Putnam
OTC & Emerging
Growth Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
September 20, 2000
REPORT FROM FUND MANAGEMENT
Michael J. Mufson
Steven L. Kirson
Putnam OTC & Emerging Growth Fund produced strong returns for its fiscal
year that ended on July 31, 2000. Against a backdrop of rising interest
rates, increased market volatility, and shifting investor sentiment,
portfolio performance benefited from positive sector and stock
selection. Your fund seeks stocks of promising emerging growth companies
among all sectors. Once again, the technology sector proved the most
fertile soil for growth investors, as demand for Internet and related
technologies accelerated the pace of innovation across the technology
front. Despite a severe market correction in March that caused
valuations for many technology stocks to fall, your fund ended the
period with respectable, positive performance.
Total return for 12 months ended 7/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------
60.03% 50.81% 58.77% 53.77% 58.94% 57.94% 59.32% 53.74%
----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* VOLATILITY AND STRONG FUNDAMENTALS CHARACTERIZE HOLDINGS
The stocks in which your fund invests have higher valuations, on
average, than the overall market. As a result, they are susceptible to
wide swings in perceived value and experience greater-than- average
volatility. We expect this to be a consistent pattern for your fund.
Because we recognize that small and midsize growing companies are likely
to come in and out of favor, our research is focused on identifying the
highest-quality companies with the best long-term fundamentals for
inclusion in the portfolio.
Using Putnam's proprietary research and analysis, we calculate earnings
forecasts that, in our opinion, enable us to identify the long-term
winners earlier than other investors. Although the market may punish
some of these holdings in the intermediate term, we are confident that
their market-leading positions and strong fundamentals will confirm our
investment thesis over the long term.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Software 29.6%
Electronics 23.2%
Telecommunications 11.9%
Communications
equipment 8.6%
Technology services 8.2%
Footnote reads:
*Based on net assets as of 7/31/00. Holdings will vary over time.
* INTERNET PROVIDES WEALTH OF INVESTMENT OPPORTUNITIES
For most individuals, Internet usage involves sending and receiving
e-mail, viewing a handful of favorite Web sites, and perhaps ordering
items from online retailers. The ranks of individual Internet
subscribers swell by millions each year, spurring the development of
countless new sites. Despite impressive numbers of individual users, by
far the greater growth in Internet-related innovation is found in the
online business-to-business (B2B) market. To foster greater ties with
customers, bolster productivity, and increase profit margins, companies
are beginning to use the Internet in new ways. The burgeoning B2B
market, though still in its infancy, is many times larger than the
business-to-consumer market. It has created unprecedented demand for new
products and services and has increased Internet traffic exponentially.
Unrelenting demand from businesses has necessitated a re-engineering of
our nation's information technology (IT) infrastructure, and we are
witnessing a vast race to develop and upgrade the software, hardware,
networking equipment, and services that support online transactions. It
is not surprising, then, that a great deal of emerging-growth investment
opportunities are found in the industries deeply involved in this
re-engineering process. In pursuit of those opportunities, your fund's
portfolio currently emphasizes software and telecommunications
equipment.
* SOFTWARE, SEMICONDUCTORS, AND BANDWIDTH ARE KEYS TO GROWTH
Software development is a critical component of the re-engineering
process mentioned above. Among your fund's software holdings is Business
Objects S.A. Located in France, and one of your fund's few foreign
holdings, this company develops software that helps businesses analyze
complex variables and then arrive at important decisions. Its products
enable employees to access and sort database information easily, perform
searches, and produce reports over the Internet. Business Objects was
one of your portfolio's top performers during the annual reporting
period. Although this holding, along with others mentioned in this
report, was viewed favorably at the end of the fiscal period, all are
subject to review and adjustment in accordance with your fund's
investment strategy and may vary in the future.
"B2B e-commerce is already more than ten times larger than the
more-established consumer e-commerce market and is expected to grow much
faster..."
-- Kiplinger's Personal Finance September, 2000
Responding to a different need, VeriSign, Inc., offers software that
provides security for corporate networks and the Internet. VeriSign's
products protect electronic data transmissions such as e-mail, credit
card transactions, and online banking activity. Several of the largest
companies in the United States have entrusted their sensitive
information to VeriSign's network security products. The company is
expanding its presence in the United States and internationally, and its
success has contributed to your fund's returns during the period.
High-speed Internet access will change the way computing is done from
homes, small businesses, and large corporations. Higher speed allows
increasingly more complex information to be shared across networks.
Where once text and pictures were the norm, now streaming video and
interactivity are becoming the new standards. Therefore, finding a way
to increase bandwidth (a measure of how much data can be transmitted
over a network) has become a common goal among companies from many
industries. SDL, Inc., of San Jose, California, is undertaking one of
the most exciting approaches to the bandwidth problem. The company makes
laser equipment and optical components that allow multiple light signals
to be sent over a single fiber-optic thread, vastly increasing the
capacity of fiber-optic networks. SDL supplies laser and opto-electronic
products to companies that operate fiber-optic, cable television, and
satellite communications networks. The company posted accelerating
returns throughout the past year, is the fund's largest holding, and was
one of the better performers in the portfolio.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
SDL, Inc.
