Putnam
OTC & Emerging
Growth Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
2000. In the following report, the fund's managers discuss performance for
the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam OTC &
Emerging Growth Fund that I will be signing. After more than 30 years as
Chairman of the Trustees and President of the Putnam Funds, the time has
come for me to step aside. In June, John Hill will become Chairman. John
is currently an independent Trustee and has served on the board for the
past 14 years. In addition, my son, George Putnam, III, will take on the
role of President. I am confident that the leadership of the funds will be
in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay in
close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 15, 2000
Report from the Fund Managers
Michael J. Mufson
Steven L. Kirson
Every major sector of Putnam OTC & Emerging Growth Fund's portfolio was
affected by the Internet during the six months ended January 31, 2000. As
a result, the fund experienced one of the strongest semiannual periods in
its history. While your fund's portfolio is diversified across many
sectors, stocks in industries from business services and media to
telecommunications and retail were all boosted by the influence of
e-commerce and the Internet. The semiannual period also delivered the
perfect environment for your fund's strategy, strongly favoring
fast-growing small and midsize companies that are providing innovative
goods and services in emerging growth industries. This backdrop, combined
with intense research and strategic stock selection, resulted in
outstanding returns for your fund.
Total return for 6 months ended 1/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
101.58% 89.97% 100.81% 95.81% 100.82% 99.82% 101.10% 94.05%
- ----------------------------------------------------------------------------
Past performance is no indication of future results. Performance information
for longer periods begins on page 5.
The semiannual period ended just after the close of a record-breaking year
for the U.S. equity market. The Nasdaq Composite Index, a common measure
of technology stocks, rose 85.6% in the 1999 calendar year, the biggest
annual gain for a major market index in U.S. history. In addition, the Dow
Jones Industrial Average and the S&P 500 Index, which measure the
performance of large-company stocks, also posted double-digit gains for a
record fifth straight year. Also in 1999, the inclusion of Microsoft and
Intel in the Dow average and the addition of Internet stocks Yahoo! and
America Online to the S&P 500 illustrated the growing influence of
technology in today's economy.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Software 21.1%
Technology services 21.1%
Telecommunications 14.8%
Electronics 12.6%
Consumer services 6.9%
Footnote reads:
*Based on net assets as of 1/31/00. Holdings will vary over time.
* RENEWED EMPHASIS ON TECHNOLOGY PAYS OFF
When your fund's fiscal year began, emerging growth stocks were just
beginning to recover from a prolonged downtrend during which a tide of
negative investor sentiment kept them out of favor. In anticipation of a
turnaround, particularly in the technology sector, we began to focus on
companies we believed would benefit most from Internet and e-commerce
demands. In the software industry, this meant companies that could help
businesses create Web sites and bring their products and services online.
Silknet Software, for example, provides software to create Web sites that
offer marketing, sales, and customer support services. Silknet's products
help companies track customer behavior and tailor services to meet their
needs. Just after the close of the period, Silknet announced plans to
merge with Kana Communications, Inc., an online communications provider
and also a fund holding. Another company providing personalization
software is E.piphany, Inc., whose software is designed to help companies
learn about their customers' preferences and habits in order to establish
and improve relationships with them. While these holdings and others
discussed in this report were viewed favorably at the end of the fiscal
period, all are subject to review and adjustment in accordance with the
fund's investment strategy and may well vary in the future.
Within the e-commerce arena, we also sought companies that are creating
business-to-business portals, which are sites on the Internet that allow
businesses and individuals with similar interests to interact. One example
is fund holding VerticalNet, Inc., which was founded in 1995. It operates
41 online communities that provide business-to-business news, information,
and discussion forums. Each VerticalNet community is focused on a specific
business or industry and caters to individuals with similar professional
interests. Examples of VerticalNet communities include solid-waste.com,
foodservicecentral.com, and fiberopticsonline.com. Professionals from
across the globe visit the sites to exchange ideas, search for career
opportunities, and monitor industry events. The site attracts nearly 2
million visitors per month, including buyers and sellers who do business
online.
* INTERNET DEMANDS PROPEL MOST SECTORS
Also thriving from the explosive demand for Web sites were stocks in the
business services sector of the fund's portfolio. We have focused in
particular on companies that provide the labor and talent needed to build
and maintain Web sites. Fund holdings Viant Corp., Scient Corp., and
Breakaway Solutions all profited by providing consulting, creative design,
and technology services for business Web sites.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Metromedia Fiber Network, Inc.
