Annual Report
For the period ended October 31, 2004
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 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 diversification 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 Richard Weed, Frederick Wynn, and Raymond
Haddad, who are Senior Vice Presidents with Putnam's Small and
Emerging Growth Team, which analyzes 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
Richard Weed, Portfolio Manager
Frederick Wynn, Portfolio Manager
Performance commentary
During its fiscal year, which ended October 31, 2004, TH Lee, Putnam
Emerging Opportunities Portfolio advanced at net asset value (NAV) and
public offering price (POP), with both its publicly traded stocks and
privately issued venture capital investments contributing to its
performance. Although growth-style stocks lagged the broader stock
market during the past 12 months, the portfolio benefited from its
emphasis on mid- and small-capitalization stocks, which outperformed
larger companies. The fund underperformed its benchmark, the Russell
2500 Growth Index, because of positions in publicly traded stocks. The
venture capital investments performed well thanks primarily to the
fundamental business performance of the companies themselves, and to a
modest improvement in the venture capital market.
RETURN FOR PERIODS ENDED OCTOBER 31, 2004
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TH Lee, Putnam Emerging Russell 2500
Opportunities Portfolio NAV POP Growth Index
- ----------------------------------------------------------------------
1 year 4.82% 0.11% 6.14%
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Life of fund (since
inception 7/30/01) 11.30 6.27 4.90
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Annual average 3.34 1.88 1.48
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RETURN FOR PERIODS ENDED SEPTEMBER 30, 2004 (most recent quarter)
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TH Lee, Putnam Emerging Russell 2500
Opportunities Portfolio NAV POP Growth Index
- ----------------------------------------------------------------------
1 year 7.92% 3.06% 11.69%
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Life of fund (since
inception 7/30/01) 7.49 2.63 2.00
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Annual average 2.30 0.82 0.63
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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% (which does not reflect a reduction in
sales charges that went into effect on 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 the smallest 2,500 companies in the Russell 3000 Index 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
The recovery in the stock market that began in 2003 hit a peak in
February and March of 2004. The rally had been based on expectations of
a powerful economic recovery and a vast improvement in corporate
earnings. Small and midsize aggressive growth companies were full
participants in the profit recovery. Since March and April, the economy
has shifted to a slower but steady pace of growth. Corporate profits
have remained strong, but the market has gained little new ground while
experiencing more volatility because of higher interest rates and higher
energy costs.
During recent months, the markets for venture capital and initial public
offerings (IPOs) both began to emerge from their dormant phase of the
past couple of years. Deal volume of initial public offerings improved,
as more than 150 companies went public in the first 10 months of
calendar year 2004. High-profile IPOs like Google's attracted public
attention. Even more encouraging was the quality of many of the
companies that debuted this year. In our opinion, in the past few years
many high-quality companies were waiting for better conditions to make
public offerings, and the door began to open for them this year. At the
same time, the late-stage venture capital market still offers many
attractive growth opportunities.
Strategy overview
For the publicly traded portion of the fund's portfolio, we select
stocks of small and midsize companies that we believe have the best
potential to deliver earnings growth well above the average of stocks in
general. Using quantitative tools, we first screen the Russell 2500
Growth Index, the fund's performance benchmark, to identify stocks we
consider likely to achieve substantial capital appreciation. Our
analysts then research the companies we consider candidates, talking to
the company managers as well as their customers and suppliers. With this
variety of input, both quantitative and fundamental, we construct the
portfolio. We try to keep sector weightings close to those of the
benchmark index, though we have flexibility to increase weightings when
we see opportunities or decrease them when we see risks. Early in the
past fiscal year, we had increased the fund's weightings in consumer
cyclical stocks as the economy surged. We also added to the technology
weighting as businesses began increasing their investments in new
equipment. We reduced these overweights as stocks in these sectors
reached what we considered to be their fair valuations. The portfolio
weightings ended the fiscal year closer to those of the benchmark.
[GRAPHIC OMITTED: pie chart ASSET ALLOCATION AS OF 10/31/04]
ASSET ALLOCATION AS OF 10/31/04
ASSET CLASS PERCENT OF FUND
- -----------------------------------------------
Public equities 64.6%
- -----------------------------------------------
Private equities 35.4
- -----------------------------------------------
Footnote reads:
Weightings are shown as a percentage of investments. Holdings will vary
over time.
For the fund's venture capital investments, we monitor a wide variety of
private companies and perform fundamental due diligence research on
those we consider to offer attractive growth potential. During the past
fiscal year we added two new investments in private companies, Restore
Medical, which makes medical devices for treating sleep disorders, and
Spirit Finance Corporation, which provides customized financing
solutions for consumer retail and service companies that operate
commercial real estate facilities. The fund now has investments in a
diverse range of private companies operating in four sectors: health
care, technology, financial services, and schools.
How fund holdings affected performance
The technology sector is the largest in the fund's benchmark, though, at
less than 30% of the growth universe, it represents less than half the
share of this sector that it had four years ago. Stocks in the
technology sector generally performed well early in your fund's fiscal
period, based on optimism for business investment in new equipment, but
they have experienced more spotty performance since March 2004 because
of signs that some businesses were delaying decisions. Holdings that
performed well included Sigma Designs, which specializes in technology
for decoding digital video and sound recordings in consumer products. We
took profits on Sigma, reducing it to a small position after its strong
performance earlier in the year. Ditech Communications, which supplies
equipment for digital voice networks to help eliminate problems with
echo and background noise, also did well. Brooks Automation, which
supplies automation technology to semiconductor manufacturers, steadily
declined during the year but it remains a significant holding in the
sector because we believe it has favorable prospects.
Connetics Corporation, a holding that focuses on new dermatological
products for widespread skin problems like psoriasis, contributed strong
performance to the fund even as the broader sector struggled.
TOP SECTOR WEIGHTINGS AS OF 10/31/04 (includes both public and private
holdings)
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Technology 28.3%
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Health care 22.9
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Consumer cyclicals 14.3
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Consumer staples 13.9
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Financial 11.2
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Weightings are shown as a percentage of net assets. Holdings will vary
over time.
TOP 10 HOLDINGS (includes public and private companies)
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INDUSTRY
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Capella Education Co., Inc. Schools
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CommVault Systems Computers
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Refractec Medical Technology
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Restore Medical Medical Technology
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Spirit Finance Corp. Real Estate
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C.R. Bard, Inc. Medical Technology
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Avid Technology Software
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Commerce Bancorp, Inc. Banking
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GTECH Holdings Corp. Gaming & Lottery
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NVR, Inc. Homebuilding
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These holdings represent 39.1% of the fund's net assets as of 10/31/04.
Portfolio holdings will vary over time.
We acquired a position in Greenhill, which had its initial public
offering in May. Greenhill is an investment-banking firm that operates
in many global markets and sectors. Its two growth businesses are
advising companies on mergers and acquisitions, and managing funds that
invest in privately held companies. This stock performed very well
through the end of the fund's fiscal period.
The private equity holdings in the portfolio have continued to develop
stronger business operations during the fiscal year, in our view. We
closely monitor their performance and talk to company executives
frequently. CommVault, which specializes in data storage solutions for
computer networks, has benefited from better conditions in the
technology sector. Restore Medical, one of the two new positions we
added in this fiscal year, received approval from the U.S. Food and Drug
Administration for using its Pillar[R] Procedure for treating obstructive
sleep apnea. People with this condition briefly stop breathing during
sleep, which causes chronic fatigue that can contribute to other health
problems. The FDA had previously approved the system for treating
snoring. The new approval allows Restore Medical to seek additional
reimbursement from health-care providers who use the system to treat
both disorders. This is a strong growth opportunity because snoring and
sleep apnea afflict millions of people.
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.
