Putnam
Capital
Appreciation
Fund
[Artwork]
SEMIANNUAL REPORT
November 30, 1994
[Putnam Logo]
Boston * London * Tokyo
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PERFORMANCE HIGHLIGHTS
"The current investment outlook is somewhat uncertain, what with interest rates
generally rising, and stock prices not enjoying any broad, decisive moves up-
ward. However, Putnam Capital Appreciation Fund will continue to seek out com-
panies with growth potential, whatever the prevailing market environment."
- -- Gerald Zukowski, fund manager
Performance should always be considered in light of a fund's investment strate-
gy. Putnam Capital Appreciation Fund is designed for those seeking capital gain
through investments in equities chosen for their growth potential.
FISCAL 1994 RESULTS AT A GLANCE
CLASS A CLASS B
TOTAL RETURN NAV POP NAV CDSC
(since inception on 11/2/94)
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6 months ended 11/30/94
(change in value during
period plus reinvested
distributions) -0.93% -6.67% -4.06 -8.86
SHARE VALUE NAV POP
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5/31/94 $10.74 $11.40
11/30/94 10.64 11.29
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Performance data represent past results and will differ for each share class.
For performance over longer periods, see pages 8 and 9. POP assumes 5.75% maxi-
mum sales charge. Effective November 2, 1994, the fund began offering class B
shares.
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FROM THE CHAIRMAN [Photograph of George Putnam]
* (C) Karsh, Ottawa
Dear Shareholder:
Before discussing fund performance, I would like to report that during the fis-
cal year, Michael Mufson joined Gerald Zukowski in the day-to-day management of
Putnam Capital Appreciation Fund. Before becoming a manager in 1994, and joining
Putnam in 1993, Michael was Senior Equity Analyst at Stein Roe and Farnham.
As we begin a new year, most investors won't regret the passing of the old. Sin-
ce last February, when the Federal Reserve Board began a series of increases in
interest rates, 1994 was marked by sharp corrections followed by small gains and
extended uncertainty for virtually all financial markets.
Well in advance of the Fed's first increase, Gerry and Michael had adopted de-
fensive strategies designed to reduce the impact of rising rates on Putnam Capi-
tal Appreciation Fund's portfolio. While defensive strategies proved relatively
successful, fund performance generally edged into the negative numbers.
Although bonds bore the brunt of the downturn, the stock market also felt the
effects of the Fed's actions. Market shifts like this inevitably affect your
fund, but Putnam Management's philosophy of selecting securities on an issue-
by-issue basis should continue to help protect your fund's portfolio.
In the accompanying report, Gerry and Michael discuss the fiscal year just ended
and prospects for the months ahead.
Respectfully yours,
George Putnam
January 18, 1995
* (C) Copyright
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REPORT FROM THE FUND MANAGERS
GERALD ZUKOWSKI
MICHAEL MUFSON
After exceptional performance for fiscal 1994, Putnam Capital Appreciation
Fund's momentum flagged somewhat during the semiannual period ended November 30,
1994. As the fund made the transition from a small portfolio available only to
a limited group of investors to a larger, widely-offered fund, interest rates
rose to a four-year high. The resulting wave of volatility and investor uncer-
tainty caused stagnation in many sectors of domestic equity markets.
Nevertheless, the fund's strategy of seeking growth across a broad spectrum of
industries has certainly proven its value over time. Even after the recent tur-
moil in the markets, results for the fund's class A shares are well ahead of the
Standard & Poor's 500 *(R) Index since inception, as well as over the one-year
period ended November 30, 1994. Full performance details can be found on page 8.
MARKET MOMENTUM FLAGS
During fiscal year 1994, a robust recovery, strong corporate earnings, low in-
flation, and export growth all supported firm equity prices, in spite of rising
interest rates. This market strength began to decline as the fund entered the
first half of fiscal 1995. While company earnings remained high, fears of infla-
tion and subsequent interest rate increases sapped investor confidence. However,
even as the market slowed, this past period witnessed some major successes for
the fund.
One such success was Exide Corporation, a manufacturer of batteries, which we
highlighted in last May's annual report. Our Exide shares climbed nearly 50% be-
fore we took profits on our holdings. Several other stocks showed impressive
strength: some of our positions in airline stocks posted dynamic gains during
this period. Many of the fund's top sector holdings, from real estate to retail,
thrived over these months. Earnings were favorable, and the market responded
accordingly.
