Putnam
Capital
Appreciation
Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-03
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FROM THE TRUSTEES
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Dear Fellow Shareholder:
Even in a turbulent market environment in which positive numbers have
been difficult to come by, it is disappointing to have to report
negative performance. It is the more difficult in the case of Putnam
Capital Appreciation Fund, where results for the fiscal year ended May
31, 2003, lagged both the primary benchmark and the fund's Lipper
category average.
The details are shown on page 7 and the fund's management team discusses
the reasons in the report that starts on the facing page. In a nutshell,
the fund's holdings of companies in the consumer staples, conglomerates,
and technology sectors hurt performance during the period. However, the
managers are optimistic about the fund's potential going forward, as
they have seen improving returns during the second half of the year.
Some encouragement may be gained by noting that the declining market we
have experienced over the past three years appears to be breaking out of
its negative cycle. Meanwhile, as we look back on one of the most
challenging periods in investment history, we would like you to know how
much we appreciate your patience and continued confidence in Putnam. We
believe those who maintain a long-term focus and a diversified approach
to investing should eventually be rewarded for their fortitude.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 16, 2003
REPORT FROM FUND MANAGEMENT
FUND HIGHLIGHTS
* Putnam Capital Appreciation Fund had a loss for the 12-month period
ended May 31, 2003, with class A shares posting returns of -10.38% at
net asset value and -15.54% at public offering price.
* Due to declines in certain fund holdings, the fund's performance was
below that of its benchmark, the Russell 3000 Index, which returned
-7.73% for the period.
* For the same reason, the fund's performance was below the average
return for the Lipper Multi-Cap Core Funds category, which was -8.87%.
* See the Performance Summary on page 7 for complete fund performance,
comparative performance, and Lipper data.
* PERFORMANCE COMMENTARY
Difficult conditions, including a struggling U.S. economy and a declining
stock market, contributed to your fund's negative return during the annual
period. The fund's performance lagged that of its benchmark and the average
of other funds in its peer group primarily because of declines in consumer
staples, conglomerate, and technology holdings. Technology stocks continued
to be among the hardest hit by the prolonged market downturn, due to
cutbacks by businesses on technology spending. The period was also difficult
for stocks of some larger companies, which continued to be hurt by negative
investor sentiment over corporate accounting issues. While a number of your
fund's communications services holdings performed well, in general the
market declines affected companies of all sizes across a range of
industries. Despite these unfavorable conditions, we remained committed to
our strategy of targeting companies whose stock prices we believed were
attractive in relation to their long-term worth.
Fund Profile
Putnam Capital Appreciation Fund invests in stocks of companies at all
capitalization levels, and across a broad range of industries. While it
has no bias toward either growth or value stocks, it targets companies
believed to be worth more than their current stock prices indicate. It
may be suitable for investors who are seeking growth through a
well-diversified stock portfolio.
* MARKET OVERVIEW
Fears of a double-dip recession, worries about job losses, declining
consumer spending, the war with Iraq, and sluggish prospects for
business profits all took their toll on the stock market in the 12-month
period ended May 31, 2003. At the beginning of the period, many
investors, already discouraged by losses since the market peak in early
2000, either sold stocks or at least avoided getting back into the
market. Many were worried that the economy might slip into another
recession before recovering -- an event known as a double-dip recession.
In November 2002, at the midpoint of your fund's fiscal year, a number
of positive quarterly earnings announcements sparked a market rally,
which at one point reached eight consecutive weeks of gains. However,
volatility eventually returned to the market as the prospect of war with
Iraq loomed. Worried consumers spent less and the earnings outlook for
many businesses declined.
The end of the war, however, marked the start of a significant stock
market upswing. Military operations in Iraq moved toward a resolution in
mid April, putting to rest concerns about the economic impact of a long,
drawn-out conflict. At the same time, a series of first-quarter
corporate earnings announcements exceeded expectations and boosted
investor confidence. At the close of your fund's fiscal year on May 31,
the Dow Jones Industrial Average marked its third straight monthly gain
for the first time since 2001, and all major market indexes were in
solid positive territory for the 2003 year-to-date period. Your fund was
also in positive territory that period; its class A shares had delivered
a total return of 10.90% at net asset value.
MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 5/31/03
Equities
Russell 3000 Index (U.S. stocks) -7.73%
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Russell 1000 Growth Index (large-company growth stocks) -7.85%
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Russell 1000 Value Index (large-company value stocks) -7.86%
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MSCI EAFE Index (international stocks) -12.30%
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Bonds
Lehman Aggregate Bond Index (taxable bonds) 11.58%
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Lehman Government Bond Index 13.49%
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Citigroup World Government Bond Index 24.14%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 5/31/03.
* STRATEGY OVERVIEW
During this volatile annual period, we continued to apply our
disciplined investment approach. In selecting stocks for the portfolio,
we carefully consider each company's underlying business worth. While a
company's stock price may fluctuate, we believe this underlying worth is
crucial in determining its long-term growth potential. We look for
stocks that we do not consider fairly valued; in other words, companies
that we believe are worth more than their current stock prices indicate.
During most of the annual period, these types of stocks fared poorly. In
the difficult market environment, investors sought stocks of highly
profitable companies with high current cash flows. Most of these stocks,
in our view, were fairly valued -- or overvalued -- and therefore did
not meet our selection criteria. As market conditions worsened, we
trimmed some of the underperforming stocks from the portfolio, but did
not stray from our valuation approach to stock selection.
We also consider factors other than stock price in determining how much
emphasis a stock will have in the portfolio. For example, we may give
greater emphasis to a company that looks attractive relative to other
companies in its industry, or to a company whose earnings estimates have
been revised. Usually, once a stock reaches what we consider to be its
fair value, we sell it from the portfolio.
[GRAPHIC OMITTED: horizontal bar chart SECTOR WEIGHTINGS COMPARED]
SECTOR WEIGHTINGS COMPARED*
as of as of
11/30/02 5/31/03
Retail 8.7% 10.4%
Banking 9.3% 8.7%
Pharmaceuticals 7.2% 7.8%
Software 8.4% 7.4%
Cable television 4.3% 6.1%
Health-care 7.1% 4.1%
services
Footnote reads:
*This chart shows how the fund's weightings have changed over the last six
months. Weightings are shown as a percentage of net assets. Holdings will
vary over time.
* HOW FUND HOLDINGS AFFECTED PERFORMANCE
During the period, the stock of Tyco International Ltd. had a negative
effect on your fund's performance. Declines in this stock also hurt fund
performance relative to its benchmark, since Tyco, a Bermuda-based
company, is not part of the Russell 3000 Index. A conglomerate with
several manufacturing and service businesses, Tyco continued to feel the
effects of its accounting-related problems and charges of tax-evasion
and fraud against its former management team. The company's new
management is working aggressively to solve its debt problems and
recently announced that no fraud was discovered in its accounting
practices. Your fund's portfolio holds a small position in the stock of
Tyco, which we believe is undervalued.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS*
AutoZone, Inc.
Retail
Comcast Corp. Class A (Special)
Cable television
Viacom, Inc. Class B
Broadcasting
U.S. Bancorp
Banking
Cardinal Health, Inc.
Health-care services
Pfizer, Inc.
Pharmaceuticals
MBNA Corp.
Consumer finance
Freddie Mac
Financial
Capital One Financial Corp.
Consumer finance
Yahoo!, Inc.
Commercial and consumer services
Footnote reads:
*These holdings represent 34.6% of the fund's net assets as
of 5/31/03. The fund's holdings will change over time.
