Putnam
Capital
Appreciation
Fund
ANNUAL REPORT
May 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam Capital Appreciation Fund must have a magic formula. . . .
The fund's ability to adapt to market cycles makes it quite likable.
This is a well-managed and worthwhile offering."
-- Morningstar Mutual Funds, May 9, 1997
* Putnam Capital Appreciation Fund's class A shares ranked 9 out of 123
capital appreciation funds (top 8%) tracked by Lipper Analytical Services
for the 3-year period ended June 30, 1997.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
22 Financial statements
* Lipper rankings are based on total return performance, vary over time,
and do not include the effects of sales charges. For the 1-year period
ended 6/30/97, the fund's class A, class B, and class M shares ranked 25,
28, and 27, respectively, out of 203 capital appreciation funds. Past
performance is no guarantee of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Capital Appreciation Fund was able to deliver outstanding performance
during the fiscal year that ended on May 31, 1997, a period that found many
other growth-oriented portfolios struggling. The difference lay in your fund's
ability to choose from the entire universe of growth stocks, while others were
restricted to the small companies that dominate the growth-stock category.
Strategic repositioning of the fund's portfolio and astute selection of large
companies with strong growth potential allowed fund managers Gerald Zukowski
and Anthony Santosus to take advantage of the sharp advance in large-company
stocks while remaining true to the fund's investment style. At the same time,
a number of small growth-company stocks in your fund's portfolio bucked the
trend in their market sector and also contributed to the fund's solid
performance.
Gerry and Tony discuss fiscal 1997 results in detail and look at prospects for
the new fiscal year in the following report.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 16, 1997
Report from the Fund Managers
Gerald S. Zukowski, lead manager
Anthony C. Santosus
The sharp contrast between the performance of small- and large-company stocks
presented a challenge for Putnam Capital Appreciation Fund during the fiscal
year ended May 31, 1997. The U.S. market's bigger-is-better sentiment
dominated the year as investors favored the stocks of large, established
companies over growth-oriented small-company stocks. Indeed, for the 12 months
ended May 31, 1997, the Standard & Poor's 500(registered trademark) Index,
which is weighted in favor of large-capitalization stocks, returned 29.40%,
while the Russell 2000 Index, a measure of small-capitalization stocks, gained
a mere 6.97%.
Because your fund invests in a combination of small- and large-company stocks,
this environment prompted some strategic shifts in the portfolio's focus.
Throughout the fiscal year, we trimmed back the fund's weighting of
small-company growth stocks as the short list of best-performing stocks
continued to be dominated by blue-chip companies. At the same time, solid
stock selection continued to play a prominent role and helped the fund deliver
impressive returns for fiscal 1997. For the 12 months ended May 31, 1997, your
fund's class A shares provided a total return of 22.91% at net asset value
(NAV) and 15.82% at public offering price (POP). For complete performance
information, including results for other share classes and over the longer
term, please refer to the summary that begins on page 9.
* SOME SMALL-CAPS EXHIBIT STRENGTH
Despite prevailing market conditions, there were small companies in the
portfolio whose performance set them apart. One example is Pittston Burlington
Group, which operates Burlington Air Express Inc., a global freight
transportation company. The company provides air and ocean freight delivery
and supply chain management, and recently acquired large contracts with NEC
Technologies and General Motors. Royal Caribbean Cruises, another of the
fund's small-cap holdings, announced record earnings for its first quarter of
1997. One of the world's largest cruise lines, the company's increased
revenues were due to the introduction of two new ships and higher occupancy
rates on all vessels.
MedPartners, Inc., another solid small-cap performer, is a physician practice
management company. MedPartners recruits physicians with good reputations and
provides business management services for their practices. By affiliating with
MedPartners, physicians gain access to management and information systems. In
March, MedPartners announced a 10-year strategic provider relationship with
Aetna U.S. Healthcare, the first such partnership between a national managed
care company and a physician practice management company. And, for the first
quarter of 1997, MedPartners reported record earnings -- its 11th consecutive
quarter of increased revenue. While these holdings, 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.
* BANK STOCKS AND REITS CONTINUE TO SHINE
In your fund's semiannual report, we discussed the strong performance of bank
stocks. These holdings, which still make up a significant portion of the
portfolio, maintained their strength throughout the second half of the fiscal
year. Particularly impressive were the stocks of three major U.S. banks:
Citicorp, Chase Manhattan, and BankAmerica. BankAmerica continues to focus on
shareholder value, while Chase Manhattan has been concentrating on the use of
innovative technology to meet customer needs. Citicorp has been actively
expanding worldwide, including new offices in South Africa, Kazakhstan, and
Vietnam.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance
and finance 12.1%
Retail 7.9%
Consumer
nondurables 7.6%
Real estate 6.9%
Pharmaceuticals 6.8%
Footnote reads:
* Based on net assets as of 5/31/97. Holdings will vary over time.
Our last report also mentioned Real Estate Investment Trusts (REITs), which
represented approximately 7% of the fund's portfolio at the fiscal year's end.
REITs are publicly traded companies that own or develop properties such as
apartments, hotels, and commercial office buildings. Our decision to maintain
the fund's REIT holdings proved profitable, since they were among the
portfolio highlights for fiscal 1997.