Electronics
Metromedia Fiber Network, Inc.
Telecommunications
GlobeSpan, Inc.
Electronics
Business Objects S.A.
Software
Redback Networks, Inc.
Communications equipment
Interwoven, Inc.
Software
Informatica, Corp.
Software
Lycos, Inc.
Media
Applied Micro Circuits Corp.
Electronics
Vitria Technology, Inc.
Software
Footnote reads:
These holdings represent 27.0% of the fund's net assets as of 7/31/00.
Portfolio holdings will vary over time.
Fiber-optic cables provide high-speed Internet access to large
corporations. In contrast, most small businesses and consumers rely on
less expensive (and already existing) copper-wire telephone networks for
their Internet access. Demand for speed and capacity is equally strong
among smaller users, and GlobeSpan, Inc. helps satisfy that demand.
GlobeSpan manufactures semiconductor chips that help speed data
transmissions over copper wire. The company's integrated circuits are
incorporated into equipment used in the increasingly popular DSL, or
digital subscriber lines. GlobeSpan also was one of your portfolio's
better performers during the period.
* INFORMATION TECHNOLOGY AND TELECOM SERVICES HAVE LONG-TERM POTENTIAL
While software, hardware, and telecommunications are key to the
reengineering of corporate America, information technology and telecom
services should also benefit. We believe that the major effort underway
to transform the IT infrastructure will require more qualified personnel
than are currently available in corporate America and that hiring
outside service providers will be necessary to satisfy demand. IT
companies should benefit, and we expect stocks of these companies to
trade higher.
Stocks of the telecom services sector have not fared well lately, in
part because of investors' fears that such companies will have
difficulty raising capital in a volatile market with rising interest
rates. In our opinion, increasing demand for telecom equipment will
provide more revenue sources and better opportunities for these
companies to raise capital. We are encouraged by the healthy balance
sheets and strongly positive fundamentals of telecommunications service
providers. We expect the companies that own fiber-optic networks, and
thus control the mode of transport for the vast and constantly expanding
volume of Internet traffic, will prove to be profitable investments. We
will watch developments in these areas closely while scouring the market
for promising ideas from all sectors.
In keeping with your fund's investment strategy, we remain focused on
small and midsize companies with above-average growth potential and
healthy fundamentals. Although these stocks tend to be more volatile
than those of larger companies, they provide the potential for higher
returns over the long term, and thus can play an important role in a
diversified portfolio. We continue to seek opportunities that lie on the
cutting edge of innovation, wherever that may be.
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 7/31/00, there is no guarantee the fund will
continue to hold these securities in the future. This fund invests all
or a portion of its assets in small to midsize companies. Such
investments increase the risk of greater price fluctuations.
PERFORMANCE SUMMARY
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.
TOTAL RETURN FOR PERIODS ENDED 7/31/00
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
------------------------------------------------------------------------------
1 year 60.03% 50.81% 58.77% 53.77% 58.94% 57.94% 59.32% 53.74%
------------------------------------------------------------------------------
5 years 179.35 163.36 169.35 167.35 169.13 169.13 172.48 162.97
Annual average 22.81 21.37 21.92 21.74 21.90 21.90 22.20 21.33
------------------------------------------------------------------------------
10 years 586.48 547.03 536.53 536.53 537.36 537.36 551.70 529.07
Annual average 21.24 20.53 20.33 20.33 20.35 20.35 20.62 20.19
------------------------------------------------------------------------------
Life of fund 3004.44 2825.95 2563.12 2563.12 2622.33 2622.33 2682.04 2584.67
Annual average 21.35 20.95 20.31 20.31 20.46 20.46 20.61 20.37
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/00
Russell 2000 Consumer
Growth Index price index
------------------------------------------------------------
1 year 21.13% 3.60%
------------------------------------------------------------
5 years 76.63 13.10
Annual average 12.05 2.49
------------------------------------------------------------
10 years 232.67 32.44
Annual average 12.77 2.85
------------------------------------------------------------
Life of fund 556.56 75.87
Annual average 11.18 3.23
------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Recent returns were achieved under
favorable market conditions that may not be sustainable. 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 (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.
