Semiannual Report
For the period ended April 30, 2004
TH Lee
Putnam
Capital
TH Lee, Putnam Emerging Opportunities Portfolio
Item 1. Report to Stockholders:
- -------------------------------
The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
About the fund and TH Lee, Putnam Capital LLC
TH Lee, Putnam Emerging Opportunities Portfolio (the "fund") is a
closed-end interval fund. 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
a combination of investments across public and private markets.
The fund is sponsored by an affiliate of TH Lee, Putnam Capital LLC,
which is a joint venture of Putnam Investments ("Putnam") and Thomas H.
Lee Partners LP ("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 LP, 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,
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.
The fund is managed by Roland W. Gillis, CFA, Managing Director, and
Frederick Wynn, Senior Vice President of Putnam's Specialty Growth Team,
who analyze small- and mid-capitalization growth stocks.
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
Frederick Wynn, Portfolio Manager
Performance commentary
Your fund advanced by a small amount at net asset value during its
semiannual period, which ended April 30, 2004. The stock market rally
that took root beginning in March 2003 peaked in February 2004, and
stock prices retreated in the remaining months of the period. The fund
was positioned in both publicly traded stocks and private equities that
were performing well fundamentally, and many of these companies
registered earnings growth in excess of 20% during the period. We also
made new investments in private equities, increasing our weighting in
them while decreasing our weighting in publicly traded stocks. This
explains most of the fund's underperformance relative to its benchmark,
the Russell 2500 Growth Index, which consists entirely of publicly
traded stocks. One way in which private equities differ from publicly
traded stocks is that general market trends have little impact on their
value. Most of the price movement of a private equity occurs when it
experiences a new stage of business growth or makes an initial public
offering. This did not occur with the fund's private equities during the
period and their prices were fairly stable.
- ---------------------------------------------------------------------------------------
RETURN FOR PERIODS ENDED APRIL 30, 2004
- ---------------------------------------------------------------------------------------
Russell 2500
TH Lee, Putnam Emerging Opportunities Portfolio NAV POP Growth Index
- ------------------------------------------------------------------- ------------------
6 months 1.34% -3.21% 4.56%
- ------------------------------------------------------------------- ------------------
1 year 31.59 25.66 40.45
- ------------------------------------------------------------------- ------------------
Life of fund (since inception 7/30/01) 7.61 2.75 3.34
- ------------------------------------------------------------------- ------------------
Annual average 2.69 0.99 1.20
- ------------------------------------------------------------------- ------------------
RETURN FOR PERIODS ENDED MARCH 31, 2004 (most recent quarter)
- ------------------------------------------------------------------- ------------------
Russell 2500
TH Lee, Putnam Emerging Opportunities Portfolio NAV POP Growth Index
- ------------------------------------------------------------------- ------------------
6 months 11.66% 6.63% 18.17%
- ------------------------------------------------------------------- ------------------
1 year 46.93 40.32 59.47
- ------------------------------------------------------------------- ------------------
Life of fund (since inception 7/30/01) 11.22 6.19 7.92
- ------------------------------------------------------------------- ------------------
Annual average 4.05 2.27 2.89
- ------------------------------------------------------------------- ------------------
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% (which does not reflect a reduction in
sales charges that went into effect March 22, 2004; if this reduction
had been in place for all periods indicated, returns would have been
higher). 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 a
portion of the period this fund limited expenses, without which returns
would have been lower.
Market overview
During the period, the fund's holdings performed relatively well when
the market was rallying and also were competitive during the declines of
March and April. The fund invests in many small- and mid-capitalization
stocks, which outperformed larger companies until the last month of the
period. However, we also favor high-quality companies with high rates of
earnings growth, and this style of stocks did not perform as well as
cyclical and value-style stocks with more variable earnings, which are
outside the fund's mandate.
In our opinion, stock market volatility since February has been caused
by rising interest rates, higher energy costs, and the expectation that
the Federal Reserve will shift to a more restrictive monetary policy to
prevent inflation. The deteriorating situation in Iraq also had a
negative influence. While it is normal for stock prices to react to
factors like these, we do not believe any of them has an impact on the
attractive fundamentals of the companies in the portfolio. Earnings
reports for the first few months of the year have been as solid as we
anticipated. More than 70% of the fund's holdings have had better
earnings than forecast by analysts. We believe that the market is
adjusting to new expectations for interest rates. This is positive in
that investors will have more realistic expectations, but they should
also recognize that the sky is not falling because the economic
situation and corporate earnings remain very healthy.