* FOREIGN HOLDINGS DELIVER IMPRESSIVE RETURNS
Your fund also profited from stocks of companies headquartered outside the
United States. One such company, Argentina's Banco de Galicia, provides
general banking services to corporations and individuals, and is one of the
country's largest private banks. Recently, Argentina's banking environment
changed dramatically as several local banks were purchased by foreign
companies. Banco de Galicia is a well-established institution with a large
branch network -- and the country's only remaining private bank with no major
foreign shareholders.
Adidas, the German manufacturer of athletic footwear and clothing, was also a
portfolio standout. Adidas ranks third in worldwide sales, leading its home
market of Germany and deriving 65% of its sales from European markets. Adidas
has been expanding its global presence, with emphasis on the United States,
the Far East, and Latin America. The company recently announced that its
global sales during first quarter grew by 45%, led by North America.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Warner-Lambert Co.
Pharmaceuticals
Chase Manhattan Corp.
Banking
General Electric Co.
Electronics
Rite Aid Corp.
Discount drug stores
Computer Associates
Computer software
Tupperware Corp.
Home and personal care products
Sundstrand Corp.
Aerospace parts
Storage Technology Corp.
Data storage equipment
Owens-Illinois, Inc.
Glass and plastic packaging products
RMI Titanium Co.
Titanium products
Footnote reads:
These holdings represent 14.0% of the fund's net assets as of 5/31/97.
Portfolio holdings will vary over time.
* PHARMACEUTICALS A HIGHLIGHT AMONG LARGE-CAP HOLDINGS
A quartet of pharmaceutical companies -- Eli Lilly & Co., Pfizer, Inc.,
Warner-Lambert, and Schering-Plough -- delivered superb performance for the
fiscal year. All four are good examples of how innovative product development
can boost a stock's performance. During the fourth quarter of calendar 1996,
Eli Lilly launched a new drug, Zyprexa, which has been described as the most
promising of the current group of new schizophrenia drugs. Like the company's
best-selling antidepressant drug, Prozac, it is expected to have a positive
impact on Lilly's earnings.
Early in calendar 1997, Pfizer introduced Lipitor, a drug for the treatment of
high cholesterol, with impressive results. By mid-April, the drug had already
accounted for 13% of new prescriptions in the United States. Pfizer is
promoting the new drug with Warner-Lambert, which discovered and developed
Lipitor. These two companies are expected to benefit greatly from this drug,
since the U.S. cholesterol drug market was estimated at more than $3 billion
for 1996 and is expected to increase by 30% in 1997. The worldwide market is
estimated to account for an additional $7 billion.
Finally, Schering-Plough is anticipating the launch of Fareston, a
breast-cancer treatment designed to block further tumor growth. Schering-Plough
is known for such over-the-counter products as Coppertone and Dr. Scholl's, as
well as its best-selling pharmaceutical product, Claritin, an antihistamine.
* OUTLOOK INCLUDES POTENTIAL FOR VOLATILITY
Fiscal 1997 has certainly been a memorable period for U.S. investors. It began
with a continuing trend of steady growth, falling interest rates, and low
inflation. The Dow Jones Industrial Average climbed to new heights, hitting a
record in early March. It then lost 9.8% -- nearly 700 points -- during a
four-week period. Then, as your fund's fiscal year was concluding, the Dow
made a dramatic recovery, making up for its earlier losses and reaching record
levels again. The equity markets benefited from strong supply/demand forces,
record inflows into mutual funds, and significant stock purchases resulting
from stock buyback programs.
With this outstanding fiscal year behind us, it is important to remember that
the markets are likely to experience setbacks. While the long-term outlook
remains favorable, we are prepared for short-term volatility in the coming
year.
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 5/31/97 there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
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.
TOTAL RETURN FOR PERIODS ENDED 5/31/97
Class A Class B Class M
(inception date) (8/5/93) (11/2/94) (1/22/96)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 22.91% 15.82% 21.95% 16.95% 22.28% 18.01%
- ------------------------------------------------------------------------------
3 years 95.49 84.17 91.19 88.19 92.43 85.74
Annual average 25.04 22.58 24.11 23.46 24.38 22.92
- ------------------------------------------------------------------------------
Life of fund 149.39 135.06 142.32 139.32 144.38 135.93
Annual 27.03 25.07 26.07 25.66 26.35 25.20
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/97
Standard &
Poor's Consumer
500 Index Price Index
- ------------------------------------------------------------------------------
1 year 29.40% 2.23%
- ------------------------------------------------------------------------------
3 years 99.66 8.54
Annual average 25.92 2.77
- ------------------------------------------------------------------------------
Life of fund 108.40 10.87
Annual average 21.11 2.73
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% for class A shares and 3.50% for class M shares.