Looking ahead to the coming fiscal year, we believe generally healthy
economic conditions will continue to support profits for aggressive
growth companies. The U.S. gross domestic product has grown at a rate of
approximately 3.5% over the past few quarters and a moderate number of
new jobs are being created each month. Interest rates, though higher,
are still low enough to accommodate economic growth. Oil prices may
remain high enough to restrain growth, but the silver lining is that, in
response, the U.S. Federal Reserve Board may increase interest rates
more slowly than it otherwise would. Against this background, we have
strong confidence in the companies we own in the portfolio thanks to our
thorough quantitative and fundamental research process. We believe both
the public and private companies in which we invest have the right
business models, offer superior products and services, and are well
managed. With these advantages, we believe they can earn the high rates
of growth and profitability that they pursue.
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
10/31/04, 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 definition of a
"qualified client," as defined in and adopted under the Investment
Advisers Act of 1940, as amended.
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 an
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 invests some or all of
its assets in small and/or midsize companies. Such investments increase
the risk of greater price fluctuations.
Changes to your fund's management
During the fund's fiscal year, Roland Gillis left the fund as Portfolio
Manager, Richard B. Weed joined the fund as Portfolio Manager and
Raymond K. Haddad joined the fund as Portfolio Member. Mr. Weed has been
a Senior Vice President at Putnam Investments since December 2000.
Previously, he was employed at State Street Global Advisors. Mr. Haddad
joined Putnam Investments as Senior Vice President in 2000. From 1999 to
2000, he was a Research Associate with Sanford C. Bernstein & Co., and
from 1997 to 1999 he was a Research Associate with Schroders.
Report of independent registered public accounting firm
To the Trustees of TH Lee, Putnam Investment Trust and Shareholders of
TH Lee, Putnam Emerging Opportunities Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of
operations, changes in net assets and of cash flows and the financial
highlights present fairly, in all material respects, the financial
position of TH Lee, Putnam Emerging Opportunities Portfolio (the "fund")
at October 31, 2004, and the results of its operations, the changes in
its net assets, its cash flows and the financial highlights for each of
the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of investments owned at
October 31, 2004, by correspondence with the custodian, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 17, 2004
The fund's portfolio
October 31, 2004
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Common stocks (69.0%) (a)
NUMBER OF SHARES VALUE
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Advertising and Marketing Services (0.3%)
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11,760 Greenfield Online, Inc. (NON) $247,313
Aerospace and Defense (2.3%)
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7,400 Alliant Techsystems, Inc. (NON) 425,426
11,400 Applied Signal Technology, Inc. 345,306
13,500 Rockwell Collins, Inc. 478,845
12,300 United Defense Industries, Inc.
(NON) 493,722
--------------
1,743,299
Automotive (1.1%)
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8,900 Autoliv, Inc. (Sweden) 380,475
8,800 CLARCOR, Inc. 433,840
--------------
814,315
Banking (3.1%)
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10,000 Commerce Bancorp, Inc. 592,400
5,498 Compass Bancshares, Inc. 262,639
10,100 Investors Financial Services Corp. 388,749
12,100 Pacific Capital Bancorp. 385,143
15,200 TCF Financial Corp. 479,104
8,400 Texas Regional Bancshares, Inc. 268,212
--------------
2,376,247
Biotechnology (3.3%)
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17,600 Amylin Pharmaceuticals, Inc. (NON) 374,880
12,600 Celgene Corp. (NON) 373,212
12,200 Connetics Corp. (NON) 327,936
14,200 Medicines Co. (NON) 378,288
12,900 MGI Pharma, Inc. (NON) 344,043
4,200 Neurocrine Biosciences, Inc. (NON) 195,510
6,700 Onyx Pharmaceuticals, Inc. (NON) 188,002
5,900 OSI Pharmaceuticals, Inc. (NON) 383,382
--------------
2,565,253
Commercial and Consumer Services (0.5%)
- -------------------------------------------------------------------------------
2,000 Choicepoint, Inc. (NON) 83,260
4,800 Corporate Executive Board Co. (The) 305,520
--------------
388,780
Communications Equipment (3.6%)
- -------------------------------------------------------------------------------
19,200 ADTRAN, Inc. 414,720
26,400 Aspect Communications Corp. (NON) 251,196
19,100 Comverse Technology, Inc. (NON) 394,224
13,000 F5 Networks, Inc. (NON) 519,350
7,300 Harris Corp. 449,169
15,500 Sierra Wireless (Canada) (NON) 264,430
31,100 Sonus Networks, Inc. (NON) 183,490
14,200 Tekelec (NON) 316,944
--------------
2,793,523
Computers (1.3%)
- -------------------------------------------------------------------------------
40,500 Capitiva Software Corp. (NON) 398,520
13,000 Catapult Communications Corp. (NON) 319,280
14,400 PalmSource, Inc. (NON) 322,848
--------------
1,040,648
Consumer Finance (1.2%)
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7,400 First Marblehead Corp. (The) (NON) 396,640
32,600 Providian Financial Corp. (NON) 506,930
--------------
903,570
Consumer Goods (0.8%)
- -------------------------------------------------------------------------------
5,800 Energizer Holdings, Inc. (NON) 269,294
14,000 Yankee Candle Co., Inc. (The) (NON) 387,800
--------------
657,094
Consumer Services (0.6%)
- -------------------------------------------------------------------------------
10,400 Alliance Data Systems Corp. (NON) 439,712
Distribution (0.5%)
- -------------------------------------------------------------------------------
14,800 Hughes Supply, Inc. 420,468
50 SCP Pool Corp. 1,460
--------------
421,928
Electrical Equipment (0.3%)
- -------------------------------------------------------------------------------
14,400 Color Kinetics, Inc. (NON) 230,976
Electronics (3.3%)
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29,300 Brooks Automation, Inc. (NON) 435,984
15,600 Ditech Communications Corp. (NON) 357,864
37,400 Integrated Device Technology, Inc.
(NON) 442,068
11,100 Jabil Circuit, Inc. (NON) 269,841
22,100 PerkinElmer, Inc. 453,934
24,700 PLX Technology, Inc. (NON) 222,671
11,800 Sigma Designs, Inc. (NON) 92,866
17,800 Volterra Semiconductor Corp. (NON) 302,600
--------------
2,577,828
Energy (0.7%)
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5,000 CAL Dive International, Inc. (NON) 177,050
10,900 CONSOL Energy, Inc. 385,860
--------------
562,910
Financial (0.7%)
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3,100 Chicago Mercantile Exchange 544,763
Gaming & Lottery (1.1%)
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24,500 GTECH Holdings Corp. 579,915
6,600 Shuffle Master, Inc. (NON) 277,794
--------------
857,709
Health Care Services (5.5%)
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9,900 American Healthways, Inc. (NON) 298,782
4,400 AMERIGROUP Corp. (NON) 264,000
8,450 Centene Corp. (NON) 400,784
13,600 Community Health Systems, Inc. (NON) 364,752
9,100 Fisher Scientific International,
Inc. (NON) 521,976
7,200 Genesis HealthCare Corp. (NON) 220,896
6,900 Henry Schein, Inc. (NON) 436,287
12,700 Manor Care, Inc. 415,798
6,000 Pediatrix Medical Group, Inc. (NON) 337,500
6,300 Universal Health Services, Inc.
Class B 261,828
20,600 VCA Antech, Inc. (NON) 461,852
6,700 WellChoice, Inc. (NON) 279,792
--------------
4,264,247
Homebuilding (1.6%)
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7,000 Lennar Corp. 314,860
900 NVR, Inc. (NON) 564,300
3,700 Ryland Group, Inc. (The) 352,943
--------------
1,232,103
Insurance (0.8%)
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9,000 W.R. Berkley Corp. 384,660
6,800 Willis Group Holdings, Ltd.
