principle
better exemplified than in Putnam OTC & Emerging Growth Fund's pursuit of its
objective during the semiannual period ended January 31, 1997.
Over the past few months, the stocks of the emerging growth companies in which
your fund typically invests have encountered a fair amount of turbulence.
Instead of shifting assets into other, more resilient investments, fund
managers Michael Mufson and Steven Kirson are maintaining their focus on these
stocks -- which have always been the core of the fund's portfolio. They are
positioning the portfolio to take full advantage of a recovery in this sector,
which they believe could materialize within the next year.
The depth of your fund's commitment to its core strategy is further
underscored by its recent name change and slight expansion of its investment
universe. With the addition of an ampersand to its name, the fund may now
invest in emerging growth companies listed on any U.S. stock exchange --
instead of mainly from the over-the-counter market as was formerly required.
Mike and Steven provide more details on the fund's performance in the
following report.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 19, 1997
Report from the Fund Managers
Michael J. Mufson
Steven L. Kirson
Faced with a market that was relatively indifferent to the stocks of smaller
high-growth companies in which it invests, Putnam OTC & Emerging Growth Fund
experienced a subdued semiannual period. For the six months ended January 31,
1997, your fund's class A shares gained 9.21% at net asset value and 2.95% at
public offering price. Over the same period, the Russell 2000 Index -- which
is not perfectly correlated with your fund -- rose 17.97%. For results of
other share classes and over longer periods during which fund performance has
been exemplary, please turn to page 9 of this report.
We regard these results as a temporary setback, particularly when considered
along with the strong long-term returns generated by your fund. We believe
your fund continues to offer investors an opportunity to benefit from the
successes of some of today's most dynamic and innovative companies. As with
any aggressive fund, however, the pursuit of strong long-term results carries
with it the potential for the kind of volatility we witnessed throughout 1996.
* FUND NAME CHANGE MORE ACCURATELY REFLECTS EXISTING STRATEGY
During the period, your fund's name was changed from Putnam OTC Emerging
Growth Fund to Putnam OTC & Emerging Growth Fund. Although subtle, this change
does have important investment ramifications, but it does not imply any
deviation to the investment philosophy of the fund. Under the former name, SEC
rules required the fund to keep at least 65% of its net assets invested in
emerging growth companies whose stocks trade on the NASDAQ system. In past
years, most emerging growth companies were found on NASDAQ (the OTC market),
but more recently many such rapidly expanding companies have moved to other
exchanges -- particularly the New York Stock Exchange. Pursuant to the change
in the fund's name and other changes to the fund's prospectus, the fund may
invest in emerging growth companies traded on any exchange, as long as 65% of
its net assets remain invested in either NASDAQ-traded stocks, emerging stock
companies, or a combination of the two.
* STOCKS OF FAST-GROWING EMERGING COMPANIES TEMPORARILY OUT OF FAVOR
We define emerging growth companies two ways. First, as market share leaders
in exciting, new industries. Second, as companies that are gaining market
share in established industries. Such companies may have developed a new
technology, sell a unique product, or provide a differentiated product. These
companies often exhibit high levels of insider stock ownership. We typically
concentrate on companies valued between $200 million and $5 billion in market
capitalization, where we tend to find many attractive emerging growth
companies.
Unfortunately this is the market segment that fell from favor over the past
year as investors bid up prices for larger, more established companies. But
because Putnam Management emphasizes consistent investment styles for its
funds, we do not alter our approach to suit temporary shifts in the market.
Although it can lead to short-term periods of difficulty, we believe
consistency to be the most rewarding investment approach over time. In any
case, we are optimistic that investors are already beginning to recognize --
once again -- the vast potential and fundamental strength of many of the
smaller, rapidly growing companies in the fund's portfolio.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Computer software 16.9%
Business services 8.7%
Computer services 6.2%
Financial services 5.1%
Telecommunications equipment 5.1%
Footnote reads:
*Based on net assets as of 1/31/97. Holdings will vary over time.
* BUSINESS SERVICES AND TECHNOLOGY COMPANIES PROMINENT IN PORTFOLIO
While your fund is not a sector fund, companies meeting the criteria we seek
tend to cluster within certain high-growth industry groups. Business services,
whose strength over the past few years reflects U.S. corporations' ongoing
investment in information technology, is one such group. Corporate America is
moving from mainframes to client/server computing. However, many corporate
information systems departments do not have the employees or expertise to
execute this transition, and need the assistance of consulting companies.
Accordingly, we see many opportunities ahead for client/server consulting
companies, such as fund holding Technology Solutions.
In the business educational niche, we are optimistic about prospects for fund
holding Learning Tree, which offers classroom-based information systems
training for workers. With the American education system only gradually
addressing the overwhelming demand for employees with computing skills,
companies such as Learning Tree are quickly filling the knowledge gap.
Emerging growth companies that meet our investment criteria tend to
predominate in the technology sector. Accordingly, small-capitalization
technology companies account for a substantial percentage of your fund's
assets, a position that has been fairly consistent over the past several
years. We have invested in a number of companies that provide software and
systems for customer service applications. Fund holdings such as Clarify,
Scopus, and Vantive are helping firms to serve existing clients and customers
more efficiently. We are also optimistic about prospects for Electronics For
Imaging, whose software enables color printers to make high-speed color
copies. While these stocks, along with others discussed in this report, were
viewed favorably at the end of the fiscal period, all portfolio holdings are
subject to review and adjustment in accordance with the fund's investment
strategy and may vary in the future.
TOP 10 HOLDINGS (1/31/97)*
Baan Co. (the Netherlands)
Computer software
RAC Financial Group, Inc.
Financial services
HFS, Inc.
Lodging
Tellabs, Inc.
Telecommunications equipment
Ascend Communications, Inc.
Networking equipment
Electronics For Imaging, Inc.