[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 7/31/90
Fund's class A Russell 2000 Consumer price
Date shares at POP Growth Index index
7/31/90 9,425 10,000 10,000
7/31/91 10,029 11,014 10,445
7/31/92 10,984 11,785 10,775
7/31/93 14,601 13,901 11,074
7/31/94 15,306 14,079 11,380
7/31/95 23,162 18,834 11,710
7/31/96 27,126 19,403 12,055
7/31/97 31,556 24,303 12,316
7/31/98 34,176 23,983 12,523
7/31/99 40,432 27,463 12,784
7/31/00 $64,703 $33,267 $13,244
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 and class C
shares would have been valued at $63,653 and $63,736, 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 $65,170 ($62,907
at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/00
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
------------------------------------------------------------------------------
7/31/00 29.96 31.79 28.10 29.75 28.98 30.03
------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/00 (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
------------------------------------------------------------------------------
1 year 70.79% 60.97% 69.40% 64.40% 69.63% 68.63% 69.89% 63.96%
------------------------------------------------------------------------------
5 years 240.67 221.08 228.63 226.63 228.30 228.30 231.98 220.27
Annual average 27.78 26.28 26.86 26.71 26.84 26.84 27.12 26.21
------------------------------------------------------------------------------
10 years 612.57 571.87 560.21 560.21 560.68 560.68 576.52 552.65
Annual average 21.70 20.98 20.77 20.77 20.78 20.78 21.07 20.63
------------------------------------------------------------------------------
Life of fund 3271.78 3077.91 2794.37 2794.37 2858.42 2858.42 2922.04 2816.26
Annual average 22.04 21.64 20.99 20.99 21.14 21.14 21.29 21.04
------------------------------------------------------------------------------
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 [REGISTRATION MARK] Growth Index measures the performance of
those Russell 2000 companies with higher price-to-book ratios and higher
forecasted growth values. 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.
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, 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 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.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended July 31, 2000
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, 2000, and the results of
its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards generally accepted in
the United States, 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, 2000, by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 11, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
July 31, 2000
COMMON STOCKS (97.0%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Commercial Services (3.0%)
-------------------------------------------------------------------------------------------------------------------
2,383,500 Be Free, Inc. (NON) $ 12,215,438
1,103,200 Freemarkets, Inc. (NON) 53,022,550
308,900 Keynote Systems, Inc. (NON) 11,718,894
1,315,200 Macrovision Corp. (NON) 99,297,600
1,695,600 Multex.com, Inc. (AFF) (NON) 40,906,350
1,711,500 VerticalNet, Inc. (NON) 81,724,125
----------------
298,884,957
Communications Equipment (8.5%)
-------------------------------------------------------------------------------------------------------------------
2,004,900 Advanced Fibre Communications (NON) 85,960,088
901,300 Brocade Communications Systems (NON) 160,994,713
28,000 Crossroads Systems, Inc. (NON) 127,750
2,543,700 Efficient Networks, Inc. (NON) 159,776,156
3,196,100 Finisar Corp. (NON) 84,896,406
1,780,200 Netro Corp. (NON) 96,242,063
1,783,900 Redback Networks, Inc. (NON) 231,907,000
73,200 Sonus Networks, Inc. (NON) 13,647,225
47,900 Turnstone Systems, Inc. (NON) 6,122,219
----------------
839,673,620
Computers (3.3%)
-------------------------------------------------------------------------------------------------------------------
1,551,200 Ariba, Inc. (NON) 179,842,250
67,300 Avici Systems, Inc. (NON) 6,620,638
46,300 Critical Path, Inc. 144A (NON) 2,578,331
3,011,900 RealNetworks, Inc. (NON) 127,817,506
821,100 Zi Corp. (Canada) (NON) 6,055,613
----------------
322,914,338
Consumer Services (0.6%)
-------------------------------------------------------------------------------------------------------------------
877,700 TMP Worldwide, Inc. (NON) 63,194,400
Electric Utilities (1.0%)
-------------------------------------------------------------------------------------------------------------------
1,357,600 Calpine Corp. (NON) 96,729,000
Electronics (23.1%)
-------------------------------------------------------------------------------------------------------------------
