Putnam
Capital
Opportunities
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Now that those seemingly endless 30% gains for the S&P 500 have
stopped, investors are noticing what they've determinedly ignored for so
long: small-cap valuations are at 20-year lows, and there are some great
bargains out there . . . . The fact that the Fed is cutting interest rates
bodes well for small stocks: of the 10 times since the 1950s that the Fed
has eased them, small caps have outperformed in all but two."
-- Fortune, November 9, 1998
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
17 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
When Putnam Capital Opportunities Fund began operations on June 1, 1998,
the date could not have seemed more auspicious. The stock market was
breaking into higher ground nearly every day despite the world's spreading
economic difficulties, and it would continue to climb for nearly two more
months before taking a tumble from which it is only now beginning to
recover.
Although most of the market's gains were being posted by the stocks of
large, established companies, investors continued to look for signs that
stocks of small and midsize companies were about to follow. The fact that
they have yet to do so has been the source of considerable chagrin for
many investors, not the least of whom are shareholders of this fund.
Nevertheless, this environment provides an excellent opportunity for the
fund's management team to take advantage of attractively priced
investments with the potential to provide handsome returns when the
markets eventually turn around and the stocks in which the fund invests
return to investors' favor.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 16, 1998
Report from the Fund Managers
Gerald S. Zukowski
William H. Miller
Edward R. Finch III
Putnam Capital Opportunities Fund got its start during a sobering time for
small-company stocks. Since your fund began operations on June 1, 1998,
the types of companies in which it invests have been dramatically out of
favor with investors. In fact, between April 21 and October 8, 1998, the
Russell 2000 Index, the fund's benchmark and a common measure of
small-company stocks, fell 37%. And while this environment has taken its
toll on your fund's brief performance record, we are optimistic about the
longer-term opportunities that may result from this turbulence. For the
period from June 1, 1998, through October 31, 1998, your fund's class A
share total return at net asset value was -16.12%. This compares favorably
with the fund's benchmark, the Russell 2000 Index, which returned -16.71%
for the same period. At public offering price, the fund's class A shares
returned -20.95%. For complete performance information, please refer to
the summary that begins on page 9.
Perhaps more remarkable than the underperformance of small-company stocks
has been the sharp divergence between their performance and that of
large-company stocks. From the beginning of 1998 to the close of the
fiscal period, the S&P 500(R) Index, a measure of large-company stocks,
had returned 14.63%, while the Russell 2000 Index had returned -12.79%.
This difference of 27.42% indicates a virtually unprecedented investor
preference for stocks of large, well-established blue-chip companies.
Throughout the fiscal period, we have made the most of these challenging
conditions by investing in stocks of fundamentally strong companies at
enticingly low prices. This approach is suitable to the fund's objective:
to pursue attractive investments and to seek hidden opportunities in
stocks that may be underpriced by the market. While we have added bargain
stocks to the fund's portfolio, we have also selected many stocks that
have remained strong in spite of the market turbulence.
* PRISON REIT DELIVERS STRONG RETURNS
One of the portfolio's strong performers during the period was CCA Prison
Realty Trust (PRT), a real estate investment trust (REIT). REITs are
publicly traded companies that own or develop properties such as
apartments, hotels, and commercial office buildings. PRT acquires
correctional and detention facilities from both private prison managers
and government entities. It is one of only two REITs in the country
focused on this type of property, and it has taken advantage of the
growing trend toward privatization in the corrections industry. Once it
acquires the facilities, PRT provides a range of services such as leasing
and managing the properties, designing, constructing, and renovating
facilities, and transporting inmates. The company currently owns 20
facilities that house inmates from three agencies of the U.S. Justice
Department. In early 1999, PRT is expected to merge with Corrections
Corporation of America, which manages 78 correctional facilities for
governmental agencies. The merged company will operate as a REIT. While
this holding, along with others discussed in this report, was viewed
favorably at the end of the fiscal period, all 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*
Utilities 15.1%
Insurance and
finance 15.0%
Computer services
and software 7.1%
Business equipment
and services 7.1%
Real estate
investment trusts 6.2%
Footnote reads:
*Based on net assets as of 10/31/98. Holdings will vary over time.
* PORTFOLIO BOOSTED BY SPECIALTY COMPANIES
U.S. Foodservice, a distributor of food and related products, was another
stellar performer in your fund's portfolio. The company markets and
distributes more than 40,000 national, private label, and signature brand
items to over 130,000 food service customers, including restaurants,
hotels, health-care facilities, cafeterias, and schools. In October, U.S.
