Semiannual Report
For the period ended April 30, 2003
TH Lee
Putnam
Capital
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
TH Lee, Putnam Emerging Opportunities Portfolio
About the fund and TH Lee, Putnam Capital
TH Lee, Putnam Emerging Opportunities Portfolio is a closed-end interval
fund sponsored by TH Lee, Putnam Capital. This innovative fund pursues
aggressive growth by combining investments in publicly traded stocks and
privately held companies in a closed-end format. With this special
structure, the fund can tap into companies with the best growth
potential while maintaining diversification across public and private
markets that few funds can match.
TH Lee, Putnam Capital L.L.C. is a joint venture of Putnam Investments
and Thomas H. Lee Partners L.P. ("TH Lee"). This venture was founded in
1999 to offer alternative investment products to individual investors
who have historically lacked access to the private-equity marketplace.
Thomas H. Lee Partners L.P., founded in 1974, is one of the oldest and
most successful private-equity investment firms in the United States.
The firm's investment strategy targets growth companies with competitive
advantages in expanding or consolidating industries. Putnam Investments
("Putnam"), founded in 1937, is one of the world's largest mutual fund
companies and a leader in investment research and portfolio management
through disciplined teamwork.
TH Lee, Putnam Emerging Opportunities Portfolio is managed by Roland W.
Gillis, CFA, and Michael J. Mufson, CFA, who both are Managing Directors
in Putnam's Specialty Growth Team and together have 35 years of
investment experience, and by Frederick Wynn, a Senior Vice President on
the team. The Specialty Growth Team consists of eight portfolio managers
and eight analysts and focuses its research on small- and
mid-capitalization growth stocks. The team has been managing investments
in the venture capital market since 2000 and in the initial public
offering market since 1986.
The fund's management structure also includes an Investment Committee,
consisting of senior Putnam and TH Lee investment professionals. The
Investment Committee also consults with the management team and gives
final approval to the structure of all private-equity deals.
Report from Fund Management
Roland Gillis, Portfolio Manager
Michael Mufson, Portfolio Manager
Frederick Wynn, Portfolio Manager
Performance commentary
The fund had positive results at net asset value during the semiannual
period ended April 30, 2003, as conditions for growth stocks generally
improved, but it underperformed its benchmark, the Russell 2500 Growth
Index, for a few reasons. The fund had overweight exposure to consumer
cyclicals, one of the weaker sectors in the benchmark, and it favored
mid-cap stocks, which underperformed small caps. And while growth stocks
experienced better results in the period, the portfolio's emphasis on
aggressive growth stocks was a slight disadvantage because the market
favored stocks with more modest earnings growth rates and price
multiples at a time when risks such as the Iraq crisis and the weak
global economy became paramount concerns. Risk concerns also caused a
delay in initial public offerings, which had a negative impact on the
private-equity market and the fund's private-equity holdings. We think
the rally among aggressive growth stocks during the last several weeks
of the period was a better indication of the strength of these
companies. We have confidence that the companies represented in the fund
are positioned well in their industries to achieve strong earnings
growth.
RETURN FOR PERIODS ENDED APRIL 30, 2003
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TH Lee, Putnam Emerging Russell 2500
Opportunities Portfolio NAV POP Growth Index
- ------------------------------------------------------------------------
6 months 3.12% -1.52% 7.76%
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1 year -16.91 -20.67 -20.47
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Life of fund
(since inception 7/30/01) -18.22 -21.92 -26.42
- ------------------------------------------------------------------------
Annual average -10.81 -13.13 -16.02
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RETURN FOR PERIODS ENDED March 31, 2003 (most recent quarter)
- ------------------------------------------------------------------------
TH Lee, Putnam Emerging Russell 2500
Opportunities Portfolio NAV POP Growth Index
- ------------------------------------------------------------------------
6 months 1.92% -2.64% 4.81%
- ------------------------------------------------------------------------
1 year -25.01 -28.37 -29.28
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Life of fund
(since inception 7/30/01) -24.30 -27.72 -32.33
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Annual average -15.29 -17.60 -20.79
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Past performance does not indicate future results. Performance assumes
reinvestment of distributions and does not account for taxes. More
recent returns may be less or more than those shown. Investment returns
will fluctuate and you may have a gain or a loss when you sell your
shares. Returns at public offering price (POP) reflect the highest
applicable sales charge of 4.50%. Sales charges differ with the original
purchase amount. See a prospectus for details. The Russell 2500 Growth
Index is an unmanaged index of those companies in the Russell 2500
chosen for their growth orientation. Indexes are not available for
direct investment. For the period this fund limited expenses, without
which returns would have been lower.
Market overview
As in previous periods, volatility was one of the key themes of the past
six months. When the period began in November, stocks were advancing
robustly from the sell-off that had taken place last summer. However,
this advance came to a halt near the turn of the calendar year, as the
market recognized what Federal Reserve Board Chairman Alan Greenspan
described as a "soft spot" in the economic recovery. Also, the
increasing tensions with Iraq and North Korea raised a number of
geopolitical risks and uncertainties. Stocks retreated steadily between
January and March, until the United States resolved some of the
uncertainty by deciding for war against Iraq and completing the
operation quickly. This cleared the way for a strong stock market rally
in the final weeks of the period. In the private-equity market,
conditions remained weak throughout the period. The market was
bottlenecked, as very few companies went public.