Strategy overview
Our fundamental research continued to uncover many companies with
impressive earnings growth in a variety of sectors. Aggressive growth
investment opportunities have diversified significantly in the past
several years. In early 2000, 60% of companies in the Russell 2500
Growth Index were technology companies. Today only 27% are technology
companies. During the period, the fund had a slight overweight to
technology stocks relative to the benchmark because sales and orders for
new equipment were accelerating. In addition to technology stocks, other
large weightings in the portfolios included health care, and both
consumer cyclicals and consumer staples.
[GRAPHIC OMITTED: PIE CHART ASSET ALLOCATION AS OF 4/30/04]
- -------------------------------------------------------------------------------
ASSET ALLOCATION AS OF 4/30/04
ASSET CLASS PERCENT OF FUND
* Public equities 66.6%
- -------------------------------------------------------------------------------
* Private equities 31.6
- -------------------------------------------------------------------------------
* Short-term instruments 1.8
- -------------------------------------------------------------------------------
Footnote reads:
Weightings are shown as a percentage of investments. Holdings will vary
over time.
The private equity portion of the portfolio was similarly diversified.
Before the period began, the fund had three such holdings -- a
technology, a health-care, and an education company. We made two new
investments during the period, one in a real estate investment trust,
which is technically in the financial services sector, and the second in
a medical-device company. With these new investments we also increased
the fund's diversification across public and private equities. The
private equity portion of the portfolio now represents approximately 30%
of assets. We continue to research private companies with the purpose of
continuing to increase exposure to private equities. We also remain in
close contact with the managers of each of the private equity holdings
to make sure they are making progress toward their business goals.
How fund holdings affected performance
The fund made two new investments in private equities in the quarter.
Spirit Finance Corporation is a real estate investment trust that
structures leases for commercial properties for retail, distribution,
and service companies. We believe this business has strong growth
potential because the leases help these companies improve their balance
sheets. Spirit's management team has long experience arranging these
transactions because they were leaders with a publicly traded company
that was bought out by a competitor a few years ago, which prompted them
to establish their own business.
The second new investment is in Restore Medical, a company that has
developed the first FDA-approved implant device to treat snoring and
sleep apnea. This product has produced much better results than any
other treatment available, and the company is aggressively marketing it
to doctors who are ear, nose, and throat specialists. Other private
equity holdings also made progress. For example, Refractec's non-laser
vision therapy has received FDA approval for treating presbyopia (the
inability to focus on nearby objects) in addition to myopia (difficulty
focusing on distant objects). This gives the therapy a wider range of
applications. It is a more compelling purchase for eye doctors because
they can use it to treat more patients, thereby improving the return on
their own investment. Another fund holding, Capella Education Company,
signed an agreement with Wal-Mart to provide online education to
employees. This move helps to position Capella with a large new market
likely to seek online education in coming years.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS AS OF 4/30/04]
- -------------------------------------------------------------------------------
TOP SECTOR WEIGHTINGS AS OF 4/30/04
- -------------------------------------------------------------------------------
Technology 25.8%
- -------------------------------------------------------------------------------
Health care 23.3
- -------------------------------------------------------------------------------
Consumer cyclicals 14.8
- -------------------------------------------------------------------------------
Consumer staples 14.6
- -------------------------------------------------------------------------------
Financial 6.2
- -------------------------------------------------------------------------------
Footnote reads:
Weightings include private and public companies and are shown as a
percentage of net assets. Holdings will vary over time.
[GRAPHIC OMITTED: horizontal bar chart TOP 10 HOLDINGS]
TOP 10 HOLDINGS (includes public and private companies) INDUSTRY
- -------------------------------------------------------------------------------
CommVault Systems Computers
- -------------------------------------------------------------------------------
Capella Education Co., Inc. Schools
- -------------------------------------------------------------------------------
Refractec Medical technology
- -------------------------------------------------------------------------------
Restore Medical Medical technology
- -------------------------------------------------------------------------------
Spirit Finance Corp. Real estate
- -------------------------------------------------------------------------------
Hudson Highland Group, Inc. Staffing
- -------------------------------------------------------------------------------
Carrier Access Corp. Telecommunications
- -------------------------------------------------------------------------------
PLX Technology, Inc. Electronics
- -------------------------------------------------------------------------------
Multimedia Games, Inc. Leisure
- -------------------------------------------------------------------------------
Career Education Corp. Schools
- -------------------------------------------------------------------------------
Footnote reads:
These holdings represent 37.1% of the fund's net assets as of 4/30/04.
Portfolio holdings will vary over time.
Among the fund's public equity holdings, Hudson Highland Companies, a
global executive search and staffing company, turned in strong
performance. This company was spun off from TMP Worldwide, a diversified
employment services company. The spin off gave Hudson Highland greater
independence and growth potential. The company has a lot of operating
leverage and the recent pickup in hiring has translated into vigorous
earnings growth for the company.
