Putnam
OTC &
Emerging Growth
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam OTC & Emerging Growth Fund's solid performance through fiscal
1999's challenging market environment rests largely upon the stock
selections of the management team. Most of the period was plagued by
global market turmoil that was particularly difficult for the stocks of
emerging growth companies, in which your fund invests.
Even in such a turbulent setting, however, opportunities presented
themselves, and your fund's managers with the help of Putnam's extensive
research capabilities took advantage of several. Their approach targets
two types of emerging growth companies, those that are able to dominate a
relatively new industry and those that are rapidly increasing their market
share in a more established business environment.
In the following report, managers Michael Mufson and Steven Kirson discuss
their investment process in the context of fiscal 1999's performance and
offer their views on the fund's prospects in the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
September 15, 1999
Report from the Fund Managers
Michael J. Mufson
Steven L. Kirson
In an extremely volatile year for the financial markets, a year in which
emerging growth stocks were generally out of favor with investors, we are
pleased to report your fund's strong total return for the 12 months ended
July 31, 1999. This performance is especially gratifying because it more
than doubles the 8.30% return of the Russell 2000 Growth Index, the fund's
unmanaged benchmark.
Total return for 12 months ended 7/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
18.31% 11.49% 17.42% 12.42% 17.42% 16.42% 17.61% 13.47%
- ----------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* A STORMY YEAR FOR SMALL CAPS
For much of fiscal 1999, the stocks of emerging growth companies struggled
against a tide of negative investor sentiment. In 1998, volatility in
overseas markets, combined with a deep recession in Asia, convinced many
that the United States would be the next victim in the global financial
crisis. U.S. manufacturing suffered and banks reported tighter lending
practices in the fall, prompting the Federal Reserve Board to cut interest
rates aggressively. Sensing vulnerability in the market, investors flocked
to the biggest and least economically sensitive names. This increase in
demand helped keep performance of large-capitalization stocks in the
vanguard and validated investors' unfavorable outlook for smaller caps.
By the spring of 1999, the tense market environment had been neutralized
by a series of favorable developments. Growth in Japan and other parts of
Asia stabilized, and U.S. manufacturing staged a comeback. The U.S.
economy advanced at a rate of 4.3% in the first quarter of 1999 and 2.3%
in the second quarter, and corporate profits were stronger than
anticipated. The Fed responded with a rate increase in June that
effectively took back some of the liquidity it had pumped into the economy
in 1998.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Computer software 18.9%
Telecommunications 16.4%
Computer services 14.5%
Electronic
components 12.1%
Networking 5.2%
Footnote reads:
*Based on net assets as of 7/31/99. Holdings will vary over time.
The return of stability to global markets and the strength of corporate
profits at home coaxed investors back to a number of previously overlooked
sectors, including emerging growth stocks, which soared 14.75% during the
second quarter, as measured by the Russell 2000 Growth Index. But by the
end of July, these stocks were once again in decline as investors began to
worry that the strength of the economy would re-ignite long dormant
inflation and precipitate further increases in interest rates.
* ONE STOCK AT A TIME
The fund's index-beating performance during the year is due in large part
to the thoroughness of its stock selection process. When selecting stocks
for the portfolio, we look for emerging growth companies with market
capitalizations of between $150 million and $4 billion whose revenues and
earnings are growing at a minimum rate of 20% per year. (The average
growth rate in the portfolio is between 35% and 40%.) Once we identify a
company that meets these criteria, we talk to its management, suppliers,
and customers to determine if the company has a good chance of maintaining
its past success.
For the purposes of portfolio selection, emerging growth companies come in
two basic varieties. The first is a company that has the dominant share of
a dynamic new industry and a disproportionate share in the profits as
well. A good example is Copper Mountain Networks, Inc., a company that
develops and sells digital subscriber line (DSL) communications products
for telecommunications and Internet service providers. Essentially DSL
enables high-speed broadband connectivity over existing copper phone
lines, a service in tremendous demand given the explosive growth of
Internet usage.
"Small, emerging growth stocks continue to sell at attractive valuations
relative to large-cap stocks that offer a fraction of the growth potential."
- -- Michael J. Mufson
Portfolio Manager
A second type of emerging growth company gains market share rapidly in an
established industry. Allegiance Telecom, Inc., a competitive local
exchange carrier (CLEC) with more than 150 locations in 15 major U.S.
markets, is characteristic of this type of company. CLECs compete with
traditional telephone companies, often over existing lines, by offering
better services and features for less. While these holdings, along with
others discussed in this report, were viewed favorably at the end of the
period, all are subject to review and adjustment in accordance with the
fund's investment strategy and may vary in the future.
When we add a stock to the portfolio for the first time, we typically
start with a small position. Over time, if the company performs well, we
increase our stake. However, it's not unusual for a small-cap company to
prosper and then to decline without much warning. As a result, many of the
stocks that come into the portfolio leave quickly but others demonstrate
longer-term growth potential. We gradually increase our stake in these
latter stocks until eventually they end up on our list of the 10 largest
holdings. In that way, our best ideas are weighted most heavily in the
portfolio.