The one-year, three-year, and life of fund returns for class B shares
reflect the applicable contingent deferred sales charges (CDSC), which is
5% in the first year, declines each year to 1% in the sixth year, and is
eliminated thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating costs applicable
to such shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
PLOT POINTS
Class A
shares at S & P 500 Consumer
POP Index Price Index
8/5/93 $ 9,425 $ 10,000 $ 10,000
12/31/93 $ 11,476 $ 10,551 $ 10,097
3/31/94 $ 11,711 $ 10,154 $ 10,194
6/30/94 $ 11,487 $ 10,198 $ 10,249
9/30/94 $ 12,472 $ 10,696 $ 10,346
12/31/94 $ 12,164 $ 10,694 $ 10,367
3/31/95 $ 13,254 $ 11,732 $ 10,485
6/30/95 $ 14,265 $ 12,848 $ 10,561
9/30/95 $ 15,583 $ 13,866 $ 10,609
12/31/95 $ 16,361 $ 14,698 $ 10,983
3/31/96 $ 17,614 $ 15,486 $ 10,783
6/30/96 $ 18,996 $ 16,180 $ 10,852
9/30/96 $ 19,535 $ 16,676 $ 10,928
12/31/96 $ 21,288 $ 18,064 $ 10,983
3/31/97 $ 21,539 $ 18,552 $ 11,080
5/3197 $ 23,506 $ 20,840 $ 11,087
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $24,232 ($23,932 with a redemption at the end of the period) and a
$10,000 investment in the fund's class M shares would have been valued at
$24,438 ($23,593 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.100 $0.017 $0.092
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.394 0.394 0.394
- ------------------------------------------------------------------------------
Short-term 0.683 0.683 0.683
- ------------------------------------------------------------------------------
Total $1.177 $1.094 $1.169
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
5/31/96 $16.33 $17.33 $16.24 $16.29 $16.88
- ------------------------------------------------------------------------------
5/31/97 18.76 19.90 18.59 18.62 19.30
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/97
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 30.01% 22.53% 29.09% 24.09% 29.34% 24.79%
- ------------------------------------------------------------------------------
3 years 114.99 102.55 110.12 107.12 111.61 104.11
Annual average 29.06 26.53 28.08 27.47 28.38 26.85
- ------------------------------------------------------------------------------
Life of fund 162.02 146.96 154.45 151.45 156.59 147.71
Annual average 28.02 26.09 27.06 26.67 27.33 26.19
- ------------------------------------------------------------------------------
All returns assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost. Please see the
preceding page for the method of performance calculation.
TERMS AND DEFINITIONS
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.
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 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.
Report of independent accountants
For the fiscal year ended May 31, 1997
To the Trustees and Shareholders of
Putnam Capital Appreciation Fund
We have audited the accompanying statement of assets and liabilities of Putnam
Capital Appreciation Fund, including the portfolio of investments owned, as of
May 31, 1997, and the related statement of operations for the year then ended
and the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 1997, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam Capital Appreciation Fund as of May 31, 1997, the results of its
operations for the year then ended and the changes in its net assets for each
of the two years in the period then ended and the financial highlights for
each of the periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
July 9, 1997
Portfolio of investments owned
May 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (94.2%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
Automotive (1.8%)
- ------------------------------------------------------------------------------------------------------------
95,000 Bonded Motors, Inc. + $ 890,625
233,700 Echlin, Inc. 7,799,738
205,000 Exide Corp. 4,484,375
188,000 Ford Motor Co. 7,050,000
--------------
20,224,738
Basic Industrial Products (4.3%)
- ------------------------------------------------------------------------------------------------------------
140,000 Deere (John) & Co. 7,157,500
400,000 Owens-Illinois, Inc. + 12,350,000
184,000 Parker-Hannifin Corp. 9,683,000
255,000 Shorewood Packaging Corp. + 5,163,750
270,000 Sundstrand Corp. 13,432,500
--------------
47,786,750
Building and Construction (0.5%)
- ------------------------------------------------------------------------------------------------------------
119,000 Congoleum Corp. Class A + 1,338,750
195,800 Dayton Superior Corp. + 2,447,500
160,000 Southern Energy Homes, Inc. + 1,780,000
--------------
5,566,250
Business Equipment and Services (3.5%)
- ------------------------------------------------------------------------------------------------------------
210,000 Adaptec, Inc. + 7,717,500
100,000 Corrpro Cos., Inc. + 862,500
126,600 ErgoBilt, Inc. + 727,950
180,000 Ikon Office Solutions, Inc. 5,220,000
79,300 JP Foodservice, Inc. + 2,299,700
105,000 Lazare Kaplan International, Inc. + 1,706,250
67,400 Personnel Group of America, Inc. + 2,047,275
130,000 PIA Merchandising Services, Inc. + 715,000
50,000 Pitney Bowes, Inc. 3,512,500