Telecommunications
NEXTLINK Communications, Inc.
Telecommunications
Lycos, Inc.
Consumer services
VerticalNet, Inc.
Technology services
Ariba, Inc.
Software
InfoSpace.com, Inc.
Technology services
Redback Networks, Inc.
Communications equipment
E-Tek Dynamics, Inc.
Electronics
McLeod, Inc.
Telecommunications
SDL, Inc.
Electronics
Footnote reads:
These holdings represent 27.3% of the fund's net assets as of 1/31/00.
Portfolio holdings will vary over time.
Another important term that has entered the vocabulary of the technology
marketplace is "bandwidth," and it is key to understanding future growth
trends. Bandwidth refers to the amount of data that can be sent through a
computer network; the higher the bandwidth, the faster the network
functions. With the explosive growth in Internet usage comes a huge demand
for more bandwidth. Among the companies profiting from this demand are
those that provide the equipment to increase bandwidth and those that
provide the networks to deliver that bandwidth. Within your fund's
portfolio, E-Tek Dynamics and Metromedia Fiber provide the networks for
faster transmission of data.
We also target companies that are bringing increased bandwidth into homes
- -- also known as broadband services. Fund holdings Efficient Networks,
Inc. and Advanced Fibre Communications both specialize in bringing
high-speed Internet connections into homes and small businesses. The
broadband industry is in its infancy but is expected to be a driver of
significant growth for many businesses. It allows Internet users to
download information as much as 100 times faster than traditional dial-up
modems. Companies that provide high-speed Internet access through
technologies such as digital subscriber lines (DSLs), cable modems, and
Web TV should all profit from increased demand. We believe broadband
represents the next phase of the Internet revolution. Just as the Internet
has touched so many industries, the ability to transmit data at rapidly
increasing speeds will propel the growth of still more businesses.
Examples include entertainment businesses such as fund holding Electronic
Arts, Inc., which creates interactive entertainment software, and Lycos,
Inc., which offers products and services through the Internet.
* INCREASED VOLATILITY LIKELY IN SECOND HALF
The first half of fiscal 2000 has provided one of the most exciting
environments in recent years for aggressive-growth funds. Solid corporate
earnings and continued demand for Internet, telecommunications, and
broadband services should continue to drive the major U.S. stock indexes
in the months ahead. Recovering overseas economies and continued economic
strength in the United States also contribute to a generally optimistic
outlook.
It is important to note, however, that exceptional periods of growth --
such as what we've experienced in the first half of the fiscal year -- are
often followed by periods of volatility. A much-anticipated series of
Federal Reserve Board interest-rate increases -- beginning with the
quarter-point increase shortly after the close of the period -- could
temper stock gains. With these factors in mind, we enter the second half
of fiscal 2000 with a strategic eye on market conditions while continuing
to target the most compelling emerging growth opportunities.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 1/31/00, there is no guarantee the fund will
continue to hold these securities in the future. This fund invests in
small and 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 1/31/00
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>
6 months 101.58% 89.97% 100.81% 95.81% 100.82% 99.82% 101.10% 94.05%
- --------------------------------------------------------------------------------------------
1 year 116.45 104.06 114.77 109.76 114.82 113.82 115.30 107.79
- --------------------------------------------------------------------------------------------
5 years 367.32 340.48 350.35 348.34 350.10 350.10 354.82 338.78
Annual average 36.12 34.52 35.12 35.00 35.10 35.10 35.38 34.42
- --------------------------------------------------------------------------------------------
10 years 902.96 845.46 829.84 829.84 830.39 830.39 851.78 818.51
Annual average 25.93 25.19 24.98 24.98 24.99 24.99 25.27 24.83
- --------------------------------------------------------------------------------------------
Annual average
(life of fund) 23.68 23.26 22.62 22.62 22.76 22.76 22.91 22.66