* (R) Registered mark
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The residual equity strength of the beginning of the fiscal year has given way
to a period of uncertainty. Several factors have contributed to the indecisive
markets. The Federal Reserve remains concerned that the economy's continuing
strength will unleash inflation and has maintained upward pressure on interest
rates. Many analysts expect ongoing rate increases well into 1995. Some inves-
tors fear too drastic a tightening would dampen the economy and cut corporate
earnings, a negative outlook that has helped keep stock prices from making any
decisive move upward.
STRATEGY FOR A CHANGING ENVIRONMENT
Putnam Capital Appreciation Fund's flexible investment strategy may help us wea-
ther a difficult period by allowing us to position the fund for two types of
markets. Indeed, a number of portfolio holdings have been specifically selected
with the current uncertain atmosphere in mind. We are holding some stocks that
have lower price-to-earnings multiples than called for by our usual standards.
We are also concentrating on more established, large-capitalization companies.
This constitutes somewhat of a
[Bar Chart - Page 5]
TOP INDUSTRY SECTORS *
Business
Insurance Equipment Consumer Health Consumer
& Finance & Services Nondurables Care Services
18.5% 13.9% 9.4% 6.2% 5.8%
* Based on net assets on 11/30/94. Holdings will vary over time.
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defensive strategy, possibly allowing us to protect past gains while absorbing
the bumps of an erratic market.
At the same time, we also want the fund to remain positioned to take advantage
of a market upturn, which we anticipate in the coming year. Under our scenario,
rate increases may succeed in slowing the economy to a "soft landing"; by the
end of the year, we believe interest rates may even begin to decline. We believe
several sectors have the potential to benefit from this phase of the business
cycle with corresponding gains in stock prices: for example, financial services
companies and Real Estate Investment Trusts (REITS). While REITS have been some-
what down over the past several months, we believe their current prices do not
reflect their potential. As always, we will continue the search for all compa-
nies we believe have growth potential -- whatever the prevailing market condi-
tions.
FUND FLEXIBILITY: THE GLOBAL STORY
An important manifestation of Putnam Capital Appreciation Fund's strategic fle-
xibility is the portion of the fund which may be allocated to international com-
panies: the prospectus allows up to 20% of the fund's portfolio to be invested
in international securities. As of January 1, 1995, only 3% of the portfolio
consists of international holdings, with no exposure to Mexican issues - fortu-
nate in light of recent currency and political problems there. As we identify
more international stocks that meet our strict selection criteria, the fund's
exposure to foreign equities could increase.
Another way the fund may benefit from international recovery is through invest-
ments in American companies with global reach. We have taken positions in AT&T,
Sprint, and GTE, telecom-munications giants that may be poised to profit from
renewed economic strength in Europe and Asia. Other stocks in the fund's portfo-
lio, Avon Products and J.P. Morgan, may also gain as demand for U.S. products
and services expands globally.
OUTLOOK FOR STOCKS
The short-term outlook for stocks is decidedly unclear. Many factors conspire to
blur the picture: interest rate uncertainties, high bond yields, and fractious
domestic politics. However, in the coming year we expect the outlook for equi-
ties to gradually improve. Interest rate rises may ultimately benefit the U.S.
stock
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TOP 10 HOLDINGS (11/30/94)
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IBM CORP.
Business equipment and services
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FIRST INTERSTATE BANCORP
Banking, commercial lending, bank card operations
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XEROX CORP
Photocopying machines, office and computer equipment
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AMERICAN EXPRESS CO.
Travel and financial services, credit card operations
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GENERAL ELECTRIC
Power systems, broadcasting, home appliances, lighting
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AVON PRODUCTS, INC.
Cosmetics, toiletries, fashion jewelry, fragrances
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TANDY CORP.
Computers, electronics
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ITT Corp.
Conglomerate
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PEPSICO, INC.
Soft-drink maker
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PREMARK INTERNATIONAL, INC.
Product labels include Tupperware, West Bend, Hobart, Precor
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* These holdings represent 22.14% of the fund's net assets. Portfolio holdings
are subject to change.
market by stabilizing the economy, leading to a desirable "soft landing" from
unsustainable levels of GDP growth.
Other factors may also support a firmer stock market. Overseas economies are fi-
nally recovering; a healthier Europe and Asia may lead to stronger demand for
U.S. products and services. Leaner American corporations enjoy healthy profit
margins and are producing goods that are increasingly competitive, from automo-
biles to networking servers. Through the remainder of fiscal 1995, we will work
to anticipate and take advantage of such positive developments.
The views expressed throughout the report are exclusively those of Putnam Mana-
gement. They are not meant as investment advice. Although the described holdings
were viewed favorably as of November 30, 1994, there is no guarantee the fund
will continue to hold these securities in the future. International investing
involves certain risks, such as currency fluctuations and political changes.
