Putnam
Capital
Appreciation
Fund
SEMIANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "For Putnam Capital Appreciation Fund, we continue to find a number of
strong companies that -- at least for the present -- appear to have gone
relatively unnoticed by investors. When the strength of such companies
becomes apparent, we believe that the resulting investor interest may
help to push prices upward."
-- Gerald Zukowski, manager
Putnam Capital Appreciation Fund
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
21 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Last summer's rather pronounced correction in the stock market occurred
just as shareholders were receiving Putnam Capital Appreciation Fund's
report for fiscal 1996. You may recall that the report suggested the
possibility of such declines, especially in the wake of the market's
sustained rise.
As your fund reached the midpoint of its current fiscal year on November
30, 1996, investors had all but forgotten the July reversal -- and the
market continues its unprecedented advance. The brevity of last July's
correction should not blind investors to the possibility of similar
pauses from time to time.
That said, we remain optimistic about the outlook both for the market in
general and for your fund in particular during the remainder of fiscal
1997. Your fund's management team reports in more specific terms in the
following review of performance and prospects.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Managers
Gerald S. Zukowski, lead manager
Anthony C. Santosus
With an unflagging optimism, investors bid up stock prices throughout
Putnam Capital Appreciation Fund's semiannual period, driving the
Standard and Poor's 500(registered trademark) Index to new heights.
Because this broad market index is weighted in favor of large-
capitalization stocks while your fund invests in a combination of large-
and smaller-capitalization stocks that meet specific criteria, it is not
surprising that the fund's semiannual results -- though respectable --
underperformed the index. A longer-term perspective, however, shows that
the fund retains its ability to deliver market-beating performance.
For example, over the six months ended November 30, 1996, your fund's
class A shares provided a total return of 8.82% at net asset value (NAV)
and 2.54% at public offering price (POP), while the S&P 500 returned
14.37%. For the 12-month period ended November 30, however, your fund's
class A shares gained 30.14% at NAV and 22.65% at POP, while the S&P 500
added 27.85%. For results over the longer term and for different share
classes, please turn to pages 9 and 10 of this report.
Market watchers generally agree about the impetus behind the rally. A
positive combination of low interest rates, low inflation, continuing
economic growth, massive mutual fund inflows, and corporate
restructurings all helped to make equities highly attractive.
There is disagreement, however, as to whether stocks are overvalued.
Some analysts argue that prices can go higher -- albeit more slowly --
while others believe that traditional measures of stock valuation now
indicate an overextended market. In either case, we believe our
consistent strategy of emphasizing companies that combine strong growth
prospects with sound equity values retains its long-term potential.
* LARGE, WELL-KNOWN COMPANIES SURGE AHEAD
Stocks of large companies paced domestic exchanges over your fund's
semiannual period. Initially investors favored these stocks because of
large companies' seemingly assured earnings growth, and strong financial
positions. As the year went on, large companies became even more sought
after for their perceived safety in case of a market decline. Among its
large company holdings, your fund benefited from the performance of a
number of banks, including Citicorp, Chase Manhattan, BankAmerica, and
Bank of Boston. These banks have done well in the prevailing environment
of stable interest rates, boosting their profits and, in turn, being
rewarded with higher price-to-earnings ratios.
IBM, after a wrenching re-engineering process in the late 1980's, has
re-established its credentials as a premier growth company and was one
of the fund's strongest holdings over the first half of the fiscal year.
Corporate earnings appear sound and growing, and its management has
initiated a substantial stock buy-back program that we consider an
important support for the stock price.
Another standout large company in the fund's portfolio was General
Electric. As with IBM, GE is considered a leading growth company serving
global markets. Its earnings, we believe, have the potential to rise
steadily in the coming years because of its broad product line and large
market share. While these stocks, along with others discussed in this
report, were viewed favorably at the end of the fiscal period, all
portfolio holdings are subject to review and adjustment in accordance
with the fund's investment strategy and may vary in the future.
[!!!!!!!GRAPHIC BAR CHART OMITTED!!!!!!!]
TOP INDUSTRY SECTORS*
Insurance and finance 13.1%
Real estate 7.5%
Computer services and software 7.1%
Consumer non durables 6.7%
Oil and gas 6.5%
Footnote reads:
*Based on net assets as of 11/30/96. Holdings will vary over time.
* SMALLER, LESSER-KNOWN ISSUES ALSO CONTRIBUTE TO PERFORMANCE
A number of somewhat eclectic smaller companies in the fund's portfolio
performed quite well over the past fiscal year. American Pad and Paper,
for example, is one of the dominant suppliers of paper to office
superstores. We thought the stocks of such superstores were expensive,
but establishing a position in this company's stock gave the fund a
reasonably priced way to gain exposure to this thriving sector.
Complete Management, another fund holding, is a company that
consolidates physicians' practices. Such companies have become
increasingly important as health care continues to transform itself;
however, this is one of the first such ventures in the large New York
State market. Among other fund holdings, Ugly Duckling Corp. owns used
car lots and finances automobile purchases, while Bonded Motors has
established a profitable business overhauling auto engines.