- --------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/00
Russell 2000 Consumer
Growth Index price index
- ---------------------------------------------------------------------------
6 months 29.66% 1.44%
- ---------------------------------------------------------------------------
1 year 35.66 2.67
- ---------------------------------------------------------------------------
5 years 141.21 12.28
Annual average 19.26 2.34
- ---------------------------------------------------------------------------
10 years 292.26 32.73
Annual average 14.65 2.87
- ---------------------------------------------------------------------------
Annual average
(life of fund) 11.97 3.20
- ---------------------------------------------------------------------------
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-, and 10-year
(where available) 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.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 1/31/00
Class A Class B Class C Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1 1
- ------------------------------------------------------------------------------
Income -- -- -- --
- ------------------------------------------------------------------------------
Capital gains
Long-term $1.612 $1.612 $1.612 $1.612
- ------------------------------------------------------------------------------
Short-term 0.317 0.317 0.317 0.317
- ------------------------------------------------------------------------------
Total $1.929 $1.929 $1.929 $1.929
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------
7/31/99 $19.80 $21.01 $18.78 $19.80 $19.27 $19.97
- ------------------------------------------------------------------------------
1/31/00 37.74 40.04 35.54 37.59 36.58 37.91
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (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>
6 months 94.25% 83.08% 93.48% 88.48% 93.56% 92.56% 93.69% 86.93%
- --------------------------------------------------------------------------------------------
1 year 126.91 113.89 125.27 120.27 125.30 124.30 125.78 117.89
- --------------------------------------------------------------------------------------------
5 years 352.77 326.69 336.59 334.59 336.03 336.03 341.28 325.88
Annual average 35.26 33.67 34.28 34.16 34.25 34.25 34.57 33.62
- --------------------------------------------------------------------------------------------
10 years 774.69 723.91 710.92 710.92 710.68 710.68 730.21 701.51
Annual average 24.22 23.48 23.28 23.28 23.28 23.28 23.57 23.14
- --------------------------------------------------------------------------------------------
Annual average
(life of fund) 23.68 23.25 22.61 22.61 22.76 22.76 22.91 22.65
- --------------------------------------------------------------------------------------------
</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 fund's 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 measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values. The index assumes reinvestment of all distributions and interest
payments and does not take in account brokerage fees or taxes. Securities
in the fund do not match those in the index and performance of the fund
will differ. It is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report 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 are determined. All investment and noninvestment 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-end funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
January 31, 2000 (Unaudited)
COMMON STOCKS (97.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Advertising and Marketing Services (5.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,213,964 DoubleClick, Inc. (NON) $ 218,767,316
1,312,192 Engage Technologies, Inc. (NON) 170,584,960
594,900 FreeShop.com, Inc. (NON) 17,921,363
927,860 Lamar Advertising Co. (NON) 54,395,793
756,700 MyPoints.com, Inc. (NON) 32,207,044
1,002,700 Netcentives, Inc. (NON) 68,434,275
--------------
562,310,751
Biotechnology (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
464,200 Myriad Genetics, Inc. (NON) 29,940,900
698,000 QLT PhotoTherapeutics, Inc. (Canada) (NON) 48,205,625
43,567 Sequenom, Inc. (NON) 1,132,742
21,300 Tularik, Inc. (NON) 1,083,638
--------------
80,362,905
Broadcasting (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
931,357 Citadel Communications Corp. (NON) 46,567,850
777,000 Cumulus Media, Inc. Class A (NON) 30,351,563
1,623,209 Entercom Communications Corp. (NON) 86,232,978