Computer software
McAfee Associates, Inc.
Computer software
Pairgain Technologies, Inc.
Telecommunications equipment
CBT Group PLC ADR (Ireland)
Educational services
Bed, Bath & Beyond Inc.
Retail
Footnote reads:
*These holdings represent 17.3% of the fund's assets as of 1/31/97. Portfolio
holdings will vary over time.
* CONSUMER AND HEALTH-CARE TECHNOLOGY SECTORS STILL WELL REPRESENTED
While accounting for a somewhat smaller segment of the portfolio than in past
years, the consumer area continues to yield a number of fast-growing companies
that are taking advantage of U.S. demographic trends. Fund holding Signature
Resorts owns and develops time-share properties, which may be in increasing
demand as many Americans reach retirement age and devote time to travel and
leisure. Another fund holding that could benefit from an aging population is
Family Golf Centers. The company has consolidated a number of driving ranges,
upgrading facilities with comforts and services typically demanded by older
customers.
Health-care stocks, too, currently make up a smaller portion of your fund's
portfolio than they have in the past. We believe current fundamentals of many
health-care companies to be suspect considering the cost pressures reducing
profitability across the industry. Nevertheless, we believe areas of real
growth potential still exist in health care, particularly for companies
working to address system-wide cost pressures. Medic Computer, for example,
supplies software that helps physicians' groups reduce expenses and boost
profitability. Another fund position is Omnicare, which operates lower-cost
institutional pharmacies within nursing homes, a market that is attractive as
long-term care increases in importance and cost concerns mount.
* OUTLOOK: CAUSE FOR OPTIMISM
We are upbeat about the prospects for your fund in the coming months. Many of
the companies represented in the fund's portfolio remain fundamentally sound,
notwithstanding the market's momentary judgment. We believe the growth rates
of these companies, together with the current valuations of their stocks
relative to the current valuations of large-company stocks, make them highly
attractive right now. Furthermore, this period in the economic cycle is
typically beneficial for growth companies. With inflation low and overall
economic growth moderate, the ability of such companies to expand rapidly is
heightened. In short, we look forward with optimism to the rest of fiscal
1997.
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 1/31/97, there is no guarantee the fund will continue to hold
these securities in the future. This fund invests all or a portion of its
assets in small to midsize companies. Such investments increase the risk of
greater price fluctuations.
Performance summary
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 1/31/97
Class A Class B Class M
Inception date (11/1/82) (7/15/93) (12/2/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 9.21% 2.95% 8.84% 3.84% 8.96% 5.16%
- ------------------------------------------------------------------------------
1 year 10.41 4.08 9.68 4.68 9.93 6.06
- ------------------------------------------------------------------------------
5 years 148.56 134.24 -- -- -- --
Annual average 19.97 18.56 -- -- -- --
- ------------------------------------------------------------------------------
10 years 348.82 323.03 -- -- -- --
Annual average 16.20 15.52 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 96.20 93.20 75.02 68.94
Annual average -- -- 20.91 20.38 29.43 27.33
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/97
Russell Consumer
Index Price Index
- ------------------------------------------------------------------------------
6 months 17.97% 1.34%
- ------------------------------------------------------------------------------
1 year 18.95 3.04
- ------------------------------------------------------------------------------
5 years 95.12 15.21
Annual average 14.30 2.87
- ------------------------------------------------------------------------------
10 years 194.72 43.08
Annual average 11.41 3.65
- ------------------------------------------------------------------------------
Life of class B 67.17 10.18
Annual average 15.39 2.77
- ------------------------------------------------------------------------------
Life of class M 56.73 6.28
Annual average 22.99 2.85
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They 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. Investment returns and principal
value will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost. POP assumes 5.75% maximum
sales charge for class A shares and 3.50% for class M shares. CDSC for
class B shares assumes the applicable sales charge, with the maximum
being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income -- -- --
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term $1.078 $1.078 $1.078
- ------------------------------------------------------------------------------
Short-term -- -- --
- ------------------------------------------------------------------------------
Total $1.078 $1.078 $1.078
- ------------------------------------------------------------------------------
Share NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
7/31/96 $14.80 $15.70 $14.41 $14.66 $15.19
- ------------------------------------------------------------------------------
1/31/97 15.04 15.96 14.56 14.85 15.39
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 12/31/96)
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 month -10.01% -15.21% -10.33% -14.49% -10.22% -13.37%
- ------------------------------------------------------------------------------
1 year 4.61 -1.43 3.90 -0.92 4.10 0.47
- ------------------------------------------------------------------------------
5 years 148.19 133.99 -- -- -- --
Annual average 19.94 18.53 -- -- -- --
- ------------------------------------------------------------------------------
10 years 394.84 366.29 -- -- -- --
Annual average 17.34 16.64 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 90.81 87.81 70.19 64.27
Annual average -- -- 20.47 19.92 29.13 26.95
- ------------------------------------------------------------------------------
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 measure of the performance of small company stocks.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and
interest payments and do not take in account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
of the fund will differ. It is not possible to invest directly in an
index.
WELCOME TO
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investing and retirement planning, and access market news and an economic
outlook from Putnam experts -- with just a few clicks of the mouse!
VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* daily fund pricing and long-term fund performance
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You can also read Dr. Robert Goodman's economic commentary and Putnam's
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New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
<TABLE>
<CAPTION>
Portfolio of investments owned
January 31, 1997 (Unaudited)
COMMON STOCKS (95.0%) *
NUMBER OF SHARES VALUE
Advertising (1.6%)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
52,500 CKS Group, Inc. + $ 1,627,500
545,400 Lamar Advertising Co. + 13,362,300
708,225 Outdoor Systems, Inc. + 21,335,278
509,200 Universal Putdoor Holdings, Inc. + 14,257,600
--------------
50,582,678
Agriculture (0.1%)
- ---------------------------------------------------------------------------------------------------------
52,500 Dekalb Genetics Corp. Class B 3,340,312
Apparel (1.5%)
- ---------------------------------------------------------------------------------------------------------
1,185,800 Finish Line, Inc. + 26,087,600
977,200 Nautica Enterprises, Inc. + 22,964,200
--------------
49,051,800
Broadcasting (2.4%)
- ---------------------------------------------------------------------------------------------------------
606,600 Clear Channel Communications, Inc. + 25,856,325
6,200 Cox Radio, Inc. Class A + 113,925
164,700 Emmis Broadcasting Corp. Class A + 5,970,375
523,327 Evergreen Media Corp. Class A + 16,223,137
248,000 SFX Broadcasting, Inc. Class A + 8,308,000
518,348 Univision Communications Inc. Class A + 18,660,528
--------------
75,132,290
Building Products (0.2%)
- ---------------------------------------------------------------------------------------------------------
287,500 Barnett, Inc. + 7,115,625
Business Services (8.7%)
- ---------------------------------------------------------------------------------------------------------
90,000 Abacus Direct Corp. + 2,272,500
966,600 Affiliated Computer Services, Inc. Class A + 25,373,250
135,000 APAC Teleservices, Inc. + 5,298,750
368,300 BT Office Products International, Inc. + 3,775,075
865,800 Concord EFS, Inc. + 17,316,000
325,100 Corestaff, Inc. + 7,477,300
459,961 Corporate Express, Inc. + 15,523,684
484,600 First USA Paymentech, Inc. + 16,173,525
228,500 Global DirectMail Corp. + 7,911,813
459,900 Interim Services Inc. + 16,671,375
576,000 Metzler Group, Inc. + 17,712,000
202,700 NOVA Corp. + 4,256,700
96,500 Paychex, Inc. 4,680,250
1,046,800 PMT Services, Inc. + 16,748,800
446,500 Precision Response Corp. + 15,627,500
361,200 Registry, Inc. (The) + 15,667,050
758,600 Robert Half International, Inc. + 32,619,800
300,700 Romac International, Inc. + 7,724,231
597,700 Snyder Communications Inc. + 18,005,713
50,000 Sykes Enterprises, Inc. + 1,975,000
505,100 Teletech Holdings, Inc. + 14,395,350
300,000 Viking Office Products, Inc. + 8,325,000
52,000 Vincam Group, Inc. + 2,145,000
--------------
277,675,666
Computer Equipment (1.5%)
- ---------------------------------------------------------------------------------------------------------
395,000 Gateway 2000, Inc. + 24,144,375
660,000 Splash Technology Holdings, Inc. + 25,080,000
--------------
49,224,375
Computer Services (6.2%)
- ---------------------------------------------------------------------------------------------------------
476,100 Cambridge Technology Partners, Inc. + 13,687,875
713,100 Claremont Technology Group, Inc. + 18,184,050
836,450 Computer Management Sciences + 18,611,012
700,000 Cotelligent Group, Inc. + 13,693,750
313,700 Forrester Research, Inc. + 8,234,625
667,600 Keane, Inc. + 20,779,050
410,000 National TechTeam, Inc. + 10,660,000
399,100 Renaissance Solutions, Inc. + 16,063,775
458,500 Superior Consultant Holdings Corp. + 11,233,250
992,500 Technology Solutions Co. + 38,087,188
1,586,600 Vanstar Corp. + 23,402,350
304,700 Whittman-Hart, Inc. + 6,170,175
--------------
198,807,100
Computer Software (16.9%)
- ---------------------------------------------------------------------------------------------------------
358,579 Arbor Software Corp. + 10,667,725
578,200 Aspect Development, Inc. + 17,056,900
1,842,900 Baan Co., N.V. (Netherlands) + 83,621,588
420,700 Citrix Systems, Inc. + 19,457,375
927,302 Clarify, Inc. + 33,382,872
360,000 Compuware Corp. + 24,570,000
282,000 Documentum, Inc. + 9,235,500
272,500 Electronic Arts, Inc. + 8,685,937
566,600 Electronics for Imaging, Inc. + 52,552,150
273,700 Forte Software, Inc. + 10,024,262
104,400 I2 Technologies, Inc. + 3,784,500
530,000 JDA Software Group, Inc. + 15,900,000
690,000 Legato Systems, Inc. + 16,905,000
869,375 McAfee Associates, Inc. + 50,641,094
175,000 Micro Focus Group PLC ADR (United Kingdom) + 2,975,000
285,500 Onewave, Inc. + 749,437
324,300 PeopleSoft, Inc. + 17,674,350
573,700 Project Software & Development, Inc. + 25,673,075
296,300 Raptor Systems, Inc. + 5,963,038
880,000 Rational Software Corp. + 22,330,000
128,350 Red Brick Systems, Inc. + 3,016,225
299,200 Remedy Corp. + 14,660,800
398,900 Scopus Technology, Inc. + 20,044,725
597,800 Security Dynamics Technologies, Inc. + 20,773,550
150,000 Siebel Systems, Inc. + 2,625,000
250,700 Template Software, Inc. + 3,635,150
439,000 Vantive Corp. + 13,499,250
520,643 Viasoft, Inc. + 26,943,275
--------------
537,047,778
Consumer Services (0.8%)