Foodservice announced its 17th consecutive quarter of record sales. The
company's recent acquisitions, including food service company
Rykoff-Sexton and several smaller businesses, have contributed to its
success. A growing national presence, diverse customer base, and strong
sales and distribution capabilities give U.S. Foodservice strong growth
potential.
Another portfolio standout was Total Renal Care Holdings, the largest
independent worldwide provider of dialysis services for patients suffering
from chronic kidney failure. The company owns or manages nearly 500 kidney
dialysis centers and recently announced the acquisition of 25 more
centers. The company continues to strengthen its position in several U.S.
markets and is looking to expand its overseas presence, which currently
includes facilities in Argentina and Italy. Total Renal Care has also
announced a strategic long-term affiliation with Satellite Dialysis
Centers, a nonprofit provider of dialysis services. The companies will
share resources and programs to enhance the patient care, operational
performance, and geographic coverage of both organizations.
Also notable is the stock of Alliant Techsystems, Inc., a defense company
that manufactures infantry ammunition and strategic weapons systems.
Alliant's strong financial performance and new long-term contracts
contributed to the solid performance of its stock. The company is seeking
to increase earnings per share at an average annual rate of 15% over a
five-year period.
We have also been quite pleased with the stock of Acclaim Entertainment, a
publisher, developer, and marketer of interactive entertainment software
for systems such as Sony, Nintendo, and Sega. Acclaim has profited
significantly from its development of new games and brands, including 10
in the past fiscal year that achieved sales of more than $10 million
apiece. While Acclaim has contributed significantly to the fund's
performance, at the close of the period we were considering taking profits
on this holding by selling the fund's position.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
BioChem Pharma, Inc.
Biotechnology
U.S. Foodservice
Food services
Brinker International
Restaurants
TNP Enterprises, Inc.
Electric utilities
Concord EFS, Inc.
Consumer financial services
National Computer Systems, Inc.
Computer services
CILCORP, Inc.
Electric utilities
Trigon Healthcare, Inc.
Managed health-care services
Energy East Corp.
Electric utilities
Acclaim Entertainment, Inc.
Computer services and software
Footnote reads:
These holdings represent 18.4% of the fund's net assets as of 10/31/98.
Portfolio holdings will vary over time.
* LOOKING AHEAD WITH CAUTIOUS OPTIMISM
Patience has been -- and may continue to be -- required as we wait for
stocks of small companies to come back into favor. The environment has
been tough for quite some time, even though small companies have
essentially been thriving with strong earnings and attractive valuations.
The missing ingredient has been investor sentiment, as evidenced by the
flight to quality on the part of investors around the world who have
sought the familiarity and liquidity of large companies. While there can
be no guarantees, a look at the history of small-cap stocks provides
reason for optimism. The last two times the Russell 2000 Index was down
30% -- in 1979 and in 1990 -- a terrific rally followed. And in the early
1970s, after underperforming for several years, small-cap stocks enjoyed a
substantial rally from 1974 to 1978.
As we enter the second half of fiscal 1999, we realize that the recovery
for small-cap stocks could be many months away. In the meantime, we will
continue seeking innovative, flexible, and dynamic companies that we
believe represent hidden opportunities and offer long-term growth
potential. We'll also rely on our bottom-up process of stock selection, in
which we carefully analyze individual stocks rather than investing solely
based on overall trends.
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 10/31/98, there is no guarantee the fund will
continue to hold these securities in the future. This fund invests in
small and midsize companies. Such investments increase the risk of greater
price fluctuations.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Capital Opportunities Fund is designed for investors seeking capital
appreciation by investing primarily in stocks of U.S. companies that
Putnam believes offer above-average growth prospects.
TOTAL RETURN FOR PERIOD ENDED 10/31/98
Class A Class B Class M
(inception date) (6/1/98) (6/29/98) (6/29/98)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
Life of fund -16.12% -20.95% -16.35% -20.54% -16.24% -19.18%
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIOD ENDED 10/31/98
Russell Consumer
2000 Index Price Index
- ------------------------------------------------------------------------------
Life of fund -16.71% 0.61%
- ------------------------------------------------------------------------------
PRICE INFORMATION
For the period 6/1/98 to 10/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
6/1/98 $8.50 $9.02 -- -- --
- ------------------------------------------------------------------------------
6/29/98 -- -- $8.40 $8.40 $8.70
- ------------------------------------------------------------------------------
10/31/98 7.13 7.56 7.11 7.12 7.38
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. 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. 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.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
TOTAL RETURN FOR PERIOD ENDED 9/30/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (6/1/98) (6/29/98) (6/29/98)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
Life of fund -17.41% -22.17% -17.53% -21.65% -17.53% -20.43%
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
principal value will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost. See first page of
performance section for performance calculation method.