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PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time, assum-
ing you held the shares through the entire period and reinvested all distribu-
tions back into the fund. We show total return in two ways: on a cumulative
long-term basis and on average how the fund might have grown each year over va-
rying periods. For comparative purposes, we show how the fund performed relative
to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 11/30/94
STANDARD
CLASS A CLASS B & POOR'S *(R)
NAV POP NAV CDSC 500 INDEX CPI
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6 months -0.93% -6.67% -- -- 0.80% 1.49%
1 year 12.89 6.43 -- -- 1.04 2.68
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Life of class A
(since 8/5/93) 26.39 19.12 -- -- 5.20 3.67
Annual average 19.41 14.18 -- -- 3.88 2.77
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Life of class B
(since 11/2/94) -- -- -4.06% -8.86% -3.64 0.13
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TOTAL RETURN FOR PERIODS ENDED 12/31/94
(most recent calendar quarter)
CLASS A CLASS B
NAV POP NAV CDSC
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6 months 5.89% -0.23% -- --
1 year 6.00 -0.14 -- --
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Life of class A (since 8/5/93) 29.05 21.64
Annual average 19.83 14.90
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Life of class B
(since 11/2/94) -2.00% -6.83%
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Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions. Performance data represent past results and will
differ for each share class. Investment returns and net asset value will fluc-
tuate so an investor's shares, when sold, may be worth more or less than their
original cost.
* (R) Registered mark
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TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of shares and assumes redemption at the end of the period. Your
fund's 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.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any liabili-
ties, divided by the number of outstanding shares, not including any initial or
contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown here
assume the maximum 5.75% sales charge.
COMPARATIVE BENCHMARKS
STANDARD & POOR'S 500 INDEX is an unmanaged list of large-capitalization common
stocks and is frequently used as a general gauge of stock market performance.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation. It does not
represent an investment return.
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PORTFOLIO OF INVESTMENTS OWNED
November 30, 1994 (unaudited)
COMMON STOCKS (91.1%)(a)
NUMBER OF SHARES VALUE
INSURANCE AND FINANCE (18.5%)
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$ 36,000 American Express Co. $ 1,066,500
9,500 American General Corp. 249,375
8,500 Banco Commercial S.A. ADR (b)(c)(d) 157,250
3,600 Bank of Boston Corp. 96,300
8,000 BankAmerica Corp. 328,000
23,000 Bankers Life Holding Corp. (b) 391,000
6,000 Bankers Trust New York Corp. (b) 355,500
14,500 Chemical Banking Corp. 527,438
10,000 Citicorp 416,250
6,000 Federal National Mortgage Association 426,750
3,000 First Financial Management Corp. 176,625
18,500 First Interstate Bancorp 1,304,250
200 General Re Corp. 23,475
100 Lehman Brothers Holding, Inc. 1,488
10,000 Life Partners Group, Inc. 202,500
3,500 Merrill Lynch & Co., Inc. 133,000
9,500 Midocean, Ltd. (b) 219,688
5,500 Morgan (J.P.) & Co., Inc. 323,125
5,500 Morgan Stanley Group, Inc. 325,188
10,500 NationsBank Corp. 471,188
7,000 River Bank America (b) 68,250
13,000 Signet Banking Corp. (b) 388,375
6,200 Titan Holdings, Inc. (b) 59,675
10,000 Transnational Re Corp. (b) 200,000
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7,911,190
BUSINESS EQUIPMENT AND SERVICES (13.9%)
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11,000 Adaptec, Inc. (b) 242,000
12,500 CMC Group, Inc. (b) 60,938
16,000 Computer Associates International, Inc. 728,000
14,000 Corrpro Cos., Inc. (b) 204,750
14,000 EMC Corp. (b) 315,000
20,000 IBM Corp. 1,410,000
1,000 Parametric Technology Corp. (b) 34,750
3,000 Tandem Computers Inc. 51,000
22,000 Tandy Corp. 1,014,750
32,000 Western Digital Corp. (b) 592,000
13,000 Xerox Corp. 1,277,250