* TECHNOLOGY LEADS EMERGING GROWTH CATEGORY
Many of the stocks that contributed to the fund's strong performance were
in the technology area. In fact, as of the fiscal year's end, 54% of the
portfolio was dedicated to technology-related companies. Far from a
deliberate sector strategy, this outsized weighting is simply reflective
of where many of the best emerging growth companies now operate.
Technology was not always the best-performing sector. Several years ago,
for example, the portfolio was heavily invested in the health-care sector,
in which advances in pharmaceuticals and biotechnology produced some of
the economy's fastest-growing companies.
Among the top-performing stocks during the period were NEXTLINK
Communications, a CLEC providing telephone services to 38 major U.S.
markets; Power Integrations, a California company that produces
energy-saving devices for cellular phones and other electronic products;
and Exodus Communications, offering services that let businesses outsource
the management of their Internet sites. These three stocks returned 206%,
578%, and 656%, respectively, during the year.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Metromedia Fiber Network, Inc.
Electronic components
NEXTLINK Communications, Inc.
Telecommunications
Verio Inc.
Computer services
McLeod USA, Inc.
Telecommunications
Electronic Arts, Inc.
Computer software
Exodus Communications, Inc.
Networking
Copper Mountain Networks, Inc.
Telecommunications
Gemstar International Group Ltd.
Computer services
Concord Communications, Inc.
Computer software
RealNetworks, Inc.
Computer software
Footnote reads:
These holdings represent 28.5% of the fund's net assets as of 7/31/99.
Portfolio holdings will vary over time.
The fund also benefited from what it did not own during the period. In the
emerging growth arena, a stock's performance can change dramatically
overnight. Interestingly, valuation alone is not a reliable indicator of a
stock's vulnerability. A stock in our universe could be 100% overvalued,
but it is unlikely to experience a decline until there is a disappointment
in its fundamentals. Our strict sell discipline includes eliminating any
position we believe is likely to disappoint. That said, there was a
handful of fundamental disappointments in the portfolio that we were
unable to prevent, particularly within the health-care services area and
information technology services.
* OPPORTUNITIES IN RAPIDLY CHANGING MARKET
In the coming months, we expect continued volatility in the emerging
growth segment of the market. Although the overall economic backdrop in
the United States remains positive, characterized by low inflation and
strong growth, there is enough inflationary pressure to keep investors on
edge as they anticipate the next shift in monetary policy. At the same
time, we believe there is a tremendous opportunity for investors who are
able to tune out these day-to-day distractions.
Small, emerging growth stocks continue to sell at attractive valuations
relative to large-cap stocks that offer a fraction of the growth
potential. Picking the winners in today's rapidly changing
Internet-dominated landscape will not be easy but instead will require the
continual application of hard-nosed fundamental research. We believe your
fund is well suited to the challenge and is appropriately positioned for
the months ahead.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 7/31/99, there is no guarantee the fund will
continue to hold these securities in the future. This fund invests a
portion of its assets in small to midsize companies. Such investments
increase the risk of greater price fluctuations.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 7/31/99
Class A Class B Class C Class M
(inception dates) (11/1/82) (7/15/93) (7/26/99) (12/2/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 18.31% 11.49% 17.42% 12.42% 17.42% 16.42% 17.61% 13.47%
- ---------------------------------------------------------------------------------------------
5 years 164.15 148.94 154.70 152.70 154.43 154.43 157.20 148.17
Annual average 21.44 20.01 20.56 20.37 20.54 20.54 20.80 19.94
- ---------------------------------------------------------------------------------------------
10 years 360.55 334.07 326.35 326.35 327.00 327.00 336.45 321.17
Annual average 16.50 15.81 15.61 15.61 15.62 15.62 15.88 15.46
- ---------------------------------------------------------------------------------------------
Life of fund 1839.93 1728.39 1577.32 1577.32 1612.85 1612.85 1646.19 1585.07
Annual average 19.38 18.96 18.35 18.35 18.49 18.49 18.63 18.38
- ---------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/99
Russell Consumer
2000 Growth Index price index
- --------------------------------------------------------------------------
1 year 14.51% 2.14%
- --------------------------------------------------------------------------
5 years 95.06 12.33
Annual average 14.30 2.35
- --------------------------------------------------------------------------
10 years 172.28 34.00
Annual average 10.54 2.97
- --------------------------------------------------------------------------
Life of fund 442.02 69.76
Annual average 10.62 3.21
- --------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50%, respectively. Class B share returns for the 1-, 5-, 10-year, and
life-of-fund periods reflect the applicable contingent deferred sales
charge (CDSC), which is 5% in the first year, declines to 1% in the sixth
year, and is eliminated thereafter. Returns shown for class B and class M
shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
initial sales charge or CDSC, if any, currently applicable to each class
and in the case of class B and class M shares the higher operating
expenses applicable to such shares. For class C shares, returns for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the CDSC currently
applicable to class C shares, which is 1% for the first year and is
eliminated thereafter, and the higher operating expenses applicable to
class C shares. All returns assume reinvestment of distributions at NAV.