- ---------------------------------------------------------------------------------------------------------
729,800 America Online, Inc. + 26,911,375
Education Services (4.4%)
- ---------------------------------------------------------------------------------------------------------
520,000 Apollo Group, Inc. Class A + 17,290,000
695,400 CBT Group PLC ADR (Ireland) + 44,331,750
310,000 Computer Learning Centers, Inc. + 8,990,000
799,750 Learning Tree International, Inc. + 31,190,250
817,200 Strayer Education, Inc. + 21,451,500
622,000 Sylvan Learning Systems, Inc. + 18,349,000
--------------
141,602,500
Electric Utilities (0.9%)
- ---------------------------------------------------------------------------------------------------------
729,000 Calenergy, Inc. + 27,975,375
Electronics and Electrical Equipment (2.4%)
- ---------------------------------------------------------------------------------------------------------
669,200 Benchmarq Microelectronics, Inc. + 11,041,800
147,200 Elexsys International, Inc. + 3,624,800
200,000 Flextronics International Ltd. + 5,100,000
200,000 Harmonic Lightwaves, Inc. + 4,500,000
467,064 Jabil Circuit, Inc. + 22,068,774
292,000 Sanmina Corp. + 17,374,000
475,000 Veeco Instruments, Inc. + 11,993,750
--------------
75,703,124
Environmental Control (1.3%)
- ---------------------------------------------------------------------------------------------------------
425,000 American Disposal Services, Inc. + 7,331,250
160,000 Memtec Ltd. ADR (Australia) 4,640,000
800,000 Phillip Environmental, Inc. 1,379,520
758,262 U.S. Filter Corp. + 29,098,304
--------------
42,449,074
Financial Services (5.1%)
- ---------------------------------------------------------------------------------------------------------
605,700 Aames Financial Corp. 26,045,100
305,000 Finova Group, Inc. 21,960,000
742,500 Mego Mortgage Corp. + 10,766,250
540,300 Metris Companies, Inc. + 18,978,038
1,835,800 RAC Financial Group, Inc. + 60,581,400
1,160,400 Southern Pacific Funding Corp. + 25,093,650
--------------
163,424,438
Funeral/Cemetery Services (1.5%)
- ---------------------------------------------------------------------------------------------------------
288,900 Carriage Services, Inc. + 6,861,375
835,000 Equity Corporation Int'l. + 16,491,250
225,000 Loewen Group, Inc. 8,043,750
435,400 Stewart Enterprises, Inc. Class A 15,402,275
--------------
46,798,650
Health Care Information Systems (2.1%)
- ---------------------------------------------------------------------------------------------------------
355,000 ABR Information Services, Inc. + 15,575,625
496,100 HBO & Co. 31,068,262
400,000 Medic Computer Systems, Inc. + 15,500,000
--------------
62,143,887
Health Care Services (0.4%)
- ---------------------------------------------------------------------------------------------------------
259,750 CRA Managed Care, Inc. + 12,662,812
Health Care and HMOs (2.3%)
- ---------------------------------------------------------------------------------------------------------
295,900 Access Health, Inc. + 8,507,125
657,700 Health Management Assoc., Inc. + 18,168,963
521,000 Renal Treatment Centers, Inc. + 14,653,125
312,500 Total Renal Care Holdings, Inc. + 11,445,313
685,600 Vivra, Inc. + 20,910,800
--------------
73,685,326
Hospital Management (0.6%)
- ---------------------------------------------------------------------------------------------------------
599,800 National Surgery Centers, Inc. + 20,468,175
Lodging (3.7%)
- ---------------------------------------------------------------------------------------------------------
213,400 Doubletree Corp. + 8,802,750
1,038,554 Extended Stay America, Inc. + 18,823,791
815,800 HFS, Inc. + 57,106,000
754,600 Signature Resorts, Inc. + 27,637,225
310,000 Vacation Break USA, Inc. + 6,200,000
--------------
118,569,766
Medical Management Services (2.5%)
- ---------------------------------------------------------------------------------------------------------
576,000 NCS HealthCare, Inc. Class A + 19,512,000
296,500 OccuSystems, Inc. + 6,856,563
450,750 Pediatrix Medical Group, Inc. + 17,748,281
890,000 Phycor, Inc. + 31,261,250
304,850 Phymatrix, Inc. + 4,839,493
--------------
80,217,587
Medical Supplies and Devices (2.2%)
- ---------------------------------------------------------------------------------------------------------
559,000 Endosonics Corp. + 7,197,125
186,000 Henry Schein, Inc. + 6,277,500
450,000 IDEXX Laboratories, Inc. + 14,625,000
235,700 Minimed, Inc. + 8,072,725
1,036,000 Neuromedical Systems, Inc. + 11,525,500
620,400 Omnicare, Inc. 17,138,550
435,700 Trex Medical Corp. + 6,589,963
--------------
71,426,363
Motion Picture Distribution (0.3%)
- ---------------------------------------------------------------------------------------------------------
375,000 Regal Cinemas, Inc. + 10,031,250
Networking Equipment (3.8%)
- ---------------------------------------------------------------------------------------------------------
775,000 Ascend Communications, Inc. + 53,959,375
402,500 Black Box Corp. + 15,093,750
1,002,050 Cascade Communications Corp. + 39,831,487
50,000 3Com Corp. + 3,356,250
258,300 International Network Services + 8,201,025
--------------
120,441,887
Nursing Homes (0.3%)
- ---------------------------------------------------------------------------------------------------------