194,700 Unidigital, Inc. + 1,070,850
20,000 Western Digital Corp. + 1,082,500
167,800 Xerox Corp. 11,368,450
--------------
38,330,475
Chemicals (1.6%)
- ------------------------------------------------------------------------------------------------------------
157,000 Agrium, Inc. (Canada) 2,119,500
140,000 Applied Extrusion Technologies, Inc. + 1,645,000
170,000 Carbide/Graphite Group, Inc. + 4,250,000
25,750 Ciba Specialty Chemicals 144A ADR (Switzerland) + 1,219,543
113,000 MacDermid, Inc. 5,113,250
70,000 Olin Corp. 2,870,000
--------------
17,217,293
Computer Services and Software (5.9%)
- ------------------------------------------------------------------------------------------------------------
350,000 4Front Software International, Inc. + 1,312,500
240,000 Cabletron Systems, Inc. + 10,560,000
279,250 Computer Associates Intl., Inc. 15,288,938
395,100 DecisionOne Holdings Corp. + 8,642,813
33,100 En Pointe Technologies, Inc. + 322,725
268,700 Integrated Technology USA + 386,256
21,000 National Computer Systems Inc. 530,250
172,000 Pairgain Technologies, Inc. + 3,590,500
50,000 Parametric Technology Corp. + 2,243,750
158,000 Pomeroy Computer Resources, Inc. + 3,634,000
103,170 Sterling Commerce, Inc. + 3,430,403
47,200 Sterling Software, Inc. + 1,569,400
318,000 Storage Technology Corp. + 12,958,500
--------------
64,470,035
Conglomerates (0.6%)
- ------------------------------------------------------------------------------------------------------------
330,000 Ogden Corp. 6,435,000
Consumer Non Durables (7.7%)
- ------------------------------------------------------------------------------------------------------------
388,000 American Pad & Paper Co. + 7,178,000
146,000 Dimon Inc. 3,376,250
200,000 Donnkenny, Inc. + 825,000
140,000 Kellwood Co. 3,675,000
203,600 Kimberly-Clark Corp. 10,205,450
140,000 Galoob Toys, Inc. + 2,520,000
70,000 Newell Co. 2,677,500
19,800 Nu Skin Asia Pacific Inc. Class A + 529,650
60,000 OroAmerica, Inc. + 288,750
177,000 Philip Morris Cos., Inc. 7,788,000
200,000 Quaker Fabric Corp. + 3,175,000
48,100 Revlon, Inc. Class A + 1,960,075
174,000 RJR Nabisco Holdings Corp. 5,633,250
110,000 Samsonite Corp. + 4,936,250
173,955 Standard Commercial Corp. + 2,935,497
110,000 Styling Technology Corp. + 1,182,500
180,000 Swisher International Group Inc. Class A + 3,285,000
133,700 Toy Biz, Inc. + 1,186,588
390,000 Tupperware Corp. 14,137,500
164,000 Ultrafem, Inc. + 2,460,000
126,050 Wesley Jessen VisionCare, Inc. + 2,111,338
59,000 Westpoint Stevens, Inc. + 2,234,625
--------------
84,301,223
Consumer Related (0.9%)
- ------------------------------------------------------------------------------------------------------------
165,000 Adidas AG 144A (Germany) 8,733,450
Consumer Services (2.1%)
- ------------------------------------------------------------------------------------------------------------
127,500 Avis Europe PLC 144A ADR (United Kingdom) + 2,741,250
134,000 CUC International, Inc. + 3,082,000
77,400 Hertz Corp. Class A + 2,650,950
55,500 Hillenbrand Industries, Inc. 2,615,438
94,200 Norwood Promotional Products, Inc. + 1,377,675
105,000 Planet Hollywood International, Inc. Class A + 2,080,313
79,000 Service Corp. International 2,784,750
42,500 Sight Resource Corp. + 164,688
100,000 Steiner Leisure Ltd. + 2,800,000
100,000 Young Broadcasting Corp. Class A + 2,687,500
--------------
22,984,564
Education Services (--%)
- ------------------------------------------------------------------------------------------------------------
30,000 Youth Services International, Inc. + 416,250
Electronics and Electrical Equipment (3.7%)
- ------------------------------------------------------------------------------------------------------------
136,500 Bell Microproducts, Inc. + 1,501,500
7,300 Benchmark Electronics, Inc. + 256,413
119,000 CHS Electronics, Inc. + 2,960,125
300,000 General Electric Co. 18,112,500
170,000 JPM Co. + 5,270,000
442,200 Pioneer-Standard Electronics, Inc. 5,472,225
15,000 Semtech Corp. + 470,625
241,500 Vishay Intertechnology, Inc. 7,094,063
--------------
41,137,451
Energy-Related (4.2%)
- ------------------------------------------------------------------------------------------------------------
43,050 American Oilfield Divers Inc. + 489,694
70,000 Baker Hughes Inc. 2,625,000
500,000 Calpine Corp. + 10,250,000
100,000 Companie Generale de Geophysique, S.A. ADR
(France) + 1,637,500
68,500 Core Laboratories N.V. + 1,592,625
255,000 MAPCO, Inc. 8,096,250
80,900 Dailey Petroleum Services Corp. + 535,963
68,100 Dawson Production Services, Inc. + 766,125
62,000 Enron Global Power & Pipelines 2,046,000
100,000 Falcon Drilling Co., Inc. + 4,587,500
180,000 Newpark Resources, Inc. + 9,450,000
70,000 Precision Drilling Corp. (Canada) + 3,132,500
93,500 U. S. Energy Systems, Inc. + 362,313
40,000 Veritas DGC Inc. + 830,000
--------------
46,401,470
Entertainment (0.9%)
- ------------------------------------------------------------------------------------------------------------
115,282 Disney (Walt) Productions, Inc. 9,438,714
Environmental Control (2.7%)
- ------------------------------------------------------------------------------------------------------------
