Putnam
Capital
Appreciation
Fund
SEMIANNUAL REPORT
November 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Investors don't have to share manager Gerald Zukowski's love of the
market to be enamored of Putnam Capital Appreciation Fund."
-- Morningstar Mutual Funds, September 26, 1997
* Putnam Capital Appreciation Fund's class A shares ranked 8 out of 125
capital appreciation funds (top 7%) tracked by Lipper Analytical Services
for the 3-year period ended December 31, 1997. For the 1-year period, the
fund's class A shares ranked 47 out of 231 (top 21%).*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
23 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 12/31/97, the fund's class B and class M shares ranked 58 and 57,
respectively, out of 231 capital appreciation funds. The fund was not
ranked over longer periods. Past performance is no guarantee of future
results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
A resurgence in small-company stocks and solid performance by some technology,
pharmaceutical, and retail stocks contributed to another period of positive
performance as Putnam Capital Appreciation Fund completed the first half of
its fiscal year on November 30, 1997. The widespread disruption in global
equity markets in October eroded some of the earlier gains, but on balance
fund management remains optimistic about prospects for the fiscal year's
second half.
I am pleased to announce the addition of William H. Miller to your fund's
management team. Bill recently joined Putnam as a senior vice president and
portfolio manager in the Core Growth Equity Group. He was previously
associated with Delaware Management, Janney Montgomery Scott, and Rutherford,
Brown & Catherwood. He has 15 years of investment experience.
In the following report, your fund's managers review performance during the
first half of fiscal 1998 and comment on the outlook for the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 21, 1998
Report from the Fund Managers
Gerald S. Zukowski, lead manager
William H. Miller
A rebound for small-company stocks and turbulence in financial markets around
the world were the underlying themes for the first half of Putnam Capital
Appreciation Fund's fiscal year. Just after the semiannual period began,
small-company growth stocks began to recover following an extended period of
incredibly strong performance by blue-chip stocks. At the close of the period,
however, this turnaround had been overshadowed by volatility in the stock
market as a whole and turmoil in economies around the world, particularly in
Southeast Asia.
Despite this rather blustery environment, your fund delivered solid returns,
thanks to strategic stock picking and a hefty boost from small-company
holdings. For the six months ended November 30, 1997, the fund's class A
shares provided a total return of 16.47% at net asset value and 9.80% at
public offering price. For complete performance information, please refer to
the summary that begins on page 9.
Perhaps the most notable event for U.S. investors was the historic stock
market selloff on October 27, when the Dow Jones Industrial Average dropped
554 points. This event, in large part a reaction to a dramatic plunge in Hong
Kong's stock market, was considered by many experts to be a much-needed
correction in a U.S. market that was overvalued. At the same time, it left the
Dow index 13% below its August high and demonstrated for many investors the
volatility inherent with equity investing. Indeed, another demonstration of
that volatility came the very next day, when the Dow took a dramatic turn
upward, soaring 337 points on October 28.
* RESURGENCE IN SMALL-COMPANY STOCKS BOOSTS PORTFOLIO
The bigger-is-better sentiment that had ruled the market for much of calendar
1997 cooled during the semiannual period as small-company stocks began moving
back into favor. As the period began, we were dealing with the challenge of
investing in a market that favored the stocks of large, established companies
over growth-oriented small-company stocks -- and did so to such an extent that
a small number of blue-chip stocks effectively dominated the market. Although
your fund invests in a combination of small- and large-company stocks, we tend
to look for growth potential outside the traditional market leaders. It is
understandable, therefore, that the fund's fiscal 1998 got off to a relatively
slow start.
By midsummer, however, small-company stocks had begun to reclaim market
leadership. Investors were drawn to the earnings-growth potential of small
companies, which were beginning to post better profits than the blue-chip
giants. In September and October, the Russell 2000 Index, a measure of
small-capitalization stocks, was reaching record highs.
A number of stocks in the fund's portfolio reaped the rewards of this
small-cap comeback. Carbide/Graphite Group, Inc., for example, a manufacturer
of industrial graphite and calcium carbide products, announced record earnings
for its fiscal 1998 first quarter due to increased demand for its products.
Complete Management, Inc., another of the fund's strong small-cap holdings,
leases and manages offices and equipment for medical practices and has been
rapidly expanding its client base. Its earnings and stock price have risen as
a result. Another small company that contributed to performance was Steiner
Leisure Limited, which provides spa services and personal care products aboard
cruise ships. The company's revenues have grown as it continues to serve a
growing number of ships. 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.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS*]
TOP INDUSTRY SECTORS*
Real estate 12.1%
Insurance and finance 11.6%
Retail 8.7%
Pharmaceuticals 8.1%
Transportation 5.1%
Footnote reads:
*Based on net assets as of 11/30/97. Holdings will vary over time.
* TECHNOLOGY SECTOR HAS ITS UPS AND DOWNS
The semiannual period was marked by continued volatility in the technology
sector. On October 9, the NASDAQ Composite Index, a common measure of
technology sector performance, reached its 47th record high of 1997. At the
same time, technology stocks experienced their share of declines, especially
toward the close of the period, when concerns escalated about the Southeast
Asian financial crisis and its impact on earnings, especially for companies
that provide products to Asian markets. While this environment has been
difficult, we were pleased with the performance of many of the fund's
technology holdings, notably Computer Associates and Adaptec. A developer and
marketer of computer software, Computer Associates has seen a skyrocketing
demand for its products as the popularity of the Internet grows. And despite
recent troubles in Southeast Asia, the company is taking a long-term view,
targeting India and China as key areas for expansion. Adaptec, another
holding, provides technology to corporations that are building or expanding
their computer system infrastructures.
A number of other sectors in the fund's portfolio followed the same pattern as
technology stocks during the period. Pharmaceutical and oil services
companies, for example, contributed greatly to performance during the period
and yet were experiencing continued turbulence as we reached November.