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5,930,438
CONSUMER NON DURABLES (9.4%)
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17,000 Avon Products, Inc. 1,051,875
22,000 Collins & Aikman Corp. (b) 195,250
10,000 Donnkenny, Inc. (b) 136,250
8,500 Eastman Kodak Co. 387,811
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COMMON STOCKS
NUMBER OF SHARES VALUE
26,000 Herbalife International, Inc. (b) $ 416,000
14,000 Norton McNaughton, Inc. (b) 189,000
6,000 O.Sullivan Industries Holdings (b) 69,000
8,500 OroAmerica, Inc. 59,500
10,000 Philip Morris Cos., Inc. (b) 597,500
19,500 Premark International, Inc. 887,250
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3,989,436
HEALTH CARE (6.2%)
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9,900 Advocat, Inc. (b) 105,188
5,500 Baxter International Inc. (b) 141,625
10,500 Beckman Instruments, Inc. New (b) 300,563
9,500 Elan Corp., PLC ADR (b)(d) 334,875
15,000 Health Systems International, Inc. Class A (b) 369,375
9,633 ICN Pharmaceuticals, Inc. (b) 215,538
3,000 Oxford Health Plans Inc. (b) 210,000
2,500 Pfizer, Inc. (b) 193,438
35,000 Rightchoice Managed Care, Inc. Class A (b) 485,625
16,000 Sterile Concepts Holdings (b) 270,000
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2,626,227
CONSUMER SERVICES (5.8%)
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12,000 Block (H & R), Inc. (b) 415,500
15,000 Brunswick Corp. 258,750
1,500 CBS Inc. 83,250
5,200 Capital Cities/ABC, Inc. 425,100
12,000 Circus Circus Enterprises, Inc. (b) 252,000
4,000 Shoney.s Inc. (b) 55,000
6,000 Sports Club Co., Inc. (b) 44,250
20,300 Team Rental Group, Inc. (b) 192,850
4,500 Tribune Co. 225,563
30,000 Young Broadcasting Corp. Class A (b) 525,000
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2,477,263
REAL ESTATE (5.8%)
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7,000 Alexander Haagen Properties 103,250
13,000 Capstone Capital Trust, Inc. (b) 208,000
7,000 Cavalier Homes, Inc. 82,250
5,000 CenterPoint Properties Corp. 90,625
25,000 Crown American Realty Trust 312,500
8,000 FelCor Suite Hotels, Inc. 147,000
8,000 First Industrial Realty Trust, Inc. 144,000
6,000 LTC Properties Inc. 72,750
7,000 Malan Realty Investors, Inc. (b) 106,750
7,000 McArthur/Glen Realty Corp. 98,000
3,000 Mid Atlantic Realty Trust 23,250
3,500 National Health Investors, Inc. (b) 94,500
23,000 RFS Hotel Investors, Inc. 322,000
37,000 Reliance Group Holdings, Inc. (b) 189,625
5,000 Sun Communities, Inc. (b) 105,625
8,000 Wellsford Residential Property Trust (b) 150,000
21,000 Winston Hotels 204,750
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2,454,875
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COMMON STOCKS
NUMBER OF SHARES VALUE
CHEMICALS (4.3%)
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2,500 Air Products & Chemicals, Inc. (b) $ 110,938
11,000 Dexter Corp. (b) 226,875
21,000 Grace (W.R.) & Co. 777,000
16,500 Lyondell Petrochemical Co. 400,125
4,000 Southern Petrochemical Ltd. ADR (c)(d) 50,000
11,000 Witco Chemical Corp. (b) 288,750
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1,853,688
RETAIL (3.9%)
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8,000 Baker J, Inc. 131,000
25,000 Best Products Co., Inc. (b) 153,119
7,500 Duckwall-Alco Stores, Inc. (b) 70,313
9,000 Levitz Furniture Inc. (b) 72,000
22,000 Limited Inc. (The) 426,250
16,000 Penney (J.C.) Co., Inc. 736,000
1,200 Ross Stores, Inc. 16,500
2,400 The Sports Authority, Inc. (b) 54,600
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1,659,782
ELECTRONICS AND ELECTRICAL EQUIPMENT (3.0%)
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2,000 American Electronic Components, Inc. (b) 15,500
23,000 General Electric Co. 1,058,000
13,000 Holophane Corp. (b) 204,750
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1,278,250
AUTOMOTIVE (2.9%)
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6,000 A.P.S. Holding Corp. (b) 151,875
20,000 Capco Automotive Products Corp. (b) 260,000
5,000 Ford Motor Co. 135,625
13,000 General Motors Corp. 495,625
6,000 Snap-On Tools Corp. (b) 189,000
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1,232,125
TRANSPORTATION (2.6%)
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2,500 AMR Corp. (b) 126,875
6,000 Jinhui Shipping & Transportation ADR (b)(c)(d) 8,280