Another holding that also benefits from the current surge in global
economic growth is UTI Worldwide, a business services company that
focuses on freight forwarding and logistics. This stock offered an
opportunity because global shipping is rebounding after weakness in the
past couple of years. We believe that this company is a strong
competitor in the field with operations in over 100 countries.
In addition to stocks benefiting from better economic conditions, the
fund also owns stocks that we believe can grow whether the economy is
strong or weak. An example is Universal Technical Institute, an
educational company that trains mechanics under programs sponsored by
large manufacturers. These connections make it attractive for mechanics
who want to become qualified to repair a variety of cars and engine
types. The company is currently opening new schools and recruiting
students in many locations.
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
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
While financial markets have experienced volatility in recent months, it
is important to remember that some of this volatility is caused at root
by good news. For example, the recent increase in bond yields and the
Fed's announcement of a shift toward a more restrictive monetary policy
have generated a headwind for stocks. However, higher rates are the
result of a deepening and broadening economic recovery. In particular,
new jobs should help to sustain consumer spending and create investment
opportunities in consumer-related stocks. It is typical in an economic
cycle for the market to experience a transition point such as this,
including a tug of war between those who are confident in the recovery
and those who think the recovery contains the seeds of the next
downturn. In our view, the pessimists are overreacting. We think
consumer and business spending will remain strong and support solid
corporate profits. In the short term, the market has held back
aggressive growth stocks, so we think the area of the market in which we
invest is attractive. The private equity market has been stable, with
the supply of investment opportunities still outpacing demand. New
initial public offerings are occurring at a trickle but fundamental
conditions are getting better after the weakness of the past few years.
Across the entire portfolio, we think that strong earnings continue to
be the dominant story. Fund holdings in many sectors have hefty profit
margins that, we believe, based on our research, should remain
attractive in future quarters. The market may be volatile over the short
run but the outlook for long-term growth is still compelling.
The views expressed here are exclusively those of TH Lee Putnam Capital
Management, LLC, the fund's Manager. They are not meant as investment
advice. Although the described holdings were viewed favorably as of
4/30/04, 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 which 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. International investing involves certain risks, such as
currency fluctuations, economic instability, and political developments.
Additional risks may be associated with emerging-market securities,
including illiquidity and volatility.
The fund's portfolio
April 30, 2004 (Unaudited)
- -------------------------------------------------------------------------------
Common stocks (71.0%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
Aerospace and Defense (0.9%)
- -------------------------------------------------------------------------------
5,700 Alliant Techsystems, Inc. (NON) $337,953
15,000 Applied Signal Technology, Inc. (NON) 405,600
------------
743,553
Airlines (0.4%)
- -------------------------------------------------------------------------------
10,850 JetBlue Airways Corp. (NON) 300,328
Automotive (1.3%)
- -------------------------------------------------------------------------------
6,000 CarMax, Inc. (NON) 155,520
9,800 CLARCOR, Inc. 431,396
6,600 Donaldson Co., Inc. 181,038
7,900 Gentex Corp. 310,707
------------
1,078,661
Banking (1.4%)
- -------------------------------------------------------------------------------
13,900 Hanmi Financial Corp. 344,303
7,000 Investors Financial Services Corp. 272,090
10,400 TCF Financial Corp. 515,320
------------
1,131,713
Biotechnology (4.1%)
- -------------------------------------------------------------------------------
30,000 Amylin Pharmaceuticals, Inc. (NON) 672,000
10,400 Celgene Corp. (NON) 537,576
30,400 Connetics Corp. (NON) 591,280
12,400 Ligand Pharmaceuticals, Inc. Class B (NON) 265,484
22,300 Medicines Co. (NON) 729,433
2,300 OSI Pharmaceuticals, Inc. (NON) 169,717