Growth stocks held their own during the period, though aggressive growth
stocks were not in the forefront. Facing many major risks, the market
still showed a concern for valuations. However, there was also a
recognition that earnings were recovering, albeit fitfully. Growth
companies, in particular, have cut costs and reduced debt burdens. For
the period as a whole, some of the top-performing stocks were in the
previously beaten-down technology and biotechnology sectors. At the same
time, it appeared that the consumer sector was finally running out of
steam as rising unemployment and high debt levels choked off spending.
This factor hurt consumer-cyclical stocks.
Strategy overview
We maintained the strategy that has generally characterized the fund in
its history of nearly two years. Our public-equity portfolio was broadly
diversified across different industry sectors and emphasized stocks with
what we consider to be strong long-term growth potential and leadership
positions in their industries. We placed more emphasis on our
fundamental analysis and stock selection than on sector positioning
because the volatility of the market environment of the past six months
made sector bets a more risky approach. That said, we did increase the
fund's exposure to the technology sector, bringing it up to a modest
overweight. We found attractive opportunities in semiconductor stocks
and software companies that had been deeply out of favor but that we
still considered to have strong long-term potential.
ASSET ALLOCATION AS OF 4/30/03
ASSET CLASS PERCENT OF FUND
- -------------------------------------------
* Public equities 78.8%
- -------------------------------------------
* Private equities 19.5
- -------------------------------------------
* Short-term investments 1.7
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Weightings are shown as a percentage of investments. Holdings will vary
over time.
On the private-equity side, we maintained close contact with the
management of the three companies the fund already owns while continuing
our research efforts as part of the process of identifying new companies
to invest in. It appeared that the IPO window was opening during the
market recovery in the last few months of 2002, but it quickly shut
again. As we have noted in previous reports, the effect of this
condition is that private companies become more mature and seasoned
before entering the IPO phase. As investors, this gives us a wider range
of higher-quality companies to choose from. Our strategy was to remain
patient and diligent in our research process to identify the best
companies and negotiate the best investment terms for the fund. The
result for the fund's asset allocation was that a majority of assets
remained invested in publicly traded stocks.
How fund holdings affected performance
Although the market was quite volatile throughout the period, for the
six months as a whole, most sectors posted gains. The top-performing
areas were in telecommunications, technology, and business services. The
sectors with weaker results were media, consumer cyclicals, health care,
and capital goods, a small sector in the benchmark.
Several of the fund's top-performing holdings were clustered in the
technology sector. Documentum and Manhattan Associates are two software
companies that had strong results in the period. Although demand for
software has not yet experienced a strong improvement, the market
recognized that leading companies had very attractive valuations given
their long-term growth expectations. Concord Communications, which makes
enterprise software, also contributed gains. Marvell Technologies, an
electronics company that makes semiconductors, and Varian Semiconductor
Equipment, which had been sold from the portfolio by the close of the
period, also benefited from better conditions in the technology sector.
We should note that private-equity holding CommVault Systems did not
have an increase in valuation because of negative conditions in the
private-equity market. However, CommVault performed well fundamentally,
expanding sales because its network architecture solutions help
companies cut costs.
Consumer staples also performed well, especially those in the education
industry. With the economy still weak, many companies and individual
workers are focusing on improving their skills for the next upturn. The
portfolio enjoyed strong performance from Career Education Corp. and
Education Management Corp. However, Capella Education, the fund's
private-equity holding in the same industry, had less of an increase in
valuation, although it posted strong operating results. Capella also
attracted new private investors who we think will add marketing
expertise to round out the company's many business strengths. In a
separate industry of the consumer staples sector, CBRL Group, which owns
Cracker Barrel Stores and Old Country Buffet Restaurants, also performed
well.
TOP SECTOR WEIGHTINGS AS OF 4/30/03
- -------------------------------------------
Technology 30.3%
- -------------------------------------------
Health care 22.9
- -------------------------------------------
Consumer staples 16.0
- -------------------------------------------
Consumer cyclicals 14.7
- -------------------------------------------
Capital goods 5.0
- -------------------------------------------
Weightings are shown as a percentage of net assets.
Holdings will vary over time.
TOP 10 HOLDINGS INDUSTRY
- -------------------------------------------------------------------
CommVault Systems Computers
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Capella Education Co., Inc. Schools
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Refractec Medical technology
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Thoratec Corp. Medical technology
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FLIR Systems, Inc. Machinery
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Westwood One, Inc. Broadcasting
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Career Education Corp. Schools
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CSK Auto Corp. Automotive
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Strayer Education, Inc. Commercial and consumer services
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Waste Connections, Inc. Waste management
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These holdings represent 28.9% of the fund's net assets as of 4/30/03.
Portfolio holdings will vary over time.
In the health-care sector, LifePoint Hospitals declined during the
period and we sold the position. LifePoint operates hospitals in many
rural areas around the country and indicated that a mild influenza
season had been a factor in its results. The fund enjoyed stronger but
volatile results from medical device companies, including Zoll Medical,
a company that designs cardiac defibrillators. VistaCare Inc., a hospice
company that was one of the few companies to go public in the period,
also contributed gains and we sold the position when it reached our
price expectations.