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 5.75% maximum 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
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Russell 2000 Index is an unmanaged list of common stocks that is
frequently used as a measure of the performance of small-company stocks.
It measures the performance of the 2,000 smallest companies in the Russell
3000 Index and represents approximately 11% of the total market
capitalization of the Russell 3000 Index. The index assumes reinvestment
of all distributions and interest payments and does not take in account
brokerage fees or taxes. Securities in the fund do not match those in the
index and performance of the fund will differ. It is not possible to
invest directly in an index.
<TABLE>
<CAPTION>
Portfolio of investments owned
October 31, 1998 (Unaudited)
COMMON STOCKS (95.5%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Biotechnology (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
87,800 BioChem Pharma, Inc. (NON) $ 1,904,163
12,400 Centocor, Inc. (NON) 551,800
14,200 Genzyme Corp. (NON) 597,288
--------------
3,053,251
Building and Construction (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,300 Building One Services Corp. (NON) 53,213
14,300 Group Maintenance America Corp. 185,006
10,000 Integrated Electrical Services, Inc. (NON) 169,375
4,300 Kaufman and Broad Home Corp. 122,819
10,200 Lennar Corp. 206,550
--------------
736,963
Business Equipment and Services (7.1%)
- --------------------------------------------------------------------------------------------------------------------------
30,200 Hagler Bailly, Inc. (NON) 709,700
108,600 ITEQ, Inc. (NON) 291,863
16,600 Metzler Group, Inc. (NON) 697,200
35,700 NOVA Corp./Georgia (NON) 1,030,838
10,100 Personnel Group of America, Inc. (NON) 156,550
54,100 PLATINUM Technology, Inc. (NON) 889,269
71,400 School Specialty, Inc. (NON) 1,124,550
59,200 Sensormatic Electronics Corp. 333,000
42,700 Shorewood Packaging Corp. (NON) 683,200
--------------
5,916,170
Chemicals (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
37,600 RPM, Inc. 632,150
Computer Services and Software (7.1%)
- --------------------------------------------------------------------------------------------------------------------------
50,900 4Front Software International, Inc. (NON) 413,563
162,800 Acclaim Entertainment, Inc. (NON) 1,302,400
19,400 Electronics for Imaging, Inc. (NON) 466,813
41,700 JDA Software Group, Inc. (NON) 396,150
30,900 Midway Games Inc. (NON) 303,206
53,200 National Computer Systems Inc. 1,489,600
16,000 Policy Management Systems Corp. (NON) 727,000
15,700 QRS Corp. (NON) 596,600
11,800 Rational Software Corp. (NON) 264,025
--------------
5,959,357
Conglomerates (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
25,500 Ogden Corp. 685,313
Consumer Non Durables (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
15,500 Kellwood Co. 422,375
25,500 True North Communications Inc. 602,438
7,500 Unifirst Corp. 208,594
--------------
1,233,407
Consumer Services (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
28,200 Applebee's International, Inc. 574,575
40,000 Applied Graphics Technologies, Inc. (NON) 477,500
66,200 Brinker International, Inc. (NON) 1,601,213
--------------
2,653,288
Correctional Facilities (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
26,700 Corrections Corp. (NON) 513,975
Electronics and Electrical Equipment (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
11,300 AFC Cable Systems, Inc. (NON) 278,263
13,400 Alliant Techsystems, Inc. (NON) 938,000
14,700 General Cable Corp. 290,325
12,000 Semtech Corp. (NON) 285,750
36,200 VLSI Technology, Inc. 348,425
--------------
2,140,763
Energy-Related (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
17,900 Calpine Corp. (NON) 398,275
27,100 Energy East Corp. 1,324,513
67,300 USEC, Inc. 984,263
--------------
2,707,051
Environmental Control (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
48,500 Allied Waste Industries, Inc. (NON) 1,048,813
44,800 Eastern Environmental Services, Inc. (NON) 1,243,200
--------------
2,292,013
Food and Beverages (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
38,900 U.S. Foodservice (NON) 1,847,750
19,300 Whitman Corp. 413,744
--------------
2,261,494
Health Care (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
28,200 Access Health, Inc. (NON) 1,011,675
19,600 Foundation Health Systems, Inc. Class A (NON) 230,300
23,000 ICN Pharmaceuticals, Inc. 537,625
18,900 IMPATH, Inc. (NON) 578,813
106,400 PharMerica, Inc. (NON) 359,100
54,100 Sun Healthcare Group Inc. (NON) 317,838
--------------
3,035,351
Hospital Management and Medical Services (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
24,700 Total Renal Care Holdings, Inc. (NON) 605,150
37,100 Trigon Healthcare, Inc. (NON) 1,391,250
--------------
1,996,400
Insurance and Finance (15.0%)
- --------------------------------------------------------------------------------------------------------------------------
61,500 ARM Financial Group, Inc. 1,180,032
13,100 Astoria Financial Corp. 563,300
14,400 Bank United Corp. Class A 573,750
50,900 Bay View Capital Corp. 878,025
52,700 Concord EFS, Inc. (NON) 1,501,950
23,100 Dime Bancorp, Inc. 550,069
17,300 Dime Community Bancshares 414,119
10,400 Everest Reinsurance Holdings, Inc. 358,176
10,400 First Hawaiian, Inc. (NON) 414,700
15,500 FirstMerit Corp. 410,750
16,600 Fremont General Corp. 819,625
10,600 Heller Financial, Inc. (NON) 254,400
16,587 HUBCO, Inc. 447,849
17,200 Keystone Financial, Inc. 503,100
27,200 Long Beach Financial Corp. (NON) 195,500
22,800 Peoples Heritage Financial Group, Inc. 410,400
49,400 TCF Financial Corp. 1,163,988
53,700 Tele-Communications TCI Ventures Group Class A (NON) 1,000,163
20,500 TeleBanc Financial Corp. (NON) 374,125