4,000 Landstar System, Inc. (b) 102,000
4,000 Maritime Investment Fund (c) 41,500
4,500 Norfolk Southern Corp. 272,250
30,500 Northwest Airlines Corp. Class A (b) 507,063
4,000 Trism, Inc. (b) 50,000
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1,107,968
METALS AND MINING (2.4%)
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3,000 AK Steel Holding Corp. (b) 81,000
15,000 Mapco, Inc. (b) 751,875
7,000 Minerals Technologies, Inc. 192,500
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1,025,375
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COMMON STOCKS
NUMBER OF SHARES VALUE
CONGLOMERATES (2.3%)
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12,500 ITT Corp. $ 995,313
FOOD AND BEVERAGES (2.2%)
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5,000 American Family Restaurants, Inc. (b) 21,250
26,000 PepsiCo, Inc. 919,750
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941,000
OIL AND GAS (2.0%)
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13,000 Seitel, Inc. (b) 300,625
3,000 Stone Energy Corp. (b) 42,000
23,000 TransTexas Gas Corp. (b) 276,000
14,000 Union Texas Petroleum Hldgs., Inc. 259,000
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877,625
BASIC INDUSTRIAL PRODUCTS (1.9%)
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20,000 Mercer International, Inc. (b) 262,500
24,000 Owens-Illinois, Inc. (b) 270,000
8,500 Raychem Corp. (b) 294,313
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826,813
UTILITIES (1.9%)
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400 American Telephone & Telegraph Co. 19,650
7,000 GTE Corp. 214,375
36,000 Shandong Huaneng Power ADR (b)(d) 364,500
7,000 Sprint Corp. 209,125
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807,650
CONSUMER SERVICES (1.2%)
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9,500 Dun & Bradstreet Corp. 502,313
COMPUTER SERVICES/SOFTWARE (0.9%)
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11,000 National Computer Systems Inc. (b) 167,750
7,000 Sterling Software, Inc. (b) 215,250
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383,000
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TOTAL COMMON STOCKS ($39,911,128) $38,880,331
CONVERTIBLE BONDS (0.6%)(A) (cost $ 220,000)
PRINCIPAL AMOUNT VALUE
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$ 220,000 ICN Pharmaceuticals cv. deb. 8 1/2s 11/15/1999 $ 246,400
WARRANTS (-%)(a)(b) (cost $500)
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
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5,000 Financing for Sciences 5/20/99 $ 1,250
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PRINCIPAL AMOUNT VALUE
SHORT-TERM INVESTMENTS (25.0%) (a)
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6,800,000 Federal National Mortgage Assn. 5.45s,
December 1, 1994 $ 6,800,000
3,861,000 Interest in $497,257,000 joint repurchase agreement
dated November 30, 1994 with Lehman Brothers,
Inc. due December 1, 1994 with respect to various
U.S. Treasury Obligations . maturity value of
$3,861,619 for an effective yield of 5.75%. 3,861,617
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TOTAL SHORT-TERM INVESTMENTS ($10,661,617) 10,661,617
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TOTAL INVESTMENTS (cost $50,793,245)(e) $49,789,598
(a) Percentages indicated are based on total net assets of $42,662,181, which
correspond to a net asset value per class A and class B shares of $10.64
and $10.63, respectively.
(b) Non-income-producing security.
(c) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from regis-
tration, normally to qualified institutional buyers. At November 30, 1994,
these securities were valued at $ 257,030 or 0.6% of net assets.
(d) Securities whose value is determined or significantly influenced by trading
or exchanges not in the United States or Canada. ADR after the name of a
foreign holding stands for American Depository Receipt, representing owner-
ship of foreign securities on deposit with a domestic custodian bank.
(e) The aggregate identified cost on a tax basis is $50,794,815, resulting in
gross unrealized appreciation and depreciation of $700,225 and $1,705,442,
respectively, or net unrealized depreciation of $1,005,217.
The accompanying notes are an integral part of these financial statements.