Also hurting performance during the period was Altria Group, Inc.,
formerly Philip Morris Companies, the world's largest tobacco firm and
second-largest food company. Altria has been hurt by a number of
lawsuits on behalf of cigarette smokers as well as increased competition
from deep- discount brands of cigarettes. During the period, we sold the
fund's position in this stock.
In the technology sector, the stock of Automatic Data Processing, Inc.
had a negative impact on fund performance during the period. The
company, known as ADP, provides transaction processing and data
communications services to businesses. Payroll processing, a key driver
of ADP's business, has suffered during the economic downturn and the
company has not met growth expectations. The stock was sold from the
portfolio during the period. Another weak performer was BearingPoint
Inc., formerly known as KPMG Consulting. BearingPoint provides
technology services to businesses and was hurt by cutbacks in technology
spending by businesses. Also feeling the effects of the technology
downturn was Credence Systems Corporation, a semiconductor company. By
the close of the period, these holdings had been sold from the
portfolio.
Despite an overall decline for your fund during the period, a number of
holdings in the portfolio contributed positively to performance. The
biggest contributor was the stock of Nextel Communications, Inc. This
company offers wireless services, including phone, e-mail, text
messaging, and wireless Internet access. When the stock was added to the
portfolio, it was under pressure. Investors were concerned about
Nextel's growth potential, given the number of competitors in the
wireless industry. We believed the company was one of the best in the
industry and that investors were underestimating its potential. Nextel
stock performed well as the company continued to increase subscriber
growth, thanks to strategic operations and its NextelDirect Connect
walkie-talkie product, which helped to distinguish it from competitors.
Yahoo! Inc., a global Internet company, Comcast Corporation, a cable
company, and Capital One Financial Corp., a financial services company,
were also strong performers that we believed were underestimated by
investors. We added them to the portfolio because we believed their
strong business models and management teams would contribute to solid
long-term earnings growth.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
* THE FUND'S MANAGEMENT TEAM
The fund is managed by the Putnam U.S. Core and U.S. Small- and Mid-Cap
Core teams. The members of the U.S. Core Team are Michael Nance
(Portfolio Leader), James Yu (Portfolio Member), Richard Cervone, Kevin
Divney, Richard England, Paul Marrkand, Lee Montag, Paul Warren, and
James Wiess. The members of the U.S. Small- and Mid-Cap Core Team are
Joseph Joseph (Portfolio Member), Tinh Bui, Ronald Hua, and Gerald
Moore.
THE OUTLOOK FOR YOUR FUND
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
teams' plans for responding to them.
Despite a difficult fiscal year for your fund, we believe the market
offers many opportunities. The issues that distracted investors over the
past year, especially the war with Iraq, took focus away from the
traditional drivers of stock prices -- earnings, cash flows, and
valuations. With the resolution of the Iraq conflict and improving
market conditions at the close of the period, we are optimistic that the
types of stocks in which your fund invests will return to favor.
We also believe that your fund will benefit from our focus on bottom-up
stock selection. This term refers to our strategy of selecting stocks
for the portfolio based on the strength and potential of each company,
rather than trying to predict broader economic, sector, or market
trends. Regardless of the direction the market takes in the months
ahead, we remain committed to our disciplined process of selecting
stocks that we believe will reward investors over time.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. The fund invests
all or a portion of its assets in small to midsize companies. Such
investments increase the risk of greater price fluctuations.
PERFORMANCE SUMMARY
This section provides information about your fund's performance during
its fiscal year, which ended May 31, 2003. In accordance with regulatory
requirements, we also include performance for the most current calendar
quarter-end. Performance should always be considered in light of a
fund's investment strategy. Past performance does not indicate future
results. More recent returns may be less or more than those shown.
Investment return and principal value will fluctuate and you may have a
gain or a loss when you sell your shares. A profile of your fund's
strategy appears on the first page of this report. See page 8 for
definitions of some terms used in this section.
TOTAL RETURN FOR PERIODS ENDED 5/31/03
Class A Class B Class C Class M
(inception dates) (8/5/93) (11/2/94) (7/14/00) (1/22/96)
NAV POP NAV CDSC NAV CDSC NAV POP
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1 year -10.38% -15.54% -11.01% -15.46% -11.04% -11.93% -10.78% -13.89%
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5 years -20.30 -24.88 -23.02 -24.22 -22.76 -22.76 -22.26 -24.97
Annual average -4.44 -5.56 -5.10 -5.39 -5.03 -5.03 -4.91 -5.58
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Life of fund 151.75 137.28 134.52 134.52 140.40 140.40 139.46 131.17
Annual average 9.86 9.20 9.07 9.07 9.34 9.34 9.30 8.91
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Performance for class B, C,
and M shares before their inception is derived from the historical
performance of class A shares, adjusted for the applicable sales charge
(or CDSC) and higher operating expenses for such shares. For a portion
of the period this fund was sold on a limited basis with limited assets.
Had expenses not been limited, returns would have been lower.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/03
Lipper Multi-Cap
Russell 3000 Core Funds
Index category average*
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1 year -7.73% -8.87%
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5 years -3.63 1.96
Annual average -0.74 0.02
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Life of fund 148.90 138.49
Annual average 9.73 8.83
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*Index and Lipper results should be compared to fund performance at net
asset value. Over the 1-year, 5-year, and life-of-fund periods ended
5/31/03, there were 498, 224, and 65 funds, respectively, in this Lipper
category.
PRICE AND DISTRIBUTION* INFORMATION 12 MONTHS ENDED 5/31/03
Class A Class B Class C Class M
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Share value: NAV POP NAV NAV NAV POP
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5/31/02 $15.89 $16.86 $15.35 $15.67 $15.49 $16.05
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5/31/03 14.24 15.11 13.66 13.94 13.82 14.32
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*The fund did not make any distributions during the period.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 8/5/93
Fund's class A Russell 3000
Date shares at POP Index
8/5/93 9,425 10,000
5/31/94 12,025 10,368
5/31/95 13,902 12,244
5/31/96 19,125 15,927
5/31/97 23,506 19,902
5/31/98 29,774 25,828
5/31/99 29,059 30,527
5/31/00 32,152 34,137
5/31/01 30,527 30,818
5/31/02 26,478 26,976
5/31/03 $23,728 $24,890
Footnote reads:
Past performance does not indicate future results. At the end of the same
time period, a $10,000 investment in the fund's class B and class C shares
would have been valued at $23,452 and $24,040, respectively and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $23,946 ($23,117 at public
offering price).
TOTAL RETURN FOR PERIODS ENDED 6/30/03 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (8/5/93) (11/2/94) (7/14/00) (1/22/96)
NAV POP NAV CDSC NAV CDSC NAV POP
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1 year -1.57% -7.21% -2.33% -7.22% -2.28% -3.26% -2.03% -5.47%
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5 years -20.87 -25.42 -23.59 -24.78 -23.29 -23.29 -22.82 -25.53
Annual average -4.57 -5.70 -5.24 -5.54 -5.16 -5.16 -5.05 -5.72
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Life of fund 154.93 140.28 137.27 137.27 143.50 143.50 142.41 134.01
Annual average 9.91 9.26 9.12 9.12 9.41 9.41 9.36 8.97
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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.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
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 or C shares and assumes redemption at the
end of the period. Your fund's class B 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. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
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 (except on certain
redemptions of shares bought without an initial sales charge).
COMPARATIVE INDEXES
Russell 3000 Index is an unmanaged index of the 3,000 largest U.S.
companies in the Russell universe.
Russell 1000 Growth Index is an unmanaged index of those companies in
the Russell 1000 Index chosen for their growth orientation.