330,000 Alternative Living Services, Inc. + 4,331,250
306,000 Assisted Living Concepts Inc. + 4,896,000
--------------
9,227,250
Pharmaceuticals and Biotechnology (1.8%)
- ---------------------------------------------------------------------------------------------------------
200,000 Applied Analytical Industries, Inc. + 5,175,000
144,600 ClinTrials Research Inc. + 4,338,000
92,500 Gilead Sciences, Inc. + 3,017,812
52,000 Jones Medical Industries, Inc. 1,976,000
629,600 La Jolla Pharmaceutical Co. + 3,384,100
108,300 Martek Biosciences Corp. + 2,653,350
475,500 Parexel International Corp. + 27,935,625
120,000 Quintiles Transnational Corp. + 8,955,000
--------------
57,434,887
Recreation and Gaming (0.6%)
- ---------------------------------------------------------------------------------------------------------
234,300 Acres Gaming, Inc. + 2,840,887
460,800 Family Golf Centers, Inc. (+) 12,384,000
220,000 Silicon Gaming, Inc. + 4,455,000
--------------
19,679,887
Restaurants (0.5%)
- ---------------------------------------------------------------------------------------------------------
250,000 Landry's Seafood Restaurants, Inc. + 5,093,750
545,000 Rainforest Cafe, Inc. + 11,751,563
--------------
16,845,313
Retail (3.7%)
- ---------------------------------------------------------------------------------------------------------
1,542,200 Bed, Bath & Beyond, Inc. + 42,410,500
250,900 Coldwater Creek Inc. + 4,547,562
1,331,300 CompUSA, Inc. + 27,291,650
579,800 Gadzooks, Inc. + 16,306,875
314,600 North Face, Inc. (The) + 6,213,350
312,000 Petco Animal Supplies, Inc. + 7,605,000
360,200 Williams-Sonoma, Inc. + 11,391,325
--------------
115,766,262
Semiconductors (3.6%)
- ---------------------------------------------------------------------------------------------------------
420,000 Actel Corp. + 8,610,000
125,000 Altera Corp. + 5,406,250
200,000 Credence Systems Corp. + 4,500,000
130,000 Intel Corp. 21,092,500
425,000 Maxim Integrated Products, Inc. 23,906,250
350,000 Micrel, Inc. + 13,343,750
404,700 Microchip Technology, Inc. + 15,429,188
425,000 S3, Inc. + 7,118,750
320,000 Xilinx, Inc. 14,560,000
--------------
113,966,688
Specialty Consumer Products (3.2%)
- ---------------------------------------------------------------------------------------------------------
595,000 Blyth Industries, Inc. + 22,089,375
584,500 Central Garden & Pet Co. + 15,781,500
564,000 Gucci Group N.V. (Italy) + 39,339,000
510,000 St. John Knits, Inc. 23,205,000
--------------
100,414,875
Telecommunication Equipment (5.1%)
- ---------------------------------------------------------------------------------------------------------
345,000 Advanced Fibre Communications + 16,473,750
292,400 Aspect Telecommunications Corp. + 9,064,400
520,000 Natural Microsystems Corp. + 17,940,000
1,214,600 Pairgain Technologies, Inc. + 49,722,688
550,000 Picturetel Corp. + 10,175,000
1,360,200 Tellabs, Inc. + 56,023,238
--------------
159,399,076
Telephone Services (2.5%)
- ---------------------------------------------------------------------------------------------------------
538,400 Brooks Fiber Properties, Inc. + 13,796,500
310,300 Intermedia Communications, Inc. + 7,369,625
444,000 IXC Communications, Inc. + 14,874,000
389,800 McLeod, Inc. Class A + 8,965,400
1,227,350 MIDCOM Communications, Inc. + 12,580,338
216,200 Teleport Communications Group Inc. Class A + 6,729,225
407,400 Tel-Save Holdings, Inc. + 10,414,163
240,030 WorldCom, Inc. + 6,030,753
--------------
80,760,004
Tobacco (0.1%)
- ---------------------------------------------------------------------------------------------------------
148,700 Consolidated Cigar Holdings Inc. + 3,605,975
Transportation (0.1%)
- ---------------------------------------------------------------------------------------------------------
165,400 Team Rental Group, Inc. + 4,465,800
--------------
Total Common Stocks (cost $2,630,953,720) $3,024,055,230
SHORT-TERM INVESTMENTS (6.0%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$25,000,000 Asset Securitization Coop. Corp. for an effective
yield of 5.33%, March 24, 1997 $ 24,811,229
30,000,000 Falcon Asset Securitization Corp. for an effective
yield of 5.35%, February 28, 1997 29,879,625
25,000,000 Federal National Mortgage Association for an effective
yield of 5.26%, March 4, 1997 24,886,764
25,000,000 General Electric Capital Corp. for an effective yield
of 5.33%, February 5, 1997 24,985,194
25,000,000 Preferred Receivable Funding Corp. for an effective
yield of 5.62%, February 20, 1997 24,925,847
62,000,000 Interest in $500,000,000 joint repurchase agreement
dated January 31, 1997, with Lehman Brothers Inc.,
due February 3, 1997, with respect to various
U.S. Treasury obligations -- maturing value of
$62,028,830 for an effective yield of 5.58% 62,009,610
--------------
Total Short-Term Investments (cost $191,498,269) 191,498,269
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $2,822,451,989) *** $3,215,553,499
- ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $3,182,758,762.
*** The aggregate identified cost on a tax basis is $2,829,854,534,
resulting in gross unrealized appreciation and depreciation of
$554,803,307 and $169,104,342, respectively, or net unrealized
appreciation of $385,698,965.
+ Non-income-producing security.