73,800 UniCapital Corp. (NON) 511,988
--------------
12,526,009
Medical Supplies and Devices (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 AmeriSource Health Corp. Class A (NON) 1,048,750
21,400 Arterial Vascular Engineering, Inc. (NON) 658,050
14,950 Bergen Brunswig Corp. Class A 729,747
80,700 Concentra Managed Care, Inc. (NON) 827,175
24,000 Henry Schein, Inc. (NON) 928,500
23,500 STERIS Corp. (NON) 540,500
--------------
4,732,722
Metals and Mining (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
44,300 Battle Mountain Gold Co. (NON) 240,881
12,900 Getchell Gold Corp. (NON) 225,750
--------------
466,631
Oil and Gas (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
12,400 Cabot Oil & Gas Corp. 210,800
25,700 Enron Oil & Gas Co. 428,869
10,700 Petro Geo-Services AS ADR (Norway) (NON) 169,916
1,200 Valero Energy Corp. 30,000
--------------
839,585
Paper and Forest Products (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,000 Bowater, Inc. 244,875
Publishing (--%)
- --------------------------------------------------------------------------------------------------------------------------
500 World Color Press, Inc. 15,188
REIT's (Real Estate Investment Trust) (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
25,400 Annaly Mortgage Management, Inc. 192,088
2,000 Cabot Industrial Trust 40,000
20,200 Capital Automotive REIT 285,325
35,100 CCA Prison Realty Trust 824,850
11,600 Correctional Properties Trust (NON) 225,475
18,600 Glenborough Realty Trust, Inc. 398,784
29,450 Healthcare Realty Trust, Inc. 690,237
28,300 Imperial Credit Commercial Mortgage Investment Corp. 237,013
3,300 Indymac Mortgage Holdings, Inc. 36,094
23,200 Mills Corp. 503,150
20,500 New Plan Excel Realty Trust 466,375
35,400 Novastar Financial, Inc. 274,350
62,500 Prime Retail, Inc. 605,469
24,200 SL Green Realty Corp. 458,288
--------------
5,237,498
Retail (5.9%)
- --------------------------------------------------------------------------------------------------------------------------
15,500 BJ's Wholesale Club, Inc. (NON) 557,032
44,700 Claire's Stores, Inc. 757,106
15,900 Cole National Corp. Class A (NON) 329,925
28,300 CompUSA, Inc. (NON) 392,663
23,700 Dominick's Supermarkets, Inc. (NON) 1,156,856
28,400 Michaels Stores, Inc. 568,000
26,500 Micro Warehouse, Inc. (NON) 578,031
62,100 Officemax, Inc. (NON) 566,663
--------------
4,906,276
Steel (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
12,400 AK Steel Holding Corp. 214,644
Telecommunications (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
40,600 Inter-Tel, Inc. (NON) 733,338
Textiles (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,600 Mohawk Industries, Inc. (NON) 259,613
14,500 Unifi, Inc. 244,688
--------------
504,301
Transportation (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
27,500 Sea Containers, Ltd. Class A 780,313
9,500 USFreightways Corp. 238,094
--------------
1,018,407
Utilities (15.1%)
- --------------------------------------------------------------------------------------------------------------------------
20,900 Central Hudson Gas & Electric 846,450
28,300 CILCORP, Inc. 1,457,450
9,000 Colonial Gas Co. 308,813
40,600 DPL, Inc. 768,863
25,900 DQE, Inc. 1,021,432
51,800 El Paso Electric Co. 453,250
10,400 Illinova Corp. 263,250
45,500 MCN Corp. 878,719
25,600 Montana Power Co. 1,108,800
11,100 National Fuel Gas Co. 524,475
25,600 Nevada Power Co. 646,400
67,300 Niagara Mohawk Power Corp. 984,263
12,800 Northwest Natural Gas Co. 356,800
9,600 OGE Energy Corp. 255,000
32,600 Sierra Pacific Resources 1,187,863
46,600 TNP Enterprises, Inc. 1,572,730
--------------
12,634,558
--------------
Total Common Stocks (cost $80,565,986) $ 79,890,978
SHORT-TERM INVESTMENTS (15.7%)(a) (cost $13,099,907)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$13,096,000 Interest in $274,098,000 joint repurchase agreement dated
October 30, 1998 with Credit Suisse First Boston due
November 2, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $13,101,860 for an
effective yield of 5.37% $ 13,099,907
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $93,665,893) (b) $ 92,990,885
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $83,694,225.
(b) The aggregate identified cost on a tax basis is $93,665,893, resulting in gross unrealized appreciation and
depreciation of $5,932,461 and $6,607,469, respectively, or net unrealized depreciation of $675,008.
(NON) Non-income-producing security.
ADR after the name of a foreign holding stands for American Depository Receipts, representing ownership of
foreign securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $93,665,893) (Note 1) $92,990,885
- -----------------------------------------------------------------------------------------------
Cash 15,640
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 99,170
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,013,825
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 309,455
- -----------------------------------------------------------------------------------------------
Total assets 95,428,975
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 11,554,493
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 38,165
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 57,656
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 22,145
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 51
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 350
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 41,244
- -----------------------------------------------------------------------------------------------
Other accrued expenses 20,646
- -----------------------------------------------------------------------------------------------
Total liabilities 11,734,750
- -----------------------------------------------------------------------------------------------
