N-CSR 1 a_newopps1.htm PUTNAM NEW OPPORTUNITIES FUND 852_NCSR2.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: (811- 06128 )

Exact name of registrant as specified in charter: Putnam New Opportunities Fund

Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109

Name and address of agent for service:  Beth S. Mazor, Vice President 
  One Post Office Square 
  Boston, Massachusetts 02109 
 
Copy to:  John W. Gerstmayr, Esq. 
  Ropes & Gray LLP 
  One International Place 
  Boston, Massachusetts 02110 

Registrant’s telephone number, including area code:    (617) 292-1000   

Date of fiscal year end: June 30, 2005

Date of reporting period: July 1, 2005--December 31, 2005

Item 1. Report to Stockholders:

The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:


What makes Putnam different?


In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management.

THE PRUDENT MAN RULE

All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.


A time-honored tradition in money management

Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.

A prudent approach to investing

We use a research-driven team approach to seek consistent, dependable, superior investment results over time, although there is no guarantee a fund will meet its objectives.

Funds for every investment goal

We offer a broad range of mutual funds and other financial products so investors and their advisors can build diversified portfolios.

A commitment to doing what’s right for investors

We have below-average expenses and stringent investor protections, and provide a wealth of information about the Putnam funds.

Industry-leading service

We help investors, along with their financial advisors, make informed investment decisions with confidence.

Putnam   
 
New Opportunities   
 
Fund   
 
 
12 | 31 | 05   
Semiannual Report   
 
Message from the Trustees  2 
About the fund  4 
Report from the fund managers  7 
Performance  12 
Expenses  14 
Portfolio turnover  16 
Risk  17 
Your fund’s management  18 
Terms and definitions  21 
Trustee approval of management contract  23 
Other information for shareholders  28 
Financial statements  29 
Brokerage commissions  55 

Cover photograph: Vineyard, Napa County, California © Charles O’Rear

Message from the Trustees

Dear Fellow Shareholder

Throughout 2005, U.S. and global economies showed both their resilience and their ongoing vulnerability to challenges such as rising energy prices, mounting inflationary pressures, and political concerns. The Federal Reserve Board’s continuing interest-rate increases created additional setbacks for the equity markets as investors grew concerned that the higher rates -- combined with higher energy prices -- would slow growth. Nevertheless, as the year drew to a close, the financial markets demonstrated trends consistent with an expanding economy: relative weakness for bonds and relative strength for stocks. With many companies appearing likely to deliver strong earnings, Putnam Investments’ management teams are working to identify investment opportunities while remaining cognizant of the risks posed by higher energy prices in the winter months, as well as the possibility of continued interest-rate increases in 2006.

Although there is no guarantee a fund will achieve its objectives, we believe that the professional research, diversification, and active management that mutual funds provide continue to make them an intelligent choice for investors, particularly in light of today’s fast-changing market conditions. We want you to know that Putnam Investments, under the leadership of Chief Executive Officer Ed Haldeman, continues to focus on delivering consistent, dependable, superior investment performance over time.

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In the following pages, members of your fund’s management team discuss the fund’s performance and strategies, and their outlook for the months ahead. We thank you for your support of the Putnam funds.


Putnam New Opportunities Fund: investing through 15 years of unprecedented innovation

Long before most Americans could imagine the Internet, digital music files, or owning a cell phone small enough to fit in their pockets, Putnam New Opportunities Fund was seeking growth potential in emerging, cutting-edge companies. The fund was also targeting stocks in more traditional industries, such as restaurants, retail stores, health care, and broadcasting, which can also offer strong growth potential.

For example, among the holdings in the fund’s portfolio shortly after the fund was introduced in 1990 was the stock of Symantec, then a 9-year-old emerging software company. Today, Symantec is a leading maker of antivirus software, which


has seen explosive demand as the Internet and computer networks have become an essential component of everyday life.

The managers of the fund focus on bottom-up stock selection in seeking above-average growth for investors. Putnam’s in-house research organization, whose dedicated analysts work in teams, helps the management teams find growth stocks that other investors may have overlooked. The specialized expertise of these Putnam analysts, who visit with the managements of thousands of companies each year, is critical to the success of the fund’s growth strategy.

An important benefit of the fund’s strategy is its flexibility-- it diversifies across a range of industries and capitalizations. The fund can invest in smaller companies that are in their emerging- or expansionary-growth phases,

Putnam New Opportunities Fund’s holdings have spanned many
sectors and industries over time.


and these companies can remain in the fund’s portfolio until they grow to become market leaders.

Of course, historically, markets have been volatile at times for growing companies; the growth potential offered by these stocks comes with the risk of greater price fluctuations. Combining small-cap stocks with the stocks of larger, well-established companies provides a more diversified approach to help manage those risks.

While it seems likely that the next decade will bring as many extraordinary changes as the last one, the teams managing Putnam New Opportunities Fund will continue to focus on capturing growth potential for investors.

In-depth analysis is key to
successful stock selection.

Drawing on the expertise of a dedicated team of stock analysts, the fund’s management teams seek attractive growth stocks. Once a stock is selected for the portfolio, it is regularly assessed by the members of the teams to ensure that it continues to meet their criteria, including:

Growth They examine each company’s financials, including its sales and earnings, and target those believed to offer growth potential.

Quality They look for high-quality companies, seeking characteristics such as solid management teams, sound business models, a record of strong performance, and high levels of free-cash flow.

Valuation They carefully consider how each stock is valued, seeking stocks whose valuations are attractive relative to the company’s growth potential.


Putnam New Opportunities Fund has a multi-cap strategy, seeking to invest in the highest-quality large-cap companies as well as small- and mid-cap growth companies. The fund’s management team seeks to identify dynamic companies that are positioned in sectors believed to offer above-average growth potential. The fund may be appropriate for investors who are seeking long-term capital appreciation potential from stocks of small, midsize, and large companies.

Highlights

* For the six months ended December 31, 2005, Putnam New Opportunities Fund’s class A shares returned 9.76% without sales charges.

* Over the same period, the fund’s benchmark, the Russell 3000 Growth Index, returned 7.19% .

* The average return for the fund’s Lipper category, Multi-Cap Growth Funds, was 10.53% .

* Additional fund performance, comparative performance, and Lipper data can be found in the performance section beginning on page 12.

Performance

Total return for class A shares for periods ended 12/31/05

Since the fund's inception (8/31/90), average annual return is 14.25% at NAV and 13.85% at POP.

  Average annual return      Cumulative return 
  NAV    POP  NAV  POP 
10 years  5.13%    4.56%  64.90%  56.23% 
5 years  -4.87    -5.90  -22.11  -26.20 
3 years  17.11    15.02  60.60  52.15 
1 year  9.95    4.17  9.95  4.17 
6 months  --    --  9.76  3.99 

Data is historical. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns at NAV do not reflect a sales charge of 5.25% . For the most recent month-end performance, visit www.putnam.com. A short-term trading fee of up to 2% may apply.

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Report from the fund managers

The period in review

During the first six months of the fiscal year, the market environment for your fund improved as investors began to favor growth stocks over value stocks. The fund’s flexible approach, which allows it to invest in high-quality growth companies at favorable valuations across all market capitalizations, enabled it to outperform its benchmark, the Russell 3000 Growth Index, based on results for the period at net asset value (NAV, or without sales charges). The fund avoided major sector bets, favoring instead an approach that combines moderate thematic concentrations with rigorous, bottom-up stock picking. Our investments in energy, technology, basic materials, and health-care companies were the keys to the fund’s outperformance of its benchmark, but may be part of the reason why its results lagged the average for its Lipper category. The portfolio had a modest overweight position in the energy sector, but other funds in the category had heavier concentrations and were able to benefit from the sector’s strength to a greater degree.

Market overview

In the first half of your fund’s 2006 fiscal year, investors rewarded the solid fundamentals and favorable earnings prospects of many growth-oriented companies by vaulting growth stocks to a leadership position over value stocks. This change in market leadership can be explained by strong performance from technology stocks, particularly those in the semiconductor and Internet-related categories. At the same time, relatively lackluster returns for energy-related and utility companies held back the performance of value stocks. Earlier in the fiscal period, oil prices and energy stocks had risen sharply due to hurricanes in the Gulf Coast region, but they receded significantly in the subsequent weeks.

Mid-cap stocks outperformed both large- and small-cap stocks during the fiscal period, supported by strong performance among non-oil, energy-related companies and in health care. Within the mid-cap sector, growth

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stocks bested value stocks, creating an environment that proved beneficial for the fund.

Strategy overview

Our goal is to invest in a limited number of stocks in order to better focus our research and analysis on what we consider to be the most attractive opportunities in the growth-stock universe. Specifically, we look for high-quality growth companies with favorable valuations. As such, our stock-selection strategy is based on three fundamental criteria: quality of the company, near-term growth prospects, and a valuation forecast that meets our parameters. The ability to rotate among these criteria gives the fund the advantage of potentially favorable market positioning whether the market is rewarding one, two, or all three of these factors.

Although it is not a key consideration for many growth managers, valuation is a central component of our investment process. Our approach to valuing companies incorporates both historical financial data and forward-looking scenario analysis that enables us to examine a range of possible outcomes. The key elements that we look at when valuing companies include the company’s price-to-free-cash-flow ratio, which is its ability to generate cash flow relative to its current market price. We also examine a company’s operating profit margin and look for companies

Market sector performance

These indexes provide an overview of performance in different market sectors for the six months ended 12/31/05.

Equities   
Russell 3000 Growth Index (multi-cap growth stocks)  7.19% 
Russell Midcap Growth Index (midsize-company growth stocks)  10.22% 
S&P 500/Barra Value Index (large-company value stocks)  6.24% 
MSCI EAFE Index (international stocks)  14.88% 

Bonds  		 
Lehman Aggregate Bond Index (broad bond market)  -0.08% 
Lehman Government Bond Index (U.S. Treasury and agency securities)  -0.27% 
Citigroup World Government Bond Index (global government bonds)  -3.02% 

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that have the potential to expand their margins. We then break companies down into 21 distinct market sectors and rank them in comparison to other companies with similar growth potential, operating margins, competitive environments, and capital requirements. Finally, in order to gauge current market sentiment toward a company, we will consider indicators such as analysts’ earnings forecasts.

Your fund’s holdings

At the beginning of the period, the fund’s substantial exposure to oil refiners boosted performance. The effects of Hurricane Katrina amplified the performance of holdings in this sector and led us to take profits and reduce the fund’s exposure in this area. We redeployed assets from refining to exploration and production, emphasizing natural gas over oil. Within the natural gas category, Burlington Resources, which was acquired by ConocoPhilips during the period, was a major contributor to the fund’s positive results.

Apple Computer, one of the fund’s largest technology holdings, was an exceptional performer during the period. The success of the firm’s iPod Nano product -- the sales of which were a huge hit during the holiday shopping season -- had the effect of reawakening the Apple brand. As such, not only did iPod sales volume explode, but the firm’s PC sales grew by about 30% in the latest reporting period.

Comparison of top industry weightings

This chart shows how the fund’s top weightings have changed over the last six months. Weightings are shown as a percentage of net assets. Holdings will vary over time.