Russell 1000 Value Index is an unmanaged index of those companies in
the Russell 1000 Index chosen for their value orientation.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Lehman Aggregate Bond Index is an unmanaged index of U.S. fixed-income
securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Citigroup World Government Bond Index is an unmanaged index of
government bonds from 14 countries.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
PUTNAM'S POLICY ON CONFIDENTIALITY
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone numbers,
Social Security numbers, and the names of their financial advisors. We use
this information to assign an account number and to help us maintain
accurate records of transactions and account balances.
It is our policy to protect the confidentiality of your information, whether
or not you currently own shares of our funds, and in particular, not to
sell information about you or your accounts to outside marketing firms. We
have safeguards in place designed to prevent unauthorized access to our
computer systems and procedures to protect personal information from
unauthorized use.
Under certain circumstances, we share this information with outside vendors
who provide services to us, such as mailing and proxy solicitation. In those
cases, the service providers enter into confidentiality agreements with us,
and we provide only the information necessary to process transactions and
perform other services related to your account. We may also share this
information with our Putnam affiliates to service your account or provide
you with information about other Putnam products or services. It is also our
policy to share account information with your financial advisor, if you've
listed one on your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
preceded by the Report of independent accountants, constitute the fund's
financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to determine
the net asset value per share, which is calculated separately for each class
of shares. (For funds with preferred shares, the amount subtracted from
total assets includes the net assets allocated to remarketed preferred
shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios, and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
Putnam Capital Appreciation Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Putnam Capital Appreciation
Fund (the "fund") at May 31, 2003, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in
the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at May 31, 2003 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 7, 2003
THE FUND'S PORTFOLIO
May 31, 2003
COMMON STOCKS (99.1%) (a)
NUMBER OF SHARES VALUE
Aerospace and Defense (0.4%)
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117,000 Teledyne Technologies, Inc. (NON) $1,759,680
76,000 United Defense Industries, Inc. (NON) 1,941,800
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3,701,480
Airlines (0.2%)
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296,300 Mesa Air Group, Inc. (NON) 1,831,134
Automotive (0.3%)
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54,200 Autoliv, Inc. 1,394,024
266,900 Visteon Corp. 1,641,435
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3,035,459
Banking (8.7%)
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27,300 Astoria Financial Corp. 722,085
229,400 Brookline Bancorp, Inc. 3,271,244
501,700 Comerica, Inc. 23,213,659
84,800 Compass Bancshares, Inc. 3,124,880
74,166 New York Community Bancorp, Inc. 2,054,398
436,500 Sovereign Bancorp, Inc. 7,123,680
1,418,900 U.S. Bancorp 33,627,930
51,200 Webster Financial Corp. 1,937,920
60,100 Westamerica Bancorp. 2,670,243
54,100 Wilmington Trust Corp. 1,568,900
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79,314,939
Biotechnology (0.4%)
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33,900 Amylin Pharmaceuticals, Inc. (NON) 672,576
22,400 Celgene Corp. (NON) 705,152
9,100 OSI Pharmaceuticals, Inc. (NON) 239,876
71,600 Waters Corp. (NON) 2,030,576
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3,648,180
Broadcasting (4.7%)
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136,450 Emmis Communications Corp. Class A (NON) 2,890,011
258,602 Sinclair Broadcast Group, Inc. (NON) 3,142,014
803,800 Viacom, Inc. Class B (NON) 36,588,976
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42,621,001
Cable Television (6.1%)
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1,281,600 Comcast Corp. Class A (Special) (NON) 36,935,712
570,300 Echostar Communications Corp. Class A (NON) 19,150,674
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56,086,386
Chemicals (0.7%)
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45,900 Albemarle Corp. 1,228,743
121,000 Ferro Corp. 2,974,180
55,300 Lubrizol Corp. (The) 1,764,070
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5,966,993
Commercial and Consumer Services (4.0%)
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44,300 ADVO, Inc. (NON) 1,814,085
127,600 Iron Mountain, Inc. (NON) 5,040,200
124,785 ServiceMaster Co. (The) 1,326,465
184,600 Viad Corp. 3,739,996
9,600 West Corp. (NON) 239,040
817,000 Yahoo!, Inc. (NON) 24,387,450
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36,547,236
Communications Equipment (1.5%)
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95,400 Advanced Fibre Communications (NON) 1,799,244
357,800 QUALCOMM, Inc. 12,014,924
11,800 Scientific-Atlanta, Inc. 232,342
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14,046,510
Computers (0.7%)
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40,800 Avocent Corp. (NON) 1,206,048
53,000 NetScreen Technologies, Inc. (NON) 1,186,670
162,260 RadiSys Corp. (NON) 1,728,069
159,795 SBS Technologies, Inc. (NON) 1,452,537
63,900 VeriSign, Inc. (NON) 957,222
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6,530,546
Conglomerates (4.2%)
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797,600 General Electric Co. 22,891,120
875,500 Tyco International, Ltd. (Bermuda) 15,496,350
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38,387,470
Consumer Finance (5.9%)
- -------------------------------------------------------------------------------------------------------------------
525,200 Capital One Financial Corp. 25,298,884
1,393,300 MBNA Corp. 27,935,665
80,700 Providian Financial Corp. (NON) 729,528
-------------
53,964,077
Consumer Goods (1.7%)
- -------------------------------------------------------------------------------------------------------------------
151,900 Colgate-Palmolive Co. 9,056,278
120,100 Dial Corp. (The) 2,402,000
34,300 International Flavors & Fragrances, Inc. 1,076,677
142,900 Yankee Candle Co., Inc. (The) (NON) 3,050,915
-------------
15,585,870
Consumer Services (0.4%)
- -------------------------------------------------------------------------------------------------------------------
36,300 Arbitron, Inc. (NON) 1,272,315
79,700 Maximus, Inc. (NON) 2,132,772
-------------
3,405,087
Containers (0.2%)
- -------------------------------------------------------------------------------------------------------------------
83,500 Pactiv Corp. (NON) 1,632,425
Electric Utilities (0.9%)
- -------------------------------------------------------------------------------------------------------------------
94,700 OGE Energy Corp. 2,000,064
110,200 PNM Resources, Inc. 2,925,810
78,100 Puget Energy, Inc. 1,831,445
270,576 Sierra Pacific Resources (NON) 1,461,110
-------------
8,218,429
Electronics (2.1%)
- -------------------------------------------------------------------------------------------------------------------
497,000 Agere Systems, Inc. Class A (NON) 1,212,680
93,275 Belden, Inc. 1,268,540
150,100 Celestica, Inc. (Canada) (NON) 2,179,452
87,500 Integrated Circuit Systems, Inc. (NON) 2,282,875
76,500 Itron, Inc. (NON) 1,663,110
319,000 Lattice Semiconductor Corp. (NON) 2,902,900
56,400 Marvell Technology Group, Ltd. (Bermuda) (NON) 1,788,444
70,600 Semtech Corp. (NON) 1,119,010
78,500 Storage Technology Corp. (NON) 2,119,500
470,600 Zarlink Semiconductor, Inc. (Canada) (NON) 2,461,238
-------------
18,997,749
Energy (1.9%)
- -------------------------------------------------------------------------------------------------------------------
684,900 GlobalSantaFe Corp. (Cayman Islands) 17,040,312
15,100 Key Energy Svcs., Inc. (NON) 179,388
-------------
17,219,700
Engineering & Construction (0.1%)
- -------------------------------------------------------------------------------------------------------------------
83,780 Insituform Technologies, Inc. Class A (NON) 1,353,047
Entertainment (0.3%)
- -------------------------------------------------------------------------------------------------------------------
136,000 Regal Entertainment Group Class A 3,023,280
Financial (5.4%)
- -------------------------------------------------------------------------------------------------------------------
474,766 Citigroup, Inc. 19,474,901
445,400 Freddie Mac 26,639,374
116,477 Interactive Data Corp. (NON) 1,882,268
37,200 PMI Group, Inc. (The) 1,140,552
-------------
49,137,095
Food (0.1%)
- -------------------------------------------------------------------------------------------------------------------
50,800 Hormel Foods Corp. 1,193,800