Your fund also had a substantial position in the specialty metals area.
We purchased shares in RMI Titanium Corp. and Titanium Metals Corp. over
the past year. Both stocks appreciated sharply as demand for titanium --
used mainly in large airplanes but also, increasingly, in golf clubs and
deepwater platforms -- has risen dramatically over the past year. Among
mining companies, your fund's holdings of Zeigler Coal performed well in
recent months and may benefit in the coming year from renewed investor
interest in energy stocks.
Many of your fund's foreign holdings were similarly upbeat performers.
Gucci, the Italian luxury goods manufacturer, has aggressively expanded
its marketing and distribution, moving into lucrative new markets with
its attractive product line. Tranz Rail Holdings provides railroad
transportation for New Zealand's massive natural resources exports.
TOP 10 HOLDINGS*
General Electric Co.
Conglomerate
Mapco, Inc.
Energy related
Philip Morris Cos., Inc.
Tobacco
RMI Titanium Co.
Titanium
Echlin, Inc.
Auto parts
IBM Corp.
Technology
Titanium Metals Corp.
Titanium
PepsiCo, Inc.
Soft drinks
Chase Manhattan Corp.
Financial services
American Express Co.
Financial services
Footnote reads:
*These holdings represent 17.3% of the fund's net assets as of 11/30/96.
Portfolio holdings will vary over time.
* REITS' YIELDS PROVE ALLURING; TECH STOCKS STRONG
Another area of concentration for the fund was real estate investment
trusts. REITs typically carry a substantial dividend yield, making them
relatively attractive in unsettled markets. Over your fund's semiannual
period, many REITS also experienced attractive capital gains.
Furthermore, we believe that the sector as a whole has gained visibility
and cash flows from investors. Some 6% of your fund is currently
invested in REITs, a position we believe is warranted in the current
market environment.
Finally, a number of technology companies have performed well for your
fund over the past several months. Notably, Adaptec manufactures input
devices that speed the entry of data into computers. The company has
established a substantial market share in this fast-growing industry.
* OUTLOOK FOR COMING MONTHS INCLUDES VOLATILITY
Such a sharp rise in the stock market invariably raises questions about
how long the good times can last. As of this report, the outlook seems
largely benign for the overall economy; growth appears moderate,
inflation low, and interest rates stable. Nevertheless, there is ample
room for some caution. Deccelerating corporate profits could dampen
investor optimism; signs of inflation and any subsequent interest-rate
increase by the Federal Reserve Board could cause waves in the market.
In such an environment, we consider your fund's emphasis on earnings
growth and attractive values to be a particularly appropriate investment
strategy.
Footnote reads:
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 11/30/96, there is no guarantee the fund
will continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Capital Appreciation Fund is designed for investors
seeking capital gain through investments in equities chosen for their
growth potential.
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, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 11/30/96
Class A Class B Class M
(inception date) (8/5/93) (11/2/94) (1/22/96)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 8.82% 2.54% 8.37% 3.37% 8.53% 4.74%
- ------------------------------------------------------------------------
1 year 30.14 22.65 29.19 24.19
- ------------------------------------------------------------------------
Life of class 120.80 108.11 65.15 62.15 27.74 23.29
Annual average 26.94 24.70 27.28 26.16 -- --
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/96
Standard & Poor's Consumer
500 Index Price Index
- ------------------------------------------------------------------------
6 months 14.37% 1.28%
- ------------------------------------------------------------------------
1 year 27.85 3.26
- ------------------------------------------------------------------------
Life of class A 84.19 9.83
Annual average 20.19 2.87
- ------------------------------------------------------------------------
Life of class B 68.69 6.09
Annual average 28.53 2.88
- ------------------------------------------------------------------------
Life of class M 25.95 2.72
- ------------------------------------------------------------------------
Footnote reads:
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost. POP assumes 5.75% maximum sales charge for class A shares
and 3.50% for class M shares. CDSC for class B shares assumes the
applicable sales charge, with the maximum being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) -- -- --
- ------------------------------------------------------------------------
Income -- -- --
- ------------------------------------------------------------------------
Total -- -- --
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
5/31/96 $16.33 $17.33 $16.24 $16.29 $16.88
- ------------------------------------------------------------------------
11/30/96 17.77 18.85 17.60 17.68 18.32
- ------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 12.07% 5.62% 11.69% 6.69% 11.74% 7.81%
- ------------------------------------------------------------------------
1 year 30.12 22.65 29.18 24.18
- ------------------------------------------------------------------------
5 years -- -- -- --
Annual average -- -- -- --
- ------------------------------------------------------------------------
10 years -- -- -- --
Annual average -- -- -- --
- ------------------------------------------------------------------------
Life of class 125.86 112.88 68.85 65.85 30.56 26.00
Annual average 26.99 24.80 27.30 26.26 -- --
- ------------------------------------------------------------------------
Footnote reads:
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost.
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.