(Bermuda) 244,460
--------------
629,120
Investment Banking/Brokerage (1.6%)
- -------------------------------------------------------------------------------
31,200 E*Trade Group, Inc. (NON) 402,480
10,300 Eaton Vance Corp. 449,286
15,600 Greenhill & Co., Inc. 350,844
--------------
1,202,610
Leisure (0.8%)
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5,300 Polaris Industries, Inc. 314,555
10,500 Winnebago Industries, Inc. 329,700
--------------
644,255
Lodging/Tourism (1.5%)
- -------------------------------------------------------------------------------
7,100 Choice Hotels International, Inc. 354,290
26,100 Hilton Hotels Corp. 519,390
34,900 La Quinta Corp. (NON) 280,945
--------------
1,154,625
Manufacturing (0.8%)
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7,250 IDEX Corp. 267,525
5,600 Roper Industries, Inc. 345,296
--------------
612,821
Medical Technology (3.0%)
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7,900 Atherogenics, Inc. (NON) 236,526
11,600 C.R. Bard, Inc. 658,880
13,500 DJ Orthopedics, Inc. (NON) 230,175
20,800 Epix Pharmaceuticals, Inc. (NON) 325,104
7,700 Kinetic Concepts, Inc. (NON) 383,691
18,200 Merit Medical Systems, Inc. (NON) 188,370
6,500 Respironics, Inc. (NON) 332,085
--------------
2,354,831
Oil & Gas (1.2%)
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13,300 Chesapeake Energy Corp. 213,864
8,200 Noble Energy, Inc. 475,600
12,600 W-H Energy Services, Inc. (NON) 256,410
50 XTO Energy, Inc. 1,669
--------------
947,543
Pharmaceuticals (0.8%)
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5,800 Cephalon, Inc. (NON) 276,486
20,000 Penwest Pharmaceuticals Co.
(Private) (NON) 217,600
5,686 Salix Pharmaceuticals, Ltd. (NON) 91,147
--------------
585,233
Real Estate (3.9%)
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300,000 Spirit Finance Corp. 144A (Private)
(acquired 12/17/03, cost $3,000,000) (NON) (RES) 3,000,000
Restaurants (1.0%)
- -------------------------------------------------------------------------------
6,800 CEC Entertainment, Inc. (NON) 258,536
15,800 Darden Restaurants, Inc. 387,100
2,900 Red Robin Gourmet Burgers, Inc.
(NON) 120,959
--------------
766,595
Retail (6.5%)
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13,300 Advance Auto Parts, Inc. (NON) 520,296
13,800 Barnes & Noble, Inc. (NON) 459,126
17,000 Hot Topic, Inc. (NON) 349,520
17,200 Michaels Stores, Inc. 500,520
15,400 PETCO Animal Supplies, Inc. (NON) 550,858
13,300 PETsMART, Inc. 425,334
16,700 RadioShack Corp. 499,831
14,000 Rent-A-Center, Inc. (NON) 335,860
40,100 Rent-Way, Inc. (NON) 314,384
21,000 Ross Stores, Inc. 551,670
5,100 Tractor Supply Co. (NON) 185,028
9,200 Urban Outfitters, Inc. (NON) 377,200
--------------
5,069,627
Schools (0.8%)
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14,000 Career Education Corp. (NON) 439,180
6,800 Education Management Corp. (NON) 182,376
--------------
621,556
Semiconductor (1.2%)
- -------------------------------------------------------------------------------
21,200 Lam Research Corp. (NON) 551,836
26,500 PowerDsine, Ltd. (Israel) (NON) 341,055
--------------
892,891
Shipping (1.2%)
- -------------------------------------------------------------------------------
12,550 Heartland Express, Inc. 256,773
9,100 J. B. Hunt Transport Services, Inc. 371,826
11,800 Knight Transportation, Inc. (NON) 277,182
--------------
905,781
Software (5.6%)
- -------------------------------------------------------------------------------
22,100 Amdocs, Ltd. (Guernsey) (NON) 555,815
11,500 Avid Technology, Inc. (NON) 609,270
6,410 Blackboard, Inc. (NON) 114,162
21,900 Citrix Systems, Inc. (NON) 528,447
7,900 Cognos, Inc. (Canada) (NON) 312,129
57,100 Embarcadero Technologies, Inc. (NON) 464,223
44,500 Interwoven, Inc. (NON) 403,615
75,100 Matrixone, Inc. (NON) 428,070
24,900 RSA Security, Inc. (NON) 509,454
44,700 TIBCO Software, Inc. (NON) 434,484
--------------
4,359,669
Technology Services (2.9%)
- -------------------------------------------------------------------------------
12,000 Ask Jeeves, Inc. (NON) 309,360
9,600 Cognizant Technology Solutions Corp.
(NON) 326,400
8,700 Dun & Bradstreet Corp. (The) (NON) 492,072
14,400 Ingram Micro, Inc. Class A (NON) 248,400
48,300 Sapient Corp. (NON) 388,815
18,400 VeriSign, Inc. (NON) 493,672
--------------
2,258,719
Telecommunications (1.4%)
- -------------------------------------------------------------------------------
13,800 Carrier Access Corp. (NON) 121,992
17,100 Crown Castle International Corp.
(NON) 261,801
14,200 Western Wireless Corp. Class A (NON) 413,788
150,000 WJ Communications, Inc. (NON) 295,500
--------------
1,093,081
Textiles (0.3%)
- -------------------------------------------------------------------------------
4,400 Columbia Sportswear Co. (NON) 265,584
Transportation (1.1%)
- -------------------------------------------------------------------------------
7,800 Landstar Systems, Inc. (NON) 529,930
5,000 UTI Worldwide, Inc. (Virgin Islands) 325,000
--------------
854,930
Waste Management (0.8%)
- -------------------------------------------------------------------------------
7,500 Stericycle, Inc. (NON) 339,975
7,800 Waste Connections, Inc. (NON) 245,856
--------------
585,831
--------------
Total Common stocks
(cost $46,724,185) $53,467,520
Convertible preferred stocks (31.4%) (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) (NON)
(RES) $8,291,358
2,235,708 CommVault Systems Ser. CC, zero %
cv. pfd. (Private) (acquired
various dates from 1/30/02 through
9/4/03, cost $7,011,032) (NON)
(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) (NON) (RES) (AFF) 4,999,998
1,145,039 Restore Medical Ser. C, zero % cv.
pfd. (Private) (acquired 1/28/04,
cost $3,009,673) (NON) (RES) (AFF) 3,000,002
--------------
Total Convertible preferred stocks
(cost $20,029,977) $24,339,907
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Total Investments (cost $66,754,162) $77,807,427
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $77,541,868.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of such restricted securities held at October 31,
2004 was $27,339,907 or 35.3% of net assets.
(AFF) Affiliated Companies (Note 4).