Forest Products and Packaging (0.1%)
- -------------------------------------------------------------------------------------------------------------------
45,500 Smurfit-Stone Container Corp. (NON) 674,310
Gaming & Lottery (0.6%)
- -------------------------------------------------------------------------------------------------------------------
100,114 Argosy Gaming Co. (NON) 1,847,103
420,900 Park Place Entertainment Corp. (NON) 3,207,258
-------------
5,054,361
Health Care Services (4.1%)
- -------------------------------------------------------------------------------------------------------------------
34,700 AMERIGROUP Corp. (NON) 1,211,724
49,100 Apria Healthcare Group, Inc. (NON) 1,184,783
548,900 Cardinal Health, Inc. 31,677,019
92,800 First Health Group Corp. (NON) 2,381,248
40,700 Renal Care Group, Inc. (NON) 1,382,986
-------------
37,837,760
Homebuilding (0.2%)
- -------------------------------------------------------------------------------------------------------------------
8,200 Hovnanian Enterprises, Inc. Class A (NON) 475,190
3,816 NVR, Inc. (NON) 1,555,974
-------------
2,031,164
Insurance (0.8%)
- -------------------------------------------------------------------------------------------------------------------
93,810 IPC Holdings, Ltd. (Bermuda) 3,029,125
44,300 Landamerica Financial Group, Inc. 2,088,745
119,707 Odyssey Re Holdings Corp. 2,469,555
-------------
7,587,425
Investment Banking/Brokerage (1.4%)
- -------------------------------------------------------------------------------------------------------------------
142,200 Federated Investors, Inc. 3,961,692
116,700 T Rowe Price Group, Inc. 4,285,224
185,170 Waddell & Reed Financial, Inc. 4,194,101
-------------
12,441,017
Leisure (0.5%)
- -------------------------------------------------------------------------------------------------------------------
190,487 Brunswick Corp. 4,181,190
Lodging/Tourism (2.5%)
- -------------------------------------------------------------------------------------------------------------------
550,300 Marriott International, Inc. Class A 21,516,730
103,233 Orient-Express Hotels, Ltd. Class A (Bermuda) (NON) 1,278,025
-------------
22,794,755
Machinery (0.4%)
- -------------------------------------------------------------------------------------------------------------------
79,700 Briggs & Stratton Corp. 3,673,373
Manufacturing (0.6%)
- -------------------------------------------------------------------------------------------------------------------
52,900 Actuant Corp. Class A (NON) 2,288,454
30,300 Flowserve Corp. (NON) 549,945
65,200 Pentair, Inc. 2,533,672
-------------
5,372,071
Media (0.6%)
- -------------------------------------------------------------------------------------------------------------------
455,400 Liberty Media Corp. Class A (NON) 5,328,180
Medical Technology (1.6%)
- -------------------------------------------------------------------------------------------------------------------
48,700 Beckman Coulter, Inc. 1,979,655
41,700 Bio-Rad Laboratories, Inc. Class A (NON) 2,460,300
62,200 C.R. Bard, Inc. 4,363,330
4,900 Inamed Corp. (NON) 252,546
58,800 Mentor Corp. 1,247,736
75,900 Pall Corp. 1,648,548
116,900 Sybron Dental Specialties, Inc. (NON) 2,536,730
-------------
14,488,845
Metal Fabricators (0.1%)
- -------------------------------------------------------------------------------------------------------------------
45,040 Mueller Industries, Inc. (NON) 1,179,598
Metals (0.3%)
- -------------------------------------------------------------------------------------------------------------------
85,000 Freeport-McMoRan Copper & Gold, Inc. Class B 1,865,750
66,000 Steel Dynamics, Inc. (NON) 883,080
-------------
2,748,830
Office Equipment & Supplies (0.5%)
- -------------------------------------------------------------------------------------------------------------------
126,900 Global Imaging Systems, Inc. (NON) 2,668,707
52,700 Hon Industries, Inc. 1,546,218
-------------
4,214,925
Oil & Gas (2.1%)
- -------------------------------------------------------------------------------------------------------------------
8,100 Cabot Oil & Gas Corp. Class A 219,429
400,852 Exxon Mobil Corp. 14,591,013
112,100 FMC Technologies, Inc. (NON) 2,503,193
51,500 Noble Energy, Inc. 1,876,145
-------------
19,189,780
Pharmaceuticals (7.8%)
- -------------------------------------------------------------------------------------------------------------------
227,100 Allergan, Inc. 16,376,181
428,600 Johnson & Johnson 23,294,410
64,100 King Pharmaceuticals, Inc. (NON) 917,271
25,200 Medicines Co. (NON) 589,680
4,000 Medicis Pharmaceutical Corp. Class A (NON) 224,000
918,900 Pfizer, Inc. (SEG) 28,504,278
41,700 Watson Pharmaceuticals, Inc. (NON) 1,543,734
-------------
71,449,554
Publishing (0.1%)
- -------------------------------------------------------------------------------------------------------------------
29,800 Meredith Corp. 1,310,306
Real Estate (0.5%)
- -------------------------------------------------------------------------------------------------------------------
41,300 Brandywine Realty Trust (R) 979,636
7,100 Mills Corp. (R) 231,815
33,100 Rouse Co. (The) (R) 1,228,672
66,900 SL Green Realty Corp. (R) 2,310,726
-------------
4,750,849
Restaurants (0.2%)
- -------------------------------------------------------------------------------------------------------------------
94,700 Lone Star Steakhouse & Saloon, Inc. 2,168,630
Retail (10.4%)
- -------------------------------------------------------------------------------------------------------------------
70,900 AnnTaylor Stores Corp. (NON) 1,812,913
539,000 AutoZone, Inc. (NON) 45,103,520
116,700 Barnes & Noble, Inc. (NON) 2,777,460
666,300 Family Dollar Stores, Inc. 24,286,635
141,900 Foot Locker, Inc. 1,908,555
53,700 Liz Claiborne, Inc. 1,819,893
29,400 Movie Gallery, Inc. (NON) 548,016
31,600 Ross Stores, Inc. 1,333,836
84,200 Sears, Roebuck & Co. 2,524,316
716,852 TJX Cos., Inc. (The) 13,046,706
-------------
95,161,850
Semiconductor (0.6%)
- -------------------------------------------------------------------------------------------------------------------
49,090 Applied Films Corp. (NON) 1,092,253
92,300 Cognex Corp. (NON) 2,109,978
273,300 Mykrolis Corp. (NON) 2,555,355
-------------
5,757,586
Shipping (0.2%)
- -------------------------------------------------------------------------------------------------------------------
31,000 Hunt (JB) Transport Services, Inc. (NON) 1,148,240
14,400 Landstar Systems, Inc. (NON) 922,190
-------------
2,070,430
Software (7.4%)
- -------------------------------------------------------------------------------------------------------------------
1,241,300 BMC Software, Inc. (NON) 21,052,448
46,300 Hyperion Solutions Corp. (NON) 1,458,450
989,500 Microsoft Corp. 24,351,595
172,000 Network Associates, Inc. (NON) 2,088,080
1,367,400 Oracle Corp. (NON) 17,789,874
38,500 Progress Software Corp. (NON) 786,555
-------------
67,527,002
Technology Services (0.7%)
- -------------------------------------------------------------------------------------------------------------------
37,500 BARRA, Inc. (NON) 1,227,375
22,500 Cognizant Technology Solutions Corp. (NON) 466,875
67,200 Equifax, Inc. 1,701,504
66,900 Factset Research Systems, Inc. 2,575,650
-------------
5,971,404
Telecommunications (0.8%)
- -------------------------------------------------------------------------------------------------------------------
76,700 Citizens Communications Co. (NON) 944,944
46,100 Commonwealth Telephone Enterprises, Inc. (NON) 1,936,661
295,500 Nextel Communications, Inc. Class A (NON) 4,429,545
-------------
7,311,150
Textiles (1.4%)
- -------------------------------------------------------------------------------------------------------------------
222,200 Nike, Inc. 12,440,977
Transportation Services (0.2%)
- -------------------------------------------------------------------------------------------------------------------
116,484 Pacer International, Inc. (NON) 2,154,954
Waste Management (1.5%)
- -------------------------------------------------------------------------------------------------------------------
520,600 Waste Management, Inc. 13,259,682
-------------
Total Common Stocks (cost $828,940,269) $905,579,851
PURCHASED OPTIONS OUTSTANDING (--%) (a) (cost $146,383) EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
- -------------------------------------------------------------------------------------------------------------------
$259,086 Providian Financial Corp. (call)
(Morgan Stanley & Company, Inc.) Jan-04/12. $144,052
SHORT-TERM INVESTMENTS (7.2%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$55,149,531 Short-term investments held as collateral for loaned
securities with yields ranging from 1.20% to 1.37%
and due dates ranging from June 2, 2003 to July 25, 2003 (d) $55,129,997
11,099,294 Short-term investments held in Putnam commingled cash
account with yields ranging from 1.21% to 2.63% and due
dates ranging from June 2, 2003 to July 28, 2003 (d) 11,099,294
-------------
Total Short-Term Investments (cost $66,229,291) $66,229,291
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $895,315,943) $971,953,194
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $914,020,233.