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STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994 (Unaudited)
ASSETS
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Investments in securities, at value
(identified cost $50,793,245) (Note 1) $49,789,598
Cash 4,860
Dividends and interest receivable 47,253
Receivable for shares of the fund sold 3,162,346
Receivable for securities sold 37,971
Receivable from manager (Note 2) 22,661
Unamortized organization expenses (Note 1) 12,565
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TOTAL ASSETS 53,077,254
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LIABILITIES
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Payable for securities purchased 9,741,386
Payable for shares repurchased 608,431
Payable for compensation of Manager (Note 2) 19,196
Payable for investor servicing and custodian fees
and other expenses (Note 2) 17,564
Payable for organization expense (Note 1) 17,091
Payable for distribution fees (Note 2) 11,405
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TOTAL LIABILITIES 10,415,073
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NET ASSETS $42,662,181
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REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Note 4) $43,283,122
Undistributed net investment income 84,111
Accumulated net realized gain on investment 298,595
Net unrealized depreciation of investments (1,003,647)
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TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $42,662,181
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COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A shares
($27,611,594 divided by 2,594,765 shares) $10.64
Offering price per class A share (100/94.25 of $10.64) * $11.29
Net asset value and redemption price per class B share
($15,050,587 divided by 1,415,546 shares) + $10.63
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* 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.
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STATEMENT OF OPERATIONS
For the six months ended November 30, 1994 (Unaudited)
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Dividends $ 68,448
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Interest 36,494
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TOTAL INVESTMENT INCOME 104,942
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EXPENSES:
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Compensation of Manager (Note 2) 24,195
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Investor servicing and custodian fees and other expenses (Note 2) 4,200
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Compensation of Trustees (Note 2) 715
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Reports to shareholders 2,447
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Registration fee 13,682
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Auditing 4,130
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Postage 1,882
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Administrative services (Note 2) 27
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Distribution fees -- class A (Note 2) 4,050
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Distribution fees -- class B (Note 2) 7,354
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Amortization of organization expenses (Note 1) 1,709
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Fees waived and other expenses absorbed by Manager (Note 2) (32,789)
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TOTAL EXPENSES 31,602
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NET INVESTMENT INCOME 73,340
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Net realized loss on investments (Notes 1 and 3) (27,011)
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Net unrealized depreciation of investments during the period (1,202,090)
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NET LOSS ON INVESTMENTS (1,229,101)
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NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,155,761)
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The accompanying notes are an integral part of these financial statements.
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STATEMENT OF CHANGES IN NET ASSETS
For the period
August 5, 1993
(commencement of
Six months ended operations) to
November 30** May 31
1994 1994*
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INCREASE IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 73,340 $ 18,691
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Net realized gain (loss) on investments (27,011) 347,288
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (1,202,090) 198,443
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Net increase (decrease) in net assets
resulting from operations (1,155,761) 564,422
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Distributions to shareholders from:
Net investment income -- (9,697)
- -------------------------------------------------------------------------------
Net realized gain on investments -- (21,817)
- -------------------------------------------------------------------------------
Increase from capital share
transactions (Note 4) 40,755,942 528,779
- -------------------------------------------------------------------------------
Total increase in net assets 39,600,181 1,061,687
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning Of Year $ 3,062,000 $ 2,000,313
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $84,111 and
$10,771 respectively) $42,662,181 $ 3,062,000
- -------------------------------------------------------------------------------
* See Note 2.
** Unaudited
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
For the period For the period
November 2, 1994 August 5, 1993
(commencement of (commencement of
operations) to Six months ended operations) to
November 30 November 30 May 31
1994** 1994** 1994
- -------------------------------------------------------------------------------
Class B Class A
- -------------------------------------------------------------------------------
Net asset value,
beginning of period $11.08 $10.74 $8.53
- -------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------
Net investment income(a)(b) .02 .09 .07(a)(b)
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.47) (.19) 2.27
- -------------------------------------------------------------------------------
Total from investment operations (.45) (.10) 2.34
- -------------------------------------------------------------------------------
Distributions to shareholders from:
- -------------------------------------------------------------------------------
Net investment income -- -- (.04)
- -------------------------------------------------------------------------------
Net realized gain on investments -- -- (.09)
- -------------------------------------------------------------------------------
Total distributions -- -- .13
- -------------------------------------------------------------------------------
Net asset value, end of period 10.63 10.64 $10.74
- -------------------------------------------------------------------------------
Total investment return at
net asset value (%) (c)(d) (4.06) (.93) 27.58(d)
- -------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $15,051 $27,612 $3,062
- -------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(d) .11 .36 .78
- -------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b)(d) .16 .97 .73
- -------------------------------------------------------------------------------
Portfolio turnover (%)(d) 12.27 12.27 102.99
- -------------------------------------------------------------------------------
** Unaudited.
(a) Per share net investment income for the period ended May 31, 1994 and Novem-
ber 30, 1994 has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Reflects a voluntary expense limitation during the period. As a result of
these limitations, expenses of the fund for the period ended May 31, 1994
reflect a reduction of $0.11 per share and for the period ended November 30,
1994 for class A and B shares, $0.04 and $0.01, respectively. See Note 3.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) Not annualized.