ADR after the name of a foreign holding stands for American Depository
Receipt, representing ownership of foreign securities on deposit with a
domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,822,451,989) (Note 1) $3,215,553,499
- ---------------------------------------------------------------------------------------------------
Cash 1,692,922
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 39,308
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 24,538,900
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 44,485,088
- ---------------------------------------------------------------------------------------------------
Total assets 3,286,309,717
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 87,209,433
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 12,341,568
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,458,428
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 667,446
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 27,677
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 12,903
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,278,236
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 555,264
- ---------------------------------------------------------------------------------------------------
Total liabilities 103,550,955
- ---------------------------------------------------------------------------------------------------
Net Assets $3,182,758,762
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,888,433,526
- ---------------------------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (13,083,306)
- ---------------------------------------------------------------------------------------------------
Distributions in excess of gains on investments
(Note 1) (85,692,968)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 393,101,510
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,182,758,762
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,015,128,755 divided by 133,964,945 shares) $15.04
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $15.04)* $15.96
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($954,619,838 divided by 65,583,389 shares)** $14.56
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($118,836,336 divided by 8,001,891 shares) $14.85
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $14.85)* $15.39
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($94,173,833 divided by 6,243,748 shares) $15.08
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $4,367,110
- --------------------------------------------------------------------------------------------------
Dividends 503,810
- --------------------------------------------------------------------------------------------------
Total investment income 4,870,920
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,879,565
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,740,937
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 57,869
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 20,349
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,267,871
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,250,874
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 357,673
- --------------------------------------------------------------------------------------------------
Reports to shareholders 52,759
- --------------------------------------------------------------------------------------------------
Registration fees 349,043
- --------------------------------------------------------------------------------------------------
Auditing 47,004
- --------------------------------------------------------------------------------------------------
Legal 21,369
- --------------------------------------------------------------------------------------------------
Postage 323,918
- --------------------------------------------------------------------------------------------------
Other 196,525
- --------------------------------------------------------------------------------------------------
Total expenses 18,565,756
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (611,530)
- --------------------------------------------------------------------------------------------------
Net expenses 17,954,226
- --------------------------------------------------------------------------------------------------
Net investment loss (13,083,306)
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (71,623,029)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 290,845,478
- --------------------------------------------------------------------------------------------------
Net gain on investments 219,222,449
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $206,139,143
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
1997* 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------------
Net investment loss $ (13,083,306) $ (11,052,161)
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (71,623,029) 256,975,799
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 290,845,478 (179,931,053)
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 206,139,143 65,992,585
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (126,239,569) (100,559,484)
- ---------------------------------------------------------------------------------------------------------------------
Class B (62,417,180) (28,189,713)
- ---------------------------------------------------------------------------------------------------------------------
Class M (7,456,804) (1,163,623)
- ---------------------------------------------------------------------------------------------------------------------
Class Y (5,475,224) --
- ---------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 996,280,694 1,352,351,653
- ---------------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,000,831,060 1,288,431,418
- ---------------------------------------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Beginning of period 2,181,927,702 893,496,284
- ---------------------------------------------------------------------------------------------------------------------
End of period (including accumulated net
investment loss of $ 13,083,306 and $ 0, respectively.) $3,182,758,762 $2,181,927,702
- ---------------------------------------------------------------------------------------------------------------------
* Unaudited.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
Six months July 12, 1996 Six months
ended (commencement ended
January 31 of operations) to January 31
(unaudited) July 31 (unaudited)
--------------------------------------------------------------
1997 1996 1997
- ---------------------------------------------------------------------------------------------------------------------
Class Y Class M
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.81 $15.65 $14.66
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment loss (.01) --(c) (.06)
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.36 (.84) 1.33
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.35 (.84) 1.27
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (1.08) -- (1.08)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (1.08) -- (1.08)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.08 $14.81 $14.85
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 9.41* (5.37)* 8.96*
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $94,174 $150 $118,836
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (b) .42* .07* .80*
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (%) (.18)* (.02)* (.60)*
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.46* 199.52 60.46*
- ---------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d) $.0481 $.0481
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
December 2, 1994 Six months
Year (commencement ended
ended of operations) to January 31
July 31 July 31 (unaudited)
--------------------------------------------------------------------
1996 1995 1997
--------------------------------------------------------------------
Class M Class B
--------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.11 $11.10 $14.41
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (.16)(c) (.05) (.08)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.42 3.92 1.31
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.26 3.87 1.23
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (1.71) (.86) (1.08)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.71) (.86) (1.08)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.66 $14.11 $14.56
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 16.58 37.79 8.84*
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $60,432 $3,111 $954,619
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.68 1.10* .92*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (%) (1.06) (.66)* (.72)*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 199.52 116.10 60.46*
- ---------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d) $.0481
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended July 31
--------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------
Class B
--------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.92 $10.06 $10.70
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (.20)(c) (.10) (.07)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.40 4.82 .63
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.20 4.72 .56
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (1.71) (.86) (1.20)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.71) (.86) (1.20)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.41 $13.92 $10.06
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 16.37 50.13 4.15
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $641,576 $160,197 $42,115
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.89 1.90 1.94
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (%) (1.29) (1.37) (1.71)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 199.52 116.10 76.66
- ---------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
July 15, 1993 Six months
(commencement ended
of operations) to January 31
July 31 (unaudited) Year ended July 31
--------------------------------------------------------------------
1993 1997 1996
--------------------------------------------------------------------
Class B Class A
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.80 $14.80 $14.17
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (.01)(c) (.05) (.08)(c)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.09) 1.37 2.42
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.10) 1.32 2.34
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- (1.08) (1.71)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions -- (1.08) (1.71)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.70 $15.04 $14.80
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) (.92)* 9.21* 17.12
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $455 $2,015,129 $1,479,770
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .09* .55* 1.11
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (%) (.09)* (.35)* (.53)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 108.20 60.46* 199.52
- ---------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d) $.0481
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended July 31
--------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------
Class A
--------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.15 $10.72 $9.05
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (.07) (.06) (.06)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 4.95 .69 2.87
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.88 .63 2.81
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (.86) (1.20) (1.14)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.86) (1.20) (1.14)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.17 $10.15 $10.72
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 51.32 4.83 32.93
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $730,188 $412,706 $364,400
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (b) 1.14 1.16 1.26
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (%) (.62) (.97) (.90)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 116.10 76.66 108.20
- ---------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended
July 31
------------------------------
1992
------------------------------
Class A
- ---------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $8.35
- ---------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------
Net investment loss (.04)
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .83
- ---------------------------------------------------------------------------------
Total from investment operations .79
- ---------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------
Net realized gain on investments (.09)
- ---------------------------------------------------------------------------------
Total distributions (.09)
- ---------------------------------------------------------------------------------
Net asset value, end of period $9.05
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 9.53
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $267,338
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.39
- ---------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (%) (.59)
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 66.75
- ---------------------------------------------------------------------------------
Average commission rate paid (d)
- ---------------------------------------------------------------------------------
See page 25 for notes to Financial Highlights
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996,
and thereafter include amounts paid through brokerage service and expense
offset arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income (loss) has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods
beginning on or after September 1, 1995.