Net assets $83,694,225
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $91,026,606
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 124,895
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (6,782,268)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (675,008)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $83,694,225
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($34,262,570 divided by 4,805,859 shares) $7.13
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $7.13)* $7.56
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($46,341,721 divided by 6,514,568 shares)** $7.11
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,089,934 divided by 433,707 shares) $7.12
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $7.12)* $7.38
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period June 1, 1998 (commencement of operations) to October 31, 1998
(Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends $ 283,446
- -----------------------------------------------------------------------------------------------
Interest 107,424
- -----------------------------------------------------------------------------------------------
Total investment income 390,870
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 114,108
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 77,410
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 873
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 1,410
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 18,391
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 91,645
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 5,013
- -----------------------------------------------------------------------------------------------
Reports to shareholders 16,741
- -----------------------------------------------------------------------------------------------
Other 7,328
- -----------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (43,721)
- -----------------------------------------------------------------------------------------------
Total expenses 289,198
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (23,223)
- -----------------------------------------------------------------------------------------------
Net expenses 265,975
- -----------------------------------------------------------------------------------------------
Net investment income 124,895
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (6,782,268)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (675,008)
- -----------------------------------------------------------------------------------------------
Net loss on investments (7,457,276)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(7,332,381)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
June 1, 1998
(commencement
of operations)
to October 31,
1998*
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 124,895
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (6,782,268)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (675,008)
- ---------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (7,332,381)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 89,026,606
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 81,694,225
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 2,000,000
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $124,895) $83,694,225
- ---------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
June 1, 1998+
Per-share to October 31
operating performance (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a)(d) .03
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (1.40)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.13
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) (16.12)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $34,263
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .52*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) .45*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 78.32*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
for the fund reflect a reduction of $0.01 per share for class A, class B, and class M for the period ended
October 31, 1998. (See Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
June 29, 1998+
Per-share to October 31
operating performance (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.40
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a)(d) .01
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (1.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.11
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) (15.36)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $46,342
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .69*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) .12*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 78.32*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
for the fund reflect a reduction of $0.01 per share for class A, class B, and class M for the period ended
October 31, 1998. (See Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
June 29, 1998+
Per-share to October 31
operating performance (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.40
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a)(d) .01
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (1.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.28)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.12
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) (15.24)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,090
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .61*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) .08*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 78.32*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
for the fund reflect a reduction of $0.01 per share for class A, class B, and class M for the period ended
October 31, 1998. (See Note 2).