As mentioned in a previous section, our holdings in the consumer
cyclicals sector struggled as the economy weakened. For example, media
and broadcasting stocks had difficulty as advertising remained weak.
Radio broadcaster Westwood One declined in the period. Fortunately, the
fund had better performance from Cumulus Media, a company specializing
in acquiring radio stations in midsize cities. Continued expansion and
earnings growth in the period helped Cumulus resist the industry's
decline.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
The outlook for your fund
There were enough signs of improvement in the economy and in growth
sectors during the fund's semiannual period to give us a more positive
outlook for coming months and quarters. Many aggressive growth companies
have gotten their costs under control and are once again meeting or
beating their earnings expectations. Companies that disappointed
investor expectations are still being punished by the market, which
continues to keep valuations reasonable for growth stocks in general.
Also, it appears that investors have adjusted to volatile conditions.
While many investors still exhibit pessimism about corporate governance,
there is a better understanding of the limited scope of the problem and
progress toward solutions. Investors have also become more accustomed to
the fact that the economy is growing below its potential, but not
falling off a cliff. As an indication, the most recent downturn in stock
prices, between January and March, had fewer sharp one-day drops than
during the sell-offs of 2002. In addition, major geopolitical risks
involving Iraq and North Korea appear to be less menacing than earlier
in the year.
Of course, it will take some time for the economy to reach its full
potential. Until it does, businesses will face extra pressure on their
profit margins, and the market will be vulnerable to declines. However,
we take confidence in the fundamental performance of growth companies.
In both the public- and private-equity markets, many companies have
excellent business models and quality management. We think they can meet
their goals in weak economic conditions and when a stronger expansion
takes place.
The views expressed here are exclusively those of TH Lee, Putnam Capital
LLC. They are not meant as investment advice. Although the described
holdings were viewed favorably as of 4/30/03, there is no guarantee the
Fund will continue to hold these securities in the future.
Shares of the Fund are offered only to investors who have a net worth of
more than $1,500,000 or who otherwise meet the requirements for a
"qualified client."
An investment in the Fund involves a considerable amount of risk and
should be considered speculative. Because it is possible that you may
lose some or all of your investment, you should not invest in the Fund
unless you can afford a total loss of investment. An investment in the
Fund involves a high degree of risk which includes the following
specific types of risk: the risks associated with venture-capital
companies and venture-capital funds; investing in securities that are
illiquid and subject to substantial transfer restrictions; the risks of
investing in smaller companies; the Fund's ability to focus holdings in
a small number of industry sectors that may be relatively new or
emerging industries; the risk of investing in a fund that will pay
incentive fee; investing in a fund, many of whose assets will be priced
in the absence of a readily available market and may be priced based on
estimates of fair value, which may prove inaccurate; and the risk
involved in the Fund Manager's limited experience in venture-capital
investing.
The fund's portfolio
April 30, 2003 (Unaudited)
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Common Stocks (79.4%)(a)
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
Aerospace and Defense (0.5%)
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21,100 MTC Technologies, Inc. (NON) $358,700
Airlines (0.7%)
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16,400 JetBlue Airways Corp. (NON) 515,452
Automotive (2.8%)
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13,200 CLARCOR, Inc. 493,812
86,400 CSK Auto Corp. (NON) 885,600
20,900 Gentex Corp. (NON) 631,180
-------------
2,010,592
Banking (1.2%)
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8,200 New York Community Bancorp, Inc. 284,704
14,000 TCF Financial Corp. 554,400
-------------
839,104
Biotechnology (3.6%)
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32,903 Amylin Pharmaceuticals, Inc. (NON) 630,092
48,400 BioMarin Pharmaceuticals, Inc. (NON) 531,432
19,300 Celgene Corp. (NON) 513,573
23,000 Connetics Corp. (NON) 388,470
14,800 InterMune, Inc. (NON) 300,884
5,000 Trimeris, Inc. (NON) 221,950
-------------
2,586,401
Broadcasting (2.1%)
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31,100 Cumulus Media, Inc. Class A (NON) 536,164
28,600 Westwood One, Inc. (NON) 998,140
-------------
1,534,304
Commercial and Consumer Services (1.2%)
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13,000 Strayer Education, Inc. 845,520
Communications Equipment (1.5%)
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43,300 CIENA Corp. (NON) 210,871
48,300 Juniper Networks, Inc. (NON) 493,626
39,200 Polycom, Inc. (NON) 384,944
-------------
1,089,441
Computers (3.5%)
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27,200 Intergraph Corp. (NON) 554,880
50,200 Magma Design Automation, Inc. (NON) 753,000
38,200 McDATA Corp. Class A (NON) 404,156
30,100 Network Appliance, Inc. (NON) 399,728
56,200 Synaptics, Inc. (NON) 430,492
-------------
2,542,256
Consumer Goods (0.4%)
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12,500 Yankee Candle Co., Inc. (The) (NON) 273,875
Consumer Services (0.6%)
- -----------------------------------------------------------------------------------------------------------------
17,200 SRA Intl., Inc. Class A (NON) 406,780
Distribution (0.6%)
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12,500 Performance Food Group Co. (NON) 438,500
Electronics (5.7%)
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68,100 Brooks Automation, Inc. (NON) 576,807
4,800 Cypress Semiconductor Corp. (NON) 41,856
24,700 Exar Corp. (NON) 364,325
30,100 Integrated Device Technology, Inc. (NON) 310,933
34,500 Intersil Corp. Class A (NON) 638,250
23,000 Marvell Technology Group, Ltd. (Bermuda) (NON) 530,817
40,000 Monolithic System Technology, Inc. (NON) 240,000
17,900 Omnivision Technologies, Inc. (NON) 434,612
13,296 QLogic Corp. (NON) 584,891
69,900 Skyworks Solutions, Inc. (NON) 373,965
-------------
4,096,456
Energy (2.5%)
- -----------------------------------------------------------------------------------------------------------------
4,900 Cooper Cameron Corp. (NON) 234,514
11,400 ENSCO International, Inc. 289,560
119,500 Grey Wolf, Inc. (NON) 483,975