Investment return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 7/31/89
Fund's class A Russell 2000 Consumer price
Date shares at POP Growth Index index
7/31/89 9,425 10,000 10,000
7/31/90 10,119 9,914 10,482
7/31/91 10,766 10,919 10,949
7/31/92 11,793 11,684 11,294
7/31/93 15,676 13,782 11,608
7/31/94 16,432 13,958 11,929
7/31/95 24,866 18,672 12,259
7/31/96 29,122 19,236 12,621
7/31/97 33,877 24,095 12,902
7/31/98 36,691 23,777 13,119
7/31/99 $43,407 $27,228 $13,400
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B or class C shares
would have been valued at $42,635 and $42,700, respectively and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $43,645 ($42,117 at public
offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/99
Class A Class B Class C Class M
- -----------------------------------------------------------------------------
Distributions (number) 1 1 -- 1
- -----------------------------------------------------------------------------
Income -- -- -- --
- -----------------------------------------------------------------------------
Capital gains
Long-term $0.563 $0.563 -- $0.563
- -----------------------------------------------------------------------------
Short-term -- -- -- --
- -----------------------------------------------------------------------------
Total $0.563 $0.563 -- $0.563
- -----------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- -----------------------------------------------------------------------------
7/31/98 $17.35 $18.41 $16.61 -- $17.00 $17.62
- -----------------------------------------------------------------------------
7/26/99* -- -- -- $20.65 -- --
- -----------------------------------------------------------------------------
7/31/99 19.80 21.01 18.78 19.80 19.27 19.97
- -----------------------------------------------------------------------------
*Inception date for class C shares.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (11/1/82) (7/15/93) (7/26/99) (12/2/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 11.05% 4.66% 10.24% 5.24% 10.20% 9.20% 10.51% 6.64%
- --------------------------------------------------------------------------------------
5 years 174.50 158.63 164.71 162.71 164.17 164.17 167.53 158.19
Annual average 22.38 20.93 21.49 21.31 21.44 21.44 21.75 20.89
- --------------------------------------------------------------------------------------
10 years 395.65 367.15 358.90 358.90 359.79 359.79 369.90 353.46
Annual average 17.36 16.67 16.46 16.46 16.48 16.48 16.73 16.32
- --------------------------------------------------------------------------------------
Life of fund 1874.22 1760.71 1608.58 1608.58 1643.92 1643.92 1678.81 1616.55
Annual average 19.61 19.18 18.57 18.57 18.72 18.72 18.86 18.61
- --------------------------------------------------------------------------------------
</TABLE>
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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. See first
page of performance section for performance calculation method.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
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 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B or C shares and assumes redemption at the end of
the period. Your funds' class B CDSC declines from a 5% maximum during the
first year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies. The CDSC for class C shares is 1% for one year after
purchase.
Comparative benchmarks
Russell 2000 Growth Index* is composed of those Russell 2000 securities
with a greater-than-average growth orientation.
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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended July 31, 1999
To the Trustees and Shareholders of
Putnam OTC & Emerging Growth Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam OTC & Emerging
Growth Fund (the "fund") at July 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at July 31, 1999, by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 10, 1999
<TABLE>
<CAPTION>
The fund's portfolio
July 31, 1999
COMMON STOCKS (99.9%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Advertising (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
626,145 AdForce, Inc. (NON) $ 14,518,737
1,584,760 Lamar Advertising Co. (NON) 64,380,875
521,200 TMP Worldwide Inc. (NON) 24,463,825
--------------
103,363,437
Airlines (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
494,246 SkyWest, Inc. 13,282,861
Apparel (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 American Eagle Outfitters, Inc. 11,587,500
274,425 Quicksilver, Inc. 6,826,322
--------------
18,413,822
Banks (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
445,700 Net.B@nk, Inc. 9,582,550
Broadcasting (4.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,073,100 AMFM, Inc. (NON) 56,337,750
931,357 Citadel Communications Corp. (NON) 29,803,424
507,000 Cumulus Media Inc. Class A (NON) 12,231,375
930,209 Entercom Communications Corp. (NON) 37,673,465
348,700 Hispanic Broadcasting Corp. (NON) 24,823,081
343,767 Radio One, Inc. (NON) 15,276,146
612,634 Univision Communications Inc. Class A (NON) 42,424,905
--------------