</TABLE>
Notes to financial statements
October 31, 1998 (Unaudited)
Note 1
Significant accounting policies
Putnam Capital Opportunities Fund ("the fund") is one of a series of
Putnam Investment Funds ("the Trust") which is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund invests primarily in equity
securities of U.S. companies that Putnam Investment Management, Inc.,
("Putnam Management"), the fund's manager, a wholly-owned subsidiary of
Putnam Investments, Inc., believes offer above-average growth prospects or
are undervalued in relation to underlying asset values or earnings
potential and have the potential for long-term appreciation.
The fund offers class A, class B and class M shares. The fund commenced
operations of class A shares on June 1, 1998. Class A shares are sold with
a maximum front-end sales charge of 5.75%. Effective June 29, 1998, the
fund began offering class B and class M shares. 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 value, and other
investments are stated at fair market value, following procedures approved
by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date.
E) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, 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.
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid 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.
G) Expenses of the trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
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.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through April 30, 1999, to the extent that
expenses of the fund (exclusive of brokerage commissions, interest, taxes,
and extraordinary expense, credits from Putnam Fiduciary Trust Company
(PFTC), a subsidiary of Putnam Investments, Inc. and payments under the
Trust's distribution plan) would exceed an annual rate of 1.00% of the
fund's average net assets.
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 PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the period ended October 31, 1998, fund expenses were reduced by
$23,223 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.
Each Trustee of the fund receives an annual Trustee fee, of which $100 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 annual rates 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 and class M shares, respectively.
For the period ended October 31, 1998, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $111,007 and $6,428 from the
sale of class A and class M shares, respectively and $9,391 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 period ended October 31, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received no monies on class A redemptions.
Note 3
Purchase and sales of securities
For the period ended October 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $116,266,206 and
$28,917,952, 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 he identified cost
basis.
Note 4
Capital shares
At October 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period
June 1, 1998
(commencement of operations)
to October 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 5,092,320 $39,173,730
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
5,092,320 39,173,730
Shares
repurchased (521,755) (3,659,183)
- -----------------------------------------------------------------------------
Net increase 4,570,565 $35,514,547
- -----------------------------------------------------------------------------
For the period
June 29, 1998
(commencement of operations)
to October 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,082,236 $54,099,530
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
7,082,236 54,099,530
Shares
repurchased (567,668) (4,039,540)
- -----------------------------------------------------------------------------
Net increase 6,514,568 $50,059,990
- -----------------------------------------------------------------------------
For the period
June 1, 1998
(commencement of operations)
to October 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 528,792 $4,120,665
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
528,792 4,120,665
Shares
repurchased (95,085) (668,596)
- -----------------------------------------------------------------------------
Net increase 433,707 $3,452,069
- -----------------------------------------------------------------------------
Note 5
Initial capitalization and offering
of shares
The trust was established as a Massachusetts business trust on October 31,
1994. During the period October 31, 1994 to June 1, 1998, the fund had no
operations other than those related to organizational matters, including
the initial capital contribution of $2,000,000 and the issuance of 235,294
shares of class A to Putnam Mutual Funds Corp. on May 29, 1998.
Putnam Management owned 235,294 of class A shares of the fund (4.9% of
class A shares outstanding) valued at $1,677,646.
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
Justin M. Scott
Vice President
Gerald S. Zukowski
Vice President and Fund Manager
Edward R. Finch III
Vice President and Fund Manager
William H. Miller
Vice President and Fund Manager
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Capital
Opportunities 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
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
AN068-47862 211 12/98