212,000 Commodore Applied Technologies, Inc. + 1,298,500
140,700 Commodore Separation Technologies, Inc. + 422,100
660,000 Philip Services Corp. (Canada) + 9,652,500
290,000 USA Waste Services, Inc. + 10,512,500
220,000 Waste Management, Inc. 6,985,000
69,900 Wheelabrator Technologies, Inc. 899,963
--------------
29,770,563
Food and Beverages (3.2%)
- ------------------------------------------------------------------------------------------------------------
230,000 Chiquita Brands International, Inc. 3,536,250
160,000 Dole Food Co. 6,800,000
294,000 IBP, Inc. 6,909,000
282,000 PepsiCo, Inc. 10,363,500
200,000 Sara Lee Corp. 8,175,000
--------------
35,783,750
Health Care (2.7%)
- ------------------------------------------------------------------------------------------------------------
48,000 Beckman Instruments, Inc. 2,238,000
520,000 Community Care of America, Inc. + 1,787,500
653,900 Complete Management, Inc. + 8,337,225
255,000 Epitope, Inc. + 2,231,250
162,500 Foundation Health Systems, Inc. Class A + 4,854,688
285,000 MedPartners, Inc. + 5,415,000
76,000 Oxford Health Plans Inc. + 5,358,000
--------------
30,221,663
Insurance and Finance (12.1%)
- ------------------------------------------------------------------------------------------------------------
128,000 American Express Co. 8,896,000
185,600 Banco BHIF ADR (Chile) 3,874,400
310,000 Banco de A. Edwards ADR (Chile) 6,471,250
200,200 Banco De Galicia y Buenos Aires ADR Class B,
(Argentina) 5,255,250
65,000 BankAmerica Corp. 7,596,875
56,000 BankBoston Corp. 4,088,000
36,300 BHC Financial, Inc. 1,252,350
208,000 Chase Manhattan Corp. 19,656,000
40,000 Citicorp 4,575,000
300,730 Conseco Inc. 4,669,120
35,100 Emergent Group, Inc. + 390,488
80,000 Federal National Mortgage Association 3,490,000
157,000 Fremont General Corp. 5,514,625
65,400 GCR Holdings, Ltd. 1,749,450
65,400 Granite Financial, Inc. + 588,600
110,000 Harrington Financial Group, Inc. 1,292,500
173,600 Hartford Life, Inc. Class A + 5,815,600
133,600 Homeside, Inc. + 2,388,100
268,400 Long Beach Financial Corp. + 2,147,200
30,500 Merrill Lynch & Co., Inc. 3,233,000
27,000 Morgan Stanley Group, Inc. 1,822,500
5,000 National Australia Bank, Ltd. ADR (Australia) 357,500
54,400 National Auto Finance Co., Inc. + 401,200
40,000 NationsBank Corp. 2,355,000
80,000 Nationwide Financial Services, Inc. Class A + 2,250,000
260,000 Pioneer Financial Services, Inc. 7,312,500
54,650 Preferred Employers Holdings, Inc. + 382,550
100,000 Reliance Group Holdings, Inc. 1,225,000
35,700 Rockford Industries, Inc. + 240,975
142,000 Symons International Group, Inc. + 2,112,250
86,000 The PMI Group, Inc. 4,719,250
164,811 Titan Holdings, Inc. 3,172,612
146,800 Ugly Duckling Corp. + 2,422,200
82,850 Uniao de Bancos Brasileiros S.A. (Unibanco)
GDR (Brazil) + 2,858,325
62,512 Union Acceptance Corp. Class A + 550,887
210,400 UnionAmerica Holdings PLC ADR (United Kingdom) 3,471,600
116,000 United Asset Management Corp. 3,233,500
4,000 Wells Fargo & Co. 1,054,000
50,000 Wilshire Financial Services Group, Inc. + 775,000
--------------
133,660,657
Metals and Mining (3.0%)
- ------------------------------------------------------------------------------------------------------------
113,000 Freeport-McMoRan Copper & Gold Co., Inc. Class B 3,291,125
74,900 Minerals Technologies, Inc. 2,958,550
523,500 RMI Titanium Co. + 12,171,375
50,000 Southern Peru Copper Corp. (Peru) 975,000
236,300 Titanium Metals Corp. + 7,177,613
260,000 Zeigler Coal Holding Co. 6,045,000
--------------
32,618,663
Oil and Gas (1.8%)
- ------------------------------------------------------------------------------------------------------------
750,000 Arakis Energy Corp. + 2,859,375
144,200 Fortune Petroleum Corp. + 297,413
91,080 Pride Petroleum Services, Inc. + 2,026,530
78,000 Seitel, Inc. + 2,895,750
100,000 Southern Mineral Corp. + 475,000
180,000 TransTexas Gas Corp. + 2,970,000
250,000 Ultramar Diamond Shamrock Corp. 8,250,000
--------------
19,774,068
Pharmaceuticals (6.8%)
- ------------------------------------------------------------------------------------------------------------
533,332 Astra AB ADR Class A (Sweden) 8,733,312
102,500 Euromed, Inc. + 70,469
470,000 ICN Pharmaceuticals, Inc. 10,163,750
82,000 Lilly (Eli) & Co. 7,626,000
61,200 Maxim Pharmaceuticals, Inc. + 581,400
90,000 Pfizer, Inc. 9,258,750
300,000 Pharmacia & Upjohn, Inc. 10,387,500
93,000 Procept, Inc. + 52,313
86,000 Schering-Plough Corp. 7,804,500
200,000 Warner-Lambert Co. 20,150,000
--------------
74,827,994
Photography (0.9%)
- ------------------------------------------------------------------------------------------------------------
125,000 Eastman Kodak Co. 10,359,375
Publishing (0.2%)
- ------------------------------------------------------------------------------------------------------------
176,000 Journal Register Co. + 2,662,000
Real Estate (6.9%)
- ------------------------------------------------------------------------------------------------------------
296,000 Alexander Haagen Properties, Inc. (R) 4,144,000
64,400 Alexandria Real Estate Equities, Inc. (R)+ 1,416,800
170,000 Apartment Investment & Management Co.