* RETAIL HOLDINGS PROVE PROFITABLE
From drugstores to closeout bargain chains and department stores, the fund's
retail stocks provided impressive performance during the period. Rite Aid
Corporation, a chain of retail drug stores, and Quality Food Centers, owner of
147 retail supermarkets in the Puget Sound area of Washington state, were two
examples. Pier 1 Imports, a retailer specializing in home furnishings, met
with great success thanks to a strong housing market, remodeled stores, and a
national television advertising campaign. Mac Frugal's Bargains Close-Outs,
Inc., which sells closeout merchandise at discount prices, has also been an
industry leader. Just after the close of the period, the company announced
that it will merge with Consolidated Stores Corporation, the nation's largest
closeout retailer. Your fund's investment in Federated Department Stores also
proved profitable. This company operates more than 400 department stores,
including Macy's and Bloomingdale's, and has been closing underperforming
stores and focusing on markets with higher growth potential.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Warner-Lambert Co.
Pharmaceuticals
General Electric Co.
Electronics and electrical equipment
Rite Aid Corp.
Discount drug stores
Storage Technology Corp.
Computer equipment
ICN Pharmaceuticals, Inc.
Pharmaceuticals
Chase Manhattan Corp.
Banking and financial services
GATX Corp.
Transportation
Pitney Bowes, Inc.
Office equipment
Santa Fe International Corp.
Oil well services and equipment
Computer Associates International, Inc.
Computer software
* MORE VOLATILITY LIKELY; CONTINUED FOCUS ON STOCK SELECTION
As the fiscal year began, we reflected on the outstanding year that had just
passed and cautioned that the market was likely to experience setbacks.
Indeed, we witnessed a few of those setbacks over the last six months, and we
remain prepared for short-term volatility during the second half of fiscal
'98. Nevertheless, we will continue to focus on careful stock selection,
emphasizing earnings growth potential, attractive values, and a long-term
outlook.
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 11/30/97, 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. 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 11/30/97
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 16.47% 9.80% 16.03% 11.03% 16.17% 12.07%
- ------------------------------------------------------------------------------
1 year 31.55 24.02 30.57 25.57 30.88 26.31
- ------------------------------------------------------------------------------
3 years 129.83 116.60 124.55 121.55 126.25 118.29
Annual average 31.97 29.39 30.95 30.36 31.28 29.72
- ------------------------------------------------------------------------------
Life of fund 190.47 173.78 181.17 179.17 183.89 174.06
Annual average 28.00 26.26 27.04 26.83 27.32 26.29
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/97
Standard &
Poor's Consumer
500 Index Price Index
- ------------------------------------------------------------------------------
6 months 13.57% 0.87%
- ------------------------------------------------------------------------------
1 year 28.50 1.83
- ------------------------------------------------------------------------------
3 years 124.96 7.88
Annual average 31.02 2.56
- ------------------------------------------------------------------------------
Life of fund 136.69 11.84
Annual average 21.99 2.62
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect
the applicable contingent deferred sales charge (CDSC), which is 5% in the
first year, declines 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 expenses 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) -- -- --
- ------------------------------------------------------------------------------
Income -- -- --
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
5/31/97 $18.76 $19.90 $18.59 $18.62 $19.30
- ------------------------------------------------------------------------------
11/30/97 21.85 23.18 21.57 21.63 22.41
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 12/31/97
(most recent calendar quarter)
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 11.86% 5.44% 11.46% 6.46% 11.60% 7.69%
- ------------------------------------------------------------------------------
1 year 29.77 22.28 28.81 23.81 29.18 24.68
- ------------------------------------------------------------------------------
3 years 127.11 114.12 121.94 118.94 123.49 115.68
Annual average 31.45 28.89 30.44 29.85 30.74 29.20
- ------------------------------------------------------------------------------
Life of fund 193.10 176.26 183.60 181.60 186.37 176.46
Annual average 27.61 25.91 26.66 26.46 26.94 25.93
- ------------------------------------------------------------------------------
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 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.
Portfolio of investments owned
November 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (92.8%) *
NUMBER OF SHARES VALUE
Automotive (1.4%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
170,000 Dana Corp. $ 7,947,500
205,000 Exide Corp. 4,894,375
217,000 Ford Motor Co. 9,331,000
79,000 Keystone Automotive Industries, Inc. 1,831,813
80,000 Lear Corp. + 3,745,000
50,000 Snap-On, Inc. 2,196,875
--------------
29,946,563
Basic Industrial Products (2.9%)
- ------------------------------------------------------------------------------------------------------------
210,000 Deere (John) & Co. 11,510,625
470,000 Owens-Illinois, Inc. + 15,921,250
285,000 Parker-Hannifin Corp. 12,682,500
335,000 Sundstrand Corp. 17,189,688
97,100 TransTechnology Corp. 2,621,700
--------------
59,925,763
Biotechnology (0.3%)
- ------------------------------------------------------------------------------------------------------------
300,000 Chiron Corp. + 5,456,250
Broadcasting (0.2%)
- ------------------------------------------------------------------------------------------------------------
179,600 TV Azteca, S.A. de C.V. (Mexico) 3,715,475
Building and Construction (0.6%)
- ------------------------------------------------------------------------------------------------------------
60,000 Congoleum Corp. Class A + 611,250
195,800 Dayton Superior Corp. + 3,328,600
1,400,000 DBS Land Ltd. (Singapore) 2,381,670
78,600 Group Maintenance America Corp. 1,100,400
200,000 Fortress Group, Inc. 825,000
92,700 Hospitality Worldwide Services, Inc. 1,112,400
172,000 Southern Energy Homes, Inc. + 1,591,000