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.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, 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 for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B 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.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance. The
index assumes reinvestment of all distributions and does not take into
account brokerage commissions or other costs. The fund's portfolio
contains securities that do not match those in the index. It is not
possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
WELCOME TO
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about investing and retirement planning, and access market news and an
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VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
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You can also read Dr. Robert Goodman's economic commentary and Putnam's
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The site can be accessed through any of the major online services
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provider.
New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured
nor guaranteed by the U.S. government. These funds are managed to
maintain a price of $1.00 per share, although there is no assurance that
this price will be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured up to certain
limits by federal/state agencies. Savings accounts may also be insured
up to certain limits. Please call your financial advisor or Putnam at 1-
800-225-1581 to obtain a prospectus for any Putnam fund. It contains
more complete information, including charges and expenses. Please read
it carefully before you invest or send money.
<TABLE>
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Portfolio of investments owned
November 30, 1996 (Unaudited)
COMMON STOCKS (91.7%) *
NUMBER OF SHARES VALUE
Automotive (2.1%)
- ---------------------------------------------------------------------------------------------------------
70,000 Bonded Motors, Inc. + $ 630,000
243,000 Echlin, Inc. 8,170,875
60,000 Ford Motor Co. 1,965,000
------------
10,765,875
Basic Industrial Products (2.4%)
- ---------------------------------------------------------------------------------------------------------
71,000 Deere (John) & Co. 3,168,375
252,500 Owens-Illinois, Inc. + 4,671,250
65,000 Shorewood Packaging Corp. + 1,210,625
76,000 Sundstrand Corp. 2,964,000
------------
12,014,250
Building and Construction (0.9%)
- ---------------------------------------------------------------------------------------------------------
119,000 Congoleum Corp. Class A + 1,517,250
124,800 Dayton Superior Corp. + 1,232,400
144,000 Southern Energy Homes, Inc. + 1,764,000
------------
4,513,650
Business Equipment and Services (2.4%)
- ---------------------------------------------------------------------------------------------------------
70,000 Adaptec, Inc. + 2,607,500
67,400 Personnel Group of America, Inc. + 1,524,925
30,000 PIA Merchandising Services, Inc. + 270,000
120,700 Unidigital, Inc. + 588,413
31,000 Western Digital Corp. + 1,666,250
107,000 Xerox Corp. 5,256,375
------------
11,913,463
Chemicals (0.9%)
- ---------------------------------------------------------------------------------------------------------
115,000 Agrium, Inc. (Canada) 1,523,750
40,000 Applied Extrusion Technologies, Inc. + 375,000
124,000 Carbide/Graphite Group, Inc. + 2,387,000
------------
4,285,750
Computer Services and Software (7.1%)
- ---------------------------------------------------------------------------------------------------------
174,500 4Front Software International, Inc. + 785,250
14,500 Ansoft Corp. + 76,125
120,400 Cabletron Systems, Inc. + 4,861,150
86,250 Computer Associates Intl., Inc. 5,670,938
240,100 DecisionOne Holdings Corp. + 3,721,550
47,000 IBM Corp. 7,490,625
74,800 Ingram Micro, Inc. Class A + 1,841,950
178,700 Integrated Technology USA 413,244
21,000 National Computer Systems Inc. 498,750
18,000 Parametric Technology Corp. + 978,750
75,170 Sterling Commerce, Inc. + 2,367,855
47,200 Sterling Software, Inc. + 1,563,500
100,000 Storage Technology Corp. + 4,987,500
40,000 ULTRADATA Corp. + 200,000
------------
35,457,187
Conglomerates (0.5%)
- ---------------------------------------------------------------------------------------------------------
117,000 Ogden Corp. 2,266,875
Consumer Non Durables (6.7%)
- ---------------------------------------------------------------------------------------------------------
267,650 American Pad & Paper Co. + 5,286,088
134,000 Dimon Inc. 2,780,500
85,000 Donnkenny, Inc. + 345,313
12,000 Kellwood Co. 216,000
19,800 Nu Skin Asia Pacific Inc. Class A + 586,575
60,000 OroAmerica, Inc. + 285,000
100,000 Philip Morris Cos., Inc. 10,312,500
80,000 Revlon, Inc. Class A + 2,470,000
162,000 RJR Nabisco Holdings Corp. + 5,184,000
154,000 Standard Commercial Corp. + 2,079,000
131,700 Toy Biz, Inc. + 2,436,450
75,000 Ultrafem, Inc. + 1,350,000
------------
33,331,426
Consumer Services (0.5%)
- ---------------------------------------------------------------------------------------------------------
10,000 Service Corp. International 301,250
42,500 Sight Resource Corp. + 223,125
88,800 Steiner Leisure Ltd. + 1,209,900
23,000 Young Broadcasting Corp. Class A + 698,625
------------
2,432,900
Electronics and Electrical Equipment (3.0%)
- ---------------------------------------------------------------------------------------------------------
100,000 Bell Microproducts, Inc. + 775,000
80,000 CHS Electronics, Inc. + 1,040,000
112,000 General Electric Co. 11,648,000
130,000 JPM Co. + 1,592,500
------------
15,055,500
Energy-Related (2.8%)
- ---------------------------------------------------------------------------------------------------------
133,700 Calpine Corp. + 2,406,600
342,000 Mapco, Inc. 11,542,500
------------
13,949,100
Entertainment (0.9%)
- ---------------------------------------------------------------------------------------------------------
32,282 Disney (Walt) Productions, Inc. 2,380,798