13,600 Telik, Inc. (NON) 319,192
------------
3,284,682
Broadcasting (1.0%)
- -------------------------------------------------------------------------------
19,300 Citadel Broadcasting Corp. (NON) 334,855
23,200 Cumulus Media, Inc. Class A (NON) 487,664
------------
822,519
Commercial and Consumer Services (1.5%)
- -------------------------------------------------------------------------------
7,500 Choicepoint, Inc. (NON) 329,400
15,100 eCollege.com, Inc. (NON) 273,008
16,000 Monster Worldwide, Inc. (NON) 409,760
6,900 Robert Half International, Inc. (NON) 188,163
------------
1,200,331
Communications Equipment (2.8%)
- -------------------------------------------------------------------------------
19,800 ADTRAN, Inc. 485,298
16,400 Andrew Corp. (NON) 277,980
32,900 Aspect Communications Corp. (NON) 389,207
10,600 F5 Networks, Inc. (NON) 269,240
18,200 Foundry Networks, Inc. (NON) 205,660
20,500 Ixia, Inc. (NON) 183,065
600 SafeNet, Inc. (NON) 12,900
9,500 Sierra Wireless (Canada) (NON) 212,325
66,900 Sonus Networks, Inc. (NON) 254,220
------------
2,289,895
Computers (2.2%)
- -------------------------------------------------------------------------------
61,300 Capitiva Software Corp. (NON) 661,427
23,000 Catapult Communications Corp. (NON) 432,630
39,600 Mobility Electronics, Inc. (NON) 324,324
14,900 PalmOne, Inc. (NON) 243,168
4,300 Verint Systems, Inc. (NON) 115,498
------------
1,777,047
Consumer Goods (0.5%)
- -------------------------------------------------------------------------------
15,700 Yankee Candle Co., Inc. (The) (NON) 425,156
Consumer Services (0.3%)
- -------------------------------------------------------------------------------
10,000 OSI Systems, Inc. (NON) 228,100
Distribution (0.8%)
- -------------------------------------------------------------------------------
20,050 LKQ Corp. (NON) 356,088
7,500 SCP Pool Corp. (NON) 301,575
------------
657,663
Electronics (3.9%)
- -------------------------------------------------------------------------------
38,100 Brooks Automation, Inc. (NON) 633,984
18,300 Ditech Communications Corp. (NON) 263,154
15,300 Integrated Device Technology, Inc. (NON) 205,785
11,000 Intevac, Inc. (NON) 110,550
11,800 PerkinElmer, Inc. 227,150
70,300 PLX Technology, Inc. (NON) 912,494
49,100 Skyworks Solutions, Inc. (NON) 420,296
49,000 Symmetricom, Inc. (NON) 392,490
------------
3,165,903
Energy (1.3%)
- -------------------------------------------------------------------------------
18,500 CAL Dive International, Inc. (NON) 500,240
14,500 Patterson-UTI Energy, Inc. 524,755
------------
1,024,995
Forest Products and Packaging (0.9%)
- -------------------------------------------------------------------------------
20,000 Jarden Corp. (NON) 744,000
Gaming & Lottery (0.3%)
- -------------------------------------------------------------------------------
7,500 Shuffle Master, Inc. (NON) 245,625
Health Care Services (5.8%)
- -------------------------------------------------------------------------------
11,900 AMERIGROUP Corp. (NON) 493,969
19,250 Centene Corp. (NON) 644,875
17,300 Community Health Systems, Inc. (NON) 446,167
5,600 Henry Schein, Inc. (NON) 394,632
10,500 Manor Care, Inc. 340,620
12,100 Omnicare, Inc. 501,908
6,700 Pediatrix Medical Group, Inc. (NON) 479,050
9,000 United Surgical Partners International, Inc. (NON) 325,980
17,800 VCA Antech, Inc. (NON) 727,842
8,400 WellChoice, Inc. (NON) 356,160
------------
4,711,203
Homebuilding (0.5%)
- -------------------------------------------------------------------------------
8,800 Lennar Corp. 412,280
Investment Banking/Brokerage (1.1%)
- -------------------------------------------------------------------------------
7,100 Piper Jaffray Companies, Inc. (NON) 343,782
10,300 T. Rowe Price Group, Inc. 528,184
------------
871,966
Leisure (1.1%)
- -------------------------------------------------------------------------------
40,300 Multimedia Games, Inc. (NON) 897,884
Lodging/Tourism (0.6%)
- -------------------------------------------------------------------------------
69,200 La Quinta Corp. (NON) 497,548
Manufacturing (1.4%)
- -------------------------------------------------------------------------------
13,100 IDEX Corp. 618,975
11,300 Roper Industries, Inc. 548,615
------------
1,167,590
Medical Technology (2.6%)
- -------------------------------------------------------------------------------
17,900 Atherogenics, Inc. (NON) 422,798
45,000 Cardiodynamics International Corp. (NON) 263,250
25,400 Epix Medical, Inc. (NON) 622,808
20,500 Merit Medical Systems, Inc. (NON) 322,055
4,700 Respironics, Inc. (NON) 246,327
25,000 Sonic Innovations, Inc. (NON) 228,750
------------
2,105,988
Oil & Gas (1.6%)