58,100 Westower Corp. 617,313
--------------
11,567,633
Business Equipment and Services (3.9%)
- ------------------------------------------------------------------------------------------------------------
204,000 Adaptec, Inc. + 10,098,000
79,000 Applied Extrusion Technologies, Inc. + 617,188
140,000 Corrpro Cos., Inc. + 1,977,500
126,600 ErgoBilt, Inc. + 1,471,725
31,742 Fiserv, Inc. + 1,539,487
180,000 Ikon Office Solutions, Inc. 5,478,750
57,600 Industrial Distribution Group, Inc. 1,112,400
32,100 JLK Direct Distribution, Inc. 912,844
79,300 JP Foodservice, Inc. + 2,334,394
111,000 Lazare Kaplan International, Inc. + 1,581,750
67,400 Personnel Group of America, Inc. + 2,464,313
60,000 PIA Merchandising Services, Inc. + 420,000
297,000 Pitney Bowes, Inc. 24,966,563
263,000 Shorewood Packaging Corp. + 6,344,875
219,700 Unidigital, Inc. +[SECTION MARK] 1,647,750
220,000 Xerox Corp. 17,091,250
--------------
80,058,789
Chemicals (1.2%)
- ------------------------------------------------------------------------------------------------------------
163,000 Agrium, Inc. (Canada) 1,650,375
170,000 Carbide/Graphite Group, Inc. + 6,566,250
25,750 Ciba Specialty Chemicals 144A ADR (Switzerland) + 1,370,412
115,000 MacDermid, Inc. 8,222,500
110,000 Olin Corp. 5,445,000
36,000 W.R. Grace & Co. 2,619,000
--------------
25,873,537
Computer Services and Software (3.7%)
- ------------------------------------------------------------------------------------------------------------
160,000 3Com Corp. + 5,800,000
341,100 4Front Software International, Inc. +[SECTION MARK] 2,941,988
200,000 Bell Microproducts, Inc. + 1,700,000
314,450 CHS Electronics, Inc. + 5,935,244
442,500 Computer Associates Intl., Inc. 23,037,656
33,100 En Pointe Technologies, Inc. + 517,188
268,700 Integrated Technology USA + 436,638
50,000 National Computer Systems, Inc. 1,825,000
106,000 Pairgain Technologies, Inc. + 2,504,250
50,000 Parametric Technology Corp. + 2,528,125
442,200 Pioneer-Standard Electronics, Inc. 7,268,663
237,000 Pomeroy Computer Resources, Inc. + 5,925,000
160,400 QuadraMed Corp. 4,190,450
120,000 Sterling Commerce, Inc. + 4,170,000
160,000 Sterling Software, Inc. + 5,860,000
106,700 UBICS, Inc. 1,560,488
--------------
76,200,690
Computer Equipment (1.5%)
- ------------------------------------------------------------------------------------------------------------
100,000 HMT Technology Corp. 1,312,500
455,000 Storage Technology Corp. + 29,375,916
--------------
30,688,416
Conglomerates (0.7%)
- ------------------------------------------------------------------------------------------------------------
545,000 Ogden Corp. 14,510,625
Consumer Durables (0.1%)
- ------------------------------------------------------------------------------------------------------------
96,450 Acorn Products, Inc. 1,121,231
158,000 Home Security International, Inc. 1,698,500
--------------
2,819,731
Consumer Non Durables (2.3%)
- ------------------------------------------------------------------------------------------------------------
148,000 American Pad & Paper Co. + 2,146,000
134,700 Dimon, Inc. 3,367,500
200,000 Donnkenny, Inc. + 675,000
140,000 Kellwood Co. 4,803,750
100,000 Kimberly-Clark Corp. 5,206,250
140,000 Lewis Galoob Toys, Inc. + 1,662,500
130,000 Newell Co. 5,305,625
208,000 Nu Skin Asia Pacific, Inc. Class A + 4,160,000
60,000 OroAmerica, Inc. + 330,000
173,955 Standard Commercial Corp. + 3,022,468
130,000 Styling Technology Corp. + 2,015,000
209,000 Swisher International Group, Inc. Class A + 3,239,500
104,100 Toy Biz, Inc. + 936,900
152,000 Ultrafem, Inc. + 589,000
98,000 Wesley Jessen VisionCare, Inc. + 3,013,500
158,000 Westpoint Stevens, Inc. + 6,300,250
--------------
46,773,243
Consumer Related (0.7%)
- ------------------------------------------------------------------------------------------------------------
210,000 Adidas AG 144A (Germany)+ 14,752,500
Consumer Services (2.5%)
- ------------------------------------------------------------------------------------------------------------
350,000 Aeroporti di Roma SPA (Italy) 3,340,575
127,500 Avis Europe PLC 144A ADR (United Kingdom) 3,299,063
88,000 Avis Rent A Car, Inc. 2,953,500
95,000 Bonded Motors, Inc. + 760,000
180,000 CUC International, Inc. + 5,175,000
97,400 Hertz Corp. Class A 3,841,213
55,500 Hillenbrand Industries, Inc. 2,473,219
64,000 Millennium & Copthorne Hotels PLC 144A ADR
(United Kingdom) 1,664,000
100,000 Norwood Promotional Products, Inc. + 1,487,500
194,700 Pittston Brink's Group 7,130,888
100,000 Planet Hollywood International, Inc. Class A + 1,487,500
58,578 Service Corp. International 2,141,758
22,500 Sight Resource Corp. + 104,063
123,050 Star Buffet, Inc. + 1,607,341
150,000 Steiner Leisure Ltd. + 4,312,500
267,000 Young Broadcasting Corp. Class A + 9,712,125
--------------
51,490,245
Electronics and Electrical Equipment (4.2%)
- ------------------------------------------------------------------------------------------------------------
112,350 Asia Electronics Holding Co. + 842,625
14,600 Benchmark Electronics, Inc. + 410,625
240,000 Ericsson (L. M.) Telephone Co. ADR Class B (Sweden)+ 9,705,000
620,000 General Electric Co. 45,725,000
215,000 Honeywell, Inc. 14,082,500
48,400 International Manufacturing Services, Inc.+ 490,050
37,950 Optek Technology, Inc. + 730,538
110,000 QLogic Corp. + 3,643,750
15,000 Semtech Corp. + 727,500
478,000 Vishay Intertechnology, Inc. + 10,127,625
--------------
86,485,213
Energy-Related (3.1%)
- ------------------------------------------------------------------------------------------------------------
61,000 Baker Hughes, Inc. 2,554,375
1,275,000 Calpine Corp. +[SECTION MARK] 18,806,250
95,700 Companie Generale de Geophysique, S.A. ADR (France) + 2,069,513
60,000 Core Laboratories N.V. + 2,175,000
78,900 Dailey Petroleum Services Corp. + 907,350
65,700 Dawson Production Services, Inc. + 1,379,700
195,000 Falcon Drilling Co., Inc. + 6,288,750
541,000 Manalta Coal Income Trust (Canada) + 1,633,867
250,400 Mapco, Inc. 10,798,500
649,400 Newpark Resources, Inc. + 12,947,413
140,000 Precision Drilling Corp. (Canada) + 3,605,000
93,500 U. S. Energy Systems, Inc. + 292,188
40,600 Veritas DGC, Inc. + 1,624,000
--------------
65,081,906
Environmental Control (2.7%)
- ------------------------------------------------------------------------------------------------------------
142,200 Allied Waste Industries, Inc. + 3,110,625
120,000 Browning-Ferris Industries, Inc. 4,282,500