Class A (R) 4,738,750
184,900 Burnham Pacific Properties, Inc. (R) 2,449,925
184,000 Capstone Capital Trust, Inc. (R) 4,186,000
135,700 Commercial Net Lease Realty Inc. (R) 2,035,500
385,000 Cornerstone Properties, Inc. (R) 5,823,125
242,900 CRIIMI MAE, Inc. (R) 3,977,488
240,000 CWM Mortgage Holdings, Inc. (R) 5,010,000
144,600 Equity Inns, Inc. (R) 1,897,875
100,000 First Industrial Realty Trust, Inc. (R) 2,950,000
65,000 First Washington Realty Trust, Inc. (R) 1,551,875
200,000 Fortress Group, Inc. 1,075,000
136,700 Glenborough Realty Trust, Inc. 2,973,225
120,000 Healthcare Realty Trust, Inc. (R) 3,120,000
134,000 Horizon Group Inc. (R) 1,742,000
264,000 Innkeepers USA Trust (R) 3,696,000
105,300 Malan Realty Investors, Inc. (R) 1,842,750
64,000 Millennium & Copthorne Hotels PLC 144A ADR
(United Kingdom) 1,632,000
122,200 Mills Corp. (R) 3,100,825
55,000 National Health Investors, Inc. (R) 2,076,250
205,000 Nursing Home Properties PLC (United Kingdom) 396,595
40,000 Omega Healthcare Investors, Inc. (R) 1,310,000
262,000 Prime Retail, Inc. (R) 3,307,750
62,500 Public Storage, Inc. (R) 1,664,063
15,000 Regency Realty Corp. (R) 395,625
183,000 RFS Hotel Investors, Inc. (R) 3,408,375
130,000 Sizeler Property Investments, Inc. (R) 1,316,250
25,000 Town & Country Trust (R) 371,875
20,000 Walden Residential Props, Inc. (R) 475,000
30,000 Wellsford Residential Property Trust (R) 971,250
113,900 Winston Hotels (R) 1,494,938
--------------
76,551,109
Recreation (0.5%)
- ------------------------------------------------------------------------------------------------------------
100,000 RockShox, Inc. + 1,450,000
130,000 Royal Caribbean Cruises Ltd. 4,533,750
--------------
5,983,750
Retail (7.9%)
- ------------------------------------------------------------------------------------------------------------
171,000 Claire's Stores, Inc. 3,291,750
207,800 Club Monaco Inc. 144A (Canada) + 1,826,515
131,000 Cole National Corp. Class A + 4,961,625
73,000 Cost Plus, Inc. + 1,669,875
92,500 Dollar General Corp. 3,110,313
239,000 Duckwall-Alco Stores, Inc. + 2,987,500
100,000 Fabri-Centers of America Class A + 2,350,000
147,000 InterTAN, Inc. + 551,250
280,000 Intimate Brands, Inc. 5,985,000
172,041 Limited, Inc. (The) 3,483,830
173,600 Lowe's Cos., Inc. 6,835,500
240,000 Mac Frugals Bargains Close-Outs, Inc. + 7,140,000
60,000 99 Cents Only Stores + 1,515,000
200,000 Officemax, Inc. + 2,775,000
257,200 Pier 1 Imports, Inc. 5,754,850
252,000 Quality Food Centers, Inc. + 9,576,000
359,400 Rite Aid Corp. 16,712,100
46,900 Stage Stores, Inc. + 946,794
50,000 Tiffany & Co. 2,318,750
45,000 Waban, Inc. + 1,366,875
476,000 West Coast Entertainment Corp. + 2,380,000
--------------
87,538,527
Specialty Consumer Products (0.6%)
- ------------------------------------------------------------------------------------------------------------
95,000 Gucci Group (Italy) 6,626,250
Telecommunications (0.5%)
- ------------------------------------------------------------------------------------------------------------
74,000 Ascend Communications, Inc. + 4,125,500
62,300 Inter-Tel, Inc. + 973,438
266,700 PhoneTel Technologies, Inc. + 866,775
--------------
5,965,713
Transportation (4.6%)
- ------------------------------------------------------------------------------------------------------------
115,000 Airborne Freight Corp. 4,398,750
236,000 AirNet Systems, Inc. + 3,982,500
72,500 Aramex International Ltd. + 652,500
250,000 MIF Ltd. (Norway) + 3,757,339
100,000 Northwest Airlines Corp. Class A + 4,137,500
140,000 Pittston Brink's Group 4,375,000
268,000 Pittston Burlington Group 6,901,000
25,000 Ryanair Holdings, PLC ADR (Ireland) + 618,750
86,000 Sea Containers, Ltd. Class A 1,720,000
91,400 Simon Transportation Services, Inc. + 1,690,900
314,600 Stolt-Nielsen S.A. ADR 5,741,450
53,400 Swift Transportation Co., Inc. + 1,722,150
230,900 The Cronos Group + 1,269,950
97,000 Transport Corp. of America + 1,309,500
220,400 Tranz Rail Holdings Ltd. ADR (New Zealand) 3,829,450
1,539,337 Ugland International Holdings PLC
(United Kingdom) + 2,018,994
100,000 USFreightways Corp. 2,425,000
--------------
50,550,733
Utilities (2.1%)
- ------------------------------------------------------------------------------------------------------------
120,000 Baltimore Gas & Electric Co. 3,150,000
75,000 GTE Corp. 3,309,375
153,000 Pacific Enterprises 5,010,750
237,100 Sprint Corp. 11,588,263
--------------
23,058,388
--------------
Total Common Stocks (cost $875,390,105) $1,039,396,866
CONVERTIBLE PREFERRED STOCKS (1.0%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
56,300 Commodore Separation Technologies, Inc. 10% cv. pfd. $ 464,475
16,400 Continental Airlines 144A $4.25 cv. pfd. 1,289,450
30 Credit Depot Corp. $9.00 cv. pfd. 213,281
29,800 CRIIMI MAE Inc. Ser. B, $2.719 cv. pfd. 1,110,050
259,000 National Australia Bank Ltd. $1.969 cv. pfd. 6,993,000
8,000 Service Corp. $3.125 cv. pfd. 912,000
--------------
Total Convertible Preferred Stocks (cost $9,950,368) $ 10,982,256
CONVERTIBLE BONDS AND NOTES (1.0%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 875,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 $ 831,250
500,000 Emerson Radio Corp. 144A cv. sr. sub. deb
8 1/2s, 2002 195,000
3,850,000 HMT Technology Corp. 144A cv. sub. notes
5 3/4s, 2004 3,339,875
500,000 Omega Healthcare Investors, Inc. cv. sub. deb.