(NON) Non-income-producing security.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at May 31,
2003.
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
- ------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 2003
Market Aggregate Face Expiration Unrealized
Value Value Date Appreciation
- ------------------------------------------------------------------------------
S&P 500 Index
(Long) $5,298,150 $5,152,192 Jun-03 $145,958
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2003
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value, including $54,373,822 of securities
on loan (identified cost $895,315,943) (Note 1) $971,953,194
- -------------------------------------------------------------------------------------------
Dividends, interest and other receivables 669,748
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 377,211
- -------------------------------------------------------------------------------------------
Receivable for securities sold 25,506,698
- -------------------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 182,687
- -------------------------------------------------------------------------------------------
Total assets 998,689,538
Liabilities
- -------------------------------------------------------------------------------------------
Payable for securities purchased 24,274,947
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,865,677
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,310,828
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 229,935
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 133,259
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,435
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 541,405
- -------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 55,129,997
- -------------------------------------------------------------------------------------------
Other accrued expenses 181,822
- -------------------------------------------------------------------------------------------
Total liabilities 84,669,305
- -------------------------------------------------------------------------------------------
Net assets $914,020,233
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,215,959,346
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (378,722,322)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 76,783,209
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $914,020,233
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($495,164,746 divided by 34,771,259 shares) $14.24
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $14.24)* $15.11
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($391,160,647 divided by 28,643,849 shares)** $13.66
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($2,993,277 divided by 214,654 shares)** $13.94
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($24,701,563 divided by 1,787,626 shares) $13.82
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.82)* $14.32
- -------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Year ended May 31, 2003
Investment income:
- -------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $22,193) $10,915,732
- -------------------------------------------------------------------------------------------
Interest 209,586
- -------------------------------------------------------------------------------------------
Securities lending 39,762
- -------------------------------------------------------------------------------------------
Total investment income 11,165,080
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,663,619
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,999,458
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 35,671
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 17,374
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,281,056
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,006,356
- -------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 28,389
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 194,665
- -------------------------------------------------------------------------------------------
Other 1,368,410
- -------------------------------------------------------------------------------------------
Total expenses 14,594,998
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (361,957)
- -------------------------------------------------------------------------------------------
Net expenses 14,233,041
- -------------------------------------------------------------------------------------------
Net investment loss (3,067,961)
- -------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (201,600,055)
- -------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 23,713
- -------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 1,270,247
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures contracts
during the year 44,483,254
- -------------------------------------------------------------------------------------------
Net loss on investments (155,822,841)
- -------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(158,890,802)
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Year ended May 31
--------------------------
2003 2002
- -------------------------------------------------------------------------------------------------------
Decrease in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment loss $(3,067,961) $(4,833,893)
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments (200,306,095) (120,046,074)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 44,483,254 (107,665,571)
- -------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (158,890,802) (232,545,538)
- -------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (221,253,238) (238,222,796)
- -------------------------------------------------------------------------------------------------------
Total decrease in net assets (380,144,040) (470,768,334)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of year 1,294,164,273 1,764,932,607
- -------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $-- and $6,256, respectively) $914,020,233 $1,294,164,273
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
- -----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- -----------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.89 $18.32 $23.75 $21.93 $23.15
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income (loss)(a) -- (d) -- (d) -- (d) (.02) .17
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.65) (2.43) (.75) 2.39 (.75)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations (1.65) (2.43) (.75) 2.37 (.58)
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net
investment income -- -- -- (.10) (.14)
- -----------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (4.61) (.45) (.50)
- -----------------------------------------------------------------------------------------------------
Return of capital -- -- (.07) -- --
- -----------------------------------------------------------------------------------------------------
Total distributions -- -- (4.68) (.55) (.64)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.24 $15.89 $18.32 $23.75 $21.93
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (10.38) (13.26) (5.06) 10.65 (2.40)
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $495,165 $697,394 $911,299 $999,789 $1,246,913
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.22 1.08 1.00 .96 .93
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .01 .02 -- (e) (.10) .77
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 107.08 133.78 263.98 188.16 92.49
- -----------------------------------------------------------------------------------------------------
(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 return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Per share net investment income amounted to less than $0.01 per share.
(e) Ratio of net investment income to average net assets is less than 0.01%.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
- -----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- -----------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.35 $17.84 $23.39 $21.66 $22.86
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income (loss)(a) (.09) (.12) (.15) (.18) .03
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.60) (2.37) (.72) 2.36 (.73)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations (1.69) (2.49) (.87) 2.18 (.70)
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net
investment income -- -- -- -- -- (b)
- -----------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (4.61) (.45) (.50)
- -----------------------------------------------------------------------------------------------------
Return of capital -- -- (.07) -- --
- -----------------------------------------------------------------------------------------------------
Total distributions -- -- (4.68) (.45) (.50)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.66 $15.35 $17.84 $23.39 $21.66
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(c) (11.01) (13.96) (5.70) 9.90 (2.99)
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $391,161 $554,719 $796,227 $1,047,040 $1,361,513
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.97 1.83 1.70 1.63 1.55
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.74) (.73) (.70) (.79) .15
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 107.08 133.78 263.98 188.16 92.49
- -----------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Distributions from net investment income amounted to less than
$0.01 per share.