</TABLE>
Notes to financial statements
January 31, 1997 (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 common stocks traded in the
over-the-counter (OTC) market and common stocks of emerging growth
companies listed on securities exchanges. Prior to December 16, 1996,
the fund's objective was to invest 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, class M and class Y shares. Class A
shares are sold with a maximum front-end sales charge of 5.75%. Class B
shares, which convert to class A shares after approximately eight years,
do not pay a front-end sales charge but pay a higher ongoing
distribution fee than class A shares, and 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 pay an ongoing distribution fee that is higher than class A
shares but lower than class B shares. Class Y shares, which are sold at
net asset value, are generally subject to the same expenses as class A
shares and class B shares, but do not bear a distribution fee. Class Y
shares are sold to defined contribution plans that initially invest at
least $250 million in a combination of Putnam Funds.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies followed
by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported bid
price. 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 and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on 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 on securities held and for excise tax on income and capital
gains.
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 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, 0.50% of the next $5 billion,
0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of
the next $5 billion, and 0.43% of any amount over $21.5 billion. Prior
to November 20, 1996, any amount over $1.5 billion was based on 0.50%.
The fund 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.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended January 31, 1997, fund expenses were reduced by
$611,530 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported in
the Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Trustees of the fund receive an annual Trustees fee of $3,580 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund 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.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund 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 six months ended January 31, 1997, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $1,540,349 and $63,870
from the sale of class A and class M shares, respectively and $683,535
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. For the period ended January 31, 1997, Putnam Mutual
Funds Corp., acting as underwriter received $58,811 on class A
redemptions.
Note 3
Purchases and sales of securities
During the six months ended January 31, 1997, purchases and sales of
investment securities other than short-term investments aggregated
$2,334,518,321 and $1,569,782,077 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, 1997, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 54,695,577 $905,254,392
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,111,573 117,049,286
- ------------------------------------------------------------
62,807,150 1,022,303,678
Shares
repurchased (96,803,871) (1,541,866,676)
- ------------------------------------------------------------
Net increase 33,996,721 $519,562,998
- ------------------------------------------------------------
Year ended July 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 152,200,446 $2,417,089,147
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,674,236 94,039,901
- ------------------------------------------------------------
158,874,682 2,511,129,048
Shares
repurchased (110,433,769) (1,747,181,385)
- ------------------------------------------------------------
Net increase 48,440,913 $763,947,663
- ------------------------------------------------------------
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 31,600,834 $487,370,993
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,972,163 55,491,116
- ------------------------------------------------------------
35,572,997 542,862,109
Shares
repurchased (14,519,602) (223,649,219)
- ------------------------------------------------------------
Net increase 21,053,395 $319,212,890
- ------------------------------------------------------------
Year ended July 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 47,342,283 $751,027,251
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,860,338 25,616,447
- ------------------------------------------------------------
49,202,621 776,643,698
Shares
repurchased (16,184,011) (251,940,378)
- ------------------------------------------------------------
Net increase 33,018,610 $524,703,320
- ------------------------------------------------------------
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 6,360,481 $100,166,123
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 502,949 7,167,025
- ------------------------------------------------------------
6,863,430 107,333,148
Shares
repurchased (2,983,454) (47,058,892)
- ------------------------------------------------------------
Net increase 3,879,976 $60,274,256
- ------------------------------------------------------------
Year ended July 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 5,762,407 $93,574,709
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 80,826 1,155,720
- ------------------------------------------------------------
5,843,233 94,730,429
Shares
repurchased (1,941,763) (31,178,096)
- ------------------------------------------------------------
Net increase 3,901,470 $63,552,333
- ------------------------------------------------------------
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 5,997,034 $93,929,439
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 378,646 5,475,225
- ------------------------------------------------------------
6,375,680 99,404,664
Shares
repurchased (142,027) (2,174,114)
- ------------------------------------------------------------
Net increase 6,233,653 $97,230,550
- ------------------------------------------------------------
For the period
July 12, 1996
(commencement
of operations) to
July 31, 1996
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 10,100 $148,418
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
10,100 148,418
Shares
repurchased (5) (81)
- ------------------------------------------------------------
Net increase 10,095 $148,337
- ------------------------------------------------------------
Note 5
Transactions with Affiliated Companies
<TABLE>
<CAPTION>
Transactions during the period with companies in which the fund owns at least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Name of Affiliates cost cost Income Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Disposal Services $ 3,140,076 $ 2,260,376 $ $ 7,331,250
Aspect Development 15,347,680 6,363,469 17,056,900
Assisted Living Concepts, Inc. 4,931,937 4,896,000
Benchmarq MicroElectronics 15,028,296 11,041,800
Bio-Vascular, Inc. 7,678,714
Carriage Services 10,751,711 5,900,893 6,861,375
Claremont Technology Group 15,917,972 578,963 18,184,050
Clarify, Inc. 26,421,298 8,765,820 33,382,872
Computer Learning Center 8,230,806 8,990,000
Computer Management Sciences 7,788,479 4,563,085 18,611,012
Consolidated Cigar Holdings, Inc. 15,487,906 11,466,047 3,605,975
Cotelligent Group, Inc. 14,836,037 13,693,750
Gadzooks, Inc. 22,739,482 6,946,744 16,306,875
Mego Mortgage Corp. 8,505,968 10,766,250
Metzler Group, Inc. 13,919,067 557,225 17,712,000
Midcom Communications, Inc. 6,656,873 493,521 12,580,338
National Surgery Centers, Inc. 5,532,004 272,292 20,468,175
Natural Microsystems Corp. 5,909,177 1,160,160 17,940,000
NCS Healthcare, Inc. Class A 10,209,301 19,512,000
OneWave, Inc. 2,489,850 12,545,586 749,437
Parexel International Corp. 19,370,152 27,935,625
Party City Corp. 3,311,675 6,845,879
Projects Software 16,542,820 2,935,604 25,673,075
RAC Financial Group, Inc. 37,413,671 60,581,400
Renaissance Solutions, Inc. 3,001,300 1,367,598 16,063,775
Sabratek Corp. 2,200,310 7,480,289
Southern Paciffic Funding Corp. 21,583,437 25,093,650
Strayer Education, Inc. 13,241,968 21,451,500
Superior Consultant Holdings 12,786,929 2,964,419 11,233,250
Technology Solutions 39,284,260 38,087,188
Veeco Instruments, Inc. 12,260,722 11,993,750
Workgroup Technology Corp. 15,348,959
- ------------------------------------------------------------------------------------------------------------
Totals $394,841,164 $106,495,643 $ -- $497,803,272
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Results of Febuary 6, 1997 shareholder meeting
A meeting of shareholders of the fund was held on February 6, 1997.