13,900 Patterson-UTI Energy, Inc. (NON) 459,951
11,400 Tidewater, Inc. 306,660
-------------
1,774,660
Engineering & Construction (0.6%)
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10,500 Jacobs Engineering Group, Inc. (NON) 432,075
Gaming & Lottery (0.4%)
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13,500 Station Casinos, Inc. (NON) 291,735
Health Care Services (6.6%)
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18,700 AMERIGROUP Corp. (NON) 544,544
11,400 AmSurg Corp. (NON) 296,058
12,100 Centene Corp. (NON) 387,624
9,700 Coventry Health Care, Inc. (NON) 395,954
7,500 Henry Schein, Inc. (NON) 323,625
12,900 Mid Atlantic Medical Services, Inc. (NON) 561,795
22,050 Odyssey Healthcare, Inc. (NON) 569,772
6,200 Pediatrix Medical Group, Inc. (NON) 197,594
23,000 Steris Corp. (NON) 522,100
32,500 VCA Antech, Inc. (NON) 545,643
40,700 WebMD Corp. (NON) 392,348
-------------
4,737,057
Insurance (0.5%)
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12,300 Willis Group Holdings, Ltd. (Bermuda) 383,637
Investment Banking/Brokerage (0.6%)
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13,900 T Rowe Price Group, Inc. 424,228
Leisure (0.5%)
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13,700 Multimedia Games, Inc. (NON) 345,103
Machinery (1.5%)
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20,200 FLIR Systems, Inc. (NON) 1,052,030
Manufacturing (0.4%)
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9,000 IDEX Corp. 286,650
Medical Technology (5.6%)
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13,000 American Medical Systems Holdings, Inc. (NON) 206,310
8,800 Cooper Companies, Inc. 245,520
21,100 Cyberonics, Inc. (NON) 481,713
15,500 Merit Medical Systems, Inc. (NON) 303,645
7,300 ResMed, Inc. (NON) 267,764
14,000 Respironics, Inc. (NON) 537,880
78,300 Thoratec Corp. (NON) 1,076,625
9,500 Varian Medical Systems, Inc. (NON) 511,670
12,700 Zoll Medical Corp. (NON) 410,210
-------------
4,041,337
Oil & Gas (1.0%)
- -----------------------------------------------------------------------------------------------------------------
10,100 Noble Corp. (NON) 312,595
19,800 XTO Energy, Inc. 386,100
-------------
698,695
Pharmaceuticals (2.9%)
- -----------------------------------------------------------------------------------------------------------------
5,400 Barr Laboratories, Inc. (NON) 300,240
11,300 Cephalon, Inc. (NON) 461,492
30,000 Medicines Co. (NON) 616,500
9,100 Mylan Laboratories, Inc. 257,257
10,900 United Therapeutics Corp. (NON) 195,644
9,400 Watson Pharmaceuticals, Inc. (NON) 273,258
-------------
2,104,391
Restaurants (3.1%)
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22,950 Applebee's International, Inc. 628,830
13,500 Brinker International, Inc. (NON) 428,625
20,100 CBRL Group, Inc. 640,788
5,200 Outback Steakhouse, Inc. 185,848
7,800 P.F. Chang's China Bistro, Inc. (NON) 326,820
-------------
2,210,911
Retail (8.2%)
- -----------------------------------------------------------------------------------------------------------------
11,033 99 Cents Only Stores (NON) 325,032
30,500 A.C. Moore Arts & Crafts, Inc. (NON) 525,515
13,500 Advance Auto Parts, Inc. (NON) 671,490
14,700 Chico's FAS, Inc. (NON) 357,798
13,100 Family Dollar Stores, Inc. 447,889
6,800 Linens 'N Things, Inc. (NON) 144,092
19,700 Michaels Stores, Inc. (NON) 615,428
9,000 Movie Gallery, Inc. (NON) 166,419
26,600 PETsMART, Inc. (NON) 402,458
13,300 Ross Stores, Inc. (NON) 504,070
18,700 Sonic Automotive, Inc. (NON) 322,575
15,300 Tractor Supply Co. (NON) 647,955
34,200 Wild Oats Markets, Inc. (NON) 370,044
14,200 Williams-Sonoma, Inc. (NON) 367,496
-------------
5,868,261
Schools (3.3%)
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12,550 Apollo Group, Inc. Class A (NON) 680,197
16,100 Career Education Corp. (NON) 968,093
15,000 Education Management Corp. (NON) 732,300
-------------
2,380,590
Semiconductor (2.5%)
- -----------------------------------------------------------------------------------------------------------------
10,000 Cymer, Inc. (NON) 285,500
36,300 LAM Research Corp. (NON) 527,439
40,200 LTX Corp. (NON) 271,350
24,600 Novellus Systems, Inc. (NON) 689,784
-------------
1,774,073
Shipping (2.2%)
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27,191 Heartland Express, Inc. (NON) 625,393
22,200 Knight Transportation, Inc. (NON) 535,020
7,200 Landstar Systems, Inc. (NON) 447,336
-------------
1,607,749
Software (7.6%)
- -----------------------------------------------------------------------------------------------------------------
22,400 Cognos, Inc. (Canada) (NON) 607,936
43,500 Concord Communications, Inc. (NON) 549,405
33,400 Documentum, Inc. (NON) 614,226
23,200 Internet Security Systems, Inc. (NON) 304,384
17,300 Macromedia, Inc. (NON) 218,153
23,800 Manhattan Associates, Inc. (NON) 575,722
64,600 Matrixone, Inc. (NON) 226,100
13,200 Mercury Interactive Corp. (NON) 448,008
50,000 Micromuse, Inc. (NON) 327,050
9,900 Network Associates, Inc. (NON) 113,157
44,200 Pinnacle Systems, Inc. (NON) 417,690
59,300 RSA Security, Inc. (NON) 568,687
44,800 webMethods, Inc. (NON) 450,688
-------------
5,421,206
Technology Services (1.5%)
- -----------------------------------------------------------------------------------------------------------------
8,600 Fair, Isaac and Co., Inc. 447,888
94,840 Wireless Facilities, Inc. (NON) 660,086
-------------
1,107,974
Telecommunications (1.5%)
- -----------------------------------------------------------------------------------------------------------------
95,100 American Tower Corp. Class A (NON) 631,464
41,300 Citizens Communications Co. (NON) 451,409
-------------
1,082,873
Waste Management (2.0%)
- -----------------------------------------------------------------------------------------------------------------
33,700 Casella Waste Systems, Inc. Class A (NON) 287,124
8,700 Stericycle, Inc. (NON) 341,823
24,000 Waste Connections, Inc. (NON) 807,360
-------------
1,436,307
-------------
Total Common Stocks (cost $54,226,910) $56,998,923
Convertible Preferred Stocks (19.6%)(a)
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
449,640 Capella Education Co., Inc. class F, zero % cv. pfd.
(acquired 2/14/02, cost $5,009,274) (Private) (STP) $5,395,677
1,916,321 CommVault Systems zero % cv. pfd. (acquired 1/30/02,
cost $6,011,031) (Private) (STP) 5,691,473
500,000 Refractec Ser. D, zero % cv. pfd. (acquired 8/16/02,
cost $3,000,000) (Private) (STP) (AFF) 3,000,000
-------------
Total Convertible Preferred Stocks (cost $14,020,306) $14,087,150
- -----------------------------------------------------------------------------------------------------------------
Short-Term Investments (1.7%) (a) (cost $1,219,000)
- -----------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
$1,219,000 Interest in joint repurchase agreement dated April 30, 2003,
with Goldman Sachs & Co. due May 1, 2003 with respect to