218,570,146
Business Services (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
447,150 AnswerThink Consulting Group, Inc. 36,275,044
490,100 Navigant Consulting, Inc. (NON) 20,706,725
--------------
56,981,769
Cable Television (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
436,730 Adelphia Communications Corp. (NON) 26,585,939
735,100 Insight Communications Company, Inc. (NON) 21,961,113
339,071 Jones Intercable, Inc. (NON) 15,660,842
--------------
64,207,894
Cellular Communications (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
216,357 Sawtek Inc. (NON) 13,846,848
Computer Services (14.5%)
- --------------------------------------------------------------------------------------------------------------------------
245,800 @plan. Inc. 3,809,900
238,717 Ariba, Inc. (NON) 21,387,551
295,700 Aware, Inc. (NON) 13,657,644
540,575 BackWeb Technologies Ltd. (Israel) 13,886,020
295,510 Brocade Communications Systems (NON) 34,980,996
195,500 CMG Information Services, Inc. 18,022,656
484,000 CNET, Inc. 19,360,000
722,000 Comdisco, Inc. 17,418,250
140,400 Comverse Technology, Inc. 10,608,975
775,870 Critical Path, Inc. (NON) 25,991,645
135,450 DoubleClick, Inc. 10,971,450
297,700 EarthWeb Inc. (NON) 11,908,000
60,982 Gadzoox Networks, Inc. (NON) 4,588,896
1,016,200 Gemstar International Group Ltd. 67,323,250
764,830 InfoSpace.com, Inc. 35,134,378
612,020 InterVU Inc. (NON) 22,797,745
77,577 JFAX.COM, Inc. (NON) 669,102
614,485 Multex.com Inc. (NON) 12,443,321
285,875 StarMedia Network, Inc. (NON) 12,328,359
76,577 Tanning Technology Corp. (NON) 1,378,386
1,699,450 USWeb Corp. (NON) 35,582,234
1,706,455 Verio Inc. (NON) 121,691,572
498,420 VeriSign, Inc. 36,945,383
626,804 VerticalNet, Inc. (NON) 55,080,402
209,867 Viant Corp. (NON) 6,860,028
1,134,100 Whittman-Hart, Inc. 28,706,906
890,380 Ziff-Davis, Inc. (NON) 16,750,274
--------------
660,283,323
Computer Software (18.9%)
- --------------------------------------------------------------------------------------------------------------------------
191,350 24/7 Media, Inc. (NON) 5,979,688
78,375 Accrue Software, Inc. (NON) 783,750
108,400 Actuate Corp. (NON) 3,563,650
492,500 Allaire Corp. (NON) 21,731,563
93,572 Art Technology Group, Inc. (NON) 1,602,421
2,100,774 Beyond.com Corp. (AFF) (NON) 49,630,786
767,000 Brio Technology, Inc. (AFF) (NON) 14,668,875
579,100 Business Objects S.A. (France) (NON) 26,131,888
1,509,730 CBT Group PLC ADR (Ireland) (NON) 42,272,440
123,062 Clarent Corp. (NON) 4,714,813
155,730 Clarify, Inc. (NON) 5,129,357
1,631,408 Concord Communications, Inc. (AFF) (NON) 66,887,728
138,857 Digex, Inc. (NON) 3,098,247
1,724,066 Electronic Arts, Inc. (NON) 98,164,008
561,682 Engage Technologies, Inc. (NON) 19,413,134
268,980 Genesys Telecommunications Laboratories, Inc. (NON) 7,396,950
123,600 I2 Technologies, Inc. (NON) 3,800,700
21,287 Informatica Corp. (NON) 1,110,250
306,882 Intraware, Inc. (NON) 6,828,125
159,605 Intuit, Inc. (NON) 13,057,684
1,359,600 ISS Group, Inc. 29,571,300
100,270 Liberate Technologies, Inc. (NON) 1,917,664
24,492 Liquid Audio, Inc. (NON) 688,838
1,136,000 Lycos, Inc. 46,931,000
1,581,637 Macromedia, Inc. (NON) 55,159,590
67,900 Mpath Interactive, Inc. (NON) 1,154,300
275,000 NetGravity, Inc. (NON) 5,929,688
378,890 Net Perceptions, Inc. (NON) 6,038,559
47,485 Packeteer, Inc. (NON) 1,400,808
153,900 pcOrder.com, Inc. (NON) 5,540,400
300,620 Phone.com, Inc. (NON) 18,694,806
612,213 Pinnacle Systems, Inc. 17,830,704
156,930 Portal Software, Inc. (NON) 6,566,540
538,100 Proxicom, Inc. (NON) 18,698,975
871,150 Rational Software Corp. (NON) 29,074,631
872,590 RealNetworks, Inc. 66,589,524
852,200 Research in Motion Ltd. (Canada) (NON) 19,920,175
435,540 Security First Technologies Corp. 15,189,458
277,295 Silknet Software, Inc. (NON) 8,929,766
141,255 Software.com, Inc. (NON) 4,749,699
1,667,840 TSI International Software, Ltd. (NON) (AFF) 31,793,200
745,800 Verity, Inc. (AFF) (NON) 36,917,100
393,000 Vignette Corp. (NON) 25,152,000
295,078 Visual Networks, Inc. (NON) 10,641,250
--------------
861,046,032
Consumer Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
157,560 Ask Jeeves, Inc. (NON) 6,932,640
175,180 MarketWatch.com, Inc.(NON) 6,941,508
550,030 SportsLine USA, Inc. (NON) 12,581,936
--------------
26,456,084
Electric Utilities (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,829,100 Independent Energy Holdings PLC (United Kingdom) (AFF) (NON) 25,378,763
Electronic Components (12.1%)
- --------------------------------------------------------------------------------------------------------------------------
252,000 Applied Micro Circuits Corp. (NON) 23,688,000
340,700 Celestica Inc. (Canada) (NON) 15,416,675
300,000 DII Group Inc., (The) (NON) 11,118,750
430,000 Flextronics International Ltd. 19,296,250
564,192 Genesis Microchip Inc. (NON) 11,636,460
801,300 Harmonic, Inc. (AFF) (NON) 63,703,350
383,200 Jabil Circuit, Inc. 16,118,350
9,212,400 Metromedia Fiber Network, Inc. Class A 295,948,350
251,900 Micrel, Inc. (NON) 19,900,100
416,150 Optical Coating Laboratory, Inc. 29,858,763
774,080 Power Integrations, Inc. (AFF) (NON) 44,606,360