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1994 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended, as
a diversified open-end management investment company. The fund seeks capital
appreciation by investing primarily in common stocks that offer potential for
capital appreciation.
The fund offers both class A and class B shares. The fund commenced its public
offering of class B shares on November 2, 1994. Class A shares are sold with a
maximum front-end sales change of 5.75%. Class B shares do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares, and
may be subject to a contingent deferred sales charge, if those shares are re-
deemed within six years of purchase. Expenses of the fund are borne pro-rata by
the holders of both classes of shares, except that each class bears expenses
unique to that class (including distribution fees applicable to such class) and
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 should receive their pro-rata share of the net assets of the fund,
if the fund were liquidated. In addition, the Trustees declare separate divi-
dends on each class of shares.
The following is a summary of significant accounting policies followed by the
fund in the preparation of its financial statements. The policies are in confor-
mity with generally accepted accounting principles.
A SECURITY VALUATION Investments for which market quotations are readily avail-
able are stated at market value, which is determined using the last reported sa-
le price, or, if no sales are reported -- as in the case of some securities tra-
ded over-the-counter -- the last reported bid price, except that certain U.S.
government obligations are stated at the mean between the bid and asked prices.
Short-term investments having remaining maturities of 60 days or less are sta-
ted at amortized cost which approximates market, and other investments are sta-
ted at fair value following procedures approved by the Trustees. Foreign securi-
ties quoted in foreign currencies are translated into U.S. dollars at the cu-
rrent exchange rate.
B JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by the Securities
and Exchange Commission, the fund may transfer uninvested cash balances into a
joint trading account, along with the cash and certain other accounts of other
registered investment companies managed by Putnam Investment Management Inc.,
(Putnam Management) the fund's Manager, a wholly-owned subsidiary of Putnam In-
vestments, Inc. These balances may be invested in one or more repurchase agree-
ments and/or short-term money market instruments.
C REPURCHASE AGREEMENTS The fund, 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 ac-
crued interest. The fund's Manager is responsible for determining that the value
of these
<PAGE>
<PAGE>
underlying securities is at all times at least equal to the resale price, inclu-
ding accrued interest.
D SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed). In-
terest income is recorded on the accrual basis and dividend income is recorded
on the ex-dividend date, except that certain dividends from foreign securities
are recorded as soon as the fund is informed of the ex-dividend date.
E FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the In-
ternal Revenue Code applicable to regulated investment comstributed are determi-
ned in accordance with income tax regulations which may differ from generally
accepted accounting principles. 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.
F Distributions to shareholders Distributions to shareholders are recorded by
the fund on the ex-dividend date. 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. The amount and charac-
ter of income and gains to be distributed are determined in accordance with in-
come tax regulations which may differ from generally accepted accounting princi-
ples.
G UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in connection
with its organization, its registration with the Securities and Exchange Commi-
ssion and with various states and the initial public offering of its shares
aggregated $17,091. These expenses are being amortized by the fund on a
straight-line basis over a five-year period.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc., the fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc., for management and invest-
ment advisory services is paid quarterly based on the average net assets of the
fund for the quarter. Such fee is based on the following annual rates: 0.65% of
the first $500 million of average net assets, 0.55% of the next $500 million,
0.50% of the next $500 million, and 0.45% of any amount over $1.5 billion, sub-
ject to reduction in any year to the extent that expenses (exclusive of distri-
bution fees, brokerage, interest and taxes) of the fund exceed 2.50% of the
first $30 million of average net assets, 2.00% of the next $70 million and 1.50%
of any amount over $100 million and by the amount of certain brokerage commi-
ssions and fees (less expenses) received by affiliates of the Manager on the
fund's portfolio transactions.
Until February 28, 1995 the Manager voluntarily agreed to reduce its compensa-
tion and, if necessary, absorb other fund expenses to the extent that expenses
of the fund exceed an annual rate of 1.00% of the fund's average net assets. The
fund's expenses subject to this limitation were exclusive of brokerage, inte-
rest, taxes, insurance, amortization of deferred organization expenses and ex-
traordinary expenses, if any, and expenses incurred under the fund's distribu-
tion plan described below. This limitation was accomplished by a reduction of
the compensation payable
<PAGE>
<PAGE>
under the management contract to the Manager. As a result of the voluntary limi-
tation, expenses for the period ended November 30, 1994 were reduced by $32,789.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative ser-
vices to the fund. The aggregate amount of all such reimbursements is determined
annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $100 and an additional
fee for each Trustees. meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust
Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing
agent functions were provided by Putnam Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of Operations
for the period ended November 30, 1994 have been reduced by credits allowed by
PFTC.