46,000 ITT Corp. (New) + 2,121,750
------------
4,502,548
Environmental Control (1.4%)
- ---------------------------------------------------------------------------------------------------------
152,500 Commodore Applied Technologies, Inc. + 867,344
236,000 Philip Environmental, Inc. + 3,068,000
90,500 WMX Technologies, Inc. 3,258,000
------------
7,193,344
Food and Beverages (3.7%)
- ---------------------------------------------------------------------------------------------------------
30,000 American Craft Brewing International Ltd. + 75,000
188,000 IBP, Inc. 4,653,000
79,300 JP Foodservice, Inc. + 1,932,938
231,000 PepsiCo, Inc. 6,901,125
120,000 Sara Lee Corp. 4,710,000
------------
18,272,063
Health Care (4.7%)
- ---------------------------------------------------------------------------------------------------------
56,000 Beckman Instruments, Inc. 2,030,000
152,000 Columbia/HCA Healthcare Corp. 6,080,000
309,800 Community Care of America, Inc. + 1,239,200
272,000 Complete Management, Inc. + 4,148,000
130,000 Epitope, Inc. + 1,592,500
87,000 Foundation Health Corp. + 2,544,750
293,000 ICN Pharmaceuticals, Inc. 5,676,875
43,800 Rightchoice Managed Care, Inc. Class A + 399,675
------------
23,711,000
Insurance and Finance (13.1%)
- ---------------------------------------------------------------------------------------------------------
123,000 American Express Co. 6,426,750
121,000 Banco BHIF ADR (Chile) + 2,041,875
271,000 Banco de A. Edwards ADR (Chile) + 4,945,750
214,200 Banco De Galicia y Buenos Aires Class B ADR (Argentina) 4,739,175
18,200 Bank of Boston Corp. 1,271,725
34,000 BankAmerica Corp. 3,502,000
21,000 Bankers Life Holding Corp. 514,500
36,300 BHC Financial, Inc. 571,725
73,000 Chase Manhattan Corp. (New) 6,898,500
30,000 Citicorp 3,277,500
35,100 Emergent Group, Inc. + 416,813
72,000 Federal National Mortgage Association 2,970,000
21,000 Fremont General Corp. 653,625
60,400 GCR Holdings, Ltd. + 1,366,550
65,400 Granite Financial, Inc. + 547,725
30,000 Harrington Financial Group, Inc. + 303,750
20,500 Merrill Lynch & Co., Inc. 1,645,125
45,000 Morgan Stanley Group, Inc. 2,705,625
10,000 NationsBank Corp. 1,036,250
70,000 Pioneer Financial Services, Inc. 1,295,000
76,000 Reliance Group Holdings, Inc. 684,000
35,700 Rockford Industries, Inc. + 383,775
94,500 Symons International Group, Inc. + 1,204,875
49,000 The PMI Group, Inc. 2,842,000
130,963 Titan Holdings, Inc. 1,964,445
120,800 Ugly Duckling Corp. + 2,098,900
62,512 Union Acceptance Corp. Class A + 1,218,984
195,000 UnionAmerica Holdings PLC ADR (United Kingdom) 3,656,250
113,000 United Asset Management Corp. 3,065,125
4,000 Wells Fargo & Co. 1,138,500
------------
65,386,817
Metals and Mining (4.4%)
- ---------------------------------------------------------------------------------------------------------
42,500 Century Aluminum Co. + 658,750
415,000 RMI Titanium Co. + 9,648,750
219,300 Titanium Metals Corp. + 7,346,550
226,000 Zeigler Coal Holding Co. 4,152,750
------------
21,806,800
Oil and Gas (6.5%)
- ---------------------------------------------------------------------------------------------------------
417,000 Arakis Energy Corp. + 2,475,938
55,000 Columbia Gas System, Inc. + 3,554,375
81,400 Core Laboratories N.V. + 1,261,700
85,900 Dailey Petroleum Services Corp. + 901,950
68,100 Dawson Production Services, Inc. + 817,200
58,000 Enron Global Power & Pipelines 1,667,500
87,200 Ente Nazionale Idrocarburi S.P.A. (ENI) ADR (Italy) 4,578,000
138,000 Forasol-Foramer N.V. (France) + 2,484,000
121,200 Fortune Petroleum Corp. + 363,600
57,600 Monterey Resources, Inc. + 950,400
155,000 Newpark Resources, Inc. + 5,425,000
65,100 Precision Drilling Corp. (Canada) + 2,066,925
75,000 Seitel, Inc. + 3,037,500
163,000 TransTexas Gas Corp. + 2,200,500
41,400 Veritas DGC Inc. + 884,925
------------
32,669,513
Pharmaceuticals (4.6%)
- ---------------------------------------------------------------------------------------------------------
105,000 Astra AB ADR (Sweden) 5,066,250
101,000 Euromed, Inc. + 277,750
29,000 Lilly (Eli) & Co. 2,218,500
61,200 Maxim Pharmaceuticals, Inc. + 550,800
55,000 Pfizer, Inc. 4,929,375
125,000 Pharmacia & Upjohn, Inc. 4,828,125
93,000 Procept, Inc. + 107,530
72,000 Warner-Lambert Co. 5,148,000
------------
23,126,330
Photography (0.7%)
- ---------------------------------------------------------------------------------------------------------
45,000 Eastman Kodak Co. 3,645,000
Real Estate (7.5%)
- ---------------------------------------------------------------------------------------------------------
160,000 Alexander Haagen Properties (R) 2,300,000
107,500 Arcadian Corp. 2,727,813
164,800 Capstone Capital Trust, Inc. (R) 3,460,800
135,700 Commercial Net Lease Realty Inc. (R) 1,967,650
46,000 CWM Mortgage Holdings, Inc. (R) 948,750
98,500 First Industrial Realty Trust, Inc. (R) 2,819,563
65,000 First Washington Realty Trust, Inc. (R) 1,421,875
150,000 Fortress Group, Inc. + 937,500
86,700 Glenborough Realty Trust, Inc. 1,300,500
65,000 Healthcare Realty Trust, Inc. (R) 1,657,500
71,000 Horizon Group Inc. (R) 1,384,500
158,900 Innkeepers USA Trust (R) 1,986,250
105,300 Malan Realty Investors, Inc. (R) 1,553,175
64,000 Millennium & Copthorne Hotels PLC 144A ADR (United Kingdom)+ 1,504,000
55,000 National Health Investors, Inc.(R) 1,966,250
205,000 Nursing Home Properties PLC (United Kingdom) 404,911
30,000 Omega Healthcare Investors, Inc. (R) 971,250
62,500 Public Storage, Inc. (R) 1,585,930
15,000 Regency Realty Corp. (R) 360,000
137,000 RFS Hotel Investors, Inc. (R) 2,294,750
130,000 Sizeler Property Investments, Inc. (R) 1,202,500
25,000 Town & Country Trust (R) 365,625
20,000 Walden Residential Props, Inc. (R) 455,000
30,000 Wellsford Residential Property Trust (R) 723,750
88,900 Winston Hotels (R) 1,122,363
------------
37,422,205
Recreation (0.4%)
- ---------------------------------------------------------------------------------------------------------
40,000 International Speedway Corp. Class A + 800,000
81,100 RockShox, Inc. + 1,044,163
------------
1,844,163
Retail (5.2%)