- -------------------------------------------------------------------------------
17,600 Chesapeake Energy Corp. 242,000
30,000 W-H Energy Svcs., Inc. (NON) 551,400
18,250 XTO Energy, Inc. 487,275
------------
1,280,675
Pharmaceuticals (1.5%)
- -------------------------------------------------------------------------------
6,500 Cephalon, Inc. (NON) 369,915
20,000 Penwest Pharmaceuticals Co. (Private) (NON) 318,000
16,204 Salix Pharmaceuticals, Ltd. (NON) 501,190
------------
1,189,105
Real Estate (3.7%)
- -------------------------------------------------------------------------------
300,000 Spirit Finance Corp. 144A (Private) (NON) 3,000,000
Restaurants (0.4%)
- -------------------------------------------------------------------------------
10,000 Red Robin Gourmet Burgers, Inc. (NON) 287,500
Retail (8.0%)
- -------------------------------------------------------------------------------
12,500 Abercrombie & Fitch Co. Class A (NON) 393,125
7,300 Advance Auto Parts, Inc. (NON) 314,995
11,400 Chico's FAS, Inc. (NON) 464,322
19,400 Dick's Sporting Goods, Inc. (NON) 523,218
11,000 Hughes Supply, Inc. 614,790
7,300 Linens 'N Things, Inc. (NON) 236,812
12,100 Michaels Stores, Inc. 605,363
6,400 NBTY, Inc. (NON) 237,824
9,900 Pacific Sunwear of California, Inc. (NON) 212,553
8,100 PETCO Animal Supplies, Inc. (NON) 237,816
20,600 PETsMART, Inc. 570,620
20,800 Ross Stores, Inc. 634,400
17,800 Tractor Supply Co. (NON) 695,268
13,000 West Marine, Inc. (NON) 378,040
10,500 Williams-Sonoma, Inc. (NON) 341,040
------------
6,460,186
Schools (3.0%)
- -------------------------------------------------------------------------------
12,400 Career Education Corp. (NON) 793,600
17,800 Corinthian Colleges, Inc. (NON) 545,036
12,500 Education Management Corp. (NON) 443,250
15,170 Universal Technical Institute, Inc. (NON) 674,913
------------
2,456,799
Semiconductor (0.3%)
- -------------------------------------------------------------------------------
25,100 LTX Corp. (NON) 274,343
Shipping (1.5%)
- -------------------------------------------------------------------------------
20,200 Heartland Express, Inc. 495,910
10,200 J. B. Hunt Transport Services, Inc. (NON) 322,932
16,500 Knight Transportation, Inc. (NON) 425,040
------------
1,243,882
Software (5.1%)
- -------------------------------------------------------------------------------
14,000 Akamai Technologies, Inc. (NON) 165,480
8,900 Cognos, Inc. (Canada) (NON) 280,617
35,000 Embarcadero Technologies, Inc. (NON) 451,850
5,000 FileNET Corp. (NON) 137,300
50,000 Interwoven, Inc. (NON) 419,500
84,400 Matrixone, Inc. (NON) 507,244
62,800 Micromuse, Inc. (NON) 421,388
26,264 RADWARE, Ltd. (Israel) (NON) 554,958
15,000 Red Hat, Inc. (NON) 340,650
36,500 RSA Security, Inc. (NON) 584,730
33,300 webMethods, Inc. (NON) 286,380
------------
4,150,097
Staffing (1.3%)
- -------------------------------------------------------------------------------
34,100 Hudson Highland Group, Inc. (NON) 1,043,119
Technology Services (1.5%)
- -------------------------------------------------------------------------------
8,000 Ask Jeeves (NON) 283,760
25,600 DiamondCluster International, Inc. Class A (NON) 262,400
11,500 Digital River, Inc. (NON) 296,125
37,340 Wireless Facilities, Inc. (NON) 358,091
------------
1,200,376
Telecommunications (3.1%)
- -------------------------------------------------------------------------------
39,130 American Tower Corp. Class A (NON) 487,169
90,000 Carrier Access Corp. (NON) 957,600
33,400 Crown Castle International Corp. (NON) 465,930
8,300 Spectrasite, Inc. (NON) 310,171
82,000 WJ Communications, Inc. (NON) 266,500
------------
2,487,370
Textiles (0.5%)
- -------------------------------------------------------------------------------
11,000 Armor Holdings, Inc. (NON) 363,440
Transportation (0.7%)
- -------------------------------------------------------------------------------
13,100 UTI Worldwide, Inc. (Virgin Islands) 600,111
Transportation Services (0.6%)
- -------------------------------------------------------------------------------
10,700 Landstar Systems, Inc. (NON) 481,072
Waste Management (1.5%)
- -------------------------------------------------------------------------------
32,100 Casella Waste Systems, Inc. Class A (NON) 465,450
9,200 Stericycle, Inc. (NON) 439,944
7,600 Waste Connections, Inc. (NON) 306,052
------------
1,211,446
------------
Total Common stocks (cost $49,251,698) $57,514,151
Convertible preferred stocks (27.7%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
449,640 Capella Education Co., Inc. Ser. G, zero %
cv. pfd. (Private) (acquired 2/14/02,
cost $5,009,274) (RES) $6,744,597
2,235,708 CommVault Systems Ser. CC, zero % cv.