212,000 Commodore Applied Technologies, Inc. + 357,750
274,200 Commodore Separation Technologies, Inc. + 891,150
1,336,800 Philip Services Corp. (Canada) + 21,138,150
500,000 USA Waste Services, Inc. + 16,531,250
28,950 Waste Industries, Inc. + 575,381
270,000 Waste Management, Inc. + 6,648,750
211,900 Wheelabrator Technologies, Inc. + 3,218,231
--------------
56,753,787
Food and Beverages (3.0%)
- ------------------------------------------------------------------------------------------------------------
143,600 Authentic Specialty Foods, Inc. + 1,418,050
41,500 Beringer Wine Estates Holdings, Inc. + 1,348,750
203,700 Chiquita Brands International, Inc. 3,450,169
160,000 Dole Food Co. 7,900,000
1,500,000 Foster's Brewing Group Ltd. (Australia) 2,766,639
270,000 IBP, Inc. 6,159,375
560,000 PepsiCo, Inc. 20,650,000
340,000 Sara Lee Corp. 17,977,500
71,500 Scheid Vineyards, Inc. Class A + 715,000
--------------
62,385,483
Health Care (1.9%)
- ------------------------------------------------------------------------------------------------------------
761,000 Complete Management, Inc. +[SECTION MARK] 12,651,625
617,000 Epitope, Inc. + 3,740,563
170,000 Foundation Health Systems, Inc. Class A + 4,770,625
610,000 MedPartners, Inc. + 15,097,500
173,100 Omega Orthodontics, Inc. + 649,126
38,800 Priority Healthcare Corp.Class B 606,250
38,700 Wellpoint Health Networks, Inc. + 1,780,200
--------------
39,295,889
Information Systems (0.3%)
- ------------------------------------------------------------------------------------------------------------
75,100 Galileo International, Inc. + 2,013,619
200,000 Metrika Systems Corp. + 2,950,000
189,800 OptiSystems Solutions Ltd. + 1,221,838
16,600 Securacom, Inc. + 172,225
--------------
6,357,682
Insurance and Finance (11.2%)
- ------------------------------------------------------------------------------------------------------------
98,700 Affiliated Managers Group, Inc. + 2,467,500
65,000 American Capital Strategies, Ltd. + 1,202,500
128,000 American Express Co. 10,096,000
160,500 ARM Financial Group, Inc. 3,260,156
241,600 Banco BHIF ADR (Chile) + 4,167,600
450,000 Banco de A. Edwards ADR (Chile) + 7,875,000
210,200 Banco De Galicia y Buenos Aires ADR S.A. de C.V. ADR
Class B (Argentina) 4,939,700
331,200 Banco Rio de La Plata S.A. ADR (Argentina) + 4,160,700
130,000 BankAmerica Corp. 9,490,000
27,000 BankBoston Corp. 2,406,375
260,000 Chase Manhattan Corp. 28,242,500
50,000 Citicorp 5,996,875
264,730 Conseco, Inc. 12,326,491
243,100 Consolidated Capital Corp. + 4,998,744
194,038 Credit Depot Corp. + 315,312
35,100 Emergent Group, Inc. + 465,075
80,000 Federal National Mortgage Association 4,225,000
210,000 First Chicago NBD Corp. 16,432,500
92,300 First Union Corp. 4,499,625
162,000 Fremont General Corp. 7,452,000
215,400 Granite Financial, Inc. + 3,527,175
173,600 Hartford Life, Inc. Class A 6,661,900
133,600 Homeside, Inc. + 3,665,650
500,000 Long Beach Financial Corp. + 5,375,000
90,000 Merrill Lynch & Co., Inc. 6,316,875
17,550 Morgan Stanley, Dean Witter, Discover and Co. 953,184
80,000 National Australia Bank, Ltd. ADR (Australia) 5,335,000
54,400 National Auto Finance Co., Inc. + 204,000
80,000 NationsBank Corp. 4,805,000
80,000 Nationwide Financial Services, Inc. Class A + 2,735,000
149,650 Preferred Employers Holdings, Inc. + 1,178,494
100,000 Reliance Group Holdings, Inc. 1,275,000
35,700 Rockford Industries, Inc. + 305,681
75,000 SLM Holding Corp. 9,684,375
142,000 Symons International Group, Inc. + 2,644,750
422,500 The CIT Group, Inc. + 12,833,438
156,000 The PMI Group, Inc. 10,140,000
164,811 Titan Holdings, Inc. 3,481,632
256,800 Ugly Duckling Corp. + 2,311,200
47,850 Uniao de Bancos Brasileiros S.A. (Unibanco) GDR
(Brazil) + 1,375,688
50,000 Union Acceptance Corp. Class A + 284,375
210,400 UnionAmerica Holdings PLC ADR (United Kingdom) 4,208,000
130,000 United Asset Management Corp. 3,388,125
2,000 United Bank of Switzerland (Switzerland) 2,545,047
50,000 Wilshire Financial Services Group, Inc. + 1,350,000
--------------
231,604,242
Metals and Mining (2.4%)
- ------------------------------------------------------------------------------------------------------------
113,000 Freeport-McMoRan Copper & Gold Co., Inc. Class B 2,365,938
285,700 Metals USA, Inc. + 4,071,225
40,000 Minerals Technologies, Inc. 1,750,000
100,000 Northwest Pipe Co. + 2,275,000
213,500 Novamerican Steel, Inc. + 2,668,750
336,300 NS Group, Inc. + 6,305,625
523,500 RMI Titanium Co. + 12,433,125
166,400 Schuff Steel Co. + 1,840,800
350,300 Titanium Metals Corp. + 10,815,513
280,000 Zeigler Coal Holding Co. 4,445,000
--------------
48,970,976
Oil and Gas (4.7%)
- ------------------------------------------------------------------------------------------------------------
1,800,000 Abacan Resource Corp. (Canada) + 4,162,500
1,300,000 Arakis Energy Corp. + 3,818,750
350,000 Canadian Fracmaster, Ltd. (Canada) + 2,704,031
30,000 Canadian Fracmaster, Ltd. 144A (Canada) + 233,881
100,000 Domain Energy Corp. + 1,662,500
37,800 Eagle Geophysical, Inc. + 614,250
100,000 Edge Petroleum Corp. + 1,362,500
266,972 Enron Corp. 10,345,157
43,900 Ente Nazionale Idrocarburi S.P.A. (ENI) ADR (Italy) 2,548,944
144,200 Fortune Natural Resources Corp. + 396,550
6,900 Hanover Compressor Co. + 144,900
72,600 Petroglyph Energy, Inc. + 798,600
150,000 Petroleo Brasileiro S/A-Petrobras ADR (Brazil) + 3,281,250
80,000 Pride International, Inc. + 2,210,000
154,000 Reading & Bates Corp. + 5,909,750
565,000 Santa Fe International Corp. 23,694,688
320,000 Seitel, Inc. + 12,320,000
200,000 Sonat, Inc. 8,712,500
100,000 Southern Mineral Corp. + 625,000
300,000 Ultramar Diamond Shamrock Corp. 9,131,250
98,900 UTI Energy Corp. + 2,769,200
95,800 Virginia Gas Co. 802,325
--------------
98,248,526
Paper and Forest Products (0.5%)
- ------------------------------------------------------------------------------------------------------------
280,000 Fort James Corp. 10,955,000
Pharmaceuticals (8.1%)
- ------------------------------------------------------------------------------------------------------------
559,333 Astra AB ADR Class A (Sweden) 9,508,661
102,500 Euromed, Inc. + 28,828
591,200 ICN Pharmaceuticals, Inc. 29,227,450
164,000 Lilly (Eli) & Co. 10,342,250
161,200 Maxim Pharmaceuticals, Inc. + 2,518,750
198,000 Merck & Co., Inc. 18,723,375
250,000 North American Vaccine, Inc. + 6,250,000
200,000 Pfizer, Inc. 14,550,000
200,000 Pharmacia & Upjohn, Inc. 6,750,000
260,000 Schering-Plough Corp. 16,298,750