500,000 Pegasus Communications Corp. (NON) 55,187,500
671,767 Radio One, Inc. (NON) 51,390,176
--------------
269,730,067
Commercial and Consumer Services (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
826,090 InterVU, Inc. (AFF) (NON) 76,413,325
220,000 Jupiter Communications, Inc. (NON) 5,500,000
923,485 Keynote Systems, Inc. (NON) 74,917,721
528,300 Macrovision Corp. (NON) 49,495,106
--------------
206,326,152
Communications Equipment (4.9%)
- --------------------------------------------------------------------------------------------------------------------------
594,490 Advanced Fibre Communications (NON) 21,884,663
535,540 Brocade Communications Systems (NON) 86,757,480
482,600 Efficient Networks, Inc. (NON) 36,888,738
914,083 Extreme Networks, Inc. (NON) 77,354,274
508,300 Finisar Corp. (NON) 30,783,919
413,700 Packeteer, Inc. (NON) 17,375,400
1,283,280 Redback Networks, Inc. (NON) 238,930,692
32,200 Turnstone Systems, Inc. (NON) 933,800
--------------
510,908,966
Consumer Service (6.9%)
- --------------------------------------------------------------------------------------------------------------------------
519,482 Be Free, Inc. (NON) 51,948,200
446,800 Getty Images, Inc. (Canada) (NON) 17,425,200
4,369,135 Lycos, Inc. (NON) 320,858,352
48,773 MarketWatch.com, Inc. (NON) 1,859,471
510,787 Mediaplex, Inc. (NON) 52,100,274
781,590 RealNetworks, Inc. (NON) 122,856,178
345,060 SportsLine USA, Inc. (NON) 12,184,931
1,098,600 Stamps.com, Inc. (NON) 36,803,100
389,925 StarMedia Network, Inc. (NON) 12,526,341
521,200 TMP Worldwide, Inc. (NON) 73,033,150
929,600 Zi Corp. (Canada) (NON) 23,007,600
--------------
724,602,797
Electronics (12.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,160,600 Alpha Industries, Inc. (AFF) (NON) 97,200,250
816,900 Applied Micro Circuits Corp. (NON) 120,696,975
681,400 Celestica, Inc. (Canada) (NON) 27,426,350
226,400 Cree Research, Inc. (NON) 21,309,900
1,254,100 E-Tek Dynamics, Inc. (NON) 228,246,200
1,457,040 Emulex Corp. (NON) 145,704,000
1,138,000 Flextronics International, Ltd. (NON) 56,544,375
245,260 GlobeSpan, Inc. (NON) 27,223,860
568,200 Jabil Circuit, Inc. (NON) 35,938,650
316,200 Micrel, Inc. (NON) 19,999,650
798,760 Power Integrations, Inc. (NON) 29,204,663
703,290 QLogic Corp. (NON) 107,559,414
49,200 Quantum Effect Devices, Inc. (NON) 787,200
1,389,034 Sawtek, Inc. (NON) 87,856,401
846,949 SDL, Inc. (NON) 219,518,594
444,982 Silicon Image, Inc. (NON) 33,039,914
190,000 TriQuint Semiconductor, Inc. (NON) 29,028,438
668,600 Zoran Corp. (NON) 30,504,875
--------------
1,317,789,709
Health Care Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
460,600 Allscripts, Inc. (NON) 21,936,075
393,595 Invitrogen Corp. (NON) 26,026,469
--------------
47,962,544
Lodging/Tourism (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
857,060 Four Seasons Hotels, Inc. (Canada) 41,995,940
Media (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
176,200 OpenTV Corp. (NON) 17,542,913
315,600 Wink Communications, Inc. (NON) 18,383,700
--------------
35,926,613
Medical Technology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
492,900 ChromaVision Medical Systems, Inc. (NON) 7,239,469
Retail (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,492,733 HomeStore.com, Inc. (NON) 145,634,763
Schools (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,509,730 CBT Group Plc ADR (Ireland) (NON) 51,330,820
Semiconductor (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
671,300 LTX Corp. (NON) 19,929,219
359,300 Photon Dynamics, Inc. (NON) 19,761,500
--------------
39,690,719
Software (21.1%)
- --------------------------------------------------------------------------------------------------------------------------
508,810 Agile Software Corp. (NON) 75,049,475
1,592,634 Ariba, Inc. (NON) 259,002,102
705,575 BackWeb Technologies, Ltd. (Israel) (NON) 24,695,125
1,120,970 Brio Technology, Inc. (NON) 35,871,040
2,823,400 Business Objects S.A. (France) (AFF) (NON) 190,050,113
55,990 Digimarc Corp. (NON) 3,019,961
742,847 E.piphany, Inc. (NON) 117,369,826
1,172,166 Electronic Arts, Inc. (NON) 95,824,571
32,400 Extensity, Inc. (NON) 1,875,150
1,488,167 Informatica Corp. (AFF) (NON) 139,329,635
665,287 Interwoven, Inc. (NON) 83,826,162
360,400 ISS Group, Inc. (NON) 23,853,975
230,592 Kana Communications, Inc. (NON) 57,633,588
1,254,317 Macromedia, Inc. (NON) 85,842,320
336,290 McAfee.com Corp. (NON) 11,349,788