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Also within technology, the fund added to its position in Google as the stock’s price moved from $291.25 at the beginning of the period to $414.86 at the end. Given the stock’s dramatic price appreciation, valuation has become a concern. However, the firm’s distributed software model has given it a competitive advantage over some of the established players in the consumer and business software markets.

The fund maintained an overweight position in the basic materials sector during the period, especially in the stock of Phelps Dodge. The company is the world’s second-largest copper producer and was a top contributor to performance. The price of copper hit record highs during the second half of 2005, bolstering the firm’s cash flow and earnings, and driving the stock’s price up by more than 50% over the fiscal period.

Pharmacy benefits manager (PBM) Express Scripts also proved to be a productive holding during the period. The company is benefiting from the combined trends of an aging population, the growing availability of generic drugs, and the role PBMs are playing in negotiating with drug companies to reduce health-care costs.

Overweight positions in specialty retailers detracted from the fund’s performance. Despite strong year-over-year comparable sales during

Top holdings

This table shows the fund’s top holdings, and the percentage of the fund’s net assets that each comprised, as of 12/31/05. The fund’s holdings will change over time.

Holding (percent of fund’s net assets)  Industry 
Intel Corp. (2.3%)  Electronics 
Cisco Systems, Inc. (2.2%)  Communications equipment 
UnitedHealth Group, Inc. (2.0%)  Health-care services 
Johnson & Johnson (2.0%)  Pharmaceuticals 
Apple Computer, Inc. (1.8%)  Computers 
Black & Decker Manufacturing Co. (1.6%)  Consumer cyclicals 
Home Depot, Inc. (The) (1.6%)  Retail 
Microsoft Corp. (1.6%)  Software 
PepsiCo, Inc. (1.5%)  Beverage 
Exxon Mobil Corp. (1.5%)  Oil and gas 

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the pivotal back-to-school shopping season, the prices of holdings such as American Eagle Outfitters and Michaels Stores dropped sharply in September before rebounding somewhat toward the end of the period. We continue to hold these positions because of our favorable views of their valuation characteristics and continuing growth potential.

Given the market’s fears about the potential impact of rising interest rates on new home purchases, positions in the stocks of homebuilders also suffered during the period. Our holdings in NVR and Toll Brothers, for example, underperformed throughout much of the period. We continue to hold these companies because we believe the structural business advantages they possess relative to competitors can outweigh the expected cyclical downturn in new-home construction.

Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.

The outlook for your fund

The following commentary reflects anticipated developments that could affect your fund over the next six months, as well as your management team’s plans for responding to them.

While there are various viewpoints about when the Fed rate-tightening cycle will end, the market currently appears to reflect an expectation that rate increases will not continue beyond early 2006. If that expectation proves true against the backdrop of continuing low inflation and solid growth in the gross domestic product, we believe the environment for stocks -- particularly growth stocks -- may be quite favorable.

As we move into 2006, we believe the technology-stock bubble of the late 1990s will have completely deflated. As a result, we believe that technology stocks will likely return to a normal level of volatility and earnings growth potential relative to the market as a whole. Given these developments, we believe our focus on quality growth opportunities at reasonable valuations will help us uncover attractive investment potential among mid- and small-cap technology companies. We are also upbeat about the prospects for well-run, “old economy” industrial companies. Many of these firms are now reaping the benefits of the substantial technology investments they made over the past few years.

The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.

The fund invests some or all of its assets in small and/or midsize companies. Such investments increase the risk of fluctuations in the value of your investment.

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Your fund’s performance

This section shows your fund’s performance during the first half of its fiscal year, which ended December 31, 2005. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. For the most recent month-end performance, please visit www.putnam.com or call Putnam at 1-800-225-1581. Class Y shares are generally only available to corporate and institutional clients. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.

Fund performance

Total return for periods ended 12/31/05

  Class A    Class B    Class C    Class M    Class R  Class Y 
(inception dates)  (8/31/90)    (3/1/93)    (7/26/99)    (12/1/94)    (1/21/03)  (7/19/94) 
  NAV  POP  NAV  CDSC  NAV  CDSC  NAV  POP  NAV  NAV 
Annual average                     
(life of fund)  14.25%  13.85%  13.41%  13.41%  13.39%  13.39%  13.65%  13.41%  13.97%  14.46% 
10 years  64.90  56.23  53.45  53.45  52.97  52.97  56. 84  51.77  60.96  69.08 
Annual average  5.13  4.56  4.37  4.37  4.34  4.34  4.60  4.26  4.87  5.39 
5 years  -22.11  -26.20  -24.98  -26.48  -24.99  -24.99  -24.03  -26.49  -23.02  -21.13 
Annual average  -4.87  -5.90  -5.59  -5.97  -5.59  -5.59  -5.35  -5.97  -5.10  -4.64 
3 years  60.60  52.15  56.98  53.98  56.99  56.99  58.20  53.05  59.55  61.79 
Annual average  17.11  15.02  16.22  15.48  16.22  16.22  16.52  15.24  16.85  17.40 
1 year  9.95  4.17  9.11  4.11  9.12  8.12  9.40  5.83  9.67  10.23 
6 months  9.76  3.99  9.32  4.32  9.34  8.34  9.45  5.91  9.62  9.87 

Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for class A and M shares reflect a sales charge of 5.25% and 3.25%, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares.

A 2% short-term trading fee may be applied to shares exchanged or sold within 5 days of purchase.

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Comparative index returns

For periods ended 12/31/05

    Lipper Multi-Cap 
  Russell 3000  Growth Funds 
  Growth Index  category average* 
Annual average     
(life of fund)  9.86%  11.89% 
10 years  87.39  125.35 
Annual average  6.48  7.86 
5 years  -14.81  -9.83 
Annual average  -3.15  -2.72 
3 years  47.28  65.27 
Annual average  13.78  18.09 
1 year  5.17  8.80 
6 months  7.19  10.53 

Index and Lipper results should be compared to fund performance at net asset value.

* Over the 6-month and 1-, 3-, 5-, and 10-year periods ended 12/31/05, there were 426, 409, 358, 279, and 89 funds, respectively, in this Lipper category.

Fund price and distribution* information

For the six-month period ended 12/31/05

  Class A  Class B  Class C  Class M  Class R  Class Y 
Share value:  NAV  POP   NAV  NAV  NAV   POP  NAV  NAV 
6/30/05  $41.60 $43.91    $37.45  $39.73  $39.14 $40.45    $41.38  $42.97 
12/31/05  45.66 48.19    40.94  43.44  42.84 44.28    45.36  47.21 

* The fund made no distributions during the period.

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Your fund’s expenses

As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial advisor.

Review your fund’s expenses

The table below shows the expenses you would have paid on a $1,000 investment in Putnam New Opportunities Fund from July 1, 2005, to December 31, 2005. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

  Class A  Class B  Class C  Class M  Class R  Class Y 
Expenses paid per $1,000*  $ 6.03  $ 9.97  $ 9.97  $ 8.66  $ 7.34  $ 4.71 
Ending value (after expenses)  $1,097.60  $1,093.20  $1,093.40  $1,094.50  $1,096.20  $1,098.70 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of net assets for the six months ended 12/31/05. The expense ratio may differ for each share class (see the table at the bottom of the next page). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended December 31, 2005, use the calculation method below. To find the value of your investment on July 1, 2005, go to www.putnam.com and log on to your account. Click on the “Transaction History” tab in your Daily Statement and enter 07/01/2005 in both the “from” and “to” fields. Alternatively, call Putnam at 1-800-225-1581.


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Compare expenses using the SEC’s method

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

  Class A  Class B  Class C  Class M  Class R  Class Y 
Expenses paid per $1,000*  $ 5.80  $ 9.60  $ 9.60  $ 8.34  $ 7.07  $ 4.53 
Ending value (after expenses)  $1,019.46  $1,015.68  $1,015.68  $1,016.94  $1,018.20  $1,020.72 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of net assets for the six months ended 12/31/05. The expense ratio may differ for each share class (see the table at the bottom of this page). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

Compare expenses using industry averages

You can also compare your fund’s expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranks funds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown below indicates how much of your fund’s net assets have been used to pay ongoing expenses during the period.

  Class A  Class B  Class C  Class M  Class R  Class Y 
Your fund's annualized             
expense ratio  1.14%  1.89%  1.89%  1.64%  1.39%  0.89% 
Average annualized expense             
ratio for Lipper peer group*  1.54%  2.29%  2.29%  2.04%  1.79%  1.29% 

* Simple average of the expenses of all front-end load funds in the fund’s Lipper peer group, calculated in accordance with Lipper’s standard method for comparing fund expenses (excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses). This average reflects each fund’s expenses for its most recent fiscal year available to Lipper as of 12/31/05. To facilitate comparison, Putnam has adjusted this average to reflect the 12b-1 fees carried by each class of shares other than class Y shares, which do not incur 12b-1 fees. The peer group may include funds that are significantly smaller or larger than the fund, which may limit the comparability of the fund’s expenses to the simple average, which typically is higher than the asset-weighted average.

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Your fund’s
portfolio turnover

Putnam funds are actively managed by teams of experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund’s managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund’s assets within a one-year period. Funds with high turnover may be more likely to generate capital gains and dividends that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance.

Turnover comparisons

Percentage of holdings that change every year

  2005  2004  2003  2002  2001 
Putnam New Opportunities Fund  97%  61%  42%  77%  68% 
Lipper Multi-Cap Growth Funds           
category average  116%  148%  155%  149%  186% 

Turnover data for the fund is calculated based on the fund's fiscal-year period, which ends on June 30. Turnover data for the fund's Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the comparability of the fund's portfolio turnover rate to the Lipper average. Comparative data for 2005 is based on information available as of 12/31/05.

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Your fund’s risk

This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund’s Overall Morningstar Risk.

Your fund’s Overall Morningstar® Risk

Your fund’s Overall Morningstar Risk is shown alongside that of the average fund in its broad asset class, as determined by Morningstar. The risk bar broadens the comparison by translating the fund’s Overall Morningstar Risk into a percentile, which is based on the fund’s ranking among all funds rated by Morningstar as of December 31, 2005. A higher Overall Morningstar Risk generally indicates that a fund’s monthly returns have varied more widely.


Morningstar determines a fund’s Overall Morningstar Risk by assessing variations in the fund’s monthly returns -- with an emphasis on downside variations -- over 3-, 5-, and 10-year periods, if available. Those measures are weighted and averaged to produce the fund’s Overall Morningstar Risk. The information shown is provided for the fund’s class A shares only; information for other classes may vary. Overall Morningstar Risk is based on historical data and does not indicate future results. Morningstar does not purport to measure the risk associated with a current investment in a fund, either on an absolute basis or on a relative basis. Low Overall Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2004 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

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Your fund’s management

Your fund is managed by the members of the Putnam Mid-Cap Growth and Small and Emerging Growth teams. Kevin Divney is the Portfolio Leader and Brian DeChristopher and Richard Weed are Portfolio Members of your fund. The Portfolio Leader and Portfolio Members coordinate the teams’ management of the fund.

For a complete listing of the members of the Putnam Mid-Cap Growth and Small and Emerging Growth teams, including those who are not Portfolio Leaders or Portfolio Members of your fund, visit Putnam’s Individual Investor Web site at www.putnam.com.