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
October 31, 2004
- -------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $58,744,491) $69,807,427
- -------------------------------------------------------------------------------
Affiliated issuers (identified cost $8,009,671) (Note 4) 8,000,000
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Dividends receivable 12,619
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Receivable for securities sold 2,404,965
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Total assets 80,225,011
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Liabilities
- -------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 830,823
- -------------------------------------------------------------------------------
Payable for securities purchased 605,307
- -------------------------------------------------------------------------------
Payable for shareholder servicing fees (Note 2) 56,237
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 172,804
- -------------------------------------------------------------------------------
Payable for incentive fee (Note 2) 861,986
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 38,586
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 12,480
- -------------------------------------------------------------------------------
Other accrued expenses 104,920
- -------------------------------------------------------------------------------
Total liabilities 2,683,143
- -------------------------------------------------------------------------------
Net assets $77,541,868
- -------------------------------------------------------------------------------
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Note 1) $65,365,946
- -------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 1,122,657
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 11,053,265
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $77,541,868
- -------------------------------------------------------------------------------
Computation of net asset value
- -------------------------------------------------------------------------------
Net asset value and redemption price per common share
($77,541,868 divided by 2,921,173 shares) $26.54
- -------------------------------------------------------------------------------
Offering price per class common share (100/95.75 of $26.54)* $27.72
- -------------------------------------------------------------------------------
* 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
Year ended October 31, 2004
- -------------------------------------------------------------------------------
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $58) $129,404
- -------------------------------------------------------------------------------
Interest 21,275
- -------------------------------------------------------------------------------
Total investment income 150,679
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 966,938
- -------------------------------------------------------------------------------
Incentive fee (Note 2) 517,127
- -------------------------------------------------------------------------------
Investor servicing (Note 2) 94,148
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 78,557
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 75,080
- -------------------------------------------------------------------------------
Administrative services (Note 2) 80,691
- -------------------------------------------------------------------------------
Shareholder servicing fees (Note 2) 183,089
- -------------------------------------------------------------------------------
Other 135.023
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (122,829)
- -------------------------------------------------------------------------------
Total expenses 2,007,824
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (88)
- -------------------------------------------------------------------------------
Net expenses 2,007,736
- -------------------------------------------------------------------------------
Net investment loss (1,857,057)
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 11,775,704
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (6,255,100)
- -------------------------------------------------------------------------------
Net gain on investments 5,520,604
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,663,547
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Year ended October 31
2004 2003
- -------------------------------------------------------------------------------
Increase (decrease) in net assets
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment loss $(1,857,057) $(1,652,953)
- -------------------------------------------------------------------------------
Net realized gain on investments 11,775,704 2,697,373
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (6,255,100) 21,817,464
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,663,547 22,861,884
- -------------------------------------------------------------------------------
Capital share transactions:
- -------------------------------------------------------------------------------
Proceeds from shares issued 2,119,730 1,771,897
- -------------------------------------------------------------------------------
Cost of shares repurchased (Note 5) (18,261,812) (8,295,425)
- -------------------------------------------------------------------------------
Decrease from capital share transactions (16,142,082) (6,523,528)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (12,478,535) 16,338,356
- -------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------
Beginning of year 90,020,403 73,682,047
- -------------------------------------------------------------------------------
End of year $77,541,868 $90,020,403
- -------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------
Shares outstanding at beginning of year 3,554,909 3,897,584
- -------------------------------------------------------------------------------
Shares issued 81,188 77,710
- -------------------------------------------------------------------------------
Shares repurchased (Note 5) (714,924) (420,385)
- -------------------------------------------------------------------------------
Shares outstanding at end of year 2,921,173 3,554,909
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of cash flows
For the year ended October 31, 2004
- -------------------------------------------------------------------------------
Decrease in cash
- -------------------------------------------------------------------------------
Cash flows from operating activities:
- -------------------------------------------------------------------------------
Net increase in net assets from operations $3,663,547
- -------------------------------------------------------------------------------
Adjustments to reconcile net decrease in net assets from operations to
net cash used in operating activities:
- -------------------------------------------------------------------------------
Purchase of investment securities (81,346,434)
- -------------------------------------------------------------------------------
Proceeds from disposition of investment
securities 96,062,179
- -------------------------------------------------------------------------------
Sale of short-term investment securities,
net 1,458,000
- -------------------------------------------------------------------------------
Increase in dividends receivable (11,223)
- -------------------------------------------------------------------------------
Increase in payable for shareholder
servicing fees 39,247
- -------------------------------------------------------------------------------
Increase in payable for compensation of
Manager 4,511
- -------------------------------------------------------------------------------
Increase in payable for incentive fee 517,127
- -------------------------------------------------------------------------------
Increase in payable for investor servicing
and custodian fees 14,099
- -------------------------------------------------------------------------------
Increase in payable for administration
services 4,921
- -------------------------------------------------------------------------------
Increase in other accrued expenses 9,161
- -------------------------------------------------------------------------------
Net realized gain on investments (11,775,704)
- -------------------------------------------------------------------------------
Net unrealized depreciation on investments
during the year 6,255,100
- -------------------------------------------------------------------------------
Net cash used in operating and investing
activities 14,894,531
- -------------------------------------------------------------------------------
Cash flows from financing activities:
- -------------------------------------------------------------------------------
Proceeds from shares sold 2,536,206
- -------------------------------------------------------------------------------
Payable to subcustodian 830,823
- -------------------------------------------------------------------------------
Payment of shares redeemed (18,261,812)
- -------------------------------------------------------------------------------
Net cash provided by financing activities (14,894,783)
- -------------------------------------------------------------------------------
Net decrease in cash (252)
- -------------------------------------------------------------------------------
Cash balance, beginning of year 252
- -------------------------------------------------------------------------------
Cash balance, end of year $--
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
For the period
Per-share July 30, 2001+
operating performance Year ended October 31 to Oct. 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) (.59) (.45) (.38) -- (e)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.81 6.86 (3.11) (1.44)
- ---------------------------------------------------------------------------------------------------
Total from
investment operations 1.22 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 $26.54 $25.32 $18.91 $22.44
- ---------------------------------------------------------------------------------------------------
Total return at net asset value
after incentive fee (%)(c) 4.82 33.90 (15.61) (6.03)*
- ---------------------------------------------------------------------------------------------------
Total return at net asset value
before incentive fee (%)(c) 5.53 34.43 (15.61) (6.03)*
- ---------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $77,542 $90,020 $73,682 $85,908
- ---------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets after incentive fee (%)(b)(d) 2.49 2.30 2.21 .58*
- ---------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets before incentive fee (%)(b)(d) 1.85 1.85 2.21 .58*
- ---------------------------------------------------------------------------------------------------
Ratio of net investment loss to average
net assets after incentive fee (%)(b) (2.30) (2.17) (1.76) --*
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 100.29 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 October 31, 2004, October 31, 2003, October 31, 2002 and
October 31, 2001 reflect a reduction of 0.15%, 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.
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
October 31, 2004
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 rules
adopted under 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 stated
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 will adjust its value, as
necessary, 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 fair valued at October 31, 2004
represented 35.3% of the fund's net assets. 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 stated at amortized
cost, which approximates fair value.
B) 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, 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.
C) 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 of 1986 (the "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 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.
D) 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. These differences include
temporary and permanent differences of losses on wash sale transactions,
organization costs and net operating loss. Reclassifications are made to
the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended October 31, 2004, the fund reclassified
$1,857,057 to decrease net investment loss and $1,857,057 to decrease
paid-in-capital.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $12,673,380
Unrealized depreciation (1,815,386)
------------
Net unrealized appreciation 10,857,994
Undistributed long term gain 1,317,928
Cost for federal income tax purposes $66,949,433
E) 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.
F) 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 October 31, 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. At October 31, 2004,
incentive fees totaling $861,986 have been accrued based on the
aggregate incentive fee base, of which $517,217 was earned during the
year ended October 31, 2004.
The Manager has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through October 31, 2005, 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 servicing
agent functions to the fund. During the year ended October 31, 2004,
the fund paid PFTC $151,617 for these services.
Under the subcustodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund
to the extent permitted by the fund's investment restrictions to cover
any advances made by the subcustodian bank for the settlement of
securities purchased by the fund. At October 31, 2004, the payable to
the subcustodian bank represents the amount due for cash advanced for
the settlement of a security purchased.
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 year ended October 31, 2004,
the fund's expenses were reduced by $88 under these arrangements.
Each independent Trustee of the Trust 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 year ended October 31, 2004, Putnam Retail Management, acting
as underwriter received net commissions of $6,587 from the sale of
common shares.
Note 3 Purchases and sales of securities
- ----------------------------------------------------------------------
During the year ended October 31, 2004, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $80,616,692 and $97,807,666, respectively. There were no
purchases or sales of U.S. government securities.
Note 4 Transactions with affiliated issuers
- ----------------------------------------------------------------------
Transactions during the year with companies in which the fund owned at
least 5% of the voting securities were as follows:
Name of Affiliates Purchase Cost Sales Cost Dividend Income Fair Value
- --------------------------------------------------------------------------
Refractec $-- $-- $-- $4,999,998
Restore Medical 3,009,673 -- -- 3,000,002
- --------------------------------------------------------------------------
Totals $3,009,673 $-- $-- $8,000,000
- --------------------------------------------------------------------------
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. Repurchases are made in February, May, August and November 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. During
the year ended October 31, 2004, the fund repurchased 714,924 shares
valued at $18,261,812.