2,179,100 Alpha Industries, Inc. (AFF) (NON) 74,225,594
1,258,000 Ananex Corp. (NON) 159,687,375
1,375,800 Applied Micro Circuits Corp. (NON) 205,338,150
1,194,200 AudioCodes, Ltd. (Israel) (AFF) (NON) 118,225,800
923,500 Bookham Technology PLC ADR (United Kingdom) (NON) 57,949,625
569,100 Centillium Communications, Inc. (NON) 46,159,345
395,300 Cree Research, Inc. (NON) 44,446,544
706,700 Ditech Communications Corp. (NON) 33,833,263
282,900 Exar Corp. (NON) 26,256,656
2,316,100 GlobeSpan, Inc. (NON) 261,574,544
959,900 Jabil Circuit, Inc. (NON) 48,054,994
885,880 JDS Uniphase Corp. (NON) 104,644,575
85,000 Marvell Technology Group Ltd. (NON) 3,883,438
808,200 Micrel, Inc. (NON) 40,460,513
871,600 New Focus, Inc. (NON) 87,486,850
1,465,049 QLogic Corp. (NON) 109,146,151
1,691,100 Quantum Effect Devices, Inc. (AFF) (NON) 125,881,256
620,850 RF Micro Devices, Inc. (NON) 46,796,569
876,800 Sawtek, Inc. (NON) 46,689,600
1,311,800 SDL, Inc. (NON) 455,276,588
350,800 Silicon Laboratories, Inc. (NON) 20,192,925
1,048,400 TriQuint Semiconductor, Inc. (NON) 40,166,825
1,623,600 Virata Corp. (NON) 103,910,400
563,000 Zoran Corp. (NON) 24,842,375
----------------
2,285,129,955
Health Care Services (0.1%)
-------------------------------------------------------------------------------------------------------------------
362,200 Allscripts, Inc. (NON) 7,742,025
Media (5.1%)
-------------------------------------------------------------------------------------------------------------------
1,341,800 About.com, Inc. (AFF) (NON) 41,428,075
4,082,100 CNET Networks, Inc. (NON) 122,207,869
2,495,360 InfoSpace.com, Inc. (NON) 84,218,400
652,200 LookSmart, Ltd. (NON) 11,902,650
3,678,100 Lycos, Inc. (NON) 222,984,813
677,800 Mediaplex, Inc. (NON) 6,142,563
1,551,100 Netcentives, Inc. (NON) 19,485,694
----------------
508,370,064
Medical Technology (0.1%)
-------------------------------------------------------------------------------------------------------------------
416,300 ChromaVision Medical Systems, Inc. (NON) 5,776,163
Power Supply Equipment (0.1%)
-------------------------------------------------------------------------------------------------------------------
106,100 Capstone Turbine Corp. (NON) 5,835,500
Production Equipment (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,408,900 LTX Corp. (NON) 30,995,800
65,497 Photon Dynamics, Inc. (NON) 3,536,838
----------------
34,532,638
Retail (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,256,800 HomeStore.com, Inc. (NON) 43,988,000
Schools (0.8%)
-------------------------------------------------------------------------------------------------------------------
1,852,200 SmartForce Public Limited Co. ADR (Ireland) (NON) 81,959,850
Semiconductor (0.3%)
-------------------------------------------------------------------------------------------------------------------
371,000 Veeco Instruments, Inc. (NON) 29,216,250
Software (30.5%)
-------------------------------------------------------------------------------------------------------------------
2,163,000 Agile Software Corp. (NON) 119,640,938
495,000 Art Technology Group, Inc. (NON) 43,065,000
947,300 BackWeb Technologies, Ltd. (Israel) (NON) 18,235,525
773,400 Blue Martini Software, Inc. (NON) 45,968,963
2,529,000 Business Objects S.A. ADR (France) (AFF) (NON) 238,990,500
197,400 Documentum, Inc. (NON) 9,253,125
1,891,100 E.piphany, Inc. (AFF) (NON) 175,990,494
366,800 Electronic Arts, Inc. (NON) 32,438,875
2,797,800 Informatica Corp. (AFF) (NON) 223,824,000
458,600 Internet Security Systems, Inc. (NON) 33,879,075
3,575,000 Interwoven, Inc. (AFF) (NON) 230,810,938
696,000 Kana Communications, Inc. (aquired 6/07/00, cost
$34,800,000) (RES) (NON) 23,020,200
2,969,358 Kana Communications, Inc. (NON) 109,123,907
1,252,300 Macromedia, Inc. (NON) 95,800,950
1,957,400 Manugistics Group, Inc. (AFF) (NON) 108,635,700
2,262,200 Metasolv Software, Inc. (AFF) (NON) 106,606,175
942,500 Micromuse, Inc. (NON) 122,274,648
863,700 Netegrity, Inc. (NON) 68,232,300
3,793,500 Peregrine Systems, Inc. (NON) 94,600,406
1,628,400 Phone.com, Inc. (NON) 130,068,450
2,895,200 Portal Software, Inc. (NON) 145,800,463
1,702,300 Quest Software, Inc. (NON) 80,433,675
670,883 SilverStream Software, Inc. (NON) 25,577,414
1,503,500 Software.com, Inc. (NON) 151,665,563
591,800 VeriSign, Inc. (NON) 93,911,263
3,695,100 Vignette Corp. (NON) 125,171,513
4,222,300 Vitria Technology, Inc. (NON) 199,503,675
1,466,400 WebMethods, Inc. (NON) 169,369,200
----------------
3,021,892,935
Technology Services (8.1%)
-------------------------------------------------------------------------------------------------------------------