pfd. (Private) (acquired various dates
from 1/30/02 through 9/4/03, cost $7,011,031) (RES) 8,048,549
833,333 Refractec Ser. D, zero % cv. pfd. (Private)
(acquired various dates from 8/16/02 through
6/30/03, cost $4,999,998)(RES)(AFF) 4,608,331
1,145,039 Restore Medical Ser. C, zero % cv. pfd. (Private)
(acquired 1/28/04, cost $3,010,002)(RES)(AFF) 3,000,002
------------
Total Convertible preferred stocks
(cost $20,030,306) $22,401,479
Short-term investments (1.8%) (a) (cost $1,466,000)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------
$1,466,000 Repurchase agreement dated April 30, 2004 with
Goldman Sachs & Co. due May 3, 2004 with respect
to various U.S. Government obligations -- maturity
value of $1,466,126 for an effective yield of 1.03%
(collateralized by Freddie Mac 2.43% due 3/23/2007,
valued at $1,494,500) $1,466,000
- -------------------------------------------------------------------------------
Total Investments (cost $70,748,004) $81,381,630
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $80,962,185.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at April 30, 2004 was
$22,401,479 or 27.7% 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, 2004 (Unaudited)
- -------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$70,748,004) (Note 1) $81,381,630
- -------------------------------------------------------------------------------
Cash 984
- -------------------------------------------------------------------------------
Dividends receivable 7,136
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 311,649
- -------------------------------------------------------------------------------
Receivable for securities sold 469,615
- -------------------------------------------------------------------------------
Total assets 82,171,014
- -------------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 454,227
- -------------------------------------------------------------------------------
Payable for shareholder servicing fees (Note 2) 15,837
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 144,329
- -------------------------------------------------------------------------------
Payable for incentive fee (Note 2) 474,235
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 34,956
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,882
- -------------------------------------------------------------------------------
Other accrued expenses 78,363
- -------------------------------------------------------------------------------
Total liabilities 1,208,829
- -------------------------------------------------------------------------------
Net assets $80,962,185
- -------------------------------------------------------------------------------
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Note 1) $72,957,086
- -------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (850,853)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (1,777,674)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 10,633,626
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $80,962,185
- -------------------------------------------------------------------------------
Computation of net asset value
- -------------------------------------------------------------------------------
Net asset value and redemption price per common share
($80,962,185 divided by 3,154,898 shares) $25.66
- -------------------------------------------------------------------------------
Offering price per common share (100/95.75 of $25.66)* $26.80
- -------------------------------------------------------------------------------
* On single retail shares 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, 2004 (Unaudited)
- -------------------------------------------------------------------------------
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $58) $51,888
- -------------------------------------------------------------------------------
Interest 8,084
- -------------------------------------------------------------------------------
Total investment income 59,972
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 506,942
- -------------------------------------------------------------------------------
Incentive fee (Note 2) 129,376
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 85,572
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 37,500
- -------------------------------------------------------------------------------
Administrative services (Note 2) 42,327
- -------------------------------------------------------------------------------
Shareholder servicing fees (Note 2) 96,872
- -------------------------------------------------------------------------------
Other 69,245
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (56,921)
- -------------------------------------------------------------------------------
Total expenses 910,913
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (88)
- -------------------------------------------------------------------------------
Net expenses 910,825
- -------------------------------------------------------------------------------
Net investment loss (850,853)
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 8,875,373
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (6,674,739)
- -------------------------------------------------------------------------------
Net gain on investments 2,200,634
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,349,781
- -------------------------------------------------------------------------------
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
2004* 2003
- -------------------------------------------------------------------------------
Increase (decrease) in net assets
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment loss $(850,853) $(1,652,953)
- -------------------------------------------------------------------------------
Net realized gain on investments 8,875,373 2,697,373
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (6,674,739) 21,817,464
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 1,349,781 22,861,884
- -------------------------------------------------------------------------------
Capital share transactions:
- -------------------------------------------------------------------------------
Proceeds from shares issued 1,507,554 1,771,897
- -------------------------------------------------------------------------------
Cost of sales repurchased (Note 5) (11,915,553) (8,295,425)
- -------------------------------------------------------------------------------