- ---------------------------------------------------------------------------------------------------------
46,000 99 Cents Only Stores + 764,750
10,900 Abercrombie & Fitch Co. Class A + 200,288
131,000 Cole National Corp. Class A + 3,438,750
20,000 Cost Plus, Inc. + 370,000
20,000 Dollar General Corp. 575,000
245,500 Duckwall-Alco Stores, Inc. + 3,068,750
30,000 Fabri-Centers of America Class A + 465,000
75,000 InterTAN, Inc. + 431,250
157,000 Intimate Brands, Inc. 2,551,250
140,041 Limited, Inc. (The) 2,520,738
20,000 Loehmann's Holdings, Inc. + 602,500
100,000 Lowe's Cos., Inc. 4,062,500
66,400 Officemax, Inc. + 962,800
45,000 Rite Aid Corp. 1,783,125
46,900 Stage Stores, Inc. + 879,375
60,000 Waban, Inc. + 1,582,500
180,000 West Coast Entertainment Corp. + 1,800,000
------------
26,058,576
Specialty Consumer Products (1.9%)
- ---------------------------------------------------------------------------------------------------------
95,800 Adidas AG 144A (Germany) 4,119,400
57,100 Gucci Group (Italy) + 4,189,713
70,200 Norwood Promotional Products, Inc. + 1,105,650
------------
9,414,763
Transportation (2.5%)
- ---------------------------------------------------------------------------------------------------------
139,000 AirNet Systems, Inc. + 1,737,500
41,000 Northwest Airlines Corp. Class A + 1,655,375
90,000 Pittston Burlington Group 1,766,250
33,000 Pittston Services Group 841,500
70,000 Sea Containers, Ltd. Class A 1,085,000
124,600 Stolt-Nielsen S.A. ADR 2,180,500
180,900 The Cronos Group + 1,198,463
62,000 Tranz Rail Holdings Ltd. ADR (New Zealand) + 1,108,250
1,039,337 Ugland International Holdings PLC (United Kingdom) 1,153,664
------------
12,726,502
Utilities (4.9%)
- ---------------------------------------------------------------------------------------------------------
39,000 Bell Atlantic Corp. 2,452,125
9,200 Deutsche Telekom AG ADR (Germany) + 196,650
115,000 GTE Corp. 5,160,625
105,000 MCI Communications Corp. 3,202,500
153,000 Pacific Enterprises 4,685,625
147,100 Sprint Corp. 6,159,813
147,000 Telefonica del Peru S.A. ADR (Peru) 2,848,125
------------
24,705,463
------------
Total Common Stocks (cost $371,332,566) $ 458,471,063
CONVERTIBLE BONDS AND NOTES (0.5%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$500,000 Emerson Radio Corp. cv. sr. sub. deb 8 1/2s, 2002 $ 275,000
500,000 Omega Healthcare Investors, Inc. cv. sub. deb. 8 1/2s, 2001 563,125
465,000 Pioneer Financial Services cv. sub. notes 6 1/2s, 2003 502,781
1,200,000 Youth Services International, Inc. cv. sub. deb. 7s, 2006 1,404,000
------------
Total Convertible Bonds and Notes (cost $2,665,000) $ 2,744,906
CONVERTIBLE PREFERRED STOCKS (0.5%) *
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
16,400 Continental Airlines 144A $4.25 cv. pfd. $ 1,098,800
30 Credit Depot Corp. $9.00 cv. pfd. 571,875
8,000 Service Corp. International Ser. A, $3.125 cv. pfd. 808,000
------------
Total Convertible Preferred Stocks (cost $1,820,000) $ 2,478,675
WARRANTS (0.1%) *+
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ---------------------------------------------------------------------------------------------------------
166,000 Commodore Applied Technology 6/28/01 $ 300,875
151,700 Integrated Technology USA 10/2/00 28,444
13,000 Maxim Pharmaceuticals, Inc. 7/10/01 29,250
------------
Total Warrants (cost $33,070) $ 358,569
SHORT-TERM INVESTMENTS (7.4%) *(cost $37,011,511)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$37,000,000 Interest in $732,975,000 joint repurchase agreement dated
November 29, 1996 with Morgan (J.P.) & Co., Inc. due
December 2, 1996 with respect to various U.S. Treasury
obligations -- maturity value of $37,017,267 for an
effective yield of 5.60% $ 37,011,511
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $412,862,147) *** $ 501,064,724
- ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $499,984,474.
*** The aggregate identified cost on a tax basis is
$412,871,203, resulting in gross unrealized appreciation and
depreciation of $99,433,919 and $11,240,398, respectively,
or net unrealized appreciation of $88,193,521.
+ Non-income-producing security.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt
from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional
buyers.
ADR after the name of a foreign holding stands for American
Depository Receipts, representing ownership of foreign
securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996 (Unaudited)
<S> <C>
Assets
- --------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $412,862,147) (Note 1) $501,064,724
- --------------------------------------------------------------------------------------------------------
Cash 738
- --------------------------------------------------------------------------------------------------------
Dividends and interest receivable 499,251
- --------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,965,593
- --------------------------------------------------------------------------------------------------------
Receivable for securities sold 2,035,734
- --------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 5,734
- --------------------------------------------------------------------------------------------------------
Total assets 507,571,774
Liabilities
- --------------------------------------------------------------------------------------------------------
Payable for securities purchased 5,991,531
- --------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 323,697
- --------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 686,690
- --------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 138,756
- --------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 235
- --------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,359
- --------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 284,158
- --------------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 17,091
- --------------------------------------------------------------------------------------------------------
Other accrued expenses 143,783