1,129,500 Breakaway Solutions, Inc. (aquired 5/24/00,
cost $29,367,000) (NON) (RES) 28,336,331
2,192,380 Breakaway Solutions, Inc. (AFF) (NON) 61,112,593
1,094,500 C-Bridge Internet Solutions, Inc. (AFF) (NON) 21,000,719
1,088,800 Cysive, Inc. (NON) 26,131,200
566,900 Digex, Inc. (NON) 35,750,131
1,555,000 Predictive Systems, Inc. (AFF) (NON) 34,210,000
4,816,800 Proxicom, Inc. (AFF) (NON) 198,994,050
2,443,100 Rare Medium Group, Inc. (NON) 30,691,444
2,739,300 Razorfish, Inc. (NON) 49,649,813
3,261,700 Scient Corp. (NON) 152,076,763
26,600 StorageNetworks, Inc. (NON) 2,902,725
3,722,400 Viant Corp. (AFF) (NON) 122,839,200
683,400 Wireless Facilities, Inc. (NON) 43,481,325
----------------
807,176,294
Telecommunications (11.7%)
-------------------------------------------------------------------------------------------------------------------
863,400 Allegiance Telecom, Inc. (NON) 47,972,663
1,049,800 Carrier 1 International S.A. ADR (Switzerland) (NON) 10,432,388
1,314,100 CoreComm, Ltd. (NON) 20,040,025
2,348,500 Covad Communications Group, Inc. 144A (NON) 38,750,250
1,169,000 Focal Communications Corp. (NON) 43,399,125
15,200 GT Group Telecom, Inc. (Canada) (NON) 247,950
1,446,000 ICG Communications, Inc. (NON) 22,051,500
724,000 Internap Network Services Corp. (NON) 24,695,188
6,606,300 McLeodUSA, Inc. Class A (NON) 111,894,206
11,438,600 Metromedia Fiber Network, Inc. Class A (NON) 401,780,825
1,670,100 MGC Communications, Inc. (NON) 75,154,500
2,104,000 Network Plus Corp. (NON) 25,774,000
650,800 Next Level Communications, Inc. (NON) 58,399,131
3,723,400 Nextlink Communications, Inc. Class A (NON) 123,104,913
1,680,300 Pinnacle Holdings, Inc. (NON) 94,411,856
1,282,700 SBA Communications Corp. (NON) 57,881,838
----------------
1,155,990,358
----------------
Total Common Stocks (cost $7,825,912,451) $ 9,609,006,347
CONVERTIBLE PREFERRED STOCKS (0.7%) (a) (RES) (NON)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
991,736 All Advantage, Inc. 10.00%, cv. pfd. (acquired 2/02/00,
cost $6,000,003) $ 1,725,621
212,128 Astral Point Communications, Inc. $3.583, cv. pfd.
(acquired 6/21/00, cost $9,499,092) 9,499,092
105,556 Cidra Corp. $7.70, cv. pfd. (acquired 6/15/00, cost $9,500,040) 9,500,040
329,404 Coppercom Corp. $1.154, cv. pfd. (acquired 7/07/00,
cost $4,750,006) 4,750,006
306,122 Epicentric Corp. $0.588, cv. pfd. (acquired 3/27/00,
cost $2,249,997) 2,249,997
629,974 Equinix, Inc. $1.21, cv. pfd. (acquired 6/08/00, cost $9,500,008) 9,500,008
573,810 Estudio, Inc. zero %, cv. pfd. (acquired 2/23/00, cost $3,299,408) 3,299,408
200,000 Info-Now Corp., zero %, cv. pfd. (acquired 12/31/99,
cost $4,000,000) 1,882,130
804,712 Into Networks, Inc. $0.472, cv. pfd. (acquired 7/03/00,
cost $4,749,998) 4,749,982
878,186 MimEcom, Inc. $0.346 cum. cv. pfd. (acquired 6/26/00,
cost $3,799,999) 3,799,999
394,910 Optical Switch Corp. zero %, cv. pfd. (acquired 3/16/00,
cost $17,999,998) 15,302,763
395,834 Plumtree Corp. $0.768, cv. pfd. (acquired 4/10/00,
cost $3,800,006) 3,800,006
45,000 Streamsearch.com, Inc. 8.00% cum. cv. pfd. (acquired 2/15/00,
cost $4,500,000) 2,925,000
----------------
Total Convertible Preferred Stocks (cost $83,648,555) $ 72,984,052
UNITS (0.1%) (cost $10,000,000) (a) (RES) (NON)
NUMBER OF UNITS VALUE
-------------------------------------------------------------------------------------------------------------------
125 Unext.com LLC units zero % (acquired 4/14/00,
cost $10,000,000) (FWC/WIS) $ 10,000,000
SHORT-TERM INVESTMENTS (1.9%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 39,488,000 Interest in $625,000,000 joint repurchase agreement
dated July 31, 2000 with Morgan (J.P.) & Co., Inc.
due August 1, 2000 with respect to various U.S.
Treasury obligations -- maturity value of $39,495,218
for an effective yield of 6.58% $ 39,488,000
50,000,000 Delaware Funding Corp. effective yield of 6.53%,
August 7, 2000 49,945,584
50,000,000 Federal Home Loan Mortgage effective yield of 6.41%,
August 25, 2000 49,786,333
50,000,000 Federal National Mortgage effective yield of 6.43%,
August 10, 2000 49,919,625
----------------
Total Short-Term Investments (cost $189,139,542) $ 189,139,542
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $8,108,700,548) (b) $ 9,881,129,941
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $9,906,996,802.
(b) The aggregate identified cost on a tax basis is $8,213,580,082,
resulting in gross unrealized appreciation and depreciation of
$3,478,977,601 and $1,811,427,742, respectively, or net unrealized
appreciation of $1,667,549,859.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at July 31, 2000 was
$134,340,583 or 1.4% of net assets.
(AFF) Affilated Companies (Note 5).
(FWC/WIS) When-issued securities (Note 1).