Date Shares Amount
- ----------------------------------------------------------------
November 2003 248,086 $6,378,286
February 2004 209,101 5,537,267
May 2004 151,426 3,823,507
August 2004 106,311 2,522,752
- ----------------------------------------------------------------
At October 31, 2004, the Manager owned 209,687 shares of the fund
(7.2% of shares outstanding) valued at $5,565,093.
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 ("SEC") 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 the fund or 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
(not including the fund). 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.
Putnam Management has negotiated an offer of settlement with the staff
of the SEC, which the staff has agreed to recommend to the
Commissioners of the SEC. The offer of settlement would resolve
matters arising out of the SEC's investigation of Putnam Management's
brokerage practices. The settlement would involve the alleged failure
by Putnam Management to adequately disclose its practices relating to
the allocation of brokerage on portfolio transactions to
broker-dealers who sold shares of Putnam mutual funds. Putnam
Management ceased directing brokerage to broker-dealers in connection
with the sale of fund shares as of January 1, 2004. Under the offer of
settlement, Putnam Management would pay a civil penalty in the amount
of $40 million and disgorgement in the amount of one dollar ($1). The
total amount of the payment would be paid to certain Putnam funds,
pursuant to a distribution plan to be submitted to the SEC. The
settlement remains subject to final documentation and approval by the
Commissioners of the SEC. Although the Manager will not be a party to
the settlement, the Manager intends to make a voluntary payment to the
fund on the same basis as the payment of the civil penalty to the
applicable Putnam mutual funds. The amount of the payment to the fund
has not been determined.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
fund hereby designates $1,317,928 as long term capital gain, for its
taxable year ended October 31, 2004.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
Trustees and officers
A listing of the trustees of TH Lee, Putnam Investments Trust (the
"Trust") and the officers of the Fund and their business experience for
the past five years follows. An asterisk(*) indicates trustees who are
interested persons of the Fund (as defined by the 1940 Act). Unless
otherwise noted, the address of each trustee and officer is one Post
Office Square, Boston, Massachusetts 02109.
Principal Occupation(s)
Name Position(s) Held With Fund During the Past 5 Years
- --------------------------------------------------------------------------------------------
John A. Hill Chairman and Trustee Chairman and Trustee, Putnam Funds, Vice-
(1/31/42) Chairman and Managing Director, First Reserve
Corporation (a private equity buyout firm that
specializes in energy investments in the diversified
world-wide energy industry). Director of Devon Energy
Corporation (formerly known as Snyder Oil Corporation),
TransMontaigne Oil Company, Sarah Lawrence College
and various private companies controlled by First
Reserve Corporation. Formerly a Director of St.
Luke's-Roosevelt (a New York City Hospital).
Thomas H. Lee* Trustee Chairman and CEO of Thomas H. Lee Partners,
(3/27/44) L.P. Currently serves or has served as Director of
General Nutrition Companies, Metris Companies, Inc.,
Playtex Products, Inc., Refco Group Ltd., LLC, Snapple
Beverage Corp., Vertis Holdings, Inc., Warner Music
Group, and Wyndham International, Inc.
Member of The JP Morgan National Advisory Board. Mr.
Lee is currently a trustee of The Intrepid Museum
Foundation, Intrepid Fallen Heroes Fund, Lincoln Center
for the Performing Arts, The Museum of Modern Art, NYU
Medical Center, The Rockefeller University, and Whitney
Museum of American Art. He also serves on the Executive
Committee for Harvard University Committee on University
Resources.
Joseph L. Bower Trustee Donald K. David Professor of Business Administration,
(9/21/38) Harvard Business School, and Chair of The General Manager
Program. Director, Anika Therapeutics, Inc., Brown Shoe,
Inc., ML-Lee/ Acqui sition Funds, Loews Corporation, New
America High Income Fund and Sonesta International Hotels
Corporation. Trustee of the New England Conservatory of
Music and of the DeCordova Museum and Sculpture Park.
Stephen B. Kay Trustee Senior Director of Goldman, Sachs & Co. Director of
(11/21/34) CareGroup (consortium of hospitals). Trustee, Chairman
of the Investment Committee and Member of the Executive
& Finance Committees of the Board of the Dana-Farber
Cancer Institute. Member of the Dean's Advisory Council,
Harvard School of Public Health. Member of the Board of
Overseers of Harvard University from 1994-1999. Chair of
the Board of Trustees and Member of the Investment
Committee, Brandeis University. Prior to 2004, a Director
of Control Risk Insurance Company. Former director of the
Harvard Alumni Association and past President of the
Harvard Business School Association of Boston. Former
Chairman of the Board of Directors of Beth Israel Hospital
and former Chairman of the Board of CareGroup.
Linwood E. Bradford President and Managing Director, Putnam Investments
(4/24/68) Principal Executive
Officer
Steven D. Krichmar Vice President and Senior Managing Director, Putnam Investments. Prior to 2001,
(6/27/58) Principal Financial Partner, PricewaterhouseCoopers LLP
Officer
Michael T. Healy Vice President Managing Director, Putnam Investments
(1/24/58) and Principal
Accounting Officer
Amrit Kanwal Vice President Senior Managing Director, Putnam Investments
(10/18/65) and Treasurer
Francis J. Vice President and Clerk Senior Managing Director, Putnam Investments. Prior to 2004,
McNamara, III General Counsel of State Street Research & Management Company
(8/19/55)
James P. Pappas Vice President Managing Director, Putnam Investments. During 2002, Chief
(2/24/53) Operating Officer, Atalanta Sosnoff Management Corporation.
Prior to 2001, President and Chief Executive Officer,
UAM Investment Services, Inc.
Charles A. Vice President, Managing Director, Putnam Investments
Ruys de Perez Chief Compliance Officer,
(10/17/57) and Assistant Clerk
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The Fund's Statement of Additional Information contains additional
information about the Fund's Trustees and is available without charge
upon request by calling 1-800-225-1581.
PROXY VOTING
TH Lee, Putnam Capital is committed to managing its mutual funds in the
best interests of shareholders. The Fund's proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
fund's proxy voting guidelines and procedures at no charge by calling
Putnam's Shareholder Services at 1-800-225-1581.
FUND PORTFOLIO HOLDINGS
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
TH LEE, PUTNAM CAPITAL'S POLICY ON CONFIDENTIALITY
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
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, L.P.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Sullivan & Cromwell LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill
Chairman
Joseph L. Bower
Stephen B. Kay
Thomas H. Lee
OFFICERS
Linwood E. Bradford
President and Principal Executive Officer
Stephen D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Vice President and Principal Accounting Officer
Amrit Kanwal
Vice President and Treasurer
Francis J. McNamara, III
Vice President and Clerk
James P. Pappas
Vice President
Charles A. Ruys de Perez
Vice President, Chief Compliance Officer, and
Assistant Clerk
TH Lee Putnam Capital
One Post Office Square
Boston, Massachusetts 02109
216546 12/04
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of TH Lee, Putnam Capital Management,
LLC ("THLPCM") or its affiliate, Putnam Investment Management, LLC. As
such, they are subject to a comprehensive Code of Ethics adopted and
administered by THLPCM which is designed to protect the interests of the
firm and its clients. In particular, the Code of Ethics of THLPCM provides
that all officers of THLPCM are subject to the restrictions, limitations
and reporting provisions of the Code of Ethics of Putnam Investments. In
addition, the Fund has adoped a Code of Ethics which incorporates the Code
of Ethics of THLPCM with respect to all of its officers and Trustes who are
also officers, directors or employees of THLPCM or any of its affiliates.