Fund ownership by the Portfolio Leader and Portfolio Members

The table below shows how much the fund’s current Portfolio Leader and Portfolio Members have invested in the fund (in dollar ranges). Information shown is as of December 31, 2005, and December 31, 2004.

      $1 -  $10,001 -  $50,001 -  $100,001 -  $500,001 -  $1,000,001 
  Year   $0  $10,000  $50,000  $100,000  $500,000  $1,000,000  and over 
Kevin Divney  2005  *            
Portfolio Leader  2004  *            
Brian DeChristopher  2005      *        
Portfolio Member  N/A               
Richard Weed  2005  *            
Portfolio Member  2004  *            

N/A indicates the individual was not a Portfolio Leader or Portfolio Member as of 12/31/04.

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Fund manager compensation

The total 2004 fund manager compensation that is attributable to your fund is approximately $1,800,000. This amount includes a portion of 2004 compensation paid by Putnam Management to the fund managers listed in this section for their portfolio management responsibilities, calculated based on the fund assets they manage taken as a percentage of the total assets they manage. The compensation amount also includes a portion of the 2004 compensation paid to the Chief Investment Officer of the team and the Group Chief Investment Officer of the fund’s broader investment category for their oversight responsibilities, calculated based on the fund assets they oversee taken as a percentage of the total assets they oversee. This amount does not include compensation of other personnel involved in research, trading, administration, systems, compliance, or fund operations; nor does it include non-compensation costs. These percentages are determined as of the fund’s fiscal period-end. For personnel who joined Putnam Management during or after 2004, the calculation reflects annualized 2004 compensation or an estimate of 2005 compensation, as applicable.

Other Putnam funds managed by the Portfolio Leader and Portfolio Members

Kevin Divney is also a Portfolio Leader of Putnam Vista Fund.

Brian DeChristopher is also a Portfolio Member of Putnam Vista Fund.

Richard Weed is also a Portfolio Leader of Putnam Discovery Growth Fund, Putnam OTC & Emerging Growth Fund, and Putnam Small Cap Growth Fund.

Kevin Divney, Brian DeChristopher, and Richard Weed may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.

Changes in your fund’s Portfolio Leader and Portfolio Members

During the year ended December 31, 2005, Brian DeChristopher became a Portfolio Member of your fund, following the departure of Portfolio Leader Paul Marrkand.

19

Fund ownership by Putnam’s Executive Board

The table below shows how much the members of Putnam’s Executive Board have invested in the fund (in dollar ranges). Information shown is as of December 31, 2005, and December 31, 2004.

      $1 -  $10,001 -  $50,001-  $100,001 
  Year  $0    $10,000  $50,000  $100,000  and over 
Philippe Bibi  2005        *  
Chief Technology Officer  2004  *        
Joshua Brooks  2005  *        
Deputy Head of Investments  N/A           
William Connolly  2005      *    
Head of Retail Management  N/A           
Kevin Cronin  2005          *
Head of Investments  2004          *
Charles Haldeman, Jr.  2005      *    
President and CEO  2004      *    
Amrit Kanwal  2005      *    
Chief Financial Officer  2004      *    
Steven Krichmar  2005  *        
Chief of Operations  2004  *        
Francis McNamara, III  2005    *      
General Counsel  2004    *      
Richard Robie, III  2005  *        
Chief Administrative Officer  2004  *        
Edward Shadek  2005  *        
Deputy Head of Investments  N/A           
Sandra Whiston  2005  *        
Head of Institutional Management  N/A           

N/A indicates the individual was not a member of Putnam's Executive Board as of 12/31/04.

20

Terms and definitions

Important terms

Total return shows how the value of the fund’s shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund.

Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 5.25% maximum sales charge for class A shares and 3.25% for class M shares.

Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.

Share classes

Class A shares are generally subject to an initial sales charge and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge).

Class B shares may be subject to a sales charge upon redemption.

Class C shares are not subject to an initial sales charge and are subject to a contingent deferred sales charge only if the shares are redeemed during the first year.

Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge).

Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.

Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are only available to eligible purchasers, including eligible defined contribution plans or corporate IRAs.

21

Comparative indexes

Citigroup World Government Bond Index is an unmanaged index of global investment-grade fixed-income securities.

Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.

Lehman Government Bond Index is an unmanaged index of U.S. Treasury and agency securities.

Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged index of equity securities from developed countries in Western Europe, the Far East, and Australasia.

Russell Midcap Growth Index is an unmanaged index of those companies in the Russell Midcap Index chosen for their growth orientation.

Russell 3000 Growth Index is an unmanaged index of those companies in the broad-market Russell 3000 Index chosen for their growth orientation.

S&P 500/Barra Value Index is an unmanaged capitalization-weighted index of large-cap stocks chosen for their value orientation.

Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.

Lipper is a third-party industry-ranking entity that ranks mutual funds. Lipper rankings are based on total return at net asset value and do not reflect sales charges. Funds are ranked among other funds with similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.

22

Trustee approval of
management contract

General conclusions

The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months beginning in March and ending in June 2005, the Contract Committee met five times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. Upon completion of this review, the Contract Committee recommended and the Independent Trustees approved the continuance of your fund’s management contract, effective July 1, 2005.

This approval was based on the following conclusions:

* That the fee schedule currently in effect for your fund represents reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and

* That such fee schedule represents an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.

These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prior years.

Model fee schedules and categories; total expenses

The Trustees’ review of the management fees and total expenses of the Putnam funds focused on three major themes:

* Consistency. The Trustees, working in cooperation with Putnam Management, have developed and implemented a series of model fee schedules for the Putnam funds designed to ensure that each fund’s management fee is consistent with the fees for similar funds in the

23

Putnam family of funds and compares favorably with fees paid by competitive funds sponsored by other investment advisors. Under this approach, each Putnam fund is assigned to one of several fee categories based on a combination of factors, including competitive fees and perceived difficulty of management, and a common fee schedule is implemented for all funds in a given fee category. The Trustees reviewed the model fee schedule then in effect for your fund, including fee levels and breakpoints, and the assignment of the fund to a particular fee category under this structure. (“Breakpoints” refer to reductions in fee rates that apply to additional assets once specified asset levels are reached.) The Trustees concluded that no changes should be made in the fund’s current fee schedule at this time.

* Competitiveness. The Trustees also reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 7th percentile in management fees and in the 7th percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2004 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). The Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distribution (12b-1) fees and other expenses, had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints. They noted that such expense ratio increases were currently being controlled by expense limitations implemented in January 2004 and which Putnam Management, in consultation with the Contract Committee, has committed to maintain at least through 2006. The Trustees expressed their intention to monitor this information closely to ensure that fees and expenses of the Putnam funds continue to meet evolving competitive standards.

* Economies of scale. The Trustees concluded that the fee schedule currently in effect for your fund represents an appropriate sharing of economies of scale at current asset levels. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effective management fee rate of a fund (as a percentage of fund assets) declines as a fund grows in size and crosses specified asset thresholds. The Trustees examined the existing breakpoint structure of the Putnam funds’ management fees in light of competitive industry practices. The Trustees considered various possible modifica-tions to the Putnam funds’ current breakpoint structure, but ultimately concluded that the current breakpoint structure continues to serve the interests of fund shareholders. Accordingly, the Trustees continue to believe that the fee schedules currently in effect for the funds represent an appropriate sharing of economies of scale at current asset levels. The Trustees noted that signifi-cant redemptions in many Putnam funds, together with significant changes in the cost structure of Putnam Management, have altered the economics of Putnam Management’s business in significant ways. In view of these changes, the Trustees intend to consider whether a greater sharing of the economies of scale by fund shareholders would be appropriate if and when aggregate assets in the Putnam funds begin to experience meaningful growth.

24

In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis.

Investment performance

The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the funds’ investment process and performance by the work of the Investment Oversight Committees of the Trustees, which meet on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process - as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel - but also recognize that this does not guarantee favorable investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing the fund’s performance with various benchmarks and with the performance of competitive funds. The Trustees noted the satisfactory investment performance of many Putnam funds. They also noted the disappointing investment performance of certain funds in recent years and continued to discuss with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line to address areas of underperformance. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these changes and to evaluate whether additional remedial changes are warranted.

In the case of your fund, the Trustees considered that your fund’s class A share cumulative total return performance at net asset value was in the following percentiles of its Lipper Inc. peer group (Lipper Multi-Cap Growth Funds) for the one-, three-, and five-year periods ended December 31, 2004 (the first percentile being the best-performing funds and the 100th percentile being the worst-performing funds):

One-year period  Three-year period  Five-year period 
56th  64th  81st 

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(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report. Over the one-, three-, and five-year periods ended December 31, 2004, there were 418, 343, and 223 funds, respectively, in your fund’s Lipper peer group. Past performance is no guarantee of future performance.)* The Trustees noted the disappointing performance for your fund for the five-year period ended December 31, 2004. In this regard, the Trustees considered that, over the last year, Putnam Management has clarified the fund’s investment philosophy and made changes to the investment team. In addition, the fund has adopted a redesigned investment process which incorporates a blend of quantitative techniques and fundamental analysis.

As a general matter, the Trustees believe that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees believe that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance, the Trustees believe that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of terminating a management contract and engaging a new investment advisor for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.

Brokerage and soft-dollar allocations; other benefits

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include principally benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage is earmarked to pay for research services that may be utilized by a fund’s investment advisor, subject to the obligation to seek best execution. The Trustees believe that soft-dollar credits and other potential benefits associated with the allocation of fund brokerage, which pertains mainly to funds investing in equity securities, represent assets of the funds that should be used for the benefit of fund shareholders. This area has been marked by significant change in recent years. In July 2003, acting upon the Contract Committee’s recommendation, the Trustees directed that allocations of brokerage to reward firms that sell fund shares be discontinued no later than December 31, 2003. In addition, commencing in 2004, the allocation of brokerage commissions by Putnam Management to acquire research services from third-party service providers has been significantly reduced, and

* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper Multi-Cap Growth Funds category for the one-, five-, and ten-year periods ended December 31, 2005, were 40th, 73rd, and 79th, respectively. Over the one-, five-, and ten-year periods ended December 31, 2005, the fund ranked 163rd out of 409 funds, 203rd out of 279 funds, and 71st out of 89 funds, respectively. The Trustees did not consider this information in approving the continuance of your fund’s management contract.

26

continues at a modest level only to acquire research that is customarily not available for cash. The Trustees will continue to monitor the allocation of the funds’ brokerage to ensure that the principle of “best price and execution” remains paramount in the portfolio trading process.

The Trustees’ annual review of your fund’s management contract also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the custodian agreement and investor servicing agreement with Putnam Fiduciary Trust Company, all of which provide benefits to affiliates of Putnam Management.

Comparison of retail and institutional fee schedules

The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparison of such fees with fees charged to the funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and the mutual funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across all asset sectors are higher on average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutional clients of the firm, but have not relied on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.

27

Other information
for shareholders

Important notice regarding delivery of shareholder documents

In accordance with SEC regulations, Putnam sends a single copy of annual and semiannual shareholder reports, prospectuses, and proxy statements to Putnam shareholders who share the same address. If you prefer to receive your own copy of these documents, please call Putnam at 1-800-225-1581, and Putnam will begin sending individual copies within 30 days.

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ 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, 2005, are available on the Putnam Individual Investor Web site, www.putnam.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 Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

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.