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, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $8,108,700,548) (Note 1) $9,881,129,941
-------------------------------------------------------------------------------------------
Cash 36,864,470
-------------------------------------------------------------------------------------------
Interest and other receivables 63,756
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 44,933,609
-------------------------------------------------------------------------------------------
Receivable for securities sold 95,829,339
-------------------------------------------------------------------------------------------
Total assets 10,058,821,115
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 113,777,256
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 26,150,099
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,813,590
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,272,295
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 71,396
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,968
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 4,375,782
-------------------------------------------------------------------------------------------
Other accrued expenses 1,360,927
-------------------------------------------------------------------------------------------
Total liabilities 151,824,313
-------------------------------------------------------------------------------------------
Net assets $9,906,996,802
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $6,646,195,561
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 1,488,371,848
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,772,429,393
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $9,906,996,802
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($5,739,644,888 divided by 191,567,976 shares) $29.96
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $29.96)* $31.79
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($2,619,508,895 divided by 93,215,384 shares)** $28.10
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($110,915,511 divided by 3,728,383 shares)** $29.75
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($632,154,038 divided by 21,816,271 shares) $28.98
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $28.98)* $30.03
-------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($804,773,470 divided by 26,514,995 shares) $30.35
-------------------------------------------------------------------------------------------
* 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, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends $ 41,439
-------------------------------------------------------------------------------------------
Interest 14,362,397
-------------------------------------------------------------------------------------------
Total investment income 14,403,836
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 45,391,163
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 11,348,586
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 92,711
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 35,866
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 13,159,821
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 24,268,249
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 472,267
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 4,376,647
-------------------------------------------------------------------------------------------
Other 3,643,360
-------------------------------------------------------------------------------------------
Total expenses 102,788,670
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,085,736)
-------------------------------------------------------------------------------------------
Net expenses 100,702,934
-------------------------------------------------------------------------------------------
Net investment loss (86,299,098)
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1, 3, and 5) (including realized
gain of $199,814,491 on sales of investments in affiliated issuers) 1,800,971,719
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 497,353,494
-------------------------------------------------------------------------------------------
Net gain on investments 2,298,325,213
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,212,026,115
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended July 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss $ (86,299,098) $ (43,358,334)
--------------------------------------------------------------------------------------------------
Net realized gain on investments 1,800,971,719 283,382,497
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 497,353,494 478,088,337
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,212,026,115 718,112,500
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (290,182,822) (81,052,973)
--------------------------------------------------------------------------------------------------
Class B (140,591,902) (41,774,717)
--------------------------------------------------------------------------------------------------
Class C (677,194) --
--------------------------------------------------------------------------------------------------
Class M (33,150,395) (8,356,046)
--------------------------------------------------------------------------------------------------
Class Y (22,958,109) (3,100,412)
--------------------------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) 3,615,835,088 (57,685,018)
--------------------------------------------------------------------------------------------------
Total increase in net assets 5,340,300,781 526,143,334
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 4,566,696,021 4,040,552,687
--------------------------------------------------------------------------------------------------
End of year (including accumulated net investment
loss of $-- and $--, respectively) $9,906,996,802 $4,566,696,021
--------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.80 $17.35 $16.02 $14.80 $14.17
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment loss (.24)(c) (.14)(c) (.12) (.12)(c) (.08)(c)
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 12.33 3.15 1.45 2.42 2.42
-----------------------------------------------------------------------------------------------------
Total from
investment operations 12.09 3.01 1.33 2.30 2.34
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net realized
gain on investments (1.93) (.56) -- (1.08) (1.71)
-----------------------------------------------------------------------------------------------------
Total distributions (1.93) (.56) -- (1.08) (1.71)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $29.96 $19.80 $17.35 $16.02 $14.80
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 60.03 18.31 8.30 16.33 17.12
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,739,645 $2,804,929 $2,478,340 $2,271,206 $1,479,770
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .93 .98 1.00 1.16 1.11
-----------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.75) (.85) (.70) (.79) (.53)
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 104.11 139.84 106.29 112.84 199.52
-----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through brokerage service and expense offset
arrangements (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
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.78 $16.61 $15.45 $14.41 $13.92
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment loss (.45)(c) (.26)(c) (.24) (.22)(c) (.20)(c)
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 11.70 2.99 1.40 2.34 2.40
-----------------------------------------------------------------------------------------------------
Total from
investment operations 11.25 2.73 1.16 2.12 2.20