--------------
551,291,408
Energy-Related (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
357,000 Calpine Corp. (NON) 26,841,938
Entertainment (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,086,060 SFX Entertainment, Inc. Class A 48,669,064
Financial Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
173,047 E-Loan, Inc. (NON) 6,738,018
383,020 Investment Technology Group, Inc. 13,573,271
435,880 NextCard, Inc. (NON) 15,746,165
--------------
36,057,454
Health Care Services (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
453,777 Allscripts, Inc. (NON) 7,260,432
28,900 Healtheon Corp. (NON) 1,452,225
370,300 Laser Vision Centers, Inc. (NON) 23,282,613
180,000 Medquist, Inc. (NON) 7,807,500
584,630 TLC The Laser Center Inc. (Canada) (NON) 21,265,916
--------------
61,068,686
Insurance (--%)
- --------------------------------------------------------------------------------------------------------------------------
48,685 InsWeb Corp. (NON) 1,478,807
Lodging (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,116,000 Extended Stay America, Inc. (NON) 11,369,250
697,060 Four Seasons Hotels, Inc. (Canada) 31,977,628
--------------
43,346,878
Medical Management Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
279,100 Advance Paradigm, Inc. (NON) 19,013,688
116,630 Express Scripts, Inc. Class A 8,120,364
883,200 Pediatrix Medical Group, Inc. (AFF) (NON) 17,388,000
--------------
44,522,052
Medical Supplies and Devices (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
563,700 Cytyc Corp. (NON) 13,881,113
414,500 VISX, Inc. 41,968,125
--------------
55,849,238
Motion Picture Distribution (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
599,000 Cinar Films, Inc. Class B, (Canada) (NON) 16,996,625
Networking (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
778,300 CIENA Corp. (NON) 26,267,625
807,700 Exodus Communications, Inc. 96,974,481
647,943 Extreme Networks, Inc. (NON) 31,587,221
958,760 International Network Services 41,286,603
255,290 Reback Networks Inc. (NON) 39,506,128
--------------
235,622,058
Networking Equipment (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
977,100 Concur Technologies, Inc. (AFF) (NON) 25,404,600
1,083,800 E-Tek Dynamics, Inc. (NON) 45,451,863
200,360 Emulex Corp. (NON) 22,565,545
--------------
93,422,008
Pharmaceuticals and Biotechnology (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
877,300 Coulter Pharmaceutical, Inc. (AFF) (NON) 21,822,838
76,200 Invitrogen Corp. (NON) 2,209,800
--------------
24,032,638
Recreation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
153,445 International Speedway Corp. Class A 7,892,827
Retail (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
152,000 Cheap Tickets, Inc. (NON) 8,797,000
794,615 Chemdex Corp. (NON) 23,838,450
987,880 Linens 'N Things, Inc. (NON) 45,689,450
138,985 MP3.com, Inc. (NON) 5,081,639
855,630 Tuesday Morning Corp. (NON) 19,786,444
1,480,500 Williams-Sonoma, Inc. (NON) 55,426,219
199,300 Yankee Candle Company, Inc. (The) (NON) 4,484,250
--------------
163,103,452
Semiconductors (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
544,520 American Xtal Technology, Inc. (NON) 16,743,990
482,810 Cree Research, Inc. (NON) 29,873,869
302,500 Hi/Fn, Inc. (NON) 29,266,875
336,045 QLogic Corp. 56,077,509
662,249 SDL, Inc. 44,991,541
--------------
176,953,784
Telecommunications (16.4%)
- --------------------------------------------------------------------------------------------------------------------------
683,700 Allegiance Telecom, Inc. (NON) 34,398,656
720,307 Copper Mountain Networks, Inc. (NON) 87,157,147
450,000 CoreComm Ltd. 21,768,750
1,397,921 Covad Communications Group 144A 64,304,366
357,377 Efficient Networks, Inc. (NON) 15,813,932
478,460 GlobeSpan, Inc. (NON) 24,281,845
1,300,900 GST Telecommunications, Inc. (Canada) (NON) 19,513,500
1,469,186 Intermedia Communications, Inc. (NON) 40,494,439
4,010,414 McLeod USA, Inc. Class A 119,560,467
2,509,200 NEXTLINK Communications, Inc. Class A (NON) 281,344,050
124,900 Terayon Communications Systems, Inc. (NON) 4,886,713
712,100 WinStar Communications. Inc. (NON) 37,385,250
--------------
750,909,115
Telephone Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
899,252 Focal Communications Corp. (NON) 17,085,788
297,470 Network Plus Corp. (NON) 5,391,644
--------------
22,477,432
Wireless Communications (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,211,200 American Tower Corp. Class A 28,084,700
1,901,904 Pinnacle Holdings Inc. (NON) 46,953,255
723,600 RF Micro Devices, Inc. 55,310,187
--------------
130,348,142
--------------
Total Common Stocks (cost $3,287,221,236) $4,562,297,135
SHORT-TERM INVESTMENTS (1.0%) (a) (cost $43,995,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$43,995,000 Interest in $369,077,000 joint repurchase agreement
dated July 30, 1999 with S.B.C. Warburg Inc.
due August 2, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $44,013,441 for an
effective yield of 5.03% $ 43,995,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,331,216,236) (b) $4,606,292,135
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $4,566,696,021.