The fund has adopted a distribution plan with respect to Class A shares (the
Class A Plan) pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of the Class A Plan is to compensate Putnam Mutual Funds Corp. a
wholly owned subsidiary of Putnam Investments, Inc. for services provided and
expenses incurred by it in distributing Class A shares. The Trustees have appro-
ved payment by the fund to Putnam Mutual Funds Corp. at an annual rate of 0.25%
of the fund's average net assets attributable to Class A shares.
The fund has adopted a separate distribution plan with respect to its class B
plan shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Class B Plan is to compensate Putnam
Mutual Funds Corp. for services provided and expenses incurred by it in distri-
buting class B shares. The Class B Plan provides for payments by the fund to
Putnam Mutual Funds Corp. at an annual rate of 1.00% of the fund's average net
assets attributable to Class B shares.
Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred sa-
les charges levied on class B share redemptions within six years of purchase.
The charge is based on declining rates, which begin at 5.0% of the net asset va-
lue of the redeemed shares. Putnam Mutual Funds Corp. received no contingent de-
ferred sales charges from such redemptions for the period November 2, 1994
(commencement of operations) to November 30, 1994.
During the period ended November 30, 1994, Putnam Mutual Funds Corp., acting as
an underwriter, received no net commissions from the sale of class A shares of
the fund. A deferred sales charge of up to 1.00% is assessed on certain redemp-
tions of class A shares purchased as part of an investment of $1 million or
more.
For the period ended November 30, 1994, Putnam Mutual Funds Corp., acting as un-
derwriter received $68,337 on redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the period ended November 30, 1994, purchases and sales of investment
securities other than short-term investments aggregated $38,470,410 and
$1,027,770, respectively. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
<PAGE>
<PAGE>
NOTE 4
CAPITAL SHARES
At November 30, 1994, there was an unlimited number of shares of beneficial in-
terest authorized divided into two classes, class A and class B capital shares.
Transactions in capital shares were as follows:
SIX MONTHS ENDED NOVEMBER 30 1994
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 2,552,366 $27,897,161
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- --
- -------------------------------------------------------------------------------
2,552,366 27,897,161
- -------------------------------------------------------------------------------
Shares repurchased (242,817) (2,602,547)
- -------------------------------------------------------------------------------
NET INCREASE 2,309,549 $25,294,614
- -------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 5, 1993
(COMMENCEMENT OF OPERATIONS) TO MAY 31, 1994
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 66,369 $ 694,673
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 3,209 31,514
- -------------------------------------------------------------------------------
69,578 726,187
- -------------------------------------------------------------------------------
Shares repurchased (18,870) (197,408)
- -------------------------------------------------------------------------------
NET INCREASE 50,708 $ 528,779
- -------------------------------------------------------------------------------
FOR THE PERIOD NOVEMBER 2, 1994
(COMMENCEMENT OF OPERATIONS) TO NOVEMBER 30, 1994
CLASS B SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 1,423,749 15,550,218
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- --
- -------------------------------------------------------------------------------
1,423,749 15,550,218
- -------------------------------------------------------------------------------
Shares repurchased (8,203) (88,890)
- -------------------------------------------------------------------------------
NET INCREASE 1,415,546 $15,461,328
- -------------------------------------------------------------------------------
<PAGE>
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman William F. Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill Elizabeth T. Kennan
Lawrence J. Lasser Robert E. Patterson
Donald S. Perkins George Putnam, III
A.J.C. Smith W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice President
Patricia C. Flaherty Lawrence J. Lasser
Senior Vice President Vice President
Gordon H. Silver Peter Carman
Vice President Vice President
Brett C. Browchuk Gerald Zukowski
Vice President Vice President and Fund Manager
Michael Mufson William N. Shiebler
Vice President and Fund Manager Vice President
John R. Verani Paul M. O.Neil
Vice President Vice President
John D. Hughes Beverly Marcus
Vice President and Treasurer Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Capital Apprecia-
tion Fund. It may also be used as sales literature when preceded or accompanied
by the current prospectus, which gives details of sales charges, investment
objectives and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information, or to request
a prospectus, call toll-free:
1-800-225-1581.
<PAGE>
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
Paid
Putnam
Investments
433-15837
<PAGE>
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
(6) The copyright symbol has been replaced by (C).
(7) The dagger symbol has been replaced by (+).
(8) The registered mark symbol has been replaced by (R).