(c) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS C
- ---------------------------------------------------------------------------
For the period
Per-share July 14, 2000+
operating performance Year ended May 31 to May 31
- ---------------------------------------------------------------------------
2003 2002 2001
- ---------------------------------------------------------------------------
Net asset value,
beginning of period $15.67 $18.21 $27.15
- ---------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------
Net investment loss (a) (.10) (.12) (.11)
- ---------------------------------------------------------------------------
Net realized and unrealized
loss on investments (1.63) (2.42) (4.15)
- ---------------------------------------------------------------------------
Total from
investment operations (1.73) (2.54) (4.26)
- ---------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------
From net realized gain
on investments -- -- (4.61)
- ---------------------------------------------------------------------------
Return of capital -- -- (.07)
- ---------------------------------------------------------------------------
Total distributions -- -- (4.68)
- ---------------------------------------------------------------------------
Net asset value,
end of period $13.94 $15.67 $18.21
- ---------------------------------------------------------------------------
Total return at
net asset value (%)(b) (11.04) (13.95) (17.40)*
- ---------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,993 $3,405 $2,175
- ---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.97 1.83 1.54*
- ---------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.74) (.71) (.44)*
- ---------------------------------------------------------------------------
Portfolio turnover (%) 107.08 133.78 263.98
- ---------------------------------------------------------------------------
+ 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 return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
- -----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- -----------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.49 $17.96 $23.47 $21.70 $22.91
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income (loss)(a) (.06) (.08) (.11) (.14) .06
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.61) (2.39) (.72) 2.36 (.73)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations (1.67) (2.47) (.83) 2.22 (.67)
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net
investment income -- -- -- -- (.04)
- -----------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (4.61) (.45) (.50)
- -----------------------------------------------------------------------------------------------------
Return of capital -- -- (.07) -- --
- -----------------------------------------------------------------------------------------------------
Total distributions -- -- (4.68) (.45) (.54)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.82 $15.49 $17.96 $23.47 $21.70
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (10.78) (13.75) (5.49) 10.07 (2.87)
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $24,702 $38,646 $55,231 $70,129 $90,187
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.72 1.58 1.50 1.46 1.43
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.49) (.48) (.50) (.59) .27
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 107.08 133.78 263.98 188.16 92.49
- -----------------------------------------------------------------------------------------------------
(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 return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
May 31, 2003
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, class C 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 C shares are subject to the same fees and expenses as
class B shares, except that class C shares have a one-year 1.00%
contingent deferred sales charge and do not convert to class A shares.
Class M shares are sold with a maximum front end sales charge of 3.50%
and pay an ongoing distribution fee that is higher than class A shares
but lower than class B and class C 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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at market valued at last reported sales
price on its principal exchange, or official closing price for certain
markets. If no sales are reported -- as in the case of some securities
traded over-the-counter -- a security is valued at its last reported bid
price. For foreign investments, if trading or events occurring in other
markets after the close of the principal exchange in which the foreign
investments are traded are expected to materially affect the value of
the investments, then those investments are valued, taking into
consideration these events, at their fair value following procedures
approved by the Trustees. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates fair value.
Other investments, including restricted securities, are valued at fair
value following procedures approved by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis. Dividend income is recognized on the ex-dividend date except that
certain dividends from foreign securities are recognized as soon as the
fund is informed of the ex-dividend date. Non-cash dividends, if any,
are recorded at the fair market value of the securities received. All
premiums/discounts are amortized/accreted on a yield-to-maturity basis.
D) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by
dealers. Futures and written option contracts outstanding at period end
are listed after The fund's portfolio.
E) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At May 31, 2003, the value of
securities loaned amounted to $54,373,822. The fund received cash
collateral of $55,129,997 which is pooled with collateral of other
Putnam funds into 41 issuers of high grade short-term investments.
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 that
borrowings 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.
At May 31, 2003, the fund had a capital loss carryover of approximately
$298,383,000 available to the extent allowed by tax law to offset future
capital gains, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
- -------------- ------------------
$142,653,000 May 31, 2010
155,730,000 May 31, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending May 31, 2004 $58,515,115 of losses recognized during the period
November 1, 2002 to May 31, 2003.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, 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. These differences include temporary and
permanent differences of losses on wash sales transactions, post October
loss deferrals, nontaxable dividends, realized and unrealized gains and
losses on certain futures contracts, and net operating loss. For the year
ended May 31, 2003, the fund reclassified $3,061,705 to decrease accumulated
net investment loss and $3,182,376 to decrease paid-in-capital, with a
decrease to accumulated net realized losses of $120,671.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $87,629,830
Unrealized depreciation (32,670,958)
------------------
Net unrealized appreciation 54,958,872
Undistributed ordinary income
Capital loss carryforward (298,382,870)
Post October loss (58,515,115)
Cost for federal income
tax purposes $916,994,322
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, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended May 31, 2003, the
fund's expenses were reduced by $361,957 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,401 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. 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
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 a 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, class C 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 Retail Management, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, 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 Retail Management at an
annual rate of up to 0.35%, 1.00%, 1.00% and 1.00% of the average net
assets attributable to class A, class B, class C and class M shares,
respectively. The Trustees have approved payment by the fund at the
annual rates of 0.25%, 1.00%, 1.00% and 0.75% of the average net assets
attributable to class A, class B, class C and class M shares,
respectively.
For the year ended May 31, 2003, Putnam Retail Management, acting as
underwriter, received net commissions of $85,530 and $2,877 from the
sale of class A and class M shares, respectively, and received $740,525
and $3,272 in contingent deferred sales charges from redemptions of
class B and class C shares, respectively. A deferred sales charge of up
to 1.00% and 0.65% is assessed on certain redemptions of class A and
class M shares, respectively. For the year ended May 31, 2003, Putnam
Retail Management, acting as underwriter, received $1,633 and no monies
on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended May 31, 2003, cost of purchases and proceeds from
sales of investment securities other than short-term investments aggregated
$1,013,028,402 and $1,215,254,956, respectively. There were no purchases and
sales of U.S. government obligations.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ---------------------------------------------------------------------------
Written options outstanding
at beginning of year 90,100 $230,052
- ---------------------------------------------------------------------------
Options opened 1,971,100 1,904,626
- ---------------------------------------------------------------------------
Options exercised (383,600) (781,931)
- ---------------------------------------------------------------------------
Options expired (1,042,600) (1,084,403)
- ---------------------------------------------------------------------------
Options closed (635,000) (268,344)
- ---------------------------------------------------------------------------
Written options outstanding
at end of year -- $--
- ---------------------------------------------------------------------------
Note 4
Capital shares
At May 31, 2003, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended May 31, 2003
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 6,249,203 $82,642,484
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions -- --
- ---------------------------------------------------------------------------
6,249,203 82,642,484
Shares repurchased (15,370,086) (200,632,191)
- ---------------------------------------------------------------------------
Net decrease (9,120,883) $(117,989,707)
- ---------------------------------------------------------------------------
Year ended May 31, 2002
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 9,781,091 $160,837,708
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions -- --
- ---------------------------------------------------------------------------
9,781,091 160,837,708
Shares repurchased (15,628,914) (256,780,973)
- ---------------------------------------------------------------------------
Net decrease (5,847,823) $(95,943,265)
- ---------------------------------------------------------------------------
Year ended May 31, 2003
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 3,544,659 $44,702,473
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions -- --
- ---------------------------------------------------------------------------
3,544,659 44,702,473
Shares repurchased (11,036,807) (138,722,999)
- ---------------------------------------------------------------------------
Net decrease (7,492,148) $(94,020,526)
- ---------------------------------------------------------------------------
Year ended May 31, 2002
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 4,513,720 $72,061,883
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions -- --
- ---------------------------------------------------------------------------
4,513,720 72,061,883
Shares repurchased (13,018,807) (206,706,505)
- ---------------------------------------------------------------------------
Net decrease (8,505,087) $(134,644,622)
- ---------------------------------------------------------------------------
Year ended May 31, 2003
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 301,038 $3,923,778
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions -- --
- ---------------------------------------------------------------------------
301,038 3,923,778
Shares repurchased (303,637) (3,918,006)
- ---------------------------------------------------------------------------
Net increase (decrease) (2,599) $5,772
- ---------------------------------------------------------------------------
Year ended May 31, 2002
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 366,066 $5,859,039
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions -- --
- ---------------------------------------------------------------------------
366,066 5,859,039
Shares repurchased (268,238) (4,337,702)
- ---------------------------------------------------------------------------
Net increase 97,828 $1,521,337
- ---------------------------------------------------------------------------
Year ended May 31, 2003
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 358,197 $4,533,609
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions -- --
- ---------------------------------------------------------------------------
358,197 4,533,609
Shares repurchased (1,064,881) (13,782,386)
- ---------------------------------------------------------------------------
Net decrease (706,684) $(9,248,777)
- ---------------------------------------------------------------------------
Year ended May 31, 2002
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 534,202 $8,536,457
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions -- --
- ---------------------------------------------------------------------------
534,202 8,536,457
Shares repurchased (1,115,860) (17,692,703)
- ---------------------------------------------------------------------------
Net decrease (581,658) $(9,156,246)
- ---------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
The Form 1099 you receive in January 2004 will show the tax status of
all distributions paid to your account in calendar 2003.