8 1/2s, 2001 571,250
465,000 Pioneer Financial Services, Inc. cv. sub. notes
6 1/2s, 2003 705,056
3,300,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002 3,432,000
1,200,000 Youth Services International, Inc. cv. sub. deb. 7s, 2006 1,476,000
--------------
Total Convertible Bonds and Notes
(cost $10,655,000) $ 10,550,431
WARRANTS (0.01%) * + EXPIRATION
NUMBER OF WARRANTS DATE/ VALUE
- ------------------------------------------------------------------------------------------------------------
166,000 Commodore Applied Technology 06/28/01 $ 269,750
190,000 Commodore Separation Technology, Inc. 04/03/02 190,000
151,700 Integrated Technology USA 10/02/00 18,963
13,000 Maxim Pharmaceuticals, Inc. 07/10/01 26,000
88,500 U. S. Energy Systems, Inc. 12/02/01 99,549
--------------
Total Warrants (cost $60,920) $ 604,262
SHORT-TERM INVESTMENT (3.6%) * (cost $39,569,131)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$39,557,000 Interest in $386,564,000 joint repurchase agreement
dated May 30, 1997, with UBS Securities due
June 2, 1997 with respect various U.S. Treasury
obligations -- maturity value of $39,575,196
for an effective yield of 5.52% $ 39,569,131
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $935,625,524) *** $1,101,102,946
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,103,581,248.
*** The aggregate identified cost on a tax basis is $935,673,384, resulting in gross unrealized appreciation
and depreciation of $189,309,918 and $23,880,356, respectively, or net unrealized appreciation of
$165,429,562.
+ 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, or GDR after the name of a foreign holding stands for American Depository Receipts, or Global
Depository Receipts, respectively, 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
May 31,1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $935,625,524) (Note 1) $1,101,102,946
- ---------------------------------------------------------------------------------------------------
Cash 1,157,520
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,220,434
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 10,444,155
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 7,818,117
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 4,027
- ---------------------------------------------------------------------------------------------------
Total assets 1,121,747,199
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 14,418,511
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,185,143
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,411,785
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 222,880
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 9,026
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,117
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 663,344
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 253,145
- ---------------------------------------------------------------------------------------------------
Total liabilities 18,165,951
- ---------------------------------------------------------------------------------------------------
Net assets $1,103,581,248
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 913,689,920
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,048,441
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 23,365,465
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 165,477,422
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,103,581,248
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($525,803,527 divided by 28,030,818 shares) $18.76
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $18.76)* $19.90
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($543,014,871 divided by 29,213,313 shares)** $18.59
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($34,762,850 divided by 1,867,102 shares) $18.62
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $18.62)* $19.30
- ---------------------------------------------------------------------------------------------------
* 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 charges.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31,1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $376,921) $ 8,743,546
- --------------------------------------------------------------------------------------------------
Interest 2,448,439
- --------------------------------------------------------------------------------------------------
Total investment income 11,191,985
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,625,121
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,277,296
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 23,871
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,936
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 724,515
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,742,862
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 97,788
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 3,418
- --------------------------------------------------------------------------------------------------
Reports to shareholders 87,923
- --------------------------------------------------------------------------------------------------
Registration fees 226,086
- --------------------------------------------------------------------------------------------------
Auditing 27,886
- --------------------------------------------------------------------------------------------------
Legal 14,715
- --------------------------------------------------------------------------------------------------
Postage 182,953
- --------------------------------------------------------------------------------------------------
Other 47,961
- --------------------------------------------------------------------------------------------------
Total expenses 9,093,331
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (276,154)
- --------------------------------------------------------------------------------------------------
Net expenses 8,817,177
- --------------------------------------------------------------------------------------------------
Net investment income 2,374,808
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3)
(including realized gain of $38,184 on sales of investments in affiliated issuer 33,732,900
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 99,347,566
- --------------------------------------------------------------------------------------------------
Net gain on investments 133,080,466
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 135,455,274
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
-------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 2,374,808 $ 1,691,768
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 33,732,900 26,670,081
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 99,347,566 49,972,462
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 135,455,274 78,334,311
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (1,521,434) (1,132,760)
- ----------------------------------------------------------------------------------------------------------------------
Class B (239,310) (407,457)
- ----------------------------------------------------------------------------------------------------------------------
Class M (61,582) --
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (16,388,552) (2,552,443)
- ----------------------------------------------------------------------------------------------------------------------
Class B (15,162,496) (2,295,863)
- ----------------------------------------------------------------------------------------------------------------------
Class M (720,914) --
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 672,969,276 63,788,075
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 774,330,262 135,733,863
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 329,250,986 193,517,123
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $1,048,441 and $881,963, respectively) $1,103,581,248 $329,250,986
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Aug. 5, 1993+
operating performance Year ended May 21 to May 31
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $16.33 $12.24 $10.74 $8.53
- ----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income .13 (d) .14 .06 (e) .07 (d)(e)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.48 4.37 1.59 2.27
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.61 4.51 1.65 2.34
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.13) (.03) (.04)
- ----------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.08) (.29) (.10) (.09)