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Financial statements

A guide to financial statements

These sections of the report, as well as the accompanying Notes, constitute the fund’s financial statements.

The fund’s portfolio lists all the fund’s investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification.

Statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and noninvestment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the liquidation preference of preferred shares.)

Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings -- from dividends and interest income -- and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings -- as well as any unrealized gains or losses over the period -- is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal period.

Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, by distributions to shareholders, and by changes in the number of the fund’s shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned.

Financial highlights provide an overview of the fund’s investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period. For open-end funds, a separate table is provided for each share class.

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The fund’s portfolio 12/31/05 (Unaudited)

COMMON STOCKS (100.2%)*       
  Shares    Value 
 
Aerospace and Defense (3.7%)       
Boeing Co. (The)  1,207,300  $  84,800,752 
L-3 Communications Holdings, Inc.  424,500    31,561,575 
Lockheed Martin Corp.  584,800    37,210,824 
Precision Castparts Corp.  319,900    16,574,019 
Raytheon Co.  699,400    28,080,910 
Rockwell Collins, Inc.  403,900    18,769,233 
      216,997,313 
 
Automotive (0.4%)       
Oshkosh Truck Corp.  560,600    24,997,154 
 
Banking (1.7%)       
Commerce Bancorp, Inc.  452,700    15,577,407 
UnionBanCal Corp.  314,600    21,619,312 
Washington Mutual, Inc.  787,583    34,259,861 
Zions Bancorp.  387,800    29,302,168 
      100,758,748 
 
Beverage (2.0%)       
Fomento Economico Mexicano SA       
de CV ADR (Mexico)  175,900    12,754,509 
Pepsi Bottling Group, Inc. (The)  495,100    14,164,811 
PepsiCo, Inc.  1,509,400    89,175,352 
      116,094,672 
 
Biotechnology (2.9%)       
Affymetrix, Inc. †  330,600    15,786,150 
Amgen, Inc. †  774,100    61,045,526 
Celgene Corp. †  423,300    27,429,840 
Genzyme Corp. †  758,700    53,700,786 
Invitrogen Corp. †  178,800    11,915,232 
      169,877,534 
 
Broadcasting (0.6%)       
XM Satellite Radio Holdings, Inc. Class A †  1,212,120    33,066,634 
 
Building Materials (0.2%)       
USG Corp. †  138,100    8,976,500 
 
Coal (0.2%)       
CONSOL Energy, Inc.  180,600    11,771,508 
 
Commercial and Consumer Services (4.3%)       
Administaff, Inc.  605,600    25,465,480 
Corporate Executive Board Co. (The)  793,200    71,150,040 
Google, Inc. Class A †  207,200    85,958,992 
IAC/InterActiveCorp. †  1,213,800    34,362,678 

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COMMON STOCKS (100.2%)* continued       
  Shares    Value 
 
Commercial and Consumer Services continued       
Monster Worldwide, Inc. †  466,000  $  19,022,120 
Robert Half International, Inc.  492,100    18,645,669 
      254,604,979 
 
Communications Equipment (4.2%)       
Cisco Systems, Inc. †  7,481,600    128,084,992 
Comtech Telecommunications Corp. †  419,300    12,805,422 
F5 Networks, Inc. †  310,600    17,763,214 
Harris Corp.  646,600    27,810,266 
Nokia OYJ ADR (Finland)  717,900    13,137,570 
Scientific-Atlanta, Inc.  1,095,100    47,165,957 
      246,767,421 
 
Computers (5.1%)       
Anixter International, Inc.  521,300    20,393,256 
Apple Computer, Inc. †  1,485,400    106,785,406 
Dell, Inc. †  800,200    23,997,998 
EMC Corp. †  1,426,800    19,433,016 
Emulex Corp. †  204,200    4,041,118 
Hewlett-Packard Co.  447,100    12,800,473 
Intergraph Corp. †  500,600    24,934,886 
j2 Global Communications, Inc. †  412,600    17,634,524 
Micros Systems, Inc. †  252,000    12,176,640 
NCR Corp. †  269,000    9,129,860 
Network Appliance, Inc. †  814,700    21,996,900 
Western Digital Corp. †  1,218,363    22,673,735 
      295,997,812 
 
Conglomerates (0.2%)       
Danaher Corp.  258,300    14,407,974 
 
Consumer Cyclicals (2.0%)       
Black & Decker Manufacturing Co.  1,099,600    95,621,216 
Harman International Industries, Inc.  192,000    18,787,200 
      114,408,416 
 
Consumer Finance (1.4%)       
Capital One Financial Corp.  475,000    41,040,000 
CompuCredit Corp. †  430,900    16,581,032 
Countrywide Financial Corp.  704,300    24,080,017 
      81,701,049 
 
Consumer Goods (1.3%)       
Energizer Holdings, Inc. †  338,200    16,838,978 
Newell Rubbermaid, Inc.  413,300    9,828,274 
Procter & Gamble Co. (The)  871,300    50,430,844 
      77,098,096 

31

COMMON STOCKS (100.2%)* continued       
  Shares    Value 
 
Consumer Services (1.7%)       
Alliance Data Systems Corp. †  1,427,900  $  50,833,240 
Ceridian Corp. †  383,900    9,539,915 
Getty Images, Inc. †  312,800    27,923,656 
Labor Ready, Inc. †  646,700    13,464,294 
      101,761,105 
 
Electrical Equipment (0.5%)       
WESCO International, Inc. †  740,240    31,630,455 
 
Electronics (5.4%)       
Arrow Electronics, Inc. †  529,700    16,966,291 
Avnet, Inc. †  925,200    22,149,288 
Freescale Semiconductor, Inc. Class A †  877,700    22,109,263 
Intel Corp.  5,373,500    134,122,559 
Komag, Inc. †  499,900    17,326,534 
Microchip Technology, Inc.  282,500    9,082,375 
Motorola, Inc.  1,038,800    23,466,492 
National Semiconductor Corp.  399,600    10,381,608 
Silicon Laboratories, Inc. †  486,400    17,831,424 
Texas Instruments, Inc.  1,338,000    42,909,660 
      316,345,494 
 
Energy (2.8%)       
Cal Dive International, Inc. †  745,800    26,766,762 
Cooper Cameron Corp. †  2,072,000    85,780,800 
Pride International, Inc. †  848,500    26,091,375 
Superior Energy Services †  627,900    13,217,295 
Unit Corp. †  253,600    13,955,608 
      165,811,840 
 
Entertainment (0.4%)       
Dreamworks Animation SKG, Inc. Class A †  900,000    22,104,000 
 
Environmental (0.2%)       
Clean Harbors, Inc. †  419,300    12,080,033 
 
Financial (1.9%)       
American Express Co.  389,600    20,048,816 
Chicago Mercantile Exchange Holdings, Inc. (The)  46,600    17,125,034 
Moody’s Corp.  1,228,000    75,423,760 
      112,597,610 
 
Food (0.7%)       
Archer Daniels Midland Co.  1,606,500    39,616,290 
 
Forest Products and Packaging (0.3%)       
Crown Holdings, Inc. †  765,000    14,940,450 
 
Gaming & Lottery (0.4%)       
GTECH Holdings Corp.  682,300    21,656,202 

32

COMMON STOCKS (100.2%)* continued       
  Shares    Value 
 
Health Care Services (5.6%)       
AmerisourceBergen Corp.  528,300  $  21,871,620 
Coventry Health Care, Inc. †  154,700    8,811,712 
Express Scripts, Inc. †  507,900    42,562,020 
McKesson Corp.  1,163,400    60,019,806 
UnitedHealth Group, Inc.  1,921,100    119,377,154 
WellPoint, Inc. †  969,100    77,324,489 
      329,966,801 
 
Homebuilding (1.6%)       
NVR, Inc. †  69,100    48,508,200 
Toll Brothers, Inc. †  814,100    28,200,424 
William Lyon Homes, Inc. †  144,700    14,600,230 
      91,308,854 
 
Insurance (2.1%)       
Everest Re Group, Ltd. (Barbados)  267,500    26,843,625 
HCC Insurance Holdings, Inc.  566,400    16,810,752 
Selective Insurance Group  294,800    15,653,880 
W.R. Berkley Corp.  977,450    46,546,169 
Zenith National Insurance Corp.  347,250    16,015,170 
      121,869,596 
 
Investment Banking/Brokerage (2.7%)       
Bear Stearns Cos., Inc. (The)  462,400    53,421,072 
Calamos Asset Management, Inc. Class A  343,900    10,815,655 
Eaton Vance Corp.  295,200    8,076,672 
Goldman Sachs Group, Inc. (The)  244,800    31,263,408 
Lazard, Ltd. Class A (Bermuda)  656,000    20,926,400 
Lehman Brothers Holdings, Inc.  258,800    33,170,396 
      157,673,603 
 
Lodging/Tourism (0.4%)       
Choice Hotels International, Inc.  534,700    22,329,072 
 
Machinery (0.9%)       
Cummins, Inc.  293,800    26,362,674 
Terex Corp. †  118,200    7,021,080 
Timken Co.  650,000    20,813,000 
      54,196,754 
 
Manufacturing (0.4%)       
Mettler-Toledo International, Inc.       
(Switzerland) †  433,000    23,901,600 
 
Medical Technology (7.9%)       
Bausch & Lomb, Inc.  299,400    20,329,260 
Becton, Dickinson and Co.  716,100    43,023,288 
C.R. Bard, Inc.  718,600    47,370,112 
Charles River Laboratories International, Inc. †  303,000    12,838,110 
Dade Behring Holdings, Inc.  727,800    29,759,742 

33

COMMON STOCKS (100.2%)* continued       
  Shares    Value 
 
Medical Technology continued       
Haemonetics Corp. †  452,200  $  22,094,492 
Kinetic Concepts, Inc. †  785,900    31,247,384 
Medtronic, Inc.  770,700    44,369,199 
Millipore Corp. †  384,600    25,398,984 
Respironics, Inc. †  977,400    36,232,218 
St. Jude Medical, Inc. †  1,528,100    76,710,620 
Sybron Dental Specialties, Inc. †  320,400    12,755,124 
Varian Medical Systems, Inc. †  1,007,100    50,697,414 
Waters Corp. †  294,100    11,116,980 
      463,942,927 
 
Metals (1.8%)       
Century Aluminum Co. †  390,200    10,227,142 
Phelps Dodge Corp.  561,100    80,725,457 
Steel Dynamics, Inc.  406,300    14,427,713 
      105,380,312 
 
Oil & Gas (5.2%)       
Amerada Hess Corp.  56,000    7,101,920 
Burlington Resources, Inc.  739,600    63,753,520 
Exxon Mobil Corp.  1,532,700    86,091,759 
Frontier Oil Corp.  1,105,700    41,496,921 
KCS Energy, Inc. †  588,100    14,243,782 
Noble Energy, Inc.  363,300    14,640,990 
Southwestern Energy Co. †  268,600    9,653,484 
Sunoco, Inc.  256,000    20,065,280 
Tesoro Petroleum Corp.  401,300    24,700,015 
Valero Energy Corp.  494,800    25,531,680 
      307,279,351 
 