- --------------------------------------------------------------------------------------------------------
Total liabilities 7,587,300
- --------------------------------------------------------------------------------------------------------
Net assets $499,984,474
Represented by
- --------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $373,465,508
- --------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,710,511
- --------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 36,605,878
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 88,202,577
- --------------------------------------------------------------------------------------------------------
Total - Representing net assets applicable to capital shares outstanding $499,984,474
Computation of net asset value and offering price
- --------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($256,038,413 divided by 14,407,179 shares) $17.77
- --------------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $17.77)* $18.85
- --------------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($233,395,972 divided by 13,259,764 shares)** $17.60
- --------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($10,550,089 divided by 596,706 shares) $17.68
- --------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $17.68)* $18.32
- --------------------------------------------------------------------------------------------------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six monts ended November 30, 1996 (Unaudited)
<S> <C>
Investment Income:
- ---------------------------------------------------------------------------------------------------------------
Dividends $3,122,297
- ---------------------------------------------------------------------------------------------------------------
Interest 733,782
- ---------------------------------------------------------------------------------------------------------------
Total investment income 3,856,079
- ---------------------------------------------------------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,245,768
- ---------------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 444,579
- ---------------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,722
- ---------------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,054
- ---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 248,560
- ---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 891,433
- ---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 18,612
- ---------------------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,711
- ---------------------------------------------------------------------------------------------------------------
Reports to shareholders 42,737
- ---------------------------------------------------------------------------------------------------------------
Registration fees 41,085
- ---------------------------------------------------------------------------------------------------------------
Auditing 14,311
- ---------------------------------------------------------------------------------------------------------------
Legal 7,038
- ---------------------------------------------------------------------------------------------------------------
Postage 107,305
- ---------------------------------------------------------------------------------------------------------------
Other 24,220
- ---------------------------------------------------------------------------------------------------------------
Total expenses 3,098,135
- ---------------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (70,604)
- ---------------------------------------------------------------------------------------------------------------
Net expenses 3,027,531
- ---------------------------------------------------------------------------------------------------------------
Net investment income 828,548
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 14,817,440
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 22,072,721
- ---------------------------------------------------------------------------------------------------------------
Net gain on investments 36,890,161
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $37,718,709
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Six months ended Year ended
November 30 May 31
----------------------------------------
1996* 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $828,548 $1,691,768
- -------------------------------------------------------------------------------------------------------
Net realized gain on investments 14,817,440 26,670,081
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 22,072,721 49,972,462
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 37,718,709 78,334,311
- -------------------------------------------------------------------------------------------------------
Distribution to shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A --- (1,132,760)
- -------------------------------------------------------------------------------------------------------
Class B --- (407,457)
- -------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A --- (2,552,443)
- -------------------------------------------------------------------------------------------------------
Class B --- (2,295,863)
- -------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 133,014,779 63,788,075
- -------------------------------------------------------------------------------------------------------
Total increase in net assets 170,733,488 135,733,863
- -------------------------------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 329,250,986 193,517,123
- -------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $1,710,511 and $881,963, respectively) $499,984,474 $329,250,986
- -------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
January 22, 1996
Six months ended (commencement Six months ended
November 30 of operations) to November 30
(Unaudited) May 31 (Unaudited)
---------------------------------------------------------------
1996 1996 1996
---------------------------------------------------------------
Class M