For this reason, the Fund has not adopted a separate code of ethics
governing its principal executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Fund's Audit Committee is comprised solely of Trustees who are
"independent" (as such term has been defined by the Securities and Exchange
Commission ("SEC") in regulations implementing Section 407 of the
Sarbanes-Oxley Act (the "Regulations")). The Trustees believe that each of
the members of the Audit Committee also possess a combination of knowledge
and experience with respect to financial accounting matters, as well as
other attributes, that qualify them for service on the Committee. In
addition, the Trustees have determined that Mr. Hill qualifies as an
"audit committee financial expert" (as such term has been defined in the
Regulations). The SEC has stated that the designation or identification of
a person as an audit committee financial expert pursuant to this Item 3 of
Form N-CSR does not impose on such person any duties, obligations or
liability that are greater than the duties, obligations and liability
imposed on such person as a member of the Audit Committee and Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
October 31, 2004 $52,800 $-- $4,200 $--
October 31, 2003 $52,800 $-- $4,200 $--
For the fiscal years ended October 31, 2004 and October 31, 2003,
the fund's independent auditors billed aggregate non-audit fees in
the amounts of $119,114 and $106,277 respectively, to the fund,
Putnam Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing services
to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees Fees represent fees billed for services relating to
fund expense processing.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the fund has determined that, as a matter
of policy, all work performed for the fund by the funds' independent
auditors will be pre-approved by the Committee and will generally
not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for TH Lee, Putnam Capital
Management, LLC ("TH Lee Putnam Capital") and certain of its
affiliates to engage the services of the fund's independent
auditors, but only after prior approval by the Committee. Such
requests are required to be submitted in writing to the Committee
and explain, among other things, the nature of the proposed
engagement, the estimated fees, and why this work must be performed
by that particular audit firm. The Committee will review the
proposed engagement at its next meeting.
The Committee has had a general policy to pre-approve the
independent auditor's engagements for non-audit services with the
fund, TH Lee Putnam Capital and any entity controlling, controlled
by or under common control with TH Lee, Putnam Capital that provides
ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
October 31, 2004 $-- $-- $-- $--
October 31, 2003 $-- $-- $-- $--
Item 5. Audit Committee
- ------------------------
(a) The fund has a separately-designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee of the fund's
Board of Trustees is composed of the following persons:
Stephen B. Kay (Chairperson)
John A. Hill
Joseph L. Bower
(b) Not applicable
Item 6. Schedule of Investments: Not applicable.
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
The Fund has adopted the Proxy Voting Procedures and Proxy Voting
Guidelines of Putnam Investments (an affiliate of THLPCM) for purposes
of exercising its rights with respect to voting securities owned by
the Fund.
April 30, 2004 Putnam Investments
Proxy Voting Procedures
Introduction and Summary
Many of Putnam's investment management clients have delegated to
Putnam the authority to vote proxies for shares in the client
accounts Putnam manages. Putnam believes that the voting of
proxies can be an important tool for institutional investors to
promote best practices in corporate governance and votes all
proxies in the best interests of its clients as investors. In
Putnam's view, strong corporate governance policies, most notably
oversight by an independent board of qualified directors, best
serve investors' interests. Putnam will vote proxies and maintain
records of voting of shares for which Putnam has proxy voting
authority in accordance with its fiduciary obligations and
applicable law.
This memorandum sets forth Putnam's policies for voting proxies.
It covers all accounts for which Putnam has proxy voting authority.
These accounts are primarily US and international institutional
accounts managed by The Putnam Advisory Company, L.L.C. and Putnam
Fiduciary Trust Company. In addition they include sub-advised US
mutual funds and smaller separate accounts managed under 'wrap fee'
programs by Putnam Investment Management, L.L.C. In addition, this
memorandum sets forth Putnam's procedures for coordination of proxy
voting for the Putnam mutual funds. The Trustees of the Putnam
mutual funds have retained authority for voting proxies but refer
many proxy issues to Putnam's investment professionals for advice.
Proxy Committee
Putnam has a Proxy Committee composed of senior professionals in
the Investment Division. The co-heads of the Investment Division
appoint the members of the Proxy Committee. The Proxy Committee is
responsible for setting general policy as to proxies.
Specifically, the Committee:
1. reviews these procedures and the Proxy Guidelines annually
and approves any amendments considered to be advisable.
2 considers special proxy issues as they may from time to time
arise.
Proxy Voting Administration
The Putnam Legal and Compliance Department administers Putnam's
proxy voting through a Proxy Manager. (The Proxy Manager as of
the date of these procedures is Victoria Card). Under the
supervision of senior members of the Legal and Compliance
Department the Proxy Manager has the following duties:
1. annually prepares the Proxy Guidelines and distributes them to
the Proxy Committee for review.
2. coordinates the Proxy Committee's review of any new or unusual
proxy issues.
3. manages the process of referring issues to portfolio managers
for voting instructions.
4. oversees the work of any third party vendor hired to process
proxy votes (as of the date of these procedures Putnam has engaged
Institutional Shareholder Services to process proxy votes) and the
process of setting up the voting process with ISS and custodial
banks for new clients.
5. coordinates responses to investment professionals' questions on
proxy issues and proxy policies, including forwarding specialized
proxy research from ISS and other vendors and forwards information
to investment professionals prepared by other areas at Putnam.
6. maintains required records of proxy votes on behalf of the
appropriate Putnam client accounts.
7. prepares and distributes reports required by Putnam clients.
Proxy Voting Guidelines
Putnam maintains written voting guidelines ("Guidelines") setting
forth voting positions determined by the Proxy Committee on those
issues believed most likely to arise day to day. The Guidelines
may call for votes to be cast normally in favor of or opposed to a
matter or may deem the matter an item to be referred to investment
professionals on a case by case basis. A copy of the Guidelines is
attached to this memorandum as Exhibit A.
Putnam will vote all proxies in accordance with the Guidelines
subject to two exceptions as follows:
1. If the portfolio managers of client accounts holding the stock
of a company with a proxy vote believe that following the
Guidelines in any specific case would not be in clients' best
interests, they may request the Proxy Manager not to follow the
guidelines in such case. The request must be in writing and
include an explanation of the rationale for doing so. The Proxy
Manager will review any such request with a senior member of the
Legal and Compliance Department prior to implementing the request.
2. For clients with plan assets subject to ERISA, under rules of
the U. S. Department of Labor ("DOL") Putnam may accept
instructions to vote proxies in accordance with AFL-CIO proxy
voting guidelines, in lieu of Putnam's regular proxy voting
guidelines. However, when in Putnam's judgment voting in
accordance with the AFL-CIO guidelines would be inconsistent with
ERISA, Putnam will not vote in accordance with those guidelines.
Putnam will use the Proxy Voter Services U.S. Proxy Voting Policy
Statement and Guidelines to implement voting under the AFL-CIO
guidelines. For clients not subject to ERISA, Putnam may accept
instructions to vote proxies under client specific guidelines
subject to review and acceptance by the Investment Division and the
Legal and Compliance Department.
Proxy Voting Referrals
Under the Guidelines, certain proxy matters will be referred to the
Investment Division. The Putnam mutual funds maintain similar
proxy procedures which require certain matters to be referred to
the investment professionals. The Putnam Proxy Manager and Putnam
Funds Proxy Coordinator will coordinate efforts so that in cases
where both are referring matters, only one referral will be sent
out. Normally specific referral items will be referred to the
portfolio team leader (or another member of the portfolio team he
or she designates) whose accounts hold the greatest number of
shares of the issuer of the proxies using the attached Proxy Voting
Recommendation Form. (attached as Exhibit B). The Proxy Voting
Recommendation Form contains (1) a field that will be used by the
portfolio team leader or member for recommending a vote on each
referral item, and (2) a field for describing any contacts relating
to the proxy referral item the portfolio team may have had with any
Putnam employee outside Putnam's Investment Division or with any
person other than a proxy solicitor acting in the normal course of
proxy solicitation.
The portfolio team leader or members who have been requested to
provide a recommendation on a proxy referral item will return a
completed Proxy Voting Recommendation Form. Upon receiving each
completed Proxy Voting Recommendation Form received from the
Investment Division, the form will be reviewed by the Proxy Manager
or the Putnam Funds Proxy Coordinator to be sure it has been
completed correctly. If not, the Putnam Manager or Putnam Funds
Proxy Coordinator will follow up with representatives of the
Investment Division to be sure the form is completed correctly.