TRUSTEES
Name, Address, 1 Date of Birth,
Position(s) Held with Fund
and Length of Service Principal Occupation(s)
as a Putnam Fund Trustee 2 During Past 5 Years Other Directorships Held by Trustee
- -------------------------------------------------------------------------------------------------------
Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc.,
Trustee since 1994 Associates, Inc. Banta Corporation (a printing and
(a consulting and digital imaging firm), Ryerson Tull,
private investment Inc. (a steel service corporation),
firm) Advocate Health Care, and the
National Center for Nonprofit Boards.
Chairman Emeritus of the Board of
Trustees, Mount Holyoke College.
Until 2002, Mrs. Baxter was a
director of Intermatic Corporation,
a manufacturer of energy control
products. Also held various positions
in investment banking and corporate
finance, including Vice President and
principal of the Regency Group and
Vice President of and consultant to
First Boston Corp.
Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign
Trustee since 2001 Operating Officer, Relations and the Trustee Advisory
Nuclear Threat Council of the Applied Physics
Initiative (a private Laboratory at Johns Hopkins
foundation dealing University. Until 2003, Mr. Curtis
with national security was a Member of the Electric Power
issues), also serves as Research Institute Advisory Council,
Senior Advisor to the and the University of Chicago Board
United Nations of Governors for Argonne National
Foundation Laboratory. Prior to 2002, Mr. Curtis
was a Member of the Board of
Directors of the Gas Technology
Institute and the Board of Directors
of the Environment and Natural
Resources Program Steering
Committee, John F. Kennedy School
of Government, Harvard University.
Until 2001, Mr. Curtis was a Member
of the Department of Defense Policy
Board and Director of EG&G
Technical Services, Inc. (fossil energy
research and development support).
Prior to May 1997, Mr. Curtis was
Deputy Secretary of Energy. He
served as Chairman of the Federal
Energy Regulatory Commission from
1977 to 1987 and has held positions
on the staff of the U.S. House of
Representatives, the U.S. Treasury
Department, and the Securities and
Exchange Commission. Mr. Curtis
is also a lawyer with over 15 years
of experience.
John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy
Trustee since 1985 and Managing Director, Corporation (formerly known as
Chairman since 2000 First Reserve Snyder Oil Corporation),
Corporation TransMontaigne Oil Company,
(a registered investment Continuum Health Partners of
advisor investing in New York, Sarah Lawrence College,
companies in the and various private companies owned
world-wide energy by First Reserve Corporation.
industry on behalf of Trustee of TH Lee, Putnam
institutional investors) Investment Trust (a closed-end
investment company). Prior to
acquiring First Reserve in 1983,
Mr. Hill held executive positions with
several advisory firms and various
positions with the federal government,
including Associate Director of the
Office of Management and Budget
and Deputy Director of the Federal
Energy Administration.
Ronald J. Jackson Private investor Former Chairman, President, and
(12/17/43), Chief Executive Officer of Fisher-
Trustee since 1996 Price, Inc. (a toy manufacturer).
Previously served as President and
Chief Executive Officer of Stride-Rite,
Inc. and Kenner Parker Toys. Also
held financial and marketing positions
with General Mills, Parker Brothers,
and Talbots. President of the
Kathleen and Ronald J. Jackson
Foundation (charitable trust). Member
of the Board of Overseers of WGBH
(public television and radio). Member
of the Board of Overseers of the
Peabody Essex Museum.
Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Transco
Trustee since 1997 Killian Professor of (formerly National Grid Group,
Economics and a UK-based holding company
Management and with interests in electric and gas
Director of the Center transmission and distribution and
for Energy and telecommunications infrastructure),
Environmental Policy and the Whitehead Institute for
Research, Massachusetts Biomedical Research (a non-profit
Institute of Technology research institution). President of the
Yale University Council. Prior to
February 2002, March 2000, and
September 1998, Dr. Joskow was a
Director of State Farm Indemnity
Company (an automobile insurance
company), Director of New England
Electric System (a public utility
holding company) and a consultant
to National Economic Research
Associates, respectively.
Elizabeth T. Kennan Chairman, Cambus- Director, Northeast Utilities, and
(2/25/38), Kenneth Bloodstock (a Talbots (a distributor of women's
Trustee since 1992 limited liability company apparel). Trustee of Centre College.
involved in thoroughbred Prior to 2001, Dr. Kennan was a
horse breeding and member of the Oversight Committee
farming), President of Folger Shakespeare Library.
Emeritus of Mount Prior to September 2000, June 2000,
Holyoke College and November 1999, Dr. Kennan
was a Director of Chastain Real
Estate, Bell Atlantic, and Kentucky
Home Life Insurance, respectively.
Prior to 1995, Dr. Kennan was a
Trustee of Notre Dame University.
For 12 years, she was on the faculty
of Catholic University.
John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc.,
(6/15/41), of Ridgeway Farm Sonoco Products, Inc. (a packaging
Trustee since 1997 (a limited liability company), The Liberty Corporation
company engaged in (a company engaged in the
timber and farming) broadcasting industry), and Progress
Energy, Inc. (a utility company,
formerly known as Carolina Power &
Light). Trustee Emeritus of
Washington & Lee University. Prior
to October 1997, January 1998, and
May 2001, Mr. Mullin was a Director
of Dillon, Read & Co. Inc., The
Ryland Group, Inc., and Graphic
Packaging International Corp.,
respectively.
Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes
(3/15/45), Properties, L.P. and Center, Trustee of SEA Education
Trustee since 1984 Chairman of Cabot Association, and Director of
Properties, Inc. Brandywine Trust Company (a trust
company). Prior to February 1998,
Mr. Patterson was Executive Vice
President and Director of
Acquisitions of Cabot Partners
Limited Partnership. Prior to
December 2001, Mr. Patterson was
President and Trustee of Cabot
Industrial Trust (publicly traded real
estate investment trust). Prior to
1990, Mr. Patterson was Executive
Vice President of Cabot, Cabot &
Forbes Realty Advisors, the
predecessor of Cabot Partners, and
prior to that was Senior Vice
President of the Beal Companies.
W. Thomas Stephens Corporate Director Director of Xcel Energy Incorporated
(9/2/42), (public utility company), TransCanada
Trustee since 1997 Pipelines, Norske Canada, Inc.