Net decrease from capital share transactions (10,407,999) (6,523,528)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (9,058,218) 16,338,356
- -------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------
Beginning of period 90,020,403 73,682,047
- -------------------------------------------------------------------------------
End of period $80,962,185 $90,020,403
- -------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------
Shares outstanding at beginning of period 3,554,909 3,897,584
- -------------------------------------------------------------------------------
Shares issued 57,176 77,710
- -------------------------------------------------------------------------------
Shares repurchased (Note 5) (457,187) (420,385)
- -------------------------------------------------------------------------------
Shares outstanding at end of period 3,154,898 3,554,909
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Statement of cash flows
For the six months ended April 30, 2004 (Unaudited)
- -------------------------------------------------------------------------------
Increase in cash
- -------------------------------------------------------------------------------
Cash flows from operating activities:
- -------------------------------------------------------------------------------
Net increase in net assets from operations $1,349,781
- -------------------------------------------------------------------------------
Adjustments to reconcile net increase in net assets from
operations to net cash used in operating and investing activities:
- -------------------------------------------------------------------------------
Purchase of investment securities (40,980,131)
- -------------------------------------------------------------------------------
Proceeds from disposition of investment
securities 52,742,932
- -------------------------------------------------------------------------------
Sale of short-term investment securities,
net (8,000)
- -------------------------------------------------------------------------------
Increase in dividends and interest
receivable (5,740)
- -------------------------------------------------------------------------------
Decrease in receivables for securities sold 189,863
- -------------------------------------------------------------------------------
Decrease in payable for securities purchased (880,822)
- -------------------------------------------------------------------------------
Decrease in payable for shareholder
servicing fees (1,153)
- -------------------------------------------------------------------------------
Decrease in payable for compensation of
Manager (23,964)
- -------------------------------------------------------------------------------
Increase in payable for incentive fee 129,376
- -------------------------------------------------------------------------------
Increase in payable for investor servicing
and custodian fees 10,469
- -------------------------------------------------------------------------------
Decrease in payable for administration
services (677)
- -------------------------------------------------------------------------------
Decrease in other accrued expenses (17,396)
- -------------------------------------------------------------------------------
Net realized gain on investments (8,875,373)
- -------------------------------------------------------------------------------
Net unrealized depreciation on investments
during the period 6,674,739
- -------------------------------------------------------------------------------
Net cash used in operating and investing
activities $10,303,904
- -------------------------------------------------------------------------------
Cash flows from financing activities:
- -------------------------------------------------------------------------------
Proceeds from shares sold 1,612,381
- -------------------------------------------------------------------------------
Payment of shares redeemed (11,915,553)
- -------------------------------------------------------------------------------
Net cash provided by financing activities (10,303,172)
- -------------------------------------------------------------------------------
Net increase in cash 732
- -------------------------------------------------------------------------------
Cash balance, beginning of period 252
- -------------------------------------------------------------------------------
Cash balance, end of period $984
- -------------------------------------------------------------------------------
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 July 30, 2001+
operating performance (Unaudited) Year ended October 31 to October 31
- -----------------------------------------------------------------------------------------------------
2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $25.32 $18.91 $22.44 $23.88
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) (a)(b) (.26) (.45) (.38) -- (e)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .60 6.86 (3.11) (1.44)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations .34 6.41 (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 $25.66 $25.32 $18.91 $22.44
- -----------------------------------------------------------------------------------------------------
Total return at net asset value
after incentive fee (%)(c) 1.34* 33.90 (15.61) (6.03)*
- -----------------------------------------------------------------------------------------------------
Total return at net asset value
before incentive fee (%)(c) 1.50* 34.43 (15.61) (6.03)*
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $80,962 $90,020 $73,682 $85,908
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets after incentive fee (%)(b)(d) 1.07* 2.30 2.21 .58*
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets before incentive fee (%)(b)(d) .92* 1.85 2.21 .58*
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%)(b) (1.00)* (2.17) (1.76) --*
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 48.77* 93.90 102.88 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, 2004, October 31, 2003, October 31, 2002 and October 31, 2001
reflect a reduction of 0.07%, 0.10%, 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.
Notes to financial statements
April 30, 2004 (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 4.25%. Prior to March 22, 2004, the maximum front-end
sales charge was 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 clients, as defined in the
Investment Advisers Act of 1940 as amended.
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 their 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.