Conflicts of Interest
A potential conflict of interest may arise when voting proxies of
an issuer which has a significant business relationship with
Putnam. For example, Putnam could manage a defined benefit or
defined contribution pension plan for the issuer. Putnam's policy
is to vote proxies based solely on the investment merits of the
proposal. In order to guard against conflicts the following
procedures have been adopted:
1. The Proxy Committee is composed solely of professionals in the
Investment Division. Proxy administration is in the Legal and
Compliance Department. Neither the Investment Division nor the
Legal and Compliance Department report to Putnam's marketing
businesses.
2. No Putnam employee outside the Investment Division may contact
any portfolio manager about any proxy vote without first contacting
the Proxy Manager or a senior lawyer in the Legal and Compliance
Department. There is no prohibition on Putnam employees seeking
to communicate investment related information to investment
professionals. However, the Proxy Manager will coordinate the
delivery of such information to investment professionals to avoid
appearances of conflict.
3. Investment professionals responding to referral requests must
disclose any contacts with third parties other than normal contact
with proxy solicitation firms.
4. The Proxy Manager will review the name of the issuer of each
proxy that contains a referral item against a list of Putnam
business relationships maintained by the Legal and Compliance
Department for potential material business relationships (i.e.,
conflicts of interest). If the issuer of the proxy is on the list
of Putnam business relationships, the Putnam Proxy Manager will
confer with a senior lawyer in the Putnam Investments Legal and
Compliance Department prior to voting. In addition, for referrals
involving Putnam mutual funds the Proxy Manager will fill out
attached Proxy Voting Disclosure Form (attached as Exhibit C) and
deliver it to Putnam Fund Administration.
5. Putnam's Proxy Voting Guidelines may only be overridden with the
written recommendation of the Investment Division and concurrence
of the Legal and Compliance Department.
Recordkeeping
The Legal and Compliance Department will retain copies of the
following books and records:
1. A copy of Proxy Procedures and Guidelines as are from time to
time in effect;
2. A copy of each proxy statement received with respect to
securities in client accounts;
3. Records of each vote cast for each client;
4. Internal documents generated in connection with a proxy referral
to the Investment Division such as emails, memoranda etc.
5. Written reports to clients on proxy voting and of all client
requests for information and Putnam's response.
All records will be maintained for seven years. A proxy vendor
will maintain the records noted in 2 and 3 above if it commits to
providing copies promptly upon request. Exhibit A to Proxy
Procedures
Putnam Investments Proxy Voting Guidelines
The proxy voting guidelines below summarize Putnam's positions on
various issues of concern to investors and indicate how client
portfolio securities will be voted on proposals dealing with a
particular issue. The proxy voting service is instructed to vote
all proxies relating to client portfolio securities in accordance
with these guidelines, except as otherwise instructed by the Proxy
Manager.
The following guidelines are grouped according to the types of
proposals generally presented to shareholders. Part I deals with
proposals which have been approved and recommended by a company's
board of directors. Part II deals with proposals submitted by
shareholders for inclusion in proxy statements. Part III addresses
unique considerations pertaining to non US issuers.
I. Board-Approved Proposals
Proxies will be voted for board-approved proposals, except as
follows:
A. Matters Relating to the Board of Directors
The board of directors has the important role of overseeing
management and its performance on behalf of shareholders. Proxies
will be voted for the election of the company's nominees for
directors and for board-approved proposals on other matters
relating to the board of directors (provided that such nominees and
other matters have been approved by an independent nominating
committee), except as follows:
Putnam will withhold votes for the entire board of directors if
* The board does not have a majority of independent directors; or
* The board does not have nominating, audit and compensation
committees composed solely of independent directors.
* The board ignored a shareholder proposal that was approved by a
majority of the votes cast for two consecutive years
Unless otherwise indicated, for the purposes of determining whether
a board has a majority of independent directors and independent
nominating, audit, and compensation committees, an independent
director is a director who (1) meets all requirements to serve as
an independent director of a company under the final NYSE Corporate
Governance Rules (e.g., no material business relationships with the
company and no present or recent employment relationship with the
company (including employment of an immediate family member as an
executive officer)), and (2) has not accepted directly or
indirectly any consulting, advisory, or other compensatory fee from
the company other than in his or her capacity as a member of the
board of directors or any board committee. Putnam believes that
the receipt of compensation for services other than service as a
director raises significant independence issues.
If a board does not meet these independence standards, Putnam may
refer board proposed items which would normally be supported for
case-by-case basis review.
Putnam will withhold votes for any nominee for director who is
considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal or financial
advisory fees).
Putnam will withhold votes for the entire board of directors if
the board has more than 19 members or fewer than five members,
absent special circumstances.
Putnam will vote on a case-by-case basis in contested elections
of directors.
Putnam will withhold votes for any nominee for director who
attends less than 75% of board and committee meetings without valid
reasons for the absences (i.e., illness, personal emergency, etc.).
Putnam is concerned about over-committed directors. In some cases,
directors may serve on too many boards to make a meaningful
contribution. This may be particularly true for senior executives
of public companies (or other directors with substantially
full-time employment) who serve on more than a few outside boards.
Putnam will withhold votes for any nominee for director of a
public company (Company A) who is employed as a senior executive of
another public company (Company B) if a director of Company B
serves as a senior executive of Company A (commonly referred to as
an "interlocking directorate").
Putnam will withhold votes for any nominee for director who is
actively employed and serves on more than six (6) corporate boards.
(The boards of an affiliated group of mutual funds will count as
one board.)
Board independence depends not only on its members' individual
relationships, but also the board's overall attitude toward
management. Independent boards are committed to good corporate
governance practices and, by providing objective independent
judgment, enhancing shareholder value. Putnam may withhold votes
on a case-by-case basis from some or all directors that, through
their lack of independence, have failed to observe good corporate
governance practices or, through specific corporate action, have
demonstrated a disregard for the interest of shareholders.
Putnam will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would
be better served by this structure.
B. Executive Compensation
Putnam will vote on a case-by-case basis on board-approved
proposals relating to executive compensation, except as follows:
Except where Putnam would otherwise be withholding votes for the
entire board of directors, Putnam will vote for stock option plans
which will result in an average annual dilution of 1.67% or less
(including all equity-based plans).
Putnam will vote against stock option plans that permit replacing
or repricing of underwater options (and against any proposal to
authorize such replacement or repricing of underwater options).
Putnam will vote against stock option plans that permit issuance
of options with an exercise price below the stock's current market
price.
Except where Putnam is otherwise withholding votes for the entire
board of directors, Putnam will vote for employee stock purchase
plans that have the following features: (1) the shares purchased
under the plan are acquired for no less than 85% of their market
value, (2) the offering period under the plan is 27 months or less,
and (3) dilution is 10% or less.
Putnam may vote against executive compensation proposals on a
case-by-case basis where compensation is excessive by reasonable
corporate standards, or where a company fails to provide
transparent disclosure of executive compensation. In voting on
proposals relating to executive compensation, Putnam will consider
whether the proposal has been approved by an independent
compensation committee of the board.
C. Capitalization
Putnam will vote on a case-by-case basis on board-approved
proposals involving changes to a company's capitalization.
Putnam will vote for proposals relating to the authorization of
additional common stock (except where such proposals relate to a
specific transaction).
Putnam will vote for proposals to effect stock splits (excluding
reverse stock splits.)
Putnam will vote for proposals authorizing share repurchase
programs.
D. Acquisitions, Mergers, Reincorporations, Reorganizations and
Other Transactions
Putnam will vote on a case-by-case basis on business transactions
such as acquisitions, mergers, reorganizations involving business
combinations, liquidations and sale of all or substantially all of
a company's assets, except as follows:
Putnam will vote for mergers and reorganizations involving
business combinations designed solely to reincorporate a company in
Delaware.
E. Anti-Takeover Measures
Putnam will vote against board-approved proposals to adopt
anti-takeover measures such as a shareholder rights plan,
supermajority voting provisions, adoption of fair price provisions,
issuance of blank check preferred stock and the creation of a
separate class of stock with disparate voting rights, except as
follows:
Putnam will vote on a case-by-case basis on proposals to ratify
or approve shareholder rights plans (commonly referred to as
"poison pills"); and
Putnam will vote on a case-by-case basis on proposals to adopt
fair price provisions.