---------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $16.29 $13.84 $16.24
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .02(d) .02(d) --(d)
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1.37 2.43 1.36
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.39 2.45 --
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------------------------
From net investment income -- -- --
- --------------------------------------------------------------------------------------------------------------------------
From net realized gains on investments -- -- --
- --------------------------------------------------------------------------------------------------------------------------
In excess of realized gain on investments -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.68 $16.29 $17.60
- --------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 8.53* 17.70* 8.37*
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $10,550 $2,025 $233,396
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .90* .66* 1.01*
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) .10* .16* .02*
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 27.69* 76.68 27.69*
- --------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $0.0506 $0.0506
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
November 2, 1994
(commencement Six months ended
Year ended of operations) to November 30
May 31 May 31 (Unaudited)
---------------------------------------------------------------
1996 1995 1996
---------------------------------------------------------------
Class B
---------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.19 $11.08 $16.33
- -------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------
Net investment income .04 .06(e) .06(d)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 4.35 1.20 1.38
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.39 1.26 1.44
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------------
From net investment income (.05) (.03) --
- -------------------------------------------------------------------------------------------------------------------------
From net realized gains on investments (.29) (.10) --
- -------------------------------------------------------------------------------------------------------------------------
In excess of realized gain on investments -- (.02) --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.34) (.15) --
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.24 $12.19 $17.77
- -------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 36.62 11.55* 8.82*
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $153,905 $89,962 $256,038
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 2.05 1.12*(e) .63*
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) .30 .65*(e) .40*
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 76.68 15.32 27.69*
- -------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $0.0506
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
August 5, 1993
(commencement
Year ended of operations) to
May 31 May 31
--------------------------------------------------------
1996 1995 1994
--------------------------------------------------------
Class A
---------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.24 $10.74 $8.53
- -------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------
Net investment income .14 .06(e) .07(d)(e)
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 4.37 1.59 2.27
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.51 1.65 2.34
- -------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------
From net investment income (.13) (.03) (.04)
- -------------------------------------------------------------------------------------------------------------------
From net realized gains on investments (.29) (.10) (.09)
- -------------------------------------------------------------------------------------------------------------------
In excess of realized gain on investments -- (.02) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.15) (.13)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.33 $12.24 $10.74
- -------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 37.57 15.61 27.58*
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $173,321 $103,555 $3,062
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (b) 1.29 1.13(e) .78*(e)
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.05 1.89(e) .73*(e)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 76.68 15.32 102.99*
- -------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c)
- -------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and
thereafter, includes amounts paid through expense offset arrangements. Prior periods
exclude these amounts. (Note 2)
(c) Average commission rate paid on security trades is required for fiscal periods beginning
on or after September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding during the period.
(e) Reflects an expense limitation in effect during the period. As a result of these limitaitons,
expenses of the fund for the period ended May 31, 1994 reflect a reduction of $0.11 per
share. For the period ended May 31, 1995 the reduction was less that $0.01 per share for
both class A and class B. (Note 2)
</TABLE>
Notes to financial statements
November 30, 1996 (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 and current income by investing
primarily in common stocks that offer potential for capital
appreciation.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.50% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). 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.
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 generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported bid
price. Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost which approximates market, and other
investments are stated at fair value following procedures approved by
the Trustees.
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 of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
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.