(paper manufacturer), and Qwest
Communications (communications
company). Until 2003, Mr. Stephens
was a Director of Mail-Well, a
printing and envelope company.
Prior to July 2001 and October 1999,
Mr. Stephens was Chairman of Mail-
Well and MacMillan-Bloedel (forest
products company). Prior to 1996,
Mr. Stephens was Chairman and
Chief Executive Officer of
Johns Manville.
W. Nicholas Thorndike Director of various Trustee of Northeastern University and
(3/28/33), corporations and Honorary Trustee of Massachusetts
Trustee since 1992 charitable organizations, General Hospital. Prior to
including Courier September 2000, April 2000, and
Corporation (a book December 2001, Mr. Thorndike was
manufacturer and a Director of Bradley Real Estate,
publisher) and Inc., a Trustee of Eastern Utilities
Providence Journal Co. Associates, and a Trustee of Cabot
(a newspaper publisher) Industrial Trust, respectively.
Previously served as Chairman of the
Board and managing partner of
Wellington Management/Thorndike
Doran Paine & Lewis, and Chairman
and Director of Ivest Fund.
Lawrence J. Lasser* President and Chief Director of Marsh & McLennan
(11/1/42), Executive Officer of Companies, Inc. and the United Way
Trustee since 1992 Putnam Investments of Massachusetts Bay. Member of the
Vice President since 1981 and Putnam Board of Governors of the Investment
Management Company Institute, Trustee of the
Museum of Fine Arts, Boston, a
Trustee and Member of the Finance
and Executive Committees of Beth
Israel Deaconess Medical Center,
Boston, and a Member of the
CareGroup Board of Managers
Investment Committee, the Council
on Foreign Relations, and the
Commercial Club of Boston.
George Putnam, III* President, New Director of The Boston Family
(8/10/51), Generation Research, Office, L.L.C. (registered investment
Trustee since 1984 and Inc. (a publisher of advisor), Trustee of St. Mark's
President since 2000 financial advisory and School, and Trustee of Shore
other research services Country Day School. Until 2002,
relating to bankrupt and Mr. Putnam was a Trustee of the
distressed companies) SEA Education Association.
and New Generation Previously, Mr. Putnam was an
Advisers, Inc. attorney with the firm of Dechert
(a registered Price & Rhoads.
investment adviser)
A.J.C. Smith* (4/13/34), Director of Marsh & Director of Trident Corp. (a limited
Trustee since 1986 McLennan partnership with over 30 institutional
Companies, Inc. investors). Trustee of the Carnegie
Hall Society, the Educational
Broadcasting Corporation and the
National Museums of Scotland.
Chairman of the Central Park
Conservancy. Member of the Board
of Overseers of the Joan and
Sanford I. Weill Graduate School
of Medical Sciences of Cornell
University. Fellow of the Faculty of
Actuaries in Edinburgh, the
Canadian Institute of Actuaries, and
the Conference of Actuaries.
Associate of the Society of Actuaries.
Member of the American Actuaries,
the International Actuarial
Association and the International
Association of Consulting Actuaries.
Prior to May 2000 and November
1999, Mr. Smith was Chairman and
CEO, respectively, of Marsh &
McLennan Companies, Inc.
- --------------------------------------------------------------------------------------------------------
1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of May 31, 2003,
there were 104 Putnam Funds.
2 Each Trustee serves for an indefinite term, until his or her resignation, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc., the parent
company of Putnam LLC and its affiliated companies. Messrs. Putnam, III,
Lasser and Smith are deemed "interested persons" by virtue of their
positions as officers or shareholders of the fund or Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. George Putnam,
III is the President of your fund and each of the other Putnam funds.
Lawrence J. Lasser is the President and Chief Executive Officer of Putnam
Investments and Putnam Management. Mr. Lasser and Mr. Smith serve as
Directors of Marsh & McLennan Companies, Inc.
OFFICERS
In addition to George Putnam III and Lawrence J. Lasser, the other officers of the fund are
shown below:
Name, Address, 1 Date of Birth, Length of Service with
Position(s) Held with Fund the Putnam Funds Principal Occupation(s) During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------
Charles E. Porter Since 1989 Managing Director, Putnam Investments
(7/26/38), Executive Vice and Putnam Management
President, Treasurer and
Principal Financial Officer
Patricia C. Flaherty Since 1993 Senior Vice President, Putnam Investments
(12/1/46), Senior Vice and Putnam Management
President
Karnig H. Durgarian Since 2002 Senior Managing Director, Putnam
(1/13/56), Vice President and Investments
Principal Executive Officer
Steven D. Krichmar Since 2002 Managing Director, Putnam Investments.
(6/27/58), Vice President and Prior to July 2001, Partner,
Principal Financial Officer PricewaterhouseCoopers LLP
Michael T. Healy Since 2000 Managing Director, Putnam Investments
(1/24/58), Assistant Treasurer
and Principal Accounting
Officer
Brett C. Browchuk Since 1994 Managing Director, Putnam Investments
(2/27/63), Vice President and Putnam Management
Charles E. Haldeman Jr. Since 2002 Senior Managing Director, Putnam
(10/29/48), Vice President Investments and Putnam Management.
Prior to October 2002, Chief Executive
Officer, Lincoln National Investment
Companies; prior to January 2000,
President and Chief Operating Officer,
United Asset Management.
Beth S. Mazor Since 2002 Senior Vice President, Putnam Investments
(4/6/58), Vice President
Richard A. Monaghan Since 1998 Senior Managing Director, Putnam
(8/25/54), Vice President Investments and Putnam Retail
Management. Prior to November 1998,
Managing Director, Merrill Lynch
Stephen M. Oristaglio Since 1998 Senior Managing Director, Putnam
(8/21/55), Vice President Investments and Putnam Management.
Prior to July 1998, Managing Director,
Swiss Bank Corp.
Gordon H. Silver Since 1990 Senior Managing Director, Putnam
(7/3/47), Vice President Investments, Putnam Management and
Putnam Retail Management
Mark C. Trenchard Since 2002 Senior Vice President, Putnam Investments
(6/5/62), Vice President
Judith Cohen Since 1993 Clerk and Assistant Treasurer, The
(6/7/45), Clerk and Putnam Funds
Assistant Treasurer
Justin Scott Since 1998 Managing Director of Putnam Management
(9/16/57), Vice President
Paul Warren Since 2001 Managing Director of Putnam Management
(10/6/60), Vice President
Joseph P. Joseph Since 1999 Managing Director of Putnam Management
(6/4/58), Vice President
- ---------------------------------------------------------------------------------------------------------------
1 The address of each Officer is One Post Office Square, Boston, MA 02109.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded over 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark of
a well-rounded financial program. We presently manage over 100 mutual funds
in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray LLP
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President, Treasurer
and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Brett C. Browchuk
Vice President
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Beth S. Mazor
Vice President
Richard A. Monaghan
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
Joseph P. Joseph
Vice President
Justin M. Scott
Vice President
Paul C. Warren
Vice President
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Capital
Appreciation Fund. It may also be used as sales literature when preceded
or accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary and
Putnam's Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
Visit www.putnaminvestments.com or call a representative at 1-800-225-1581.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN002-88660 433/948/2BN 7/03
Item 2. Code of Ethics:
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Not applicable
Item 3. Audit Committee Financial Expert:
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Not applicable
Item 4. Principal Accountant Fees and Services:
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Not applicable
Items 5-6. [Reserved]
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Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
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Management Investment Companies: Not applicable
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Item 8. [Reserved]
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Item 9. Controls and Procedures:
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The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
There have been no significant changes in the registrant's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits:
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(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: July 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: July 24, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: July 24, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 24, 2003