165,000 Teva Pharmaceutical Industries Ltd. ADR (Israel) 8,167,500
330,000 Warner-Lambert Co. 46,158,750
--------------
168,524,314
Publishing (0.3%)
- ------------------------------------------------------------------------------------------------------------
245,000 Journal Register Co. + 4,149,688
110,000 World Color Press, Inc. 2,942,500
--------------
7,092,188
Real Estate (12.0%)
- ------------------------------------------------------------------------------------------------------------
306,000 Alexander Haagen Properties, Inc. (R) 5,316,750
64,400 Alexandria Real Estate Equities, Inc. (R)+ 2,004,450
491,000 American Residential Investment Trust, Inc. (R) 7,334,313
87,100 Annaly Mortgage Management, Inc. (R) 936,325
426,000 Apartment Investment & Management Co. Class A (R) 15,069,750
250,000 Avista Real Estate Investment Trust (Canada) (R) 1,123,753
75,000 Bentall Corp. (Canada) 1,066,688
486,850 Boston Properties, Inc. 15,883,481
150,000 Brookfield Properties Corp. (Canada) 2,502,107
213,900 Burnham Pacific Properties, Inc. (R) 3,061,444
43,600 Cadillac Fairview Corp. (Canada) 1,032,775
184,000 Capstone Capital Trust, Inc. (R) 4,347,000
485,700 Captec Net Lease Realty, Inc. (R) + 8,256,900
500,000 CCA Prison Realty Trust (R) 17,812,500
135,700 Commercial Net Lease Realty, Inc. (R) 2,188,163
385,000 Cornerstone Properties, Inc. (R) 7,435,313
320,000 CRIIMI MAE, Inc. (R) 4,740,000
220,000 Engel General Developers Ltd. 1,842,500
144,600 Equity Inns, Inc. (R) 2,196,113
18,750 Equity Residential Properties Trust (R) 937,500
60,000 Equity Office Properties Trust (R) 1,946,250
95,300 Excel Realty Trust, Inc. (R) 2,906,650
100,000 First Industrial Realty Trust, Inc. (R) 3,531,250
65,000 First Washington Realty Trust, Inc. (R) 1,637,188
270,000 Glenborough Realty Trust, Inc. 7,290,000
278,600 Hanover Capital Mortgage Holdings, Inc. (R) + 4,736,200
230,000 Healthcare Realty Trust, Inc. (R) 6,727,500
320,000 Horizon Group, Inc. (R) 3,800,000
193,800 Imperial Credit Commercial Mortgage Investment
Corp. (R) + 3,028,125
280,000 INMC Mortgage Holdings, Inc. (R) 6,352,500
264,000 Innkeepers USA Trust (R) 4,240,500
117,600 Kilroy Realty Corp. (R) + 3,087,000
194,500 LASER Mortgage Management, Inc. (R) + 2,868,875
152,000 Lexington Corporate Properties, Inc. (R) 2,213,500
105,300 Malan Realty Investors, Inc. (R) 1,895,400
111,400 Mid Atlantic Realty Trust (R) 1,531,750
122,200 Mills Corp. (R) 3,383,413
55,000 National Health Investors, Inc. (R) 2,186,250
303,600 Novastar Financial, Inc. (R) 5,388,900
205,000 Nursing Home Properties PLC (United Kingdom) 439,315
40,000 Omega Healthcare Investors, Inc. (R) 1,447,500
216,400 Pan Pacific Retal Properties, Inc. (R) 4,436,200
777,100 Prime Retail, Inc. (R) 11,219,381
62,500 Public Storage, Inc. (R) 1,726,563
72,000 Regency Realty Corp. (R) 1,912,500
240,000 RFS Hotel Investors, Inc. (R) 4,560,000
286,100 Security Capital Group, Inc. + 9,190,963
130,000 Sizeler Property Investments, Inc. (R) 1,291,875
230,300 SL Green Realty Corp. (R) 5,987,800
108,800 Starwood Lodging Trust (R) 5,834,400
600,800 Sunstone Hotel Investors, Inc. (R) 10,551,550
213,900 Thornburg Mortgage Asset Corp. (R) 4,197,788
198,500 Tower Realty Trust, Inc. (R) + 4,838,438
25,000 Town & Country Trust (R) 443,750
123,100 Vornado Realty Trust (R) 5,516,419
113,900 Winston Hotels (R) 1,594,600
--------------
249,028,118
Recreation (0.5%)
- ------------------------------------------------------------------------------------------------------------
157,900 Audio Book Club, Inc.+ 1,085,563
57,700 RockShox, Inc. + 486,844
165,500 Royal Caribbean Cruises Ltd. 7,944,000
--------------
9,516,407
Retail (8.7%)
- ------------------------------------------------------------------------------------------------------------
60,000 99 Cents Only Stores + 2,163,750
24,300 A.C. Moore Arts & Crafts, Inc. + 364,500
180,000 BJ's Wholesale Club, Inc. + 5,242,500
180,000 Claire's Stores, Inc. 4,072,500
207,800 Club Monaco Inc. 144A (Canada) + 2,320,565
216,500 Cole National Corp. Class A + 7,469,250
73,000 Cost Plus, Inc. + 2,418,125
123,600 Cross-Continent Auto Retailers, Inc. + 1,135,575
146,450 Distribucion y Servicio D&S S.A. ADR (Chile)+ 2,553,722
115,625 Dollar General Corp. 4,350,391
265,000 Duckwall-Alco Stores, Inc. +[SECTION MARK] 4,057,813
199,100 Fabri-Centers of America Class A + 4,168,656
281,200 Federated Department Stores, Inc. + 12,812,175
200,000 Friendly Ice Cream Corp. 3,200,000
110,300 Giant Food, Inc. 3,722,625
279,000 InterTAN, Inc. + 1,586,813
510,000 Intimate Brands, Inc. 11,443,125
166,041 Limited, Inc. (The) 3,995,362
350,000 Lowe's Cos., Inc. 16,078,125
208,000 Mac Frugals Bargains Close-Outs, Inc. + 8,918,000
310,500 Officemax, Inc. + 4,366,406
418,800 Pier 1 Imports, Inc. 9,370,650
252,000 Quality Food Centers, Inc. + 15,828,750
470,000 Rite Aid Corp. 30,902,500
125,000 Tiffany & Co. 4,765,625
290,000 Wal-Mart Stores, Inc. 11,581,875
896,000 West Coast Entertainment Corp. + 1,512,000
--------------
180,401,378
Specialty Consumer Products (0.3%)
- ------------------------------------------------------------------------------------------------------------
170,000 Gucci Group N.V. (Italy) 6,916,875
Telecommunications (0.3%)
- ------------------------------------------------------------------------------------------------------------
33,000 @Entertainment, Inc. + 358,875
52,000 Inter-Tel, Inc. + 1,092,000
568,300 Ionica Group PLC (United Kingdom) + 1,150,739
62,300 ITC Deltacom, Inc. 879,988
345,100 PhoneTel Technologies, Inc. + 862,750
53,200 STARTEC Global Communications Corp. + 851,200
--------------
5,195,552
Textiles (0.2%)
- ------------------------------------------------------------------------------------------------------------
200,000 Quaker Fabric Corp. + 3,925,000
38,950 Novel Denim Holdings Ltd. (Hong Kong) 886,113
--------------
4,811,113
Transportation (4.5%)
- ------------------------------------------------------------------------------------------------------------
119,700 Airborne Freight Corp. 7,623,394
236,000 AirNet Systems, Inc. + 4,779,000
425,000 GATX Corp. 25,818,750
68,200 International Total Services, Inc. + 1,057,100
267,562 KLM Royal Dutch Air Lines NV (Netherlands) 9,632,232
255,000 MIF Ltd. (Norway) + 4,431,145
160,000 Northwest Airlines Corp. Class A + 6,640,000
290,000 Pittston Burlington Group 7,993,125
116,000 Sea Containers, Ltd. Class A 3,632,250
91,400 Simon Transportation Services, Inc. + 2,102,200
311,600 Stolt-Nielsen S.A. ADR + 7,322,600