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net realized
gain on investments (1.93) (.56) -- (1.08) (1.71)
-----------------------------------------------------------------------------------------------------
Total distributions (1.93) (.56) -- (1.08) (1.71)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $28.10 $18.78 $16.61 $15.45 $14.41
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 58.77 17.42 7.51 15.49 16.37
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,619,509 $1,328,681 $1,231,504 $1,116,849 $641,576
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.68 1.73 1.75 1.91 1.89
-----------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.50) (1.60) (1.45) (1.55) (1.29)
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 104.11 139.84 106.29 112.84 199.52
-----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through brokerage service and expense offset
arrangements (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 Year ended July 26,1999+
operating performance July 31 to July 31
-----------------------------------------------------------------
2000 1999
-----------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $19.80 $20.65
-----------------------------------------------------------------
Investment operations
-----------------------------------------------------------------
Net investment loss (c) (.47) --
-----------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 12.35 (.85)
-----------------------------------------------------------------
Total from
investment operations 11.88 (.85)
-----------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------
From net realized
gain on investments (1.93) --
-----------------------------------------------------------------
Total distributions (1.93) --
-----------------------------------------------------------------
Net asset value,
end of period $29.75 $19.80
-----------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------
Total return at
net asset value (%)(a) 58.94 (4.12)*
-----------------------------------------------------------------
Net assets, end of period
(in thousands) $110,916 $75
-----------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.68 .03*
-----------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.46) (.03)*
-----------------------------------------------------------------
Portfolio turnover (%) 104.11 139.84
-----------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through brokerage service and expense offset
arrangements (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
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.27 $17.00 $15.78 $14.66 $14.11
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment loss (c) (.39) (.22) (.20) (.19) (.16)
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 12.03 3.05 1.42 2.39 2.42
------------------------------------------------------------------------------------------------
Total from
investment operations 11.64 2.83 1.22 2.20 2.26
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net realized
gain on investments (1.93) (.56) -- (1.08) (1.71)
------------------------------------------------------------------------------------------------
Total distributions (1.93) (.56) -- (1.08) (1.71)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $28.98 $19.27 $17.00 $15.78 $14.66
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 59.32 17.61 7.73 15.78 16.58
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $632,154 $303,677 $231,452 $177,325 $60,432
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.43 1.48 1.50 1.66 1.68
------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.25) (1.35) (1.20) (1.30) (1.06)
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 104.11 139.84 106.29 112.84 199.52
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through brokerage service and expense offset
arrangements (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
-----------------------------------------------------------------------------------------------------
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 (.16)(c) (.10)(c) (.08) (.09)(c) --(c)
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 12.46 3.18 1.46 2.44 (.84)
-----------------------------------------------------------------------------------------------------
Total from
investment operations 12.30 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 $30.35 $19.98 $17.46 $16.08 $14.81
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 60.56 18.60 8.58 16.67 (5.37)*
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $804,773 $129,334 $99,256 $102,862 $150
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .68 .73 .75 .91 .07*
-----------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.48) (.60) (.46) (.53) (.02)*
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 104.11 139.84 106.29 112.84 199.52
-----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through brokerage service and expense offset
arrangements (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, 2000
Note 1
Significant accounting policies
Putnam OTC & Emerging Growth Fund (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 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 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. 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. Securities purchased or sold on a
when-issued basis may be settled a month or more after the trade date;
income is accrued based on the terms of the security. Losses may arise
due to changes in the market value of the underlying securities or if
the counterparty does not perform under the contract.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Non-cash dividends, if any, are
recorded at the fair market value of the securities received.
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
ended July 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. These differences include temporary and permanent
differences of losses on wash sale transactions. 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, 2000, the fund
reclassified $86,299,098 to decrease accumulated net investment loss and
a decrease to accumulated net realized gain on investments of
$86,299,098. 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, 2000, fund expenses were reduced by
$2,085,736 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 $4,252
has been allocated to the fund, and an additional fee for each Trustees
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 Retail Management, Inc., 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 Retail Management, Inc. 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 at 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, 2000, Putnam Retail Management, Inc., acting
as underwriter received net commissions of $3,349,857 and $114,320 from
the sale of class A and class M shares, respectively, and received
$2,526,571 and $25,030 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, 2000, Putnam Retail Management,
Inc., acting as underwriter received $141,856 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended July 31, 2000, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $11,599,734,177 and $8,768,372,608, respectively. There were
no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At July 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended July 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 166,652,057 $5,500,194,210
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,308,065 278,231,342
---------------------------------------------------------------------------
174,960,122 5,778,425,552
Shares
repurchased (125,064,850) (4,009,126,023)
---------------------------------------------------------------------------
Net increase 49,895,272 $1,769,299,529