Pharmaceuticals (5.7%)       
Allergan, Inc.  518,100    55,934,076 
Barr Pharmaceuticals, Inc. †  1,212,150    75,504,824 
Caremark Rx, Inc. †  546,000    28,277,340 
Cephalon, Inc. †  673,000    43,570,020 
Johnson & Johnson  1,914,400    115,055,440 
Medicis Pharmaceutical Corp. Class A  146,700    4,701,735 
Mylan Laboratories, Inc.  515,900    10,297,364 
      333,340,799 
 
Publishing (0.9%)       
McGraw-Hill Companies, Inc. (The)  723,800    37,369,794 
R. H. Donnelley Corp. †  294,300    18,134,766 
      55,504,560 
 
Railroads (0.6%)       
Canadian National Railway Co. (Canada)  433,500    34,675,665 

34

COMMON STOCKS (100.2%)* continued       
  Shares    Value 
 
Real Estate (0.4%)       
Brookfield Homes Corp.  64,500  $  3,207,585 
CB Richard Ellis Group, Inc. Class A †  327,700    19,285,145 
      22,492,730 
 
Restaurants (0.6%)       
Darden Restaurants, Inc.  605,300    23,534,064 
Panera Bread Co. †  133,800    8,787,984 
      32,322,048 
 
Retail (7.4%)       
Advance Auto Parts, Inc. †  407,800    17,722,988 
American Eagle Outfitters, Inc.  2,754,000    63,286,920 
Barnes & Noble, Inc.  463,600    19,781,812 
Best Buy Co., Inc.  1,327,801    57,732,787 
Claire’s Stores, Inc.  71,300    2,083,386 
Coldwater Creek, Inc. †  527,550    16,106,102 
Guess ?, Inc. †  97,700    3,478,120 
Home Depot, Inc. (The)  2,346,700    94,994,416 
Lowe’s Cos., Inc.  312,100    20,804,586 
Michaels Stores, Inc.  1,341,900    47,463,003 
Pantry, Inc. (The) †  255,600    12,010,644 
Staples, Inc.  3,521,050    79,963,046 
      435,427,810 
 
Semiconductor (0.6%)       
Lam Research Corp. †  654,800    23,363,264 
Photronics, Inc. †  727,900    10,962,174 
      34,325,438 
 
Software (6.9%)       
Adobe Systems, Inc.  1,957,700    72,356,592 
Amdocs, Ltd. (Guernsey) †  342,800    9,427,000 
Autodesk, Inc.  478,700    20,560,165 
BMC Software, Inc. †  729,700    14,951,553 
Citrix Systems, Inc. †  2,035,600    58,584,568 
Cognos, Inc. (Canada) †  314,000    10,898,940 
McAfee, Inc. †  1,859,700    50,453,661 
Microsoft Corp.  3,559,000    93,067,850 
MicroStrategy, Inc. †  278,200    23,018,268 
Symantec Corp. †  2,937,700    51,409,750 
      404,728,347 
 
Technology Services (1.1%)       
Accenture, Ltd. Class A (Bermuda)  429,000    12,385,230 
Global Payments, Inc.  640,200    29,839,722 
Ingram Micro, Inc. Class A †  623,600    12,428,348 
Unova, Inc. †  289,800    9,795,240 
      64,448,540 

35

COMMON STOCKS (100.2%)* continued       
  Shares    Value 
Telecommunications (1.0%)       
Brightpoint, Inc. †  408,700  $  11,333,251 
Earthlink, Inc. †  2,380,771    26,450,366 
Nextel Partners, Inc. Class A †  715,000    19,977,100 
      57,760,717 
Textiles (1.6%)       
NIKE, Inc. Class B  929,700    80,688,663 
Phillips-Van Heusen Corp.  455,300    14,751,720 
      95,440,383 
Tire & Rubber (0.3%)       
Goodyear Tire & Rubber Co. (The) †  1,084,900    18,855,562 
Total common stocks (cost $5,025,450,399)    $  5,873,240,758 
 
SHORT-TERM INVESTMENTS (0.1%)* (cost $6,553,198)       
  Shares    Value 
Putnam Prime Money Market Fund (e)  6,553,198  $  6,553,198 
 
TOTAL INVESTMENTS       
Total investments (cost $5,032,003,597)    $  5,879,793,956 

* Percentages indicated are based on net assets of $5,861,962,100.

† Non-income-producing security.

(e) See Note 5 to the financial statements regarding investments in Putnam Prime Money Market Fund.

ADR after the name of a foreign holding stands for American Depository Receipts, representing ownership of foreign securities on deposit with a custodian bank.

The accompanying notes are an integral part of these financial statements.

36

Statement of assets and liabilities 12/31/05 (Unaudited)

ASSETS   
Investment in securities, at value (Note 1):   
Unaffiliated issuers (identified cost $5,025,450,399)  $ 5,873,240,758 
Affiliated issuers (identified cost $6,553,198) (Note 5)  6,553,198 
Cash  78,740 
Dividends, interest and other receivables  3,853,223 
Receivable for shares of the fund sold  635,482 
Receivable for securities sold  10,368,930 
Total assets  5,894,730,331 
 
LIABILITIES   
Payable for securities purchased  2,757,361 
Payable for shares of the fund repurchased  15,527,680 
Payable for compensation of Manager (Notes 2 and 5)  7,809,509 
Payable for investor servicing and custodian fees (Note 2)  1,330,436 
Payable for Trustee compensation and expenses (Note 2)  920,728 
Payable for administrative services (Note 2)  5,804 
Payable for distribution fees (Note 2)  3,603,564 
Other accrued expenses  813,149 
Total liabilities  32,768,231 
Net assets  $ 5,861,962,100 
 
REPRESENTED BY   
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $ 9,291,574,722 
Accumulated net investment loss (Note 1)  (9,945,541) 
Accumulated net realized loss on investments   
and foreign currency transactions (Note 1)  (4,267,457,440) 
Net unrealized appreciation of investments  847,790,359 
Total -- Representing net assets applicable to capital shares outstanding  $ 5,861,962,100 

(Continued on next page)

37

Statement of assets and liabilities (Continued)

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE   
Net asset value and redemption price per class A share   
($4,569,038,087 divided by 100,077,206 shares)  $45.66 
Offering price per class A share   
(100/94.75 of $45.66)*  $48.19 
Net asset value and offering price per class B share   
($722,950,276 divided by 17,658,393 shares)**  $40.94 
Net asset value and offering price per class C share   
($43,243,669 divided by 995,484 shares)**  $43.44 
Net asset value and redemption price per class M share   
($97,457,596 divided by 2,274,988 shares)  $42.84 
Offering price per class M share   
(100/96.75 of $42.84)*  $44.28 
Net asset value, offering price and redemption price per class R share   
($457,773 divided by 10,093 shares)  $45.36 
Net asset value, offering price and redemption price per class Y share   
($428,814,699 divided by 9,083,100 shares)  $47.21 

* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales, the offering price is reduced.

** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.

The accompanying notes are an integral part of these financial statements.

38

Statement of operations Six months ended 12/31/05 (Unaudited)

INVESTMENT INCOME   
Dividends (net of foreign tax of $28,927)  $ 24,626,028 
Interest (including interest income of $811,301   
from investments in affiliated issuers) (Note 5)  883,262 
Total investment income  25,509,290 
 
EXPENSES   
Compensation of Manager (Note 2)  15,885,670 
Investor servicing fees (Note 2)  9,646,296 
Custodian fees (Note 2)  140,725 
Trustee compensation and expenses (Note 2)  77,901 
Administrative services (Note 2)  35,958 
Distribution fees -- Class A (Note 2)  5,837,729 
Distribution fees -- Class B (Note 2)  3,815,318 
Distribution fees -- Class C (Note 2)  218,164 
Distribution fees -- Class M (Note 2)  382,301 
Distribution fees -- Class R (Note 2)  779 
Other  923,667 
Non-recurring costs (Notes 2 and 6)  49,331 
Costs assumed by Manager (Notes 2 and 6)  (49,331) 
Fees waived and reimbursed by Manager (Note 5)  (28,957) 
Total expenses  36,935,551 
Expense reduction (Note 2)  (1,480,720) 
Net expenses  35,454,831 
Net investment loss  (9,945,541) 
Net realized gain on investments (Notes 1 and 3)  367,383,727 
Net realized loss on futures contracts (Note 1)  (236,392) 
Net realized gain on foreign currency transactions (Note 1)  17,748 
Net unrealized appreciation of assets and liabilities   
in foreign currencies during the period  552 
Net unrealized appreciation of investments   
and futures contracts during the period  193,885,629 
Net gain on investments  561,051,264 
Net increase in net assets resulting from operations  $551,105,723 

The accompanying notes are an integral part of these financial statements.

39

Statement of changes in net assets

DECREASE IN NET ASSETS     
  Six months ended  Year ended 
  12/31/05*  6/30/05 
Operations:     
Net investment loss  $ (9,945,541)  $ (3,165,647) 
Net realized gain on investments     
and foreign currency transactions  367,165,083  898,294,344 
Net unrealized appreciation (depreciation) of investments     
and assets and liabilities in foreign currencies  193,886,181  (506,149,683) 
Net increase in net assets resulting from operations  551,105,723  388,979,014 
Redemption fees (Note 1)  3,638  13,971 
Decrease from capital share transactions (Note 4)  (676,697,061)  (2,191,303,347) 
Total decrease in net assets  (125,587,700)  (1,802,310,362) 
 
NET ASSETS     
Beginning of period  5,987,549,800  7,789,860,162 
End of period (including accumulated net investment     
loss of $9,945,541 and $--, respectively)  $5,861,962,100  $5,987,549,800 

* Unaudited

The accompanying notes are an integral part of these financial statements.

40

Financial highlights (For a common share outstanding throughout the period)

CLASS A

Six months ended**        Year ended     
  12/31/05  6/30/05  6/30/04  6/30/03  6/30/02  6/30/01 
Net asset value,             
beginning of period  $41.60  $38.96  $32.79  $32.28  $47.97  $96.61 
Investment operations:             
Net investment             
income (loss)(a)  (.05)(d)  .03(d,f,g)  (.19)(d)  (.17)  (.22)  (.37) 
Net realized and unrealized           
gain (loss) on investments  4.11  2.61  6.36  .68  (15.47)  (38.81) 
Total from             
investment operations  4.06  2.64  6.17  .51  (15.69)  (39.18) 
Less distributions:             
From net realized gain             
on investments  --  --  --  --  --  (9.46) 
Total distributions  --  --  --  --  --  (9.46) 
Redemption fees  --(e)  --(e)  --(e)  --  --  -- 
Net asset value,             
end of period  $45.66  $41.60  $38.96  $32.79  $32.28  $47.97 
Total return at             
net asset value (%)(b)  9.76*  6.78(g)  18.82  1.58  (32.71)  (43.10) 
 
 
RATIOS AND SUPPLEMENTAL DATA           
Net assets, end of period           
(in thousands)  $4,569,038 $4,650,755   $5,075,005     $6,262,164      $7,683,016  $12,595,034 
Ratio of expenses to             
average net assets (%)(c)  .57*(d)  1.12(d)  1.09(d)  1.09  .98  .89 
Ratio of net investment             
income (loss) to average             
net assets (%)  (.12)*(d)  .07(d,f,g)  (.52)(d)  (.57)  (.57)  (.55) 
Portfolio turnover (%)  30.97*  97.25  60.86  42.43  76.67  67.74 

* Not annualized.