53,400 Swift Transportation Co., Inc. + 1,481,850
230,900 The Cronos Group + 1,500,850
97,000 Transport Corp. of America + 1,564,125
220,400 Tranz Rail Holdings Ltd. ADR (New Zealand) + 2,865,200
1,539,337 Ugland International Holdings PLC (United Kingdom) + 2,103,957
100,000 USFreightways Corp. 3,075,000
--------------
93,622,778
Utilities (1.9%)
- ------------------------------------------------------------------------------------------------------------
106,400 Baltimore Gas & Electric Co. 3,265,150
22,000 GTE Corp. + 1,112,375
66,000 Pacific Enterprises 2,334,750
216,000 SBC Communications, Inc. 15,727,500
237,100 Sprint Corp. 13,885,169
50,000 US West Communications, Inc. 2,259,376
--------------
38,584,320
--------------
Total Common Stocks (cost $1,594,109,564) $1,923,611,207
CONVERTIBLE BONDS AND NOTES (1.1%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$875,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 $ 1,009,531
500,000 Emerson Radio Corp. 144A cv. sr. sub. deb 8 1/2s, 2002 310,000
3,850,000 HMT Technology Corp. 144A cv. sub. notes 5 3/4s, 2004 3,407,250
500,000 Omega Healthcare Investors, Inc. cv. sub. deb. 8 1/2s, 2001 640,625
465,000 Pioneer Financial Services, Inc. cv. sub. notes 6 1/2s, 2003 811,425
850,000 Southern Mineral Corp. cv. deb. 6 7/8s, 2007 839,375
3,300,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002 3,386,625
10,000,000 World Airways, Inc. 144A cv. sub. deb. 8s, 2004 9,900,000
1,200,000 Youth Services International, Inc. cv. sub. deb. 7s, 2006 1,489,500
--------------
Total Convertible Bonds and Notes (cost $21,505,000) $ 21,794,331
- ------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (1.0%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
56,300 Commodore Separation Technologies, Inc. $ 1.00 cv. pfd. $ 337,800
16,400 Continental Airlines 144A $ 4.25 cv. pfd. 1,613,350
29,800 CRIIMI MAE Inc. Ser. B, $ 2.719 cv. pfd. 1,005,750
259,000 National Australia Bank Ltd. $ 1.969 cv. pfd. 7,284,375
12,900 Sea Containers Ltd. $12.5 cv. pfd. 703,050
320,000 WBK STRYPES Trust $3.15 cv. pfd. 10,440,000
--------------
Total Convertible Preferred Stocks (cost $19,679,930) $ 21,384,325
- ------------------------------------------------------------------------------------------------------------
WARRANTS (0.1%) +* Expiration
NUMBER OF WARRANTS Date VALUE
- ------------------------------------------------------------------------------------------------------------
166,000 Commodore Applied Technology 6/28/01 $ 103,750
190,000 Commodore Separation Technology, Inc. 4/3/02 237,500
75,000 Credit Depot Corp. 10/10/99 8
151,700 Integrated Technology USA 10/2/00 14,222
13,000 Maxim Pharmaceuticals, Inc. 7/10/01 86,125
173,100 Omega Orthodontics, Inc. 9/30/02 140,644
189,800 Optisytems Solutions, Inc. 6/12/02 308,425
88,500 U. S. Energy Systems, Inc. 12/21/01 60,844
58,100 Westower Corp. 11/15/02 232,400
--------------
Total Warrants (cost $126,260) $ 1,183,918
SHORT-TERM INVESTMENTS (5.1%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$25,000,000 Falcon Asset Security Corp. effective yield 5.56%,
December 5, 1997. $ 24,855,875
25,000,000 Federal Home Loan Mortgage Corp. effective yield 5.46%,
December 17, 1997 24,935,542
25,000,000 Federal Home Loan Mortgage Corp. effective yield 5.41%,
December 10, 1997 25,087,250
30,000,000 Interest in $607,352,000 joint repurchase agreement
dated November 28, 1997 with UBS Securities
due December 1, 1997 with respect to various
U.S. Treasury obligations -- maturity value of
$30,014,250 for an effective yield of 5.70% 30,014,250
--------------
Total Short-Term Investments (cost $104,892,917) $ 104,892,917
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,740,313,671) *** $2,072,866,698
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,071,172,126.
*** The aggregate identified cost on a tax basis is $1,740,359,754, resulting in gross
unrealized appreciation and depreciation of $401,872,623 and $69,365,679, respectively,
or net unrealized appreciation of $332,506,944.
+ 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 of1933. 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 Shares, respectively, representing ownership of foreign securities
on deposit with a domestic custodian bank.
[SECTIONMARK] Affiliated companies (Note 5).
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,740,313,671) (Note 1) $2,072,866,698
- ---------------------------------------------------------------------------------------------------
Cash 4,402,412
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 2,098,695
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 16,773,515
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 13,308,632
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 2,318
- ---------------------------------------------------------------------------------------------------
Total assets 2,109,452,270
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 32,718,822
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,013,047
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,528,056
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 341,931
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 12,263
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,514
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,294,230
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 368,281
- ---------------------------------------------------------------------------------------------------
Total liabilities 38,280,144
- ---------------------------------------------------------------------------------------------------
Net assets $2,071,172,126
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,684,161,495
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 3,957,293
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment (Note 1) 50,500,311
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 332,553,027
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,071,172,126
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($959,271,829 divided by 43,911,786 shares) $21.85
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $21.85)* $23.18
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,030,805,475 divided by 47,793,006 shares)** $21.57
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($81,094,822 divided by 3,749,755 shares) $21.63
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $21.63)* $22.41