(b) The aggregate identified cost on a tax basis is $3,348,429,434, resulting in gross unrealized appreciation and
depreciation of $1,516,125,110 and $258,262,409, respectively, or net unrealized appreciation of $1,257,862,701.
(NON) Non-income-producing security.
(AFF) Affiliated Companies (Note 5).
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional
buyers.
ADR after the name of a foreign holding stands for American Depositary Receipts 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
July 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,331,216,236) (Note 1) $4,606,292,135
- -----------------------------------------------------------------------------------------------
Cash 20,802,193
- -----------------------------------------------------------------------------------------------
Dividends and other receivables 95,063
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 9,883,464
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 48,602,564
- -----------------------------------------------------------------------------------------------
Total assets 4,685,675,419
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 96,119,618
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 17,566,066
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,187,057
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 773,668
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 109,592
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 11,641
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,014,620
- -----------------------------------------------------------------------------------------------
Other accrued expenses 197,136
- -----------------------------------------------------------------------------------------------
Total liabilities 118,979,398
- -----------------------------------------------------------------------------------------------
Net assets $4,566,696,021
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,030,360,473
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investment (Note 1) 261,259,649
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,275,075,899
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $4,566,696,021
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,804,929,009 divided by 141,672,704 shares) $19.80
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $19.80)* $21.01
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,328,681,002 divided by 70,756,931 shares)** $18.78
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($74,516 divided by 3,764 shares)** $19.80
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class M share
($303,677,320 divided by 15,756,931 shares) $19.27
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $19.27)* $19.97
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($129,334,174 divided by 6,473,651 shares) $19.98
- -----------------------------------------------------------------------------------------------
* On single retail sale 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
Year ended July 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (including dividend income of $547,391 from
investments in affiliated issuers) (Note 5) $ 730,858
- -----------------------------------------------------------------------------------------------
Interest 3,809,979
- -----------------------------------------------------------------------------------------------
Total investment income 4,540,837
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 21,450,354
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 5,756,180
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 83,449
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 34,135
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 6,041,496
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 11,785,650
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 6
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,849,688
- -----------------------------------------------------------------------------------------------
Reports to shareholders 216,226
- -----------------------------------------------------------------------------------------------
Auditing 70,944
- -----------------------------------------------------------------------------------------------
Legal 23,801
- -----------------------------------------------------------------------------------------------
Postage 650,963
- -----------------------------------------------------------------------------------------------
Other 535,528
- -----------------------------------------------------------------------------------------------
Total expenses 48,498,420
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (599,249)
- -----------------------------------------------------------------------------------------------
Net expenses 47,899,171
- -----------------------------------------------------------------------------------------------
Net investment loss (43,358,334)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1, 3, and 5) (including realized
gain of $15,167,735 on sales of investments in affiliated issuers) 283,382,497
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 478,088,337
- -----------------------------------------------------------------------------------------------
Net gain on investments 761,470,834
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $718,112,500
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended July 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (43,358,334) $ (37,772,092)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 283,382,497 416,773,342
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 478,088,337 (81,123,514)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 718,112,500 297,877,736
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (81,052,973) --
- ---------------------------------------------------------------------------------------------------------------
Class B (41,774,717) --
- ---------------------------------------------------------------------------------------------------------------
Class M (8,356,046) --
- ---------------------------------------------------------------------------------------------------------------
Class Y (3,100,412) --
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (57,685,018) 74,433,423
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 526,143,334 372,311,159
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 4,040,552,687 3,668,241,528
- ---------------------------------------------------------------------------------------------------------------
End of year (accumulated net investment loss
of $-- and $--, respectively) $4,566,696,021 $4,040,552,687
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $17.35 $16.02 $14.80 $14.17 $10.15
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.14)(c) (.12) (.12)(c) (.08)(c) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.15 1.45 2.42 2.42 4.95
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.01 1.33 2.30 2.34 4.88
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.80 $17.35 $16.02 $14.80 $14.17
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 18.31 8.30 16.33 17.12 51.32
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,804,929 $2,478,340 $2,271,206 $1,479,770 $730,188
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .98 1.00 1.16 1.11 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.85) (.70) (.79) (.53) (.62)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 139.84 106.29 112.84 199.52 116.10
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $16.61 $15.45 $14.41 $13.92 $10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.26)(c) (.24) (.22)(c) (.20)(c) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.99 1.40 2.34 2.40 4.82
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.73 1.16 2.12 2.20 4.72
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.78 $16.61 $15.45 $14.41 $13.92
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 17.42 7.51 15.49 16.37 50.13
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,328,681 $1,231,504 $1,116,849 $641,576 $160,197
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.73 1.75 1.91 1.89 1.90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.60) (1.45) (1.55) (1.29) (1.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 139.84 106.29 112.84 199.52 116.10
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26,1999+
operating performance to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $20.65
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss --(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.80
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (4.12)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .03*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.03)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 139.84
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 2, 1994+
operating performance Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $17.00 $15.78 $14.66 $14.11 $11.10
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.22)(c) (.20)(c) (.19)(c) (.16)(c) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.05 1.42 2.39 2.42 3.92
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.83 1.22 2.20 2.26 3.87
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.27 $17.00 $15.78 $14.66 $14.11
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 17.61 7.73 15.78 16.58 37.79*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $303,677 $231,452 $177,325 $60,432 $3,111
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.48 1.50 1.66 1.68 1.10*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.35) (1.20) (1.30) (1.06) (.66)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 139.84 106.29 112.84 199.52 116.10
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 12, 1996+
operating performance Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $17.46 $16.08 $14.81 $15.65
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.10)(c) (.08) (.09)(c) --(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.18 1.46 2.44 (.84)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.08 1.38 2.35 (.84)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.56) -- (1.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.56) -- (1.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.98 $17.46 $16.08 $14.81
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 18.60 8.58 16.67 (5.37)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $129,334 $99,256 $102,862 $150
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .73 .75 .91 .07*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.60) (.46) (.53) (.02)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 139.84 106.29 112.84 199.52
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
Notes to financial statements
July 31, 1999
Note 1
Significant accounting policies
Putnam OTC & Emerging Growth (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks capital appreciation through
investments in common stocks of small to medium-sized emerging growth
companies traded in the over-the-counter (OTC) market and common stocks of
emerging growth companies listed on securities exchanges.