various U.S. Government obligations -- maturity value of
$1,219,045 for an effective yield of 1.33% $1,219,000
- -----------------------------------------------------------------------------------------------------------------
Total Investments (cost $69,466,216) $72,305,073
- -----------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $71,794,114.
(NON) Non-income-producing security.
(STP) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at April 30, 2003 was
$14,087,150 or 19.6% of net assets.
(AFF) Affiliated Companies (Note 4).
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
April 30, 2003 (Unaudited)
- -----------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------
Investments in securities, at value
(identified cost $69,466,216) (Note 1) $72,305,073
- -----------------------------------------------------------------------------
Cash 939
- -----------------------------------------------------------------------------
Dividends and interest receivable 4,349
- -----------------------------------------------------------------------------
Receivable for shares of the fund sold 67,525
- -----------------------------------------------------------------------------
Receivable for securities sold 1,179,950
- -----------------------------------------------------------------------------
Total assets 73,557,836
- -----------------------------------------------------------------------------
Liabilities
- -----------------------------------------------------------------------------
Payable for securities purchased 1,503,974
- -----------------------------------------------------------------------------
Payable for shareholder servicing fees (Note 2) 14,175
- -----------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 148,148
- -----------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 15,546
- -----------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 18,750
- -----------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,670
- -----------------------------------------------------------------------------
Other accrued expenses 57,459
- -----------------------------------------------------------------------------
Total liabilities 1,763,722
- -----------------------------------------------------------------------------
Net assets $71,794,114
- -----------------------------------------------------------------------------
Represented by
- -----------------------------------------------------------------------------
Paid-in capital (Note 1) $87,577,588
- -----------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (601,866)
- -----------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (18,020,465)
- -----------------------------------------------------------------------------
Net unrealized appreciation of investments 2,838,857
- -----------------------------------------------------------------------------
Total-- Representing net assets applicable to
common shares outstanding $ 71,794,114
- -----------------------------------------------------------------------------
Computation of net asset value
- -----------------------------------------------------------------------------
Net asset value and redemption price per common share
($71,794,114 divided by 3,682,210 shares) $19.50
- -----------------------------------------------------------------------------
Offering price per class common share (100/95.50 of 19.50)* $20.42
- -----------------------------------------------------------------------------
* On single retail sales of less than $500,000. On sales of $500,000 or
more and on group sales, the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Six months ended April 30, 2003 (Unaudited)
- -----------------------------------------------------------------------------
Investment income:
- -----------------------------------------------------------------------------
Dividends $38,477
- -----------------------------------------------------------------------------
Interest 15,769
- -----------------------------------------------------------------------------
Total investment income 54,246
- -----------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------
Compensation of Manager (Note 2) 430,581
- -----------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 56,257
- -----------------------------------------------------------------------------
Compensation of Trustees (Note 2) 37,501
- -----------------------------------------------------------------------------
Administrative services (Note 2) 34,900
- -----------------------------------------------------------------------------
Shareholder servicing fees (Note 2) 81,032
- -----------------------------------------------------------------------------
Other 53,381
- -----------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (37,050)
- -----------------------------------------------------------------------------
Total expenses 656,602
- -----------------------------------------------------------------------------
Expense reduction (Note 2) (490)
- -----------------------------------------------------------------------------
Net expenses 656,112
- -----------------------------------------------------------------------------
Net investment loss (601,866)
- -----------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (4,670,045)
- -----------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 7,347,956
- -----------------------------------------------------------------------------
Net gain on investments 2,677,911
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,076,045
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Six months
ended Year ended
April 30, October 31,
2003* 2002
- -----------------------------------------------------------------------------
Decrease in net assets
- -----------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------
Net investment loss $(601,866) $(1,503,651)
- -----------------------------------------------------------------------------
Net realized loss on investments (4,670,045) (11,906,349)
- -----------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments 7,347,956 (898,909)
- -----------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 2,076,045 (14,308,909)
- -----------------------------------------------------------------------------
Distributions to common
shareholders: (Note 1)
- -----------------------------------------------------------------------------
From net investment income -- (132,237)
- -----------------------------------------------------------------------------
Return of capital -- (3,502)
- -----------------------------------------------------------------------------
Capital share transactions:
Proceeds from shares issued 348,481 7,019,410
- -----------------------------------------------------------------------------
Reinvestment of distributions -- 94,256