- ---------------------------------------------------------------------------------------------------
* 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
Six months ended November 30,1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $2,263) $ 11,014,426
- --------------------------------------------------------------------------------------------------
Interest 3,127,854
- --------------------------------------------------------------------------------------------------
Total investment income 14,142,280
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,460,651
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,477,358
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,175
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,838
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 945,399
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,951,596
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 214,021
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,709
- --------------------------------------------------------------------------------------------------
Reports to shareholders 91,457
- --------------------------------------------------------------------------------------------------
Registration fees 235,576
- --------------------------------------------------------------------------------------------------
Auditing 19,567
- --------------------------------------------------------------------------------------------------
Legal 7,361
- --------------------------------------------------------------------------------------------------
Postage 118,722
- --------------------------------------------------------------------------------------------------
Other 47,904
- --------------------------------------------------------------------------------------------------
Total expenses 11,597,334
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (363,906)
- --------------------------------------------------------------------------------------------------
Net expenses 11,233,428
- --------------------------------------------------------------------------------------------------
Net investment income 2,908,852
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) (including realized
loss of $929,237 on sales of investments in affiliated issuers) 27,134,846
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 167,075,605
- --------------------------------------------------------------------------------------------------
Net gain on investments 194,210,451
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $197,119,303
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
1997* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 2,908,852 $ 2,374,808
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 27,134,846 33,732,900
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 167,075,605 99,347,566
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 197,119,303 135,455,274
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A -- (1,521,434)
- ----------------------------------------------------------------------------------------------------------------------
Class B -- (239,310)
- ----------------------------------------------------------------------------------------------------------------------
Class M -- (61,582)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
- ----------------------------------------------------------------------------------------------------------------------
Class A -- (16,388,552)
- ----------------------------------------------------------------------------------------------------------------------
Class B -- (15,162,496)
- ----------------------------------------------------------------------------------------------------------------------
Class M -- (720,914)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 770,471,575 672,969,276
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 967,590,878 774,330,262
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 1,103,581,248 329,250,986
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $3,957,293 and
$1,048,441, respectively) $2,071,172,126 $1,103,581,248
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
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
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 Aug. 5, 1994+
operating performance (Unaudited) Year ended May 31 to May 31
- --------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.76 $16.33 $12.24 $10.74 $8.53
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .08(d) .13(d) .14 .06(e) .07(d)(e)
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.01 3.48 4.37 1.59 2.27
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.09 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 $21.85 $18.76 $16.33 $12.24 $10.74
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.47* 22.91 37.57 15.61 27.58*
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $959,272 $525,804 $173,321 $103,555 $3,062
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .53* 1.20 1.29 1.13(e) .78*(e)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .33* .79 1.05 1.89(e) .73*(e)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 16.69* 38.35 76.68 15.32 102.99*
- --------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0461 $.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 and brokerage service 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
- -------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 Nov. 2, 1995+
operating performance (Unaudited) Year ended May 31 to May 31
- -------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $18.59 $16.24 $12.19 $11.08
- -------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------
Net investment income --(d) --(d) .04 .06(e)
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.98 3.45 4.35 1.20
- -------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.98 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 $21.57 $18.59 $16.24 $12.19
- -------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.03* 21.95 36.62 11.55*
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,030,799 $543,015 $153,905 $89,962
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .91* 1.95 2.05 1.12*(e)
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.04)* .03 .30 .65*(e)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 16.69* 38.35 76.68 15.32
- -------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0461 $.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 and brokerage service 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