** Unaudited.

(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) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.

(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).

(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended December 31, 2005, June 30, 2005 and June 30, 2004 reflect a reduction of less than 0.01% of average net assets for class A shares (Note 5).

(e) Amount represents less than $0.01 per share.

(f) Reflects a special dividend which amounted to $0.15 per share and 0.39% of average net assets.

(g) Reflects a non-recurring accrual related to Putnam Management’s settlement with the SEC regarding brokerage allocation practices, which amounted to $0.02 per share and 0.05% of average net assets for class A shares (Note 6).

The accompanying notes are an integral part of these financial statements.

41

Financial highlights (For a common share outstanding throughout the period)

CLASS B

Six months ended**     Year ended     
  12/31/05  6/30/05  6/30/04  6/30/03  6/30/02  6/30/01 
Net asset value,             
beginning of period  $37.45  $35.34  $29.96  $29.72  $44.50  $91.07 
Investment operations:             
Net investment loss (a)  (.20)(d)  (.24)(d,f,g)  (.43)(d)   (.36)  (.48)  (.77) 
Net realized and unrealized             
gain (loss) on investments  3.69  2.35  5.81  .60  (14.30)  (36.34) 
Total from             
investment operations  3.49  2.11  5.38  .24  (14.78)  (37.11) 
Less distributions:             
From net realized gain             
on investments  --  --  --  --  --  (9.46) 
Total distributions  --  --  --  --  --  (9.46) 
Redemption fees  --(e)  --(e)  --(e)  --  --  -- 
Net asset value,             
end of period  $40.94  $37.45  $35.34  $29.96  $29.72  $44.50 
Total return at             
net asset value (%)(b)  9.32*  5.97(g)  17.96  .81  (33.21)  (43.48) 
 
RATIOS AND SUPPLEMENTAL DATA           
Net assets, end of period             
(in thousands)  $722,950  $784,295    $1,674,238 $1,850,775    $2,739,100  $6,137,938 
Ratio of expenses to             
average net assets (%)(c)  .95*(d)  1.87(d)  1.84(d)  1.84  1.73  1.53 
Ratio of net investment loss             
to average net assets (%)  (.50)*(d)  (.68)(d,f,g)   (1.27)(d)  (1.33)  (1.32)  (1.19) 
Portfolio turnover (%)  30.97*  97.25  60.86  42.43  76.67  67.74 

* Not annualized.

** Unaudited.

(a) Per share net investment loss has been determined on the basis of the weighted average number of shares outstanding during the period.

(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.

(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).

(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended December 31, 2005, June 30, 2005 and June 30, 2004 reflect a reduction of less than 0.01% of average net assets for class B shares (Note 5).

(e) Amount represents less than $0.01 per share.

(f) Reflects a special dividend which amounted to $0.15 per share and 0.42% of average net assets.

(g) Reflects a non-recurring accrual related to Putnam Management’s settlement with the SEC regarding brokerage allocation practices, which amounted to $0.01 per share and 0.04% of average net assets for class B shares (Note 6).

The accompanying notes are an integral part of these financial statements.

42

Financial highlights (For a common share outstanding throughout the period)

CLASS C

Six months ended**        Year ended     
  12/31/05  6/30/05  6/30/04  6/30/03  6/30/02  6/30/01 
Net asset value,             
beginning of period  $39.73  $37.49  $31.79  $31.53  $47.21  $95.94 
Investment operations:             
Net investment loss (a)  (.21)(d)  (.25)(d,f,g)  (.45)(d)   (.37)  (.50)  (.82) 
Net realized and unrealized             
gain (loss) on investments  3.92  2.49  6.15  .63  (15.18)  (38.45) 
Total from             
investment operations  3.71  2.24  5.70  .26  (15.68)  (39.27) 
Less distributions:             
From net realized gain             
on investments  --  --  --  --  --  (9.46) 
Total distributions  --  --  --  --  --  (9.46) 
Redemption fees  --(e)  --(e)  --(e)  --  --  -- 
Net asset value,             
end of period  $43.44  $39.73  $37.49  $31.79  $31.53  $47.21 
Total return at             
net asset value (%)(b)  9.34*  5.98(g)  17.93  .83  (33.21)  (43.53) 
 
RATIOS AND SUPPLEMENTAL DATA           
Net assets, end of period             
(in thousands)  $43,244  $42,827  $55,005  $64,015  $79,149  $136,417 
Ratio of expenses to             
average net assets (%)(c)  .95*(d)  1.87(d)  1.84(d)  1.84  1.73  1.64 
Ratio of net investment loss             
to average net assets (%)  (.50)*(d)  (.68)(d,f,g)  (1.27)(d)   (1.32)  (1.32)  (1.29) 
Portfolio turnover (%)  30.97*  97.25  60.86  42.43  76.67  67.74 

* Not annualized.

** Unaudited.

(a) Per share net investment loss has been determined on the basis of the weighted average number of shares outstanding during the period.

(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.

(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).

(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended December 31, 2005, June 30, 2005 and June 30, 2004 reflect a reduction of less than 0.01% of average net assets for class C shares (Note 5).

(e) Amount represents less than $0.01 per share.

(f) Reflects a special dividend which amounted to $0.15 per share and 0.40% of average net assets.

(g) Reflects a non-recurring accrual related to Putnam Management’s settlement with the SEC regarding brokerage allocation practices, which amounted to $0.02 per share and 0.05% of average net assets for class C shares (Note 6).

The accompanying notes are an integral part of these financial statements.

43

Financial highlights (For a common share outstanding throughout the period)

CLASS M

Six months ended**        Year ended     
  12/31/05  6/30/05  6/30/04  6/30/03  6/30/02  6/30/01 
Net asset value,             
beginning of period  $39.14  $36.83  $31.15  $30.82  $46.03  $93.63 
Investment operations:             
Net investment loss (a)  (.15)(d)  (.16)(d,f,g)   (.36)(d)  (.30)  (.40)  (.69) 
Net realized and unrealized             
gain (loss) on investments  3.85  2.47  6.04  .63  (14.81)  (37.45) 
Total from             
investment operations  3.70  2.31  5.68  .33  (15.21)  (38.14) 
Less distributions:             
From net realized gain             
on investments  --  --  --  --  --  (9.46) 
Total distributions  --  --  --  --  --  (9.46) 
Redemption fees  --(e)  --(e)  --(e)  --  --  -- 
Net asset value,             
end of period  $42.84  $39.14  $36.83  $31.15  $30.82  $46.03 
Total return at             
net asset value (%)(b)  9.45*  6.27(g)  18.24  1.07  (33.04)  (43.38) 
 
RATIOS AND SUPPLEMENTAL DATA           
Net assets, end of period             
(in thousands)  $97,458  $104,545  $134,157  $171,675  $223,964  $411,251 
Ratio of expenses to             
average net assets (%)(c)  .83*(d)  1.62(d)  1.59(d)  1.59  1.48  1.39 
Ratio of net investment loss             
to average net assets (%)  (.37)*(d)  (.43)(d,f,g)   (1.02)(d) (1.07)  (1.07)  (1.05) 
Portfolio turnover (%)  30.97*  97.25  60.86  42.43  76.67  67.74 

* Not annualized.

** Unaudited.

(a) Per share net investment loss has been determined on the basis of the weighted average number of shares outstanding during the period.

(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.

(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).

(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended December 31, 2005, June 30, 2005 and June 30, 2004 reflect a reduction of less than 0.01% of average net assets for class M shares (Note 5).

(e) Amount represents less than $0.01 per share.

(f) Reflects a special dividend which amounted to $0.15 per share and 0.40% of average net assets.

(g) Reflects a non-recurring accrual related to Putnam Management’s settlement with the SEC regarding brokerage allocation practices, which amounted to $0.02 per share and 0.05% of average net assets for class M shares (Note 6).

The accompanying notes are an integral part of these financial statements.

44

Financial highlights (For a common share outstanding throughout the period)

CLASS R

        Period 
  Six months ended**    Year ended  1/21/03† - 
  12/31/05    6/30/05  6/30/04    6/30/03 
Net asset value,         
beginning of period  $41.38    $38.85  $32.76  $28.90 
Investment operations:         
Net investment loss (a)  (.09)(d)    (.09)(d,f,g)  (.27)(d)  (.10) 
Net realized and unrealized         
gain on investments  4.07    2.62  6.36  3.96 
Total from         
investment operations  3.98    2.53  6.09  3.86 
Redemption fees  --(e)    --(e)  --(e)  -- 
Net asset value,         
end of period  $45.36    $41.38  $38.85  $32.76 
Total return at         
net asset value (%)(b)  9.62*    6.51(g)  18.59  13.36* 
 
RATIOS AND SUPPLEMENTAL DATA         
Net assets, end of period         
(in thousands)  $458    $184  $25  $1 
Ratio of expenses to         
average net assets (%)(c)  .70*(d)    1.37(d)  1.34(d)  .59* 
Ratio of net investment loss         
to average net assets (%)  (.21)*(d)    (.23)(d,f,g)  (.76)(d)  (.36)* 
Portfolio turnover (%)  30.97*    97.25  60.86  42.43 

† Commencement of operations.

* Not annualized.

** Unaudited.

(a) Per share net investment loss has been determined on the basis of the weighted average number of shares outstanding during the period.

(b) Total return assumes dividend reinvestment.

(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).

(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended December 31, 2005, June 30, 2005 and June 30, 2004 reflect a reduction of less than 0.01% of average net assets for class R shares (Note 5).

(e) Amount represents less than $0.01 per share.

(f) Reflects a special dividend which amounted to $0.12 per share and 0.31% of average net assets.

(g) Reflects a non-recurring accrual related to Putnam Management’s settlement with the SEC regarding brokerage allocation practices, which amounted to $0.03 per share and 0.08% of average net assets for class R shares (Note 6).

The accompanying notes are an integral part of these financial statements.

45

Financial highlights (For a common share outstanding throughout the period)

CLASS Y

Six months ended**        Year ended     
  12/31/05  6/30/05  6/30/04  6/30/03  6/30/02  6/30/01 
Net asset value,             
beginning of period  $42.97  $40.14  $33.70  $33.09  $49.05  $98.28 
Investment operations:             
Net investment             
income (loss) (a)  --(d,e)  .13(d,f,g)  (.10)(d)  (.10)  (.13)  (.21) 
Net realized and unrealized             
gain (loss) on investments  4.24  2.70  6.54  .71  (15.83)  (39.56) 
Total from             
investment operations  4.24  2.83  6.44  .61  (15.96)  (39.77) 
Less distributions:             
From net realized gain             
on investments  --  --  --  --  --  (9.46) 
Total distributions  --  --  --  --  --  (9.46) 
Redemption fees  --(e)  --(e)  --(e)  --  --  -- 
Net asset value,             
end of period  $47.21  $42.97  $40.14  $33.70  $33.09  $49.05 
Total return at             
net asset value (%)(b)  9.87*  7.05(g)  19.11  1.85  (32.54)  (42.96) 
 
 
RATIOS AND SUPPLEMENTAL DATA           
Net assets, end of period             
(in thousands)  $428,815  $404,943  $851,430    $930,912  $1,170,852  $1,703,399 
Ratio of expenses to             
average net assets (%)(c)  .45*(d)  .87(d)  .84(d)  .84  .73  .64 
Ratio of net investment             
income (loss) to average             
net assets (%)  .01*(d)  .34(d,f,g)  (.27)(d)  (.33)  (.32)  (.30) 
Portfolio turnover (%)  30.97*  97.25  60.86  42.43  76.67  67.74 

* Not annualized.