- -----------------------------------------------------------------------------
Cost of shares repurchased (Note 5) (4,312,459) (4,894,907)
- -----------------------------------------------------------------------------
Net increase (decrease) from capital
share transactions (3,963,978) 2,218,759
- -----------------------------------------------------------------------------
Total decrease in net assets (1,887,933) (12,225,889)
- -----------------------------------------------------------------------------
Net assets
- -----------------------------------------------------------------------------
Beginning of period 73,682,047 85,907,936
- -----------------------------------------------------------------------------
End of period (including accumulated
net investment loss of $601,866
and $--, respectively) $71,794,114 $73,682,047
- -----------------------------------------------------------------------------
Number of fund shares
- -----------------------------------------------------------------------------
Shares outstanding at beginning
of period 3,897,584 3,827,683
- -----------------------------------------------------------------------------
Shares issued 18,823 303,850
- -----------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- 3,942
- -----------------------------------------------------------------------------
Shares repurchased (Note 5) (234,197) (237,891)
- -----------------------------------------------------------------------------
Shares outstanding at end of period 3,682,210 3,897,584
- -----------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Statement of cash flows
For the six months ended April 30, 2003 (Unaudited)
- -----------------------------------------------------------------------------
Increase in cash
- -----------------------------------------------------------------------------
Cash flows from operating activities:
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 2,076,045
- -----------------------------------------------------------------------------
Adjustments to reconcile net increase in net assets
from operations to net cash used in operating and
investing activities:
- -----------------------------------------------------------------------------
Purchase of investment securities (31,408,885)
- -----------------------------------------------------------------------------
Proceeds from disposition of investment securities 32,818,741
- -----------------------------------------------------------------------------
Sale of short-term investment securities, net 3,597,500
- -----------------------------------------------------------------------------
Decrease in dividends and interest receivable 1,557
- -----------------------------------------------------------------------------
Increase in receivables for securities sold (1,141,539)
- -----------------------------------------------------------------------------
Increase in payable for securities purchased 910,416
- -----------------------------------------------------------------------------
Decrease in payable for shareholder servicing fees (42,527)
- -----------------------------------------------------------------------------
Decrease in payable for compensation of Manager (43,232)
- -----------------------------------------------------------------------------
Decrease in payable for investor servicing and custodian fees (1,338)
- -----------------------------------------------------------------------------
Decrease in payable for administration services (5,999)
- -----------------------------------------------------------------------------
Decrease in other accrued expenses (114,560)
- -----------------------------------------------------------------------------
Net realized loss on investments 4,670,045
- -----------------------------------------------------------------------------
Net unrealized appreciation on investments during the period (7,347,956)
- -----------------------------------------------------------------------------
Net cash used in operating and investing activities 3,968,268
- -----------------------------------------------------------------------------
Cash flows from financing activities:
- -----------------------------------------------------------------------------
Proceeds from shares sold 344,957
- -----------------------------------------------------------------------------
Payment of shares redeemed (4,312,459)
- -----------------------------------------------------------------------------
Cash distributions paid --
- -----------------------------------------------------------------------------
Net cash provided by financing activities (3,967,502)
- -----------------------------------------------------------------------------
Net increase in cash 766
- -----------------------------------------------------------------------------
Cash balance, beginning of period 173
- -----------------------------------------------------------------------------
Cash balance, end of period $939
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Six months
ended For the period
Per-share April 30 Year ended July 30, 2001+
operating performance (Unaudited) Oct. 31 to Oct. 31
- -------------------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $18.91 $22.44 $23.88
- -------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------
Net investment income (loss) (a)(b) (.16) (.38) --(e)
- -------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .75 (3.11) (1.44)
- -------------------------------------------------------------------------------------------
Total from investment operations .59 (3.49) (1.44)
- -------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------
From net investment income -- (.04) --
- -------------------------------------------------------------------------------------------
From return of capital -- --(e) --
- -------------------------------------------------------------------------------------------
Total distributions -- (.04) --
- -------------------------------------------------------------------------------------------
Net asset value, end of period $19.50 $18.91 $22.44
- -------------------------------------------------------------------------------------------
Total return at net asset
value (%)(c) 3.12* (15.61) (6.03)*
- -------------------------------------------------------------------------------------------
Ratios and supplemental data
Net assets, end of period
(in thousands) $71,794 $73,682 $85,908
- -------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (%)(b)(d) .94* 2.21 .58*
- -------------------------------------------------------------------------------------------
Ratio of net investment loss to
average net assets (%) (b) (.86)* (1.76) --*
- -------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 45.65* 102.88 11.20*
- -------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Reflects an expense limitation in effect during the period (Note 2).