- -----------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 Year ended Jan. 22, 1996+
operating performance (Unaudited) May 31 to May 31
- -----------------------------------------------------------------------------------------------------------
1997 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $18.62 $16.29 $13.84
- -----------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------
Net investment income .03(d) .04(d) .02(d)
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.98 3.46 2.43
- -----------------------------------------------------------------------------------------------------------
Total from
investment operations 3.01 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 $21.63 $18.62 $16.29
- -----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.17* 22.28 17.70*
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $81,095 $34,763 $2,025
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .78* 1.70 .66*
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .08* .23 .16*
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 16.69* 38.35 76.68
- -----------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0461 $.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 and brokerage service 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
November 30, 1997 (Unaudited)
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 gains and losses are included with the
net realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net 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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations.
G) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code 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.
H) 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. 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.
I) 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 projected net
asset levels 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 of
average net assets, 0.55% of the next $500 million, 0.50% of the next $500
million, 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.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended November 30, 1997, fund expenses were reduced by
$363,906 under expense offset arrangements with PFTC and brokerage
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 funds receive an annual Trustees fee of which $1,506 has been
allocated to the fund 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 "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral 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 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 currently limit payment by the fund to 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, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $1,175,858 and $82,257 from the
sale of class A and class M shares, respectively and $394,529 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $7,775 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1997, purchases and sales of
investment securities other than short-term investments aggregated
$962,696,515 and $250,467,030, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
November 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 23,083,056 $491,196,436
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
23,083,056 491,196,436
Shares
repurchased (7,202,088) (153,050,878)
- ------------------------------------------------------------
Net increase 15,880,968 $338,145,558
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
November 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 25,130,227 $529,538,160
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
25,130,227 529,538,160
Shares
repurchased (6,550,534) (137,186,525)
- ------------------------------------------------------------
Net increase 18,579,693 $392,351,635
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
November 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 2,072,202 $43,918,242
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
2,072,202 43,918,242
Shares
repurchased (189,549) (3,943,860)
- ------------------------------------------------------------
Net increase 1,882,653 $39,974,382
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Note 5
Transactions with Affiliated Issuers
<TABLE>
<CAPTION>
Transactions during the six months with companies in which the fund owns at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates cost cost Income Value
- ----------------------------------------------------------------------------------
Name of affiliate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Calpine Corp. $13,849,818 $ 0 $0 $18,806,250
Community Care of America, Inc. 3,068,898 3,068,898 0 0
Complete Management, Inc. 1,677,755 0 0 12,651,625
Duckall-Alco Stores, Inc. 437,500 63,955 0 4,057,813
4Front Software International Inc. 1,453,700 51,175 0 2,941,988
Unidigital Inc. 159,375 -- 0 1,647,750
West Coast Entertainment Corp. 963,524 -- 0 1,512,000
- ----------------------------------------------------------------------------------
Totals $21,610,570 $3,184,028 $0 $41,617,426
- ----------------------------------------------------------------------------------
</TABLE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities 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
Global Growth and Income Fund
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 Total Return Fund
High Yield Trust +
Income Fund
Money Market 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 Exempt Money Market 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
State tax-free money market funds [SECTION MARK]
California, New York
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
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact Putnam
for details.
[DBL. DAGGERS] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** 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.
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.
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
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
John J. Morgan, Jr.
Vice President
Carol C. McMullen
Vice President
Gerald S. Zukowski
Vice President and Fund Manager
William H. Miller
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 Captial
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 the 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
- --------------------
SA002 36869 433/948/2BN 1/98