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 45,837,977 $1,480,343,595
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,043,311 127,606,773
---------------------------------------------------------------------------
49,881,288 1,607,950,368
Shares
repurchased (27,422,835) (826,716,041)
---------------------------------------------------------------------------
Net increase 22,458,453 $ 781,234,327
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 5,865,843 $208,121,155
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,190 607,183
---------------------------------------------------------------------------
5,884,033 208,728,338
Shares
repurchased (2,159,414) (73,935,412)
---------------------------------------------------------------------------
Net increase 3,724,619 $134,792,926
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 21,881,844 $671,762,380
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,007,162 32,712,614
---------------------------------------------------------------------------
22,889,006 704,474,994
Shares
repurchased (16,829,666) (507,970,766)
---------------------------------------------------------------------------
Net increase 6,059,340 $196,504,228
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 35,878,642 $1,264,900,377
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 678,518 22,958,109
---------------------------------------------------------------------------
36,557,160 1,287,858,486
Shares
repurchased (16,515,816) (553,854,408)
---------------------------------------------------------------------------
Net increase 20,041,344 $ 734,004,078
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
Note 5
Transactions with Affiliated Issuers
Transactions during the year with companies in which the fund owned at
least 5% of the voting securities were as follows:
<TABLE>
<CAPTION>
Purchase Sales Dividend Market
Affiliates cost cost Income Value
------------------------------------------------------------------------------------------------------------------
Name of affiliate
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Abacus Direct Corp. $ 4,214,828 $ -- $-- $ --
About.com, Inc. 91,643,503 25,193,502 -- 41,428,075
Alpha Industries, Inc. 108,626,280 40,531,132 -- 74,225,594
Audiocodes, Inc. 162,096,317 16,644,959 -- 118,225,800
Beyond.com Corp. -- 52,841,431 -- --
Breakaway Solutions, Inc 81,897,986 -- -- 61,112,593
Brio Technology, Inc. 44,730,295 60,543,170 -- --
Business Objects S.A. ADR 60,147,529 17,153,067 -- 238,990,500
C-Bridge Internet Solutions, Inc. 61,489,772 11,815,796 -- 21,000,719
CNET Networks, Inc. 21,564,508 148,107,697 -- --
Concord Communications, Inc. -- 65,756,570 -- --
Cysive, Inc. 52,724,008 7,029,677 -- --
E.piphany, Inc. 258,196,711 6,309,440 -- 175,990,494
Freeshop.com 34,805,602 34,805,602 -- --
Harmonic, Inc. -- 25,634,797 -- --
Independent Energy
Holdings PLC ADR 22,054,638 36,725,156 -- --
Informatica Corp. 111,201,917 9,227,537 -- 223,824,000
Intervu, Inc. 9,624,862 34,872,663 -- --
Interwoven, Inc. 187,056,733 5,195,355 -- 230,810,938
Manugistics Group, Inc. 106,124,390 -- -- 108,635,700
Marketwatch.com, Inc. 22,789,899 33,216,394 -- --
Metasolv Software, Inc. 115,633,478 1,864,084 -- 106,606,175
MGC Communications, Inc. 96,662,627 -- -- --
Multex.com, Inc. 40,517,753 18,390,425 -- 40,906,350
Network Plus Corp. 74,031,160 15,180,814 -- --
Optical Coating Lab, Inc. 23,223,958 52,266,607 -- --
Photon Dynamics, Inc. 50,338,948 46,788,850 -- --
Power Intergrations, Inc. -- 18,252,532 -- --
Predictive Systems, Inc. 90,282,412 23,968,207 -- 34,210,000
Proxicom, Inc. 155,809,719 6,598,591 -- 198,994,050
Quantum Effect Devices, Inc. 121,556,132 -- -- 125,881,256
Silknet Software, Inc. 55,546,104 12,047,236 -- --
Verity, Inc. 32,416,054 63,386,188 -- --
Verticalnet, Inc. 21,770,430 35,128,184 -- --
Viant Corp. 151,895,608 10,680,545 -- 122,839,200
------------------------------------------------------------------------------------------------------------------
Totals $2,470,674,161 $936,156,208 $-- $1,923,681,444
</TABLE>
FEDERAL TAX INFORMATION
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $1,243,184,361 as capital gain, for its taxable
year ended July 31, 2000.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
This page left intentionally blank.
This page left intentionally blank.
THE PUTNAM FAMILY OF FUNDS
The following is a complete list of Putnam's open-end mutual funds.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Technology Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Fund
Balanced Retirement Fund
Classic Equity Fund *
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund **
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Growth and Income Fund II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
OUR COMMITMENT TO QUALITY SERVICE
* CHOOSE AWARD-WINNING SERVICE
Putnam has won the DALBAR Award for Service nine times in the past ten
years and has won the Intermediary Service Award for advisors all three
years in which it has been given.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change
or termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative. To learn more about Putnam, visit our Web
site.
www.putnaminvestments.com
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number.
1-800-225-1581
*DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
WELCOME TO WWW.PUTNAMINVESTMENTS.COM
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
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* your current account value, portfolio value and transaction history
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You can also read Putnam economist Dr. Robert Goodman's commentary and
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or objective, use our glossary to decode investment terms . . . and much
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The site can be accessed through any of the major online services
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using an independent Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us at
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FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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, III
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
Stephen Oristaglio
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
Richard G. Leibovitch
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
and Putnam Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN014-63666 024/227/673/2BB 9/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
---------------------------------------------------------------------------
Putnam OTC & Emerging Growth Fund
Supplement to Annual Report dated 7/31/00
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, C, and M shares, which are discussed more extensively in the semiannual
report.
ANNUAL RESULTS AT A GLANCE
---------------------------------------------------------------------------
Total return: NAV
1 year 60.56%
5 years 182.70
Annual average 23.10
10 years 594.72
Annual average 21.39
Life of class (since 11/1/82) 3041.71
Annual average 21.44
---------------------------------------------------------------------------
Share value: NAV
7/31/99 $19.98
7/31/00 $30.35
---------------------------------------------------------------------------
Capital gains
Distributions: No. Income Short-term Long-term Total
7/31/99-7/31/00 1 $ 0.000 $1.929 $0.317 $1.612
---------------------------------------------------------------------------
Please note that past performance does not indicate 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. Performance data reflects an expense limitation previously in
effect. Without the expense limitation, total returns would have been
lower. 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.