As a result of such limitation, expenses of the fund for the periods
ended April 30, 2003, October 31, 2002 and October 31, 2001 reflect a
reduction of 0.05%, 0.07%, and 0.04%, respectively, based on average net
assets.
(c) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(d) Includes amounts paid through expense offset arrangements. (Note 2)
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
April 30, 2003 (Unaudited)
Note 1 Significant accounting policies
- ----------------------------------------------------------------------
TH Lee, Putnam Emerging Opportunities Portfolio (the "fund "), is a
series of TH Lee, Putnam Investment Trust (the "trust ") which is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified closed-end management investment company. The objective
of the fund is to seek long-term capital appreciation by investing at
least 80% of its total assets in publicly traded growth stocks and
privately issued venture capital investments. The fund may invest up to
50% of its portfolio in private equity investments as well as up to 5%
of its assets in private equity funds.
The fund offers its shares at net asset value plus a maximum front-end
sales charge of 4.50%. The fund provides a limited degree of liquidity
to its shareholders by conducting quarterly repurchase offers. In each
repurchase offer, the fund intends to repurchase 5% of its outstanding
shares at their net asset value. The fund may also, at any time, conduct
additional sales of its shares to Qualified Investors, as defined in the
Investment Advisors Act of 1940.
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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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 valued
at the last reported sales price on its principal exchange, or official
closing price for certain markets. If no sales are reported-- as in the
case of some securities traded over-the-counter-- a security is valued
at its last reported bid price. Market quotations are not considered to
be readily available for private equity securities; such investments are
initially valued at cost and then stated at fair value following
procedures approved by the Trustees. As part of those procedures, TH
Lee, Putnam Capital Management, LLC (the "Manager"), a subsidiary of
Putnam, LLC ("Putnam") and TH Lee, Putnam Capital, LLC (a joint venture
of Putnam and Thomas H. Lee Partners, LP) will monitor each fair valued
security on a daily basis and may adjust its value based on such factors
as the financial and/or operating results, the general developments in
the issuer's business including products and services offered,
management changes, changes in contracts with customers, issues relating
to financing, the likelihood of a public offering, the liquidity of the
security, any legal or contractual restrictions, the value of an
unrestricted related public security and other analytical data.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. For foreign investments, if trading or
events occurring in other markets after the close of the principal
exchange in which the securities are traded are expected to materially
affect the value of the investments, then those investments are valued,
taking into consideration these events, at their fair value. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates fair value.
B) 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. The Manager 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.
C) Security transactions and related investment income
Security transactions are recorded on the trade date (date the order to
buy or sell is executed). Gains or losses on securities sold are
determined on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recognized as soon as the fund is informed of
the ex-dividend date. Non-cash dividends, if any, are recorded at the
fair market value of the securities received.
D) 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.
At October 31, 2002, the fund had a capital loss carryover of
approximately $13,322,000 available to the extent allowed by tax law to
offset future net capital gain, if any. The amount of the carryover and
the expiration dates are:
Loss Carryover Expiration
- -------------------------------------
$1,399,000 October 31, 2009
11,923,000 October 31, 2010
The aggregate identified cost on a tax basis is $69,494,190, resulting
in gross unrealized appreciation and depreciation of $7,527,525 and
$4,716,642, respectively, or net unrealized appreciation of $2,810,883.
E) Distributions to shareholders
Distributions to shareholders from net investment income are recorded by
the fund on the ex-dividend date. Distributions from capital gains, if
any, are recorded on the ex-dividend date and paid at least annually.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations, which may differ
from generally accepted accounting principles. Reclassifications are
made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations.
F) Deal related costs
Deal related costs are comprised primarily of legal and consulting costs
incurred in connection with private equity investment transactions of
the fund, whether or not consummated. Deal related costs that are
attributable to existing private equity securities are added to the cost
basis of the investments. All other deal related costs are expensed as
incurred.