** Unaudited.

(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) Total return assumes dividend reinvestment.

(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).

(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended December 31, 2005, June 30, 2005 and June 30, 2004 reflect a reduction of less than 0.01% of average net assets for class Y shares (Note 5).

(e) Amount represents less than $0.01 per share.

(f) Reflects a special dividend which amounted to $0.17 per share and 0.43% of average net assets.

(g) Reflects a non-recurring accrual related to Putnam Management’s settlement with the SEC regarding brokerage allocation practices, which amounted to $0.01 per share and 0.04% of average net assets for class Y shares (Note 6).

The accompanying notes are an integral part of these financial statements.

46

Notes to financial statements 12/31/05 (Unaudited)

Note 1: Significant accounting policies

Putnam New Opportunities Fund (the “fund”), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks capital appreciation by investing principally in common stocks of companies in sectors of the economy which, in the judgment of Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, an indirect wholly-owned subsidiary of Putnam, LLC, possess above-average, long-term growth potential.

The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 5.25% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares are subject to the same fees as class B shares, except that class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are offered to qualified employee-benefit plans are sold without a front-end sales charge or a contingent deferred sales charge. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are sold to certain eligible purchasers including certain defined contribution plans (including corporate IRAs), bank trust departments, trust companies and certain college savings plans.

A 2.00% redemption fee may apply to any shares that are redeemed (either by selling or exchanging into another fund) within 5 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.

Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares.

In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund expects the risk of material loss to be remote.

The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets. If no sales are reported -- as in the case of some securities traded over-the-counter -- a security is valued at its last reported bid price. Many securities markets and exchanges outside

47

the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign securities taking into account multiple factors, including movements in the U.S. securities markets. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate. Other investments, including certain restricted securities, are valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees.

B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission, the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in issues of high-grade, short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments.

C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty’s custodian in a segregated account for the benefit of the fund and the coun-terparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest.

D) Security transactions and related investment income Security transactions are recorded on the trade date (the 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, if any, 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.

E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from

48

changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments.

F) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase, or for other investment purposes. The fund may also write options on swaps or securities it owns or in which it may invest to increase its current returns.

The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. Risks may exceed amounts recognized on the statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.

Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.” Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. Futures and written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.

G) 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.

At June 30, 2005, the fund had a capital loss carryover of $4,613,472,142 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are:

Loss Carryover  Expiration 
$2,836,984,224  June 30, 2010 
1,776,487,918  June 30, 2011 

The aggregate identified cost on a tax basis is $5,053,028,552, resulting in gross unrealized appreciation and depreciation of $993,370,973 and $166,605,569, respectively, or net unrealized appreciation of $826,765,404.

H) 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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal

49

year. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations.

Note 2: Management fee, administrative
services and other transactions

Putnam Management is paid for management and investment advisory services quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.70% of the first $500 million of average net assets, 0.60% of the next $500 million, 0.55% of the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion, 0.43% of the next $5 billion, 0.42% of the next $5 billion, 0.41% of the next $5 billion, 0.40% of the next $5 billion, 0.39% of the next $5 billion, 0.38% of the next $8.5 billion and 0.37% thereafter.

Putnam Management has agreed to waive fees and reimburse expenses of the fund through June 30, 2006, to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses. For the period ended December 31, 2005, Putnam Management did not waive any of its management fee from the fund.

For period ended December 31, 2005, Putnam Management has assumed $49,331 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 6).

The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees.

Custodial functions for the fund’s assets are provided by Putnam Fiduciary Trust Company (“PFTC”), a subsidiary of Putnam, LLC. PFTC receives fees for custody services based on the fund’s asset level, the number of its security holdings and transaction volumes. Putnam Investor Services, a division of PFTC, provides investor servicing agent functions to the fund. Putnam Investor Services receives fees for investor servicing based on the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. During the period ended December 31, 2005, the fund incurred $9,787,021 for these services.

The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund’s expenses. The fund also reduced expenses through brokerage service arrangements. For the six months ended December 31, 2005, the fund’s expenses were reduced by $1,480,720 under these arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $1,232, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings, industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees. George Putnam, III, who is not an independent Trustee, also receives the foregoing fees for his services as Trustee.

The fund has adopted a Trustee Fee Deferral Plan (the “Deferral Plan”) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred

50

fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.

The fund has adopted an unfunded noncontribu-tory defined benefit pension plan (the “Pension Plan”) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average total retainer and meeting fees for the three years ended December 31, 2005. Pension expense for the fund is included in Trustee compensation and expenses in the statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

The fund has adopted distribution plans (the “Plans”) with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.

For the six months ended December 31, 2005, Putnam Retail Management, acting as underwriter, received net commissions of $64,322 and $1,291 from the sale of class A and class M shares, respectively, and received $698,518 and $1,287 in contingent deferred sales charges from redemptions of class B and class C shares, respectively. A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the six months ended December 31, 2005, Putnam Retail Management, acting as underwriter, received $808 and no monies on class A and class M redemptions, respectively.

Note 3: Purchases and sales of securities

During the six months ended December 31, 2005, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $1,837,677,699 and $2,544,419,251, respectively. There were no purchases or sales of U.S. government securities.

Note 4: Capital shares

At December 31, 2005, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:

CLASS A  Shares  Amount 
Six months ended 12/31/05:   
Shares sold  3,474,011  $ 152,042,049 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  3,474,011  152,042,049 
Shares     
repurchased  (15,181,695)  (665,027,849) 
Net decrease  (11,707,684)  $ (512,985,800) 
 
Year ended 6/30/05:     
Shares sold  22,948,084  $ 886,479,528 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  22,948,084  886,479,528 
Shares     
repurchased  (41,417,076)  (1,620,097,643)   
Net decrease  (18,468,992)  $ (733,618,115) 

51

CLASS B  Shares  Amount 
Six months ended 12/31/05:   
Shares sold  568,402  $ 22,396,961 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  568,402  22,396,961 
Shares     
repurchased  (3,853,197)  (151,328,014) 
Net decrease  (3,284,795)  $ (128,931,053) 
 
Year ended 6/30/05:     
Shares sold  1,409,602  $ 49,728,811 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  1,409,602  49,728,811 
Shares     
repurchased  (27,845,983)  (971,691,503) 
Net decrease  (26,436,381)  $ (921,962,692) 
 
CLASS C  Shares  Amount 
Six months ended 12/31/05:   
Shares sold  75,863  $ 3,174,734 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  75,863  3,174,734 
Shares     
repurchased  (158,185)  (6,598,682) 
Net decrease  (82,322)  $ (3,423,948) 
 
Year ended 6/30/05:     
Shares sold  101,542  $ 3,817,980 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  101,542  3,817,980 
Shares     
repurchased  (490,866)  (18,373,952) 
Net decrease  (389,324)  $(14,555,972) 

CLASS M  Shares  Amount 
Six months ended 12/31/05:   
Shares sold  105,660  $ 4,349,685 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  105,660  4,349,685 
Shares     
repurchased  (502,022)  (20,604,035) 
Net decrease  (396,362)  $ (16,254,350) 
 
Year ended 6/30/05:     
Shares sold  249,786  $ 9,211,102 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  249,786  9,211,102 
Shares     
repurchased  (1,220,735)  (45,132,105) 
Net decrease  (970,949)  $ (35,921,003) 
 
CLASS R  Shares  Amount 
Six months ended 12/31/05:   
Shares sold  5,864  $ 249,738 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  5,864  249,738 
Shares     
repurchased  (227)  (10,049) 
Net increase  5,637  $ 239,689 
 
Year ended 6/30/05:     
Shares sold  5,012  $ 196,076 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  5,012  196,076 
Shares     
repurchased  (1,204)  (48,601) 
Net increase  3,808  $ 147,475 

52

CLASS Y  Shares  Amount 
Six months ended 12/31/05:   
Shares sold  608,909  $ 27,635,444 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  608,909  27,635,444 
Shares     
repurchased  (950,422)  (42,977,043) 
Net decrease  (341,513)  $ (15,341,599) 
 
Year ended 6/30/05:     
Shares sold  2,889,224  $ 114,469,140 
Shares issued     
in connection     
with reinvestment     
of distributions  --  -- 
  2,889,224  114,469,140 
Shares     
repurchased  (14,676,760)  (599,862,180) 
Net decrease  (11,787,536)  $ (485,393,040)   

Note 5: Investment in Putnam Prime
Money Market Fund

Pursuant to an exemptive order from the Securities and Exchange Commission, the fund invests in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Management fees paid by the fund are reduced by an amount equal to the management and administrative services fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the period ended December 31, 2005, management fees paid were reduced by $28,957 relating to the fund’s investment in Putnam Prime Money Market Fund. Income distributions earned by the fund are recorded as income in the statement of operations and totaled $811,301 for the period ended December 31, 2005. During the period ended December 31, 2005, cost of purchases and cost of sales of investments in Putnam Prime Money Market Fund aggregated $479,914,535 and $495,444,533, respectively.

Note 6: Regulatory matters and litigation

Putnam Management has entered into agreements with the Securities and Exchange Commission and the Massachusetts Securities Division settling charges connected 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. Pursuant to these settlement agreements, Putnam Management will pay a total of $193.5 million in penalties and restitution, with $153.5 million being paid to certain open-end funds and their shareholders. The amount will be allocated to shareholders and funds pursuant to a plan developed by an independent consultant, and will be paid following approval of the plan by the SEC and the Massachusetts Securities Division.

The Securities and Exchange Commission’s and Massachusetts Securities Division’s allegations and related matters also serve as the general basis for numerous lawsuits, including purported class action lawsuits filed against Putnam Management and certain related parties, including certain Putnam funds. Putnam Management will bear any costs incurred by Putnam funds in connection with these lawsuits. 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.

Pursuant to a settlement with the Securities and Exchange Commission relating to Putnam Management’s brokerage allocation practices, on October 13, 2005 the fund received $3,010,524 in proceeds paid by Putnam Management. The fund had accrued a receivable for this amount in the prior fiscal year.

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Putnam Investments has recorded a charge of $30 million for the estimated cost, excluding interest, that it believes will be necessary to address issues relating to the calculation of certain amounts paid by the Putnam mutual funds in previous years. The previous payments were cost reimbursements by the Putnam funds to Putnam for transfer agent services relating to defined contribution operations. Putnam currently anticipates that any payments made by Putnam related to this issue will be paid to the Putnam funds. Review of this issue is ongoing.

Putnam Management and Putnam Retail Management are named as defendants in a civil suit in which the plaintiffs allege that the management and distribution fees paid by certain Putnam funds were excessive and seek recovery under the Investment Company Act of 1940. Putnam Management and Putnam Retail Management have contested the plaintiffs’ claims and the matter is currently pending in the U.S. District Court for the District of Massachusetts. Based on currently available information, Putnam Management believes that this action is without merit and that it is unlikely to have a material effect on Putnam Management’s and Putnam Retail Management’s ability to provide services to their clients, including the fund.