The fund offers class A, class B, class C, class M and class Y shares. The
fund began offering class C shares on July 26, 1999. 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 C shares
are subject to the same fees and expenses as class B shares, except that
class C shares have a one year 1.00% contingent deferred sales charge and
do not convert to class A shares. Class M shares are sold with a maximum
front end sales charge of 3.50% and pay an ongoing distribution fee that
is higher than class A shares but lower than class B shares. Class Y
shares, which are sold at net asset value, are generally subject to the
same expenses as class A, class B, class C, and class M shares, but do not
bear a distribution fee. Class Y shares are sold to defined contribution
plans that invest at least $150 million in a combination of Putnam Funds
and other certain accounts managed by affiliates of Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with 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 Management, 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date.
E) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended July
31, 1999, the fund had no borrowings against the line of credit.
F) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
G) 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 at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions and net operating loss. Reclassifications are made to
the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations.
For the year ended July 31, 1999, the fund reclassified $43,358,334 to
increase undistributed net investment income and $43,358,334 to decrease
paid-in-capital. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid 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% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended July 31, 1999, fund expenses were reduced by $599,249
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.
Each Trustee of the fund receives an annual Trustee fee, of which $3,329
has been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B, class C and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund to an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares, respectively.
For the year ended July 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter, received net commissions of $760,167 and $31,235 from the
sale of class A and class M shares, respectively, and received $2,934,687
and no monies in contingent deferred sales charges from redemptions of
class B and class C shares, respectively. A deferred sales charge of up to
1% is assessed on certain redemptions of class A shares. For the year
ended July 31, 1999, Putnam Mutual Funds Corp., acting as underwriter,
received $45,347 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended July 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $5,454,556,205 and
$5,599,962,878, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Note 4
Capital shares
At July 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 121,407,626 $2,055,665,495
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,045,446 77,447,592
- -----------------------------------------------------------------------------
126,453,072 2,133,113,087
Shares
repurchased (127,640,378) (2,176,348,298)
- -----------------------------------------------------------------------------
Net decrease (1,187,306) $ (43,235,211)
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 143,892,543 $ 2,407,650,178
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
143,892,543 2,407,650,178
Shares
repurchased (142,804,696) (2,391,464,794)
- -----------------------------------------------------------------------------
Net increase 1,087,847 $ 16,185,384
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 29,589,848 $ 472,315,512
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,584,141 37,805,983
- -----------------------------------------------------------------------------
32,173,989 510,121,495
Shares
repurchased (35,578,335) (571,530,934)
- -----------------------------------------------------------------------------
Net decrease (3,404,346) $ (61,409,439)
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 41,295,474 $669,049,473
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
41,295,474 669,049,473
Shares
repurchased (39,437,588) (638,068,530)
- -----------------------------------------------------------------------------
Net increase 1,857,886 $ 30,980,943
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to July 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,764 $74,934
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
3,764 74,934
Shares
repurchased -- --
- -----------------------------------------------------------------------------
Net increase 3,764 $74,934
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 16,876,719 $281,170,466
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 546,838 8,197,103
- -----------------------------------------------------------------------------
17,423,557 289,367,569
Shares
repurchased (15,284,934) (258,781,917)
- -----------------------------------------------------------------------------
Net increase 2,138,623 $ 30,585,652
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 13,427,257 $222,524,852
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
13,427,257 222,524,852
Shares
repurchased (11,049,177) (183,251,875)
- -----------------------------------------------------------------------------
Net increase 2,378,080 $ 39,272,977