501,190 Metasolv Software, Inc. (NON) 53,502,033
319,591 Micromuse, Inc. (NON) 52,153,256
540,700 Netegrity, Inc. (NON) 37,578,650
47,892 OnDisplay, Inc. (NON) 3,861,293
1,401,640 Phone.com, Inc. (NON) 154,180,400
234,600 Pivotal Corp. (Canada) (NON) 10,381,050
1,858,820 Portal Software, Inc. (NON) 92,243,943
676,280 Quest Software, Inc. (NON) 65,261,020
1,117,835 Silknet Software, Inc. (AFF) (NON) 165,020,392
597,782 SilverStream Software, Inc. (NON) 66,503,248
702,903 Software.com, Inc. (NON) 47,709,541
443,000 TSI International Software, Ltd. (NON) 27,161,438
850,760 Vignette Corp. (NON) 165,898,200
517,400 Vitria Technology, Inc. (NON) 50,705,200
--------------
2,196,752,495
Technology Services (21.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,728,359 About.com, Inc. (AFF) (NON) 120,985,130
784,340 Ask Jeeves, Inc. (NON) 74,904,470
528,590 Breakaway Solutions, Inc. (NON) 45,756,072
969,692 C-Bridge Internet Solutions, Inc. (AFF) (NON) 53,514,878
52,000 Caminus Corp. (NON) 1,157,000
779,965 Chemdex Corp. (NON) 76,046,588
3,487,700 CNET, Inc. (NON) 170,897,300
233,700 Cysive, Inc. (NON) 17,235,375
353,557 Digex, Inc. (NON) 30,008,150
406,600 EarthWeb, Inc. (NON) 13,366,975
357,600 Freemarkets, Inc. (NON) 81,890,400
185,920 GoTo.com, Inc. (NON) 13,920,760
1,795,480 InfoSpace.com, Inc. (NON) 251,591,632
78,012 Intertrust Technologies Corp. (NON) 11,262,983
2,013,771 Multex.com, Inc. (AFF) (NON) 50,595,996
382,300 PFSweb, Inc. (NON) 13,045,988
1,229,087 Predictive Systems, Inc. (AFF) (NON) 57,843,907
844,600 Proxicom, Inc. (NON) 85,304,600
361,100 PsiNet, Inc. (NON) 28,842,863
852,700 Rare Medium Group, Inc. (NON) 30,590,613
805,300 Rare Medium Group, Inc. 144A (NON) 28,890,138
1,915,380 Razorfish, Inc. (NON) 74,220,975
1,164,600 Scient Corp. (NON) 88,072,875
591,000 USWeb Corp. (NON) 16,954,313
2,606,710 Verio, Inc. (NON) 167,806,956
1,171,840 VeriSign, Inc. (NON) 189,105,680
1,162,608 VerticalNet, Inc. (NON) 276,991,356
1,078,767 Viant Corp. (NON) 103,561,632
610,200 Whittman-Hart, Inc. (NON) 21,662,100
--------------
2,196,027,705
Telecommunications (14.8%)
- --------------------------------------------------------------------------------------------------------------------------
683,700 Allegiance Telecom, Inc. (NON) 72,044,888
1,040,500 CoreComm, Ltd. (NON) 58,788,250
1,860,191 Covad Communications Group 144A (NON) 131,608,513
899,252 Focal Communications Corp. (NON) 36,082,487
415,100 iBasis, Inc. (NON) 30,976,838
82,400 interWAVE Communications International, Ltd.
(Bermuda) (NON) 3,007,600
193,700 ITXC Corp. (NON) 20,822,750
3,293,414 McLeod, Inc. Class A (NON) 226,422,213
7,199,400 Metromedia Fiber Network, Inc. Class A (NON) 487,309,383
591,600 Network Plus Corp. (AFF) (NON) 15,603,450
3,919,400 NEXTLINK Communications, Inc. Class A (NON) 330,699,373
1,901,904 Pinnacle Holdings, Inc. (NON) 80,712,051
1,523,400 SBA Communications Corp. (NON) 46,178,063
89,700 Wireless Facilities, Inc. (NON) 4,518,638
---------------
1,544,774,497
Utilities (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
803,600 Calpine Corp. (NON) 58,763,250
3,017,400 Independent Energy Holdings Plc
(United Kingdom) (AFF) (NON) 136,348,763
---------------
195,112,013
---------------
Total Common Stocks (cost $5,243,315,030) $10,174,478,925
CONVERTIBLE PREFERRED STOCKS (--%) (a) (cost $4,000,000)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
200,000 Infonow Corp. Ser. B, $0.00 cv. pfd. $ 4,790,874
SHORT-TERM INVESTMENTS (3.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 50,000,000 General Motors Acceptance Corp. for an effective
yield of 5.87%, February 1, 2000 $ 50,000,000
21,246,000 Park Avenue Receivables for an effective yield of 5.70%,
February 23, 2000 21,171,993
50,000,000 Sheffield Receivables Corp. for an effective yield of 5.72%,
February 22, 2000 49,833,167
46,000,000 Sigma Finance, Inc. for an effective yield of 5.70%,
February 22, 2000 45,847,050
208,118,000 Interest in $565,613,000 joint repurchase agreement
dated January 31, 2000 with Salomon, Smith
Barney Holdings, Inc. due February 1, 2000 with
respect to various U.S. Treasury obligations --
maturity value of $208,150,836 for an effective
yield of 5.68% 208,118,000
---------------
Total Short-Term Investments (cost $374,970,210) $ 374,970,210
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $5,622,285,240) (b) $10,554,240,009
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $10,419,541,417.