Many securities markets and exchanges outside the U.S. close prior to the
close of the New York Stock Exchange and therefore the closing prices for
securities in such markets or on such exchanges may not fully reflect
events that occur after such close but before the close of the New York
Stock Exchange. Accordingly, on certain days, the fund will fair value
foreign securities taking into account multiple factors, including
movements in the U.S. securities markets. The number of days on which fair
value prices will be used will depend on market activity and it is possible
that fair value prices will be used by the fund to a significant extent.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates fair value. Such valuations and procedures are reviewed
periodically by the Trustees.
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 accounted for on the trade date (date the
order to buy or sell is executed). Gains or losses on securities sold
are determined on the identified cost basis. Interest income is recorded
on the accrual basis. Dividend income, net of applicable withholding
taxes, is recognized 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 (the "Code"), 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, 2003, the fund had a capital loss carryover of
$10,650,861 available to the extent allowed by the Code to offset future
net capital gain, if any. This capital loss carryover will expire on
October 31, 2010.
The aggregate identified cost on a tax basis is $70,750,190, resulting
in gross unrealized appreciation and depreciation of $13,926,568 and
$3,295,128, respectively, or net unrealized appreciation of $10,631,440.
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, 2004.
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, 2004, incentive fees
totaling $129,376 have been accrued based on the aggregate incentive fee
base.
The Manager has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through October 31, 2004, 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. Putnam
Investor Services, a division of PFTC, provides investor serving agent
functions to the fund. During the six months ended April 30, 2004, the
fund paid PFTC $74,980 for these services.
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, 2004,
the fund's expenses were reduced by $88 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, 2004, Putnam Retail Management, L.P.,
acting as underwriter, received net commissions of $4,948 from the sale
of common shares.
Note 3 Purchases and sales of securities
- ---------------------------------------------------------------------------
During the six months ended April 30, 2004, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $40,980,131 and $52,742,932, respectively. There
were no purchases or sales of U.S. government securities.
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 Fair Value
- ------------------------------------------------------------------------------
Refractec $-- $-- $-- $4,608,331
Restore Medical 3,010,002 -- -- 3,000,002
- ------------------------------------------------------------------------------
Totals $3,010,002 $-- $-- $7,608,333
- ------------------------------------------------------------------------------
Fair 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. During
the six months ended April 30, 2004, the fund repurchased 457,187 shares
valued at $11,915,553.
Date Shares Amount
- ----------------------------------------------------------------
November 2003 248,086 $6,378,286
February 2004 209,101 5,537,267
- ----------------------------------------------------------------
At April 30, 2004, the Manager owned 209,687 shares of the fund (6.6% of
shares outstanding) valued at $5,380,568.
Note 6 Regulatory matters and litigation
- ---------------------------------------------------------------------------
On April 8, 2004, Putnam Investment Management, LLC, ("Putnam
Management") an indirect wholly-owned subsidiary of Putnam, LLC, and an
affiliate of TH Lee Putnam Capital Management LLC, entered into
agreements with the Securities and Exchange Commission and the
Massachusetts Securities Division representing a final settlement of all
charges brought against Putnam Management by those agencies on October
28, 2003 in connection with excessive short-term trading by Putnam
employees and, in the case of the charges brought by the Massachusetts
Securities Division, by participants in some Putnam-administered 401(k)
plans. The settlement with the SEC requires Putnam Management to pay $5
million in disgorgement plus a civil monetary penalty of $50 million,
and the settlement with the Massachusetts Securities Division requires
Putnam Management to pay $5 million in restitution and an administrative
fine of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds. Review
of these matters by counsel for Putnam Management and by separate
independent counsel for Putnam funds and their independent Trustees is
continuing.
Fund information
INVESTMENT MANAGER
TH Lee, Putnam Capital Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, L.P.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Sullivan & Cromwell, LLP
TRUSTEES
John A. Hill
Chairman
Joseph L. Bower
Stephen B. Kay
Thomas H. Lee
OFFICERS
Linwood E. Bradford
President and Principal Executive Officer
Michael T. Healy
Vice President
Amrit Kanwal
Vice President and Treasurer
Steven D. Krichmar
Vice President and Principal Financial Officer
Francis J. McNamara, III
Vice President and Clerk
James P. Pappas
Vice President
Charles A. Ruys de Perez
Vice President and Assistant Clerk
Not FDIC Insured
May Lose Value
No Bank Guarantees
TH Lee Putnam Capital
7 Shattuck Road
Andover, Massachusetts 01810
214217 2WX 6/04
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. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- ---------------------------------
(a) 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 generally 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.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officers
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. 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 28, 2004
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/Linwood E. Bradford
---------------------------
Linwood E. Bradford
Principal Executive Officer
Date: June 28, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 28, 2004