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 accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are 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
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. 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.
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $17,091. These expenses are being amortized
on a straight-line basis over a five-year period.
The fund will reimburse Putnam Management for the payment of these
expenses.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% of the
first $500 million, 0.55% of the next $500 million, 0.50% of the next
$500 million, and 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion,
and 0.38% of any excess thereafter.
The fund reimburses Putnam Management 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 wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended November 30, 1996, fund expenses were reduced
by $70,604 under expense offset arrangements with PFTC. Investor
servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested a portion of the
assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $910 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "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 fees remain in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The Fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the Fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total compensation for
the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans 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 shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average
net assets attributable to class A, class B and class M shares,
respectively.
For the six months ended November 30, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $256,930 and $17,466
from the sale of class A and class M shares, respectively and $82,400 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended November 30, 1996, Putnam
Mutual Funds Corp., acting as underwriter received $800 on class A
redemptions.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$211,298,177 and $100,494,159, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At November 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
November 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 5,644,791 $93,163,599
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ----------------------------------------------------
5,644,791 93,163,599
Shares
repurchased (1,848,146) (30,298,039)
- ----------------------------------------------------
Net increase 3,796,645 $62,865,560
- ----------------------------------------------------
Year ended
May 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 3,976,974 $57,497,542
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 261,712 3,554,184
- ----------------------------------------------------
4,238,686 61,051,726
Shares
repurchased (2,090,445) (29,527,440)
- ----------------------------------------------------
Net increase 2,148,241 $31,524,286
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 5,744,735 $94,166,658
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ----------------------------------------------------
5,744,735 94,166,658
Shares
repurchased (1,962,868) (31,835,071)
- ----------------------------------------------------
Net increase 3,781,867 $62,331,587
- ----------------------------------------------------
Year ended
May 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 3,190,077 $45,830,333
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 190,587 2,580,381
- ----------------------------------------------------
3,380,664 48,410,714
Shares
repurchased (1,284,596) (18,077,077)
- ----------------------------------------------------
Net increase 2,096,068 $30,333,637
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 500,201 $8,282,504
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ----------------------------------------------------
500,201 8,282,504
Shares
repurchased (27,811) (464,872)
- ----------------------------------------------------
Net increase 472,390 $7,817,632
- ----------------------------------------------------
For the period
January 22, 1996
(commencement
of operations) to
May 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 158,457 $2,440,937
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ----------------------------------------------------
158,457 2,440,937
Shares
repurchased (34,141) (510,785)
- ----------------------------------------------------
Net increase 124,316 $1,930,152
- ----------------------------------------------------
Note 5
Transactions with Affiliated Companies
Transactions during the period with companies in which the fund owns at
least 5% of the voting securities were as follows:
Affiliates Duckwall-Alco Stores, Inc.
Purchase cost $2,414,495
Sales cost $--
Dividend income $--
Market value $3,068,750
Results of December 5, 1996 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on December 5, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
------------ -----------
Jameson Adkins Baxter 13,194,236 241,068
Hans H. Estin 13,180,784 254,520
John A. Hill 13,200,801 234,503
Ronald J. Jackson 13,190,352 244,952
Elizabeth T. Kennan 13,181,036 254,268
Lawrence J. Lasser 13,191,961 243,343
Robert E. Patterson 13,191,660 243,644
Donald S. Perkins 13,193,245 242,059
William F. Pounds 13,194,677 240,627
George Putnam 13,191,119 244,185
George Putnam, III 13,188,197 247,107
Eli Shapiro 13,155,956 279,348
A.J.C. Smith 13,193,811 241,493
W. Nicholas Thorndike 13,186,067 249,237
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as
auditors for the fund was approved as follows: 12,897,373 votes for, and
86,988 votes against, with 450,943 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 12,234,105 votes for, and 537,062 votes against, with
664,137 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
11,829,051 votes for, and 923,043 votes against, with 683,210
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in senior securities was approved as follows:
12,202,335 votes for, and 565,172 votes against, with 667,797
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 11,883,687 votes for, and 894,629 votes against,
with 656,988 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 11,948,415 votes for, and 799,858 votes against,
with 687,031 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 11,721,477
votes for, and 1,018,273 votes against, with 695,554 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 11,836,298 votes
for, and 906,760 votes against, with 692,246 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 11,674,319 votes for, and 1,041,543 votes against, with 719,442
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 11,897,791 votes for, and 853,698 votes against, with 683,815
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas and mineral interests
was approved as follows: 12,034,802 votes for, and 724,967 votes
against, with 675,535 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investing to gain control of a company's management was
approved as follows: 11,912,232 votes for, and 841,498 votes against,
with 681,574 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
* HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.*
* SWITCH FUNDS EASILY
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get 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.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number: 1-800-225-
1581.
* Regular investing of course, does not guarantee a profit or protect
against a loss in a declining market.
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Gerald Zukowski
Vice President and Fund Manager
Anthony C. Santosus
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Capital
Appreciation 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.
You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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29935-433/948/2BN 1/97