At the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 91,719,090 1,842,745
Hans H. Estin 91,682,060 1,879,775
John A. Hill 91,746,555 1,815,280
Ronald J. Jackson 91,741,196 1,820,639
Elizabeth T. Kennan 91,658,182 1,903,653
Lawrence J. Lasser 91,773,358 1,788,477
Robert E. Patterson 91,730,763 1,831,072
Donald S. Perkins 91,676,642 1,885,193
William F. Pounds 91,720,638 1,841,197
George Putnam 91,642,007 1,919,829
George Putnam, III 91,672,995 1,888,840
Eli Shapiro 91,279,419 2,282,416
A.J.C. Smith 91,769,635 1,792,200
W. Nicholas Thorndike 91,628,800 1,933,035
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as
auditors for the fund was approved as follows: 88,949,978 votes for,
and 1,286,265 votes against, with 3,325,592 abstentions and broker
non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to diversification was approved as follows: 78,738,221
votes for, and 6,371,507 votes against, with 8,452,107 abstentions
and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to investments in the securities of a single issuer was
approved as follows: 75,668,551 votes for, and 8,306,888 votes
against, with 9,586,396 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans was approved as follows: 73,005,659 votes for,
and 11,602,895 votes against, with 8,953,281 abstentions and broker
non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows:
75,794,752 votes for, and 9,103,493 votes against, with 8,663,590
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
77,748,919 votes for, and 6,552,667 votes against, with 9,260,249
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities was approved as follows:
74,242,945 votes for, and 10,338,937 votes against, with 8,979,953
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which
management of the fund or Putnam Investment Management, Inc. owns
securities was approved as follows: 75,634,083 votes for, and
9,004,776 votes against, with 8,922,972 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows:
71,350,149 votes for, and 12,664,886 votes against, with 9,546,800
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 71,846,663 votes
for, and 12,233,949 votes against, with 9,481,223 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to pledging assets was approved as follows: 71,657,763
votes for, and 12,246,104 votes against, with 9,657,968 abstentions
and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 73,107,635 votes for, and 10,870,708 votes against, with
9,583,492 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas an mineral interests
was approved as follows: 75,678,779 votes for, and 9,058,065 votes
against, with 8,824,991 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investing to gain control of a company's management
was approved as follows: 74,331,589 votes for, and 10,254,785 votes
against, with 8,975,461 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in other investment companies was approved
as follows: 75,994,644 votes for, and 8,621,332 votes against, with
8,945,859 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to option transactions was approved as follows:
74,016,222 votes for, and 10,156,418 votes against, with 9,389,195
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in real estate as prohibited by German law
was approved as follows: 74,126,009 votes for, and 9,161,630 votes
against, with 10,274,196 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither
insured nor guaranteed by the U.S. government. These
funds are managed to maintain a price of $1.00 per
share, although there is no assurance that this price
will be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured
up to certain limits by federal/state agencies. Savings
accounts may also be insured up to certain limits.
Please call your financial advisor or Putnam at 1-800-
225-1581 to obtain a prospectus for any Putnam fund.
It contains more complete information, including
charges and expenses. Please read it carefully before
you invest or send money.
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
Ronald J. Jackson
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
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Michael J. Mufson
Vice President and Fund Manager
Steven L. Kirson
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
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. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
31259-024/277/673 3/97
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ------------------------------------------------------------------------
Putnam OTC & Emerging Growth Fund
Supplement to Semiannual Report dated 1/31/97
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their holdings.
Class Y shares are offered exclusively to defined contribution plans
investing $250 million or more in one or more of Putnam's funds or
private accounts. Performance of class Y shares, which incur neither a
front-end load, distribution fee, nor contingent deferred sales charge,
will differ from performance of class A, B, and M shares, which are
discussed more extensively in the semiannual report.
SEMIANNUAL RESULTS AT A GLANCE
- ------------------------------------------------------------------------
Total return: NAV
Six months ended 1/31/97 9.41%
One year ended 1/31/97 N/A
Life of class (since 7/12/96) 3.54
Annual average N/A
- ------------------------------------------------------------------------
Share value: NAV
7/31/96 $14.81
1/31/97 15.08
- ------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 $0.0000 $1.0780 $1.0780
- ------------------------------------------------------------------------
Current return (end of period) Total
life of class as of 12/31/96 0.66%
- ------------------------------------------------------------------------
Please note that past performance does not indicate future results.
Investment return and principal value will fluctuate so your shares,
when redeemed, may be worth more or less than their original cost. See
full report for information on comparative benchmarks. If you have
questions, please consult your fund prospectus or call Putnam toll free
at 1-800-752-9894.