(b) The aggregate identified cost on a tax basis is $5,639,498,438, resulting in gross unrealized appreciation and
depreciation of $5,151,638,509. and $236,896,938, respectively, or net unrealized appreciation of $4,914,741,571.
(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
January 31, 2000 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $5,622,285,240) (Note 1) $10,554,240,009
- -----------------------------------------------------------------------------------------------
Cash 7,607,431
- -----------------------------------------------------------------------------------------------
Interest and other receivables 83,153
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 88,465,341
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 2,663,639
- -----------------------------------------------------------------------------------------------
Total assets 10,653,059,573
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 190,806,172
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 32,607,721
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,472,499
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 862,437
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 64,375
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,962
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 4,149,374
- -----------------------------------------------------------------------------------------------
Other accrued expenses 552,616
- -----------------------------------------------------------------------------------------------
Total liabilities 233,518,156
- -----------------------------------------------------------------------------------------------
Net assets $10,419,541,417
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 4,523,371,486
- -----------------------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (36,662,644)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 1,000,877,806
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,931,954,769
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $10,419,541,417
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($6,311,638,420 divided by 167,256,661 shares) $37.74
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $37.74)* $40.04
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($2,852,271,764 divided by 80,259,129 shares)** $35.54
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($34,871,153 divided by 927,737 shares)** $37.59
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($684,592,404 divided by 18,713,934 shares) $36.58
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $36.58)* $37.91
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($536,167,676 divided by 14,049,277 shares) $38.16
- -----------------------------------------------------------------------------------------------
* 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
Six months ended January 31, 2000 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (including dividend income of $-- from
investments in affiliated issuers) (Note 5) $ 45,722
- -----------------------------------------------------------------------------------------------
Interest 3,305,937
- -----------------------------------------------------------------------------------------------
Total investment income 3,351,659
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 17,989,384
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 4,571,767
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 50,185
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 17,679
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 5,226,754
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 9,666,245
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 42,749
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,739,814
- -----------------------------------------------------------------------------------------------
Reports to shareholders 72,992
- -----------------------------------------------------------------------------------------------
Registration fees 394,640
- -----------------------------------------------------------------------------------------------
Auditing 31,074
- -----------------------------------------------------------------------------------------------
Legal 17,457
- -----------------------------------------------------------------------------------------------
Postage 291,055
- -----------------------------------------------------------------------------------------------
Other 404,353
- -----------------------------------------------------------------------------------------------
Total expenses 40,516,148
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (501,845)
- -----------------------------------------------------------------------------------------------
Net expenses 40,014,303
- -----------------------------------------------------------------------------------------------
Net investment loss (36,662,644)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1, 3, and 5) (including realized
gain of $116,108,120 on sales of investments in affiliated issuers) 1,227,153,168
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 3,656,878,870
- -----------------------------------------------------------------------------------------------
Net gain on investments 4,884,032,038
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $4,847,369,394
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
2000* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (36,662,644) $ (43,358,334)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 1,227,153,168 283,382,497
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,656,878,870 478,088,337
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,847,369,394 718,112,500
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (290,170,640) (81,052,973)
- ---------------------------------------------------------------------------------------------------------------
Class B (140,579,648) (41,774,717)
- ---------------------------------------------------------------------------------------------------------------
Class C (677,634) --
- ---------------------------------------------------------------------------------------------------------------
Class M (33,148,979) (8,356,046)
- ---------------------------------------------------------------------------------------------------------------
Class Y (22,958,110) (3,100,412)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) 1,493,011,013 (57,685,018)
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 5,852,845,396 526,143,334
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 4,566,696,021 4,040,552,687
- ---------------------------------------------------------------------------------------------------------------
End of period (including accumulated net investment
loss of $36,662,644 and $--, respectively) $10,419,541,417 $4,566,696,021
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.80 $17.35 $16.02 $14.80 $14.17 $10.15