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,922,006 $70,318,575
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 200,411 3,100,361
- -----------------------------------------------------------------------------
4,122,417 73,418,936
Shares
repurchased (3,333,896) (57,119,890)
- -----------------------------------------------------------------------------
Net increase 788,521 $16,299,046
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,752,755 $ 30,130,138
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
1,752,755 30,130,138
Shares
repurchased (2,463,763) (42,136,019)
- -----------------------------------------------------------------------------
Net decrease (711,008) $(12,005,881)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note 5
Transactions with Affiliated Issuers
Transactions during the year with companies in which the fund owns at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Name of Affiliate cost cost Income Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aspect Development, Inc. $ 11,768,288 $ 39,518,560 $ -- $ --
Asyst Technologies, Inc. 18,439,553 18,439,553 -- --
Beyond.com Corp. 61,238,381 16,896,542 -- 49,630,786
Brio Technology, Inc. 16,683,221 870,346 -- 14,668,875
Cinar Films, Inc. Class B 13,331,835 192,748 -- --
Citadel Communications Corp. 18,450,982 9,518,033 -- --
Complete Business Solutions 7,120,290 52,481,598 -- --
Computer Learning Centers, Inc. -- 17,286,498 -- --
Computer Management Sciences -- 19,006,783 -- --
Concord Communications, Inc. 60,286,341 7,247,072 -- 66,887,728
Concur Technologies, Inc. 34,661,504 305,344 -- 25,404,600
Coulter Pharmaceutical, Inc. 3,210,925 6,618,040 -- 21,822,838
Data Dimensions -- 12,681,990 -- --
Dave & Buster's, Inc. -- 16,555,867 -- --
ECsoft Group PLC ADR -- 17,597,434 -- --
Education Management Corp. 1,840,053 44,360,214 -- --
E. Spire Communications, Inc. -- 44,619,187 -- --
Geotel Communications Corp. 22,273,044 47,167,471 -- --
Guitar Center, Inc. 4,597,279 51,424,225 -- --
Hain Food Group, Inc. (The) -- 13,420,395 -- --
Harmonic, Inc. 33,126,888 7,492,091 -- 63,703,350
IMRGlobal Corp.* -- 46,565,723 -- --
Independent Energy Holdings
PLC ADR 180,000 251,200 -- 25,378,763
Inspire Insurance Solutions 24,498,817 38,960,429 -- --
Intelligroup, Inc. 24,007,086 25,202,130 -- --
ISS Group, Inc. 50,065,261 21,068,483 -- --
Linens 'N Things, Inc. 24,084,999 49,984,087 -- --
Metromedia Fiber Network, Inc.
Class A 15,658,107 10,761,331 -- --
Michaels Stores, Inc. 9,915,481 61,562,766 -- --
Micrel, Inc. 41,923,514 35,010,616 -- --
NCS Healthcare, Inc. Class A 9,777,280 39,754,157 -- --
Network Solutions, Inc. Class A 56,843,374 56,843,374 -- --
New Era of Networks, Inc. 37,527,537 51,877,328 -- --
Pediatrix Medical Group, Inc. 12,144,551 3,782,464 -- 17,388,000
Perclose, Inc. 660,150 16,682,032 -- --
Peregrine Systems, Inc. 52,269,221 82,728,927 -- --
Pinnacle Systems, Inc. 20,297,437 17,432,577 -- --
Power Integrations, Inc. 28,674,311 10,421,779 -- 44,606,360
Premisys Communications, Inc. -- 63,101,007 -- --
Resource America, Inc. -- 23,328,237 33,030 --
Sabretek Corp. 796,843 16,424,506 -- --
Select Comfort Corp. 32,945,556 32,945,556 -- --
Sirrom Capital Corp. -- 46,618,453 514,361 --
SPR, Inc. 670,000 23,413,223 -- --
Strayer Education, Inc. -- 10,806,463 -- --
The Timberland Co. -- 62,359,691 -- --
Theragenics Corp. 25,309,311 25,309,311 -- --
TSI International Software 12,334,923 17,477,825 -- 31,793,200
TUT Systems, Inc. 33,538,454 33,538,454 -- --
Verity, Inc. 31,263,152 293,018 -- 36,917,100
Viasoft, Inc. -- 52,125,915 -- --
Visual Networks, Inc. 27,424,134 52,067,779 -- --
Walker Interactive Systems, Inc. -- 15,733,827 -- --
Williams Sonoma, Inc. 6,068,287 49,648,013 -- --
- -------------------------------------------------------------------------------------------------------------------
Totals $885,906,370 $1,537,780,672 $547,391 $398,201,600
*formerly known as Information Management Resources
</TABLE>
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $278,689,416 as capital gain, for its taxable year ended
July 31, 1999.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
John J. Morgan, Jr.
Vice President
Daniel L. Miller
Vice President
Michael J. Mufson
Vice President and Fund Manager
Steven L. Kirson
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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 the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN014-54553-024/227/673 9/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam OTC & Emerging Growth Fund
Supplement to Annual Report dated July 31, 1999
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 $150 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 C shares, which are discussed more extensively in the annual report.
FISCAL 1999 ANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
7/12/96 to 7/31/99
Inception date to end of
annual fiscal period 12.23%
7/31/98 to 7/31/99
Annual fiscal period 18.60%
- ----------------------------------------------------------------------------
Share value NAV
7/12/96 (Inception date) $15.65
7/31/98 $17.46
7/31/99 $19.98
- ----------------------------------------------------------------------------
Distributions No. Income Capital gains Total
Short Long
7/31/98 to 7/31/99 1 -- -- $0.563 $0.563
- ----------------------------------------------------------------------------
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
Annual 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.