- ----------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- (.02) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.18) (.42) (.15) (.13)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.76 $16.33 $12.24 $10.74
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.91 37.57 15.61 27.58 *
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $525,804 $173,321 $103,555 $3,062
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.20 1.29 1.13 (e) .78 *(e)
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .79 1.05 1.89 (e) .73 *(e)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 38.35 76.68 15.32 102.99 *
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0473
- ----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Nov. 2, 1994+
operating performance Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $16.24 $12.19 $11.08
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income -- (d) .04 .06 (e)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.45 4.35 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.45 4.39 1.26
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.02) (.05) (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.08) (.29) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.10) (.34) (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.59 $16.24 $12.19
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 21.95 36.62 11.55 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $543,015 $153,905 $89,962
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.95 2.05 1.12 *(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .03 .30 .65 *(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 38.35 76.68 15.32
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0473
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended Jan. 22, 1996+
operating performance May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $16.29 $13.84
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .04 (d) .02 (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.46 2.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.50 2.45
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.17) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.62 $16.29
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.28 17.70 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $34,763 $2,025
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.70 .66 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .23 .16 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 38.35 76.68
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0473
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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.
</TABLE>
Notes to financial statements
May 31, 1997
Note 1
Significant accounting policies
Putnam Capital Appreciation Fund (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. Current income is only an incidental consideration in
selecting investments for the fund.
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. Foreign securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange.
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) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or losses
on closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized appreciation and depreciation of
assets and liabilities in foreign currencies arise from changes in the value
of open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange rate.
F) 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
G) 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 at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
These differences include treatment of losses on wash sale transactions,
organizational expenses, and non-taxable dividends. Reclassifications are made
to the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended May 31, 1997, the fund reclassified $386,004
to decrease undistributed net investment income and $269,915 to increase
paid-in-capital, with an increase to accumulated net realized gain on
investments of $116,089. The calculation of net investment income per share in
the financial highlights table excludes these adjustments.
H) 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.
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 of
average net assets, 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%
thereafter. Prior to September 20, 1996, any amount over $1.5 billion was paid
at a rate of 0.45%.
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 year ended May 31, 1997, fund expenses were reduced by $276,154 under
expense offset arrangements with PFTC and brokerage service arrangements.
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 $1,010 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 has 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 retainer and meeting fees 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 providedit 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 year ended May 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $1,037,343 and $61,234 from the sale
of class A and class M shares, respectively and $284,898 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 year ended May 31, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $8,123 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended May 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $824,596,964 and
$210,528,069, 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 May 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were
as follows:
Year ended
May 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 23,315,457 $404,430,001
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,018,535 17,152,092
- ------------------------------------------------------------
24,333,992 421,582,093
Shares
repurchased (6,913,708) (119,517,927)
- ------------------------------------------------------------
Net increase 17,420,284 $302,064,166
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
May 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 24,600,044 $424,156,560
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 875,491 14,655,764
- ------------------------------------------------------------
25,475,535 438,812,324
Shares
repurchased (5,740,119) (98,010,754)
- ------------------------------------------------------------
Net increase 19,735,416 $340,801,570
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
May 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 2,002,905 $ 34,599,182
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 44,736 749,320
- ------------------------------------------------------------
2,047,641 35,348,502
Shares
repurchased (304,855) (5,244,962)
- ------------------------------------------------------------
Net increase 1,742,786 $ 30,103,540
- ------------------------------------------------------------
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 Certain Companies
Transactions during the year with companies in which the fund owns
at least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Name of Affiliates cost cost Income Value
- -------------------------------------------------------------------------
Community Care of America $1,558,310 $ -- $ -- $ 1,787,500
- -------------------------------------------------------------------------
Complete Management, Inc. 5,242,874 -- -- 8,337,225
- -------------------------------------------------------------------------
4Front Software, Intl. Inc. 1,504,875 -- -- 1,312,500
- -------------------------------------------------------------------------
Unidigital, Inc. 725,038 -- -- 1,070,850
- -------------------------------------------------------------------------
Duckwall-Alco Stores, Inc. 54,120 63,375 -- 2,987,500
- -------------------------------------------------------------------------
Totals $9,085,217 $63,375 $ -- $15,495,575
=========================================================================
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $0.394 per share (or if different, the amount necessary to
offset net capital gain earned by the Fund) (for all classes of shares) as
capital gain dividends for its taxable year ended May 31, 1997.
The fund has designated 45.57% of the distributions from net investment
income as qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
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
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
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
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
Ian C. Ferguson
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
34414-433/948/2BN 7/97