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.12)(c) (.14)(c) (.12) (.12)(c) (.08)(c) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 19.99 3.15 1.45 2.42 2.42 4.95
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 19.87 3.01 1.33 2.30 2.34 4.88
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (1.93) (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.93) (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $37.74 $19.80 $17.35 $16.02 $14.80 $14.17
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 101.58* 18.31 8.30 16.33 17.12 51.32
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $6,311,638 $2,804,929 $2,478,340 $2,271,206 $1,479,770 $730,188
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .48* .98 1.00 1.16 1.11 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.42)* (.85) (.70) (.79) (.53) (.62)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.58* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.78 $16.61 $15.45 $14.41 $13.92 $10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.21)(c) (.26)(c) (.24) (.22)(c) (.20)(c) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 18.90 2.99 1.40 2.34 2.40 4.82
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 18.69 2.73 1.16 2.12 2.20 4.72
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (1.93) (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.93) (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $35.54 $18.78 $16.61 $15.45 $14.41 $13.92
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 100.81* 17.42 7.51 15.49 16.37 50.13
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,852,272 $1,328,681 $1,231,504 $1,116,849 $641,576 $160,197
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .85* 1.73 1.75 1.91 1.89 1.90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.79)* (1.60) (1.45) (1.55) (1.29) (1.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.58* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 July 26,1999+
operating performance (Unaudited) to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $19.80 $20.65
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.23)(c) --(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 19.95 (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 19.72 (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (1.93) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.93) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $37.59 $19.80
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 100.82* (4.12)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $34,871 $75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .85* .03*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.79)* (.03)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.58* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 Dec. 2, 1994+
operating performance (Unaudited) Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.27 $17.00 $15.78 $14.66 $14.11 $11.10
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.18)(c) (.22)(c) (.20)(c) (.19)(c) (.16)(c) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 19.42 3.05 1.42 2.39 2.42 3.92
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 19.24 2.83 1.22 2.20 2.26 3.87
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (1.93) (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.93) (.56) -- (1.08) (1.71) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $36.58 $19.27 $17.00 $15.78 $14.66 $14.11
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 101.10* 17.61 7.73 15.78 16.58 37.79*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $684,592 $303,677 $231,452 $177,325 $60,432 $3,111
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .73* 1.48 1.50 1.66 1.68 1.10*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.67)* (1.35) (1.20) (1.30) (1.06) (.66)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.58* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 July 12, 1996+
operating performance (Unaudited) Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.98 $17.46 $16.08 $14.81 $15.65
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.09)(c) (.10)(c) (.08) (.09)(c) -- (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 20.20 3.18 1.46 2.44 (.84)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 20.11 3.08 1.38 2.35 (.84)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (1.93) (.56) -- (1.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.93) (.56) -- (1.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $38.16 $19.98 $17.46 $16.08 $14.81
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 101.87* 18.60 8.58 16.67 (5.37)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $536,168 $129,334 $99,256 $102,862 $150
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .35* .73 .75 .91 .07*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.29)* (.60) (.46) (.53) (.02)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.58* 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
January 31, 2000 (Unaudited)
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.
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 are 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 and class C 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 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 that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of the 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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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 sales price on its principal exchange, 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. Other investments, including restricted
securities, 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). Gains or losses on securities sold are determined on
the identified cost basis.
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 maintains an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended January 31, 2000, 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. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of
the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion, and
0.43% 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 six months ended January 31, 2000, fund expenses were reduced by
$501,845 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 $3,878
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. 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
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 a 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 six months ended January 31, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $918,394 and $28,733
from the sale of class A and class M shares, respectively and received
$1,123,395 and $882 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 six
months ended January 31, 2000, Putnam Mutual Funds Corp., acting as
underwriter received $19,024 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended January 31, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $4,538,348,249 and $3,805,431,923, respectively.