G) Statement of Cash Flows
The cash amount shown in the Statement of cash flows is the amount
reported as cash in the fund's Statement of assets and liabilities and
represents cash on hand at its custodian and does not include any
short-term investments at April 30, 2003.
Note 2 Management fee, administrative services and other transactions
- ----------------------------------------------------------------------
The fund has entered into a Management Contract with the Manager. As
compensation for the services rendered and expenses borne by the
Manager, the fund pays the Manager a fee at an annual rate of 1.20% of
the average daily net assets of the fund, computed daily and payable
monthly.
In addition, the fund will accrue daily a liability for incentive fees
payable equal to 20% of the realized and unrealized gains less realized
and unrealized losses on the fund's private equity holdings. The fund
will not accrue an incentive fee unless all realized and unrealized
losses from prior periods have been offset by realized (and, where
applicable unrealized) gains. The fund will pay annually, on December
31, to the Manager a fee equal to 20% of the aggregate incentive fee
base, calculated from the commencement of the fund's operations, less
the cumulative amount of the incentive fee paid to the Manager in
previous periods. The incentive fee base for a private equity security
equals realized gains less realized and unrealized losses until the
issuer of the security has completed an initial public offering and any
applicable lock-up period has expired and, thereafter, equals realized
and unrealized gains less realized and unrealized losses. In the case of
private equity funds, the incentive fee base equals the sum of all
amounts that are actually distributed to the fund less realized and
unrealized losses. The fund does not pay any incentive fee on a private
equity holding until the fund sells the holding or the holding becomes
freely sellable. For the six months ended April 30, 2003, there was
$13,369 payable for incentive fees included in the compensation of
manager amount on the Statement of operations.
The Manager has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through October 31, 2003, to the extent
that expenses of the fund (exclusive of the incentive fee, interest
expense on any borrowings, offering costs and any extraordinary
expenses) exceed an annual rate of 1.85% of its average daily net
assets.
The fund has entered into an Administrative Services Contract with
Putnam Fiduciary Trust Company ("PFTC "), an affiliate of the Manager,
to provide administrative services, including fund accounting and the
pricing of the fund shares. As compensation for the services, the fund
pays PFTC a fee at an annual rate of 0.10% of the average daily net
assets of the fund, computed daily and payable monthly.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended April 30, 2003,
the fund's expenses were reduced by $490 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee of
$25,000. Trustees receive additional fees for attendance at certain
committee meetings.
The fund intends to pay compensation to selected brokers and dealers
that are not affiliated with the fund, the Manager or Putnam, that hold
shares for their customers in accordance with the shareholder servicing
agreements between the fund and the brokers and dealers. The shareholder
servicing fee is accrued daily and payable quarterly at an annual rate
of 0.25% of the average daily net assets attributable to outstanding
shares beneficially owned by customers of the brokers and dealers.
For the six months ended April 30, 2003, Putnam Retail Management,
acting as underwriter received net commissions of $1,067 from the sale
of common shares.
Note 3 Purchases and sales of securities
- ----------------------------------------------------------------------
During the six months ended April 30, 2003, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $31,408,885 and $32,818,741, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4 Transactions with affiliated issuers
- ----------------------------------------------------------------------
Transactions during the period with companies in which the fund owned at
least 5% of the voting securities were as follows:
Name of Affiliates Purchase Cost Sales Cost Dividend Income Market Value
- ----------------------------------------------------------------------------
Refractec $3,000,000 $-- $-- $3,000,000
- ----------------------------------------------------------------------------
Market value amounts are shown for issues that are affiliated at period end.
Note 5 Share repurchase
- ----------------------------------------------------------------------
To provide liquidity to the shareholders, the fund has a policy of
making offers to repurchase a portion of its shares on a quarterly
basis, in January, April, July and October of each year. Repurchase
offers are made for at least 5% but no more than 25% of the fund's then
outstanding shares at net asset value. Repurchase offers are scheduled
to commence each quarter and be completed the following month. The fund
repurchased the following:
Date Shares Amount
- --------------------------------------------------------------------------
November 2002 120,555 $2,294,184
February 2003 113,642 2,018,275
- --------------------------------------------------------------------------
At April 30, 2003, the Manager owned 209,687 shares of the fund (5.7% of
shares outstanding) valued at $4,088,897.
- --------------------
Not FDIC Insured
- --------------------
May Lose Value
- --------------------
No Bank Guarantee
- --------------------
Fund information
INVESTMENT MANAGER
TH Lee, Putnam Capital Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Sullivan & Cromwell
TRUSTEES
Steven Spiegel
Chairman
Joseph L. Bower
John A. Hill
Stephen B. Kay
Thomas H. Lee
OFFICERS
Steven Spiegel
President
Linwood E. Bradford
Vice President
Karnig H. Durgarian
Vice President and Principal Executive Officer
Steven D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Vice President
Amrit Kanwal
Vice President and Treasurer
Charles A. Ruys de Perez
Vice President
William H. Woolverton
Vice President and Clerk
TH Lee Putnam Capital
7 Shattuck Road
Andover, Massachusetts 01810
88658 2WX 6/03
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
There have been no significant changes in the registrant's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: June 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: June 24, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 24, 2003