F. Other Business Matters
Putnam will vote for board-approved proposals approving routine
business matters such as changing the company's name, ratifying the
appointment of auditors and procedural matters relating to the
shareholder meeting, except as follows:
Putnam will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments
necessary or to effect stock splits to change a company's name or
to authorize additional shares of common stock).
Putnam will vote against authorization to transact other
unidentified, substantive business at the meeting.
II. Shareholder Proposals
Putnam will vote in accordance with the recommendation of the
company's board of directors on all shareholder proposals, except
as follows:
Putnam will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
Putnam will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
Putnam will vote for shareholder proposals that are consistent
with Putnam's proxy voting guidelines for board-approved proposals.
III. Voting Shares of Non US Issuers
Putnam recognizes that the laws governing non US issuers will vary
significantly from US law and from jurisdiction to jurisdiction.
Accordingly it may not be possible or even advisable to apply these
guidelines mechanically to non US issuers. However, Putnam believes
that shareholders of all companies are protected by the existence
of a sound corporate governance and disclosure framework.
Accordingly, Putnam will vote proxies of non US issuers in
accordance with the foregoing guidelines where applicable, except
as follows:
Putnam will vote for shareholder proposals calling for a majority
of the directors to be independent of management.
Putnam will vote for shareholder proposals seeking to increase
the independence of board nominating, audit and compensation
committees.
Putnam will vote for shareholder proposals that implement
corporate governance standards similar to those established under
U.S. federal law and the listing requirements of U.S. stock
exchanges, and that do not otherwise violate the laws of the
jurisdiction under which the company is incorporated.
Putnam will vote on case-by-case basis on proposals relating to
(1) the issuance of common stock in excess of 20% of a company's
outstanding common stock where shareholders do not have preemptive
rights, or (2) the issuance of common stock in excess of 100% of a
company's outstanding common stock where shareholders have
preemptive rights.
Many non US jurisdictions impose material burdens on voting
proxies. There are three primary types of limits as follows:
(1) Share blocking. Shares must be frozen for certain periods of
time to vote via proxy.
(2) Share re-registration. Shares must be reregistered out of the
name of the local custodian or nominee into the name of the client
for the meeting and, in may cases, then reregistered back. Shares
are normally blocked in this period.
(3) Powers of Attorney. Detailed documentation from a client must
be given to the local sub-custodian. In many cases Putnam is not
authorized to deliver this information or sign the relevant
documents.
Putnam's policy is to weigh the benefits to clients from voting in
these jurisdictions against the detriments of doing so. For
example, in a share blocking jurisdiction, it will normally not be
in a client's interest to freeze shares simply to participate in a
non contested routine meeting. More specifically, Putnam will
normally not vote shares in non-US jurisdictions imposing
burdensome proxy voting requirements except in significant votes
(such as contested elections and major corporate transactions)
where directed by portfolio managers.
Exhibit B to Proxy Procedures
Proxy Vote Referral Request: Company XYZ, Vote Due X/X/XX
Proxy Voting Referral Request Form
From: Victoria Card ext. 1-1168
Please describe any contacts with any person you may have had,
apart from the Investment Division, Putnam's Proxy Administration
staff, or proxy soliciting firms regarding the proxy:
- ------------------------------------------------------------------.
No response will indicate that there have been none.
Meeting Date:
Vote Recommendation Due Date:
Company Name: XYZ Inc.
* Please indicate FOR, AGAINST or ABSTAIN for each agenda item
referenced below. * Please provide vote rationale when you believe
additional information is necessary to explain your vote. Examples:
" Stock option plan will create excessive dilution," "Shareholder
proposal would be disruptive"
Referral items:
1. [Description of item]
Rationale:
---------------------------------------------------------
Proxy Service Analysis:
Exhibit C to Proxy Procedures
PUTNAM INVESTMENTS PROXY VOTING CONFLICT OF INTEREST DISCLOSURE
FORM
1. Company name:
---------------------------------------------------
2. Date of Meeting:
------------------------------------------------
3. Referral Item(s):
-----------------------------------------------
4. Description of Putnam's Business Relationship with Issuer of
Proxy which may give rise to a conflict of interest:
---------------
- -------------------------------------------------------------------
5. Describe procedures used to address any conflict of interest:
Investment professional who was solicited to provide a
recommendation was advised that the recommendation must be provided
without regard to any client or other business relationship between
Putnam and the company. In addition, Putnam has made arrangements
that, unless authorized by Putnam's Legal and Compliance
Department, contacts from outside parties, except for
representatives of the issuing company, with respect to referral
items will be handled by Putnam's Legal and Compliance Department
to prevent any influence on the investment process. In the case of
contact between Putnam investment professionals and representatives
of issuing companies, any such contact will be documented and
included in the proxy voting files.
6. Describe any contacts from parties outside Putnam Management
(other than routine communications from proxy solicitors) with
respect to the referral item not otherwise reported in an
investment professional's recommendation:
--------------------------
- -------------------------------------------------------------------
CERTIFICATION
The undersigned officer of Putnam Investments certifies that, to
the best of his or her knowledge, any recommendation of an
investment professional provided under circumstances where a
conflict of interest exists was made solely on the investment
merits and without regard to any other consideration.
- ---------------------------
Name: Victoria R. Card
Title: Assistant Vice President, Proxy Voting Project Manager
Item 8. Purchases of Equity Securities by Closed-End Management
- ---------------------------------------------------------------
Investment Company and Affiliated Purchasers
--------------------------------------------
Registrant Purchase of Equity Securities
Maximum
Number
(or
Approxi-
mate
Dollar
Total Number Value)
of Shares of Shares
Purchased that May
Average as Part Yet Be
Total Price of Publicly Purchased
Number Paid Announced Under the
of Shares per Plans or Plans or
Period Purchased Share Programs Programs
- --------------------------------------------------------------------
August 11, 2003
November 14, 2003 248,086 $25.71 248,086 --
- --------------------------------------------------------------------
November 15, 2003
through
February 13, 2004 209,101 $26.48 209,101 --
- --------------------------------------------------------------------
February 14, 2004
through
May 14, 2004 151,426 $25.25 151,426 --
- --------------------------------------------------------------------
May 15, 2004
through
August 13, 2004 106,311 $23.73 106,311 --
- --------------------------------------------------------------------
The fund has a policy of making offers to repurchase a portion of
its shares on a quarterly basis. Repurchase offers are made for at
least 5% but no more than 25% of the fund's then outstanding shares
at net asset value. The date that each repurchase was announced and
the expiration date of each plan was as follows:
Date Plan Announced Expiration Date
- --------------------------------------------------------------------
August 11, 2003
November 14, 2003 October 16, 2003 November 14, 2003
- --------------------------------------------------------------------
November 15, 2003
through
February 13, 2004 January 14, 2004 February 13, 2004
- --------------------------------------------------------------------
February 14, 2004
through
May 14, 2004 April 14, 2004 May 14, 2004
- --------------------------------------------------------------------
May 15, 2004
through
August 13, 2004 July 14, 2004 August 13, 2004
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This information is provided on a voluntary basis by the Fund
because the fund's shares are not registered or required to be
registered under the Exchange Act.
Item 9. Submission of Matters to a Vote of Security Holders:
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Not applicable
Item 10. Controls and Procedures:
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(a) The registrant's principal executive officer and principal
financial officer 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.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
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a) The Code of Ethics of the Fund, which incorporates the Code of
Ethics of TH Lee, Putnam Capital Management, LLC, is filed herewith.
(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
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Michael T. Healy
Principal Accounting Officer
Date: December 29, 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
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Linwood E. Bradford
Principal Executive Officer
Date: December 29, 2004
By (Signature and Title): /s/Steven D. Krichmar
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Steven D. Krichmar
Principal Financial Officer
Date: December 29, 2004