There were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At January 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 74,843,379 $ 2,148,998,152
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,307,526 278,218,698
- -----------------------------------------------------------------------------
83,150,905 2,427,216,850
Shares
repurchased (57,566,948) (1,570,417,511)
- -----------------------------------------------------------------------------
Net increase 25,583,957 $ 856,799,339
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 18,216,960 $ 508,838,391
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,042,773 127,589,794
- -----------------------------------------------------------------------------
22,259,733 636,428,185
Shares
repurchased (12,757,535) (330,932,266)
- -----------------------------------------------------------------------------
Net increase 9,502,198 $ 305,495,919
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,128,418 $37,383,632
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,203 607,622
- -----------------------------------------------------------------------------
1,146,621 37,991,254
Shares
repurchased (222,648) (7,330,235)
- -----------------------------------------------------------------------------
Net increase 923,973 $30,661,019
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 11,681,999 $ 308,620,732
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,007,119 32,711,198
- -----------------------------------------------------------------------------
12,689,118 341,331,930
Shares
repurchased (9,732,115) (254,582,194)
- -----------------------------------------------------------------------------
Net increase 2,957,003 $ 86,749,736
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 10,753,402 $307,466,665
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 678,232 22,958,110
- -----------------------------------------------------------------------------
11,431,634 330,424,775
Shares
repurchased (3,856,008) (117,119,775)
- -----------------------------------------------------------------------------
Net increase 7,575,626 $213,305,000
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note 5
Transactions with Affiliated Issuers
Transactions during the period with companies in which the fund owned at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates cost cost Income Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name of affiliate
- -------------------------------------------------------------------------------------------------------------------
Abacus Direct Corp. $ 4,214,828 $ -- $ -- $ --
About.com, Inc. 91,643,503 -- -- 120,985,130
Alpha Industries, Inc. 76,449,710 -- -- 97,200,250
Beyond.com Corp. -- 52,841,431 -- --
Brio Technology, Inc. 6,580,793 -- -- --
Business Objects S.A. 60,147,529 -- -- 190,050,113
C-Bridge Internet
Solutions, Inc. 43,250,518 -- -- 53,514,878
Concord
Communications, Inc. -- 65,756,570 -- --
Concur Technologies, Inc. -- 34,356,160 -- --
Coulter
Pharmaceuticals, Inc. -- 20,161,033 -- --
Harmonic, Inc. -- 25,634,796 -- --
Independent Energy
Holdings Plc 18,539,763 -- -- 136,348,763
Informatica Corp. 111,201,917 -- -- 139,329,635
InterVU, Inc. 9,624,862 -- -- 76,413,325
ISS Group, Inc. 19,380,960 29,218,978 -- --
Marketwatch.com, Inc. 22,789,899 31,425,760 -- --
Multex.com, Inc. 40,517,753 7,238,239 -- 50,595,996
Network Plus Corp. 16,348,321 6,275,436 -- 15,603,450
Optical Coating Lab, Inc. 23,223,958 52,266,607 -- --
Pediatrix Medical Group, Inc. -- 27,642,755 -- --
Power Integrations, Inc. -- 10,278,433 -- --
Predictive Systems, Inc. 57,920,612 -- -- 57,843,907
Silknet Software, Inc. 55,546,104 -- -- 165,020,392
TSI International Software 26,205,374 16,290,579 -- --
Verity, Inc. 32,416,054 63,386,188 -- --
- -------------------------------------------------------------------------------------------------------------------
Totals $716,002,458 $442,772,965 $ -- $1,102,905,839
</TABLE>
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
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
SA014-58985 024/227/673 3/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- -----------------------------------------------------------------------------
Putnam OTC & Emerging Growth Fund
Supplement to Semiannual Report dated 1/31/00
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 M shares, which are discussed more extensively in the semiannual report.
SEMIANNUAL RESULTS AT A GLANCE
- -----------------------------------------------------------------------------
Total return
for periods ended 1/31/00 NAV
6 months 101.87%
1 year 116.97
5 years 372.05
Annual average 36.39
10 years 913.11
Annual average 26.06
Life of fund (since class A inception, 11/1/82) 3850.17
Annual average 23.75
Share value: NAV
7/31/99 $19.98
1/31/00 $38.16
- -----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 -- 1.929 $1.929
Past performance is no guarantee of future results. Returns shown for class Y
shares for periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect the initial sales charge
currently applicable to class A shares. These returns have not been adjusted
to reflect differences in operating expenses which, for class Y shares, are
lower than the operating expenses applicable to class A shares. All returns
assume reinvestment of distributions at net asset value. Investment return
and principal value will fluctuate so your shares, when redeemed, may be
worth more or less than their original cost. See full report for information
on comparative benchmarks. If you have questions, please consult your fund
prospectus or call Putnam toll free at 1-800-752-9894.