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Brokerage commissions
(Unaudited)

Brokerage commissions are paid to firms that execute trades on behalf of your fund. When choosing these firms, Putnam is required by law to seek the best execution of the trades, taking all relevant factors into consideration, including expected quality of execution and commission rate. Listed below are the largest relationships based upon brokerage commissions for your fund and the other funds in Putnam’s U.S. Small- and Mid-Cap group for the year ended December 31, 2005. The other Putnam mutual funds in this group are Putnam Capital Opportunities Fund, Putnam Discovery Growth Fund, Putnam Mid Cap Value Fund, Putnam OTC & Emerging Growth Fund, Putnam Small Cap Growth Fund, Putnam Small Cap Value Fund, Putnam Vista Fund, Putnam VT Capital Opportunities Fund, Putnam VT Discovery Growth Fund, Putnam VT Mid Cap Value Fund, Putnam VT New Opportunities Fund, Putnam VT OTC & Emerging Growth Fund, Putnam VT Small Cap Value Fund, and Putnam VT Vista Fund.

The top five firms that received brokerage commissions for trades executed for the U.S. Small-and Mid-Cap group are (in descending order) Citigroup Global Markets, Goldman Sachs, Bear Stearns & Company, Lehman Brothers, and Bank of America. Commissions paid to these firms together represented approximately 37% of the total brokerage commissions paid for the year ended December 31, 2005.

Commissions paid to the next 10 firms together represented approximately 36% of the total brokerage commissions paid during the period. These firms are (in alphabetical order) CIBC World Markets, Credit Suisse First Boston, Deutsche Bank Securities, Instinet, JP Morgan Clearing, Merrill Lynch, Morgan Stanley Dean Witter, RBC Capital Markets, SG Cowen, and UBS Warburg.

Additional information about brokerage commissions is available on the Securities and Exchange Commission (SEC) Web site at www.sec.gov. Putnam funds disclose commissions by firm to the SEC in semiannual filings on Form N-SAR.

55

The Putnam
family of funds

The following is a complete list of Putnam’s open-end mutual funds. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus containing this and other information for any Putnam fund or product, call your financial advisor at 1-800-225-1581 and ask for a prospectus. Please read the prospectus carefully before investing.

Growth funds  Value funds 
Discovery Growth Fund  Classic Equity Fund 
Growth Opportunities Fund  Convertible Income-Growth Trust 
Health Sciences Trust  Equity Income Fund 
International New Opportunities Fund*  The George Putnam Fund of Boston 
New Opportunities Fund  The Putnam Fund for Growth 
OTC & Emerging Growth Fund  and Income 
Small Cap Growth Fund  International Growth and Income Fund* 
Vista Fund  Mid Cap Value Fund 
Voyager Fund  New Value Fund 
  Small Cap Value Fund† 
 
Blend funds  Income funds 
Capital Appreciation Fund  American Government Income Fund 
Capital Opportunities Fund  Diversified Income Trust 
Europe Equity Fund*  Floating Rate Income Fund 
Global Equity Fund*  Global Income Trust* 
Global Natural Resources Fund*  High Yield Advantage Fund*† 
International Capital  High Yield Trust* 
Opportunities Fund*  Income Fund 
International Equity Fund*  Limited Duration Government 
Investors Fund  Income Fund‡ 
Research Fund  Money Market Fund§ 
Tax Smart Equity Fund®  U.S. Government Income Trust 
Utilities Growth and Income Fund   

* A 1% redemption fee on total assets redeemed or exchanged between 6 and 90 days of purchase may be imposed for all share classes of these funds.

† Closed to new investors.

‡ Formerly Putnam Intermediate U.S. Government Income Fund.

§ An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve your investment at $1.00 per share, it is possible to lose money by investing in the fund.

56

Tax-free income funds  Putnam RetirementReady® Funds 
AMT-Free Insured Municipal Fund**  Putnam RetirementReady Funds -- ten 
Tax Exempt Income Fund  investment portfolios that offer diversifica- 
Tax Exempt Money Market Fund§  tion among stocks, bonds, and money 
Tax-Free High Yield Fund  market instruments and adjust to become 
more conservative over time based on a 
State tax-free income funds:  target date for withdrawing assets. 
Arizona, California, Florida, Massachusetts, 
Michigan, Minnesota, New Jersey, New York,  The ten funds: 
Ohio, and Pennsylvania    Putnam RetirementReady 2050 Fund 
Putnam RetirementReady 2045 Fund 
Asset allocation funds  Putnam RetirementReady 2040 Fund 
Income Strategies Fund  Putnam RetirementReady 2035 Fund 
Putnam RetirementReady 2030 Fund 
Putnam Asset Allocation Funds -- three  Putnam RetirementReady 2025 Fund 
investment portfolios that spread your  Putnam RetirementReady 2020 Fund 
money across a variety of stocks, bonds,  Putnam RetirementReady 2015 Fund 
and money market investments.    Putnam RetirementReady 2010 Fund 
Putnam RetirementReady Maturity Fund   
The three portfolios:   
Asset Allocation: Balanced Portfolio   
Asset Allocation: Conservative Portfolio 
Asset Allocation: Growth Portfolio 

** Formerly Putnam Tax-Free Insured Fund.

With the exception of money market funds, a 2% redemption fee may be applied to shares exchanged or sold within 5 days of purchase.

Check your account balances and the most recent month-end performance at www.putnam.com.

57

Services for shareholders

Investor services

Help your investment grow Set up a program for systematic investing with as little as $25 a month from a Putnam fund or from your own savings or checking account. (Regular investing does not guarantee a profit or protect against loss in a declining market.)

Switch funds easily* You can move money from one Putnam fund to another within the same class of shares without a service charge.

Access your money easily You can have checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than the original cost of the shares. Class B and class C shares carry a sales charge that is applied to certain withdrawals.

How to buy additional shares You may buy shares through your financial advisor or directly from Putnam. To open an account by mail, send a check made payable to the name of the fund along with a completed fund application. To add to an existing account, complete the investment slip found at the top of your Confirmation of Activity statement and return it with a check payable to your fund.

For more information

Visit www.putnam.com A secure section of our Web site contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.

Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.

*This privilege is subject to change or termination. An exchange of funds may result in a taxable event. In addition, a 2% redemption fee will be applied to shares exchanged or sold within 5 days of purchase, and certain funds have imposed a 1% redemption fee on total assets redeemed or exchanged between 6 and 90 days of purchase.

58

Putnam puts your
interests first

In January 2004, Putnam began introducing a number of voluntary initiatives designed to reduce fund expenses, provide investors with more useful information, and help safeguard the interests of all Putnam investors. Visit www.putnam.com for details.

Cost-cutting initiatives

Reduced sales charges The maximum sales charge for class A shares has been reduced to 5.25% for equity funds (formerly 5.75%) and 3.75% for most income funds (formerly 4.50%) . The maximum sales charge for class M shares has been reduced to 3.25% for equity funds (formerly 3.50%) .*

Lower class B purchase limit To help ensure that investors are in the most cost-effective share class, the maximum amount that can be invested in class B shares has been reduced to $100,000. (Larger trades or accumulated amounts will be refused.)

Ongoing expenses will be limited Through calendar 2006, total ongoing expenses, including management fees for all funds, will be maintained at or below the average of each fund’s industry peers in its Lipper load-fund universe. For more information, please see the Statement of Additional information.

Improved disclosure

Putnam fund prospectuses and shareholder reports have been revised to disclose additional information that will help shareholders compare funds and weigh their costs and risks along with their potential benefits. Shareholders will find easy-to-understand information about fund expense ratios, portfolio manager compensation, risk comparisons, turnover comparisons, brokerage commissions, and employee and trustee ownership of Putnam funds. Disclosure of breakpoint discounts has also been enhanced to alert investors to potential cost savings.

Protecting investors’ interests

Short-term trading fee introduced To discourage short-term trading, which can interfere with a fund’s long-term strategy, a 2% short-term trading fee may be imposed on any Putnam fund shares (other than money market funds) redeemed or exchanged within five calendar days of purchase.

* The maximum sales charge for class A shares of Putnam Limited Duration Government Income Fund (formerly Putnam Intermediate U.S. Government Income Fund) and Putnam Floating Rate Income Fund remains 3.25% .

59

Fund information

Founded over 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 mutual funds in growth, value, blend, fixed income, and international.

Investment Manager 
Putnam Investment 
Management, LLC 
One Post Office Square 
Boston, MA 02109 

Marketing Services 
Putnam Retail Management 
One Post Office Square 
Boston, MA 02109 

Custodian 
Putnam Fiduciary 
Trust Company 

Legal Counsel 
Ropes & Gray LLP 

Trustees 
John A. Hill, Chairman 
Jameson Adkins Baxter, 
Vice Chairman 
Charles B. Curtis 
Myra R. Drucker 
Charles E. Haldeman, Jr. 
Paul L. Joskow 
Elizabeth T. Kennan 
John H. Mullin, III 
Robert E. Patterson 
George Putnam, III 
W. Thomas Stephens 
Richard B. Worley 

Officers 
George Putnam, III 
President 

Charles E. Porter 
Executive Vice President, 
Associate Treasurer and 
Principal Executive Officer 

Jonathan S. Horwitz 
Senior Vice President 
and Treasurer 

Steven D. Krichmar 
Vice President and 
Principal Financial Officer 

Michael T. Healy 
Assistant Treasurer and 
Principal Accounting Officer 

Daniel T. Gallagher 
Senior Vice President, 
Staff Counsel and 
Compliance Liaison 

Beth S. Mazor 
Vice President 

James P. Pappas 
Vice President 

Richard S. Robie, III 
Vice President 

Francis J. McNamara, III 
Vice President and 
Chief Legal Officer 

Charles A. Ruys de Perez 
Vice President and 
Chief Compliance Officer 

Mark C. Trenchard 
Vice President and 
BSA Compliance Officer 

Judith Cohen 
Vice President, Clerk and 
Assistant Treasurer 

Wanda M. McManus 
Vice President, Senior Associate 
Treasurer and Assistant Clerk 

Nancy T. Florek 
Vice President, Assistant Clerk, 
Assistant Treasurer 
and Proxy Manager 

This report is for the information of shareholders of Putnam New Opportunities Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit www.putnam.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. 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.

60


Item 2. Code of Ethics:

Not applicable

Item 3. Audit Committee Financial Expert:

Not applicable

Item 4. Principal Accountant Fees and Services:

Not applicable

Item 5. Audit Committee of Listed Registrants

Not applicable

Item 6. Schedule of Investments:

The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.

Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies:

Not applicable

Item 8. Portfolio Managers of Closed-End Investment Companies

Not Applicable

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:

Not applicable

Item 10. Submission of Matters to a Vote of Security Holders:

Not applicable

Item 11. Controls and Procedures:

(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, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report 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 12. Exhibits:

(a)(1) Not applicable

(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NAME OF REGISTRANT

By (Signature and Title):

/s/Michael T. Healy
Michael T. Healy
Principal Accounting Officer
Date: February 28, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934 and 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/Charles E. Porter
Charles E. Porter
Principal Executive Officer
Date: February 28, 2006

By (Signature and Title):

/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer
Date: February 28, 2006