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:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-03
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From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Looking back on an eventful year, we consider it important to take note
of the increasingly positive trends that have become apparent in the
U.S. economy and financial markets. The stimulus provided by fiscal and
monetary policies has drawn the economy out of the slump of early 2003
and rising profits prompted a broad rally for stocks. The bond market
steadied while offering pockets of opportunity. We see indications that
these trends can continue into 2004 and know that Putnam management
teams will seek to position the funds to benefit from them.
We are pleased to report positive results for Putnam Capital
Appreciation Fund during the six months ended November 30, 2003, though
the fund underperformed both its benchmark index and its Lipper peer
group average. Details can be found on the facing page.
Because some strong market sectors were not represented in the fund's
portfolio, performance came in below that of its benchmark index.
Declines in some fund holdings during the period also resulted in
underperformance against its Lipper peer group average. In the following
report, the fund's management teams provide a detailed discussion of
their strategy and portfolio positioning during the semiannual period.
The teams also offer their views of prospects for the fiscal year's
second half.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 21, 2004
Report from Fund Management
Fund highlights
* Putnam Capital Appreciation Fund gained ground over the six-month
period ended November 30, 2003, with class A shares posting returns of
11.10% at net asset value, and 4.70% at public offering price.
* Strong performance in some sectors not represented in the portfolio
kept the fund's performance below that of its benchmark, the Russell
3000 Index, which returned 12.70% for the period.
* Due to declines in certain holdings, the fund's performance was below
the average return for the Lipper Multi-Cap Core Funds category, which
was 12.99%.
* See the Performance Summary on page 8 for complete fund performance,
comparative performance, and Lipper data.
Performance commentary
An improving equity environment, including some encouraging economic
data, contributed to your fund's positive results during the semiannual
period. Consumer cyclicals holdings in real estate, Internet, and credit
card companies led portfolio returns. However, the fund's performance
lagged that of its benchmark and the average of other funds in its peer
group primarily because of strong performance that occurred in sectors
not traditionally tapped for a growth-oriented portfolio like this one.
Stock selection within the technology sector and a higher-than-benchmark
weighting in the poorly performing software sector also dampened fund
performance. Despite these isolated difficulties, we remain committed to
the fund's strategy of targeting companies that appear attractively
valued relative 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
The stock market remained buoyant throughout the semiannual period, and
investors in virtually all sectors enjoyed positive returns. Major stock
market indexes all grew solidly, with the fund's benchmark, the Russell
3000 Index, gaining nearly 13% over the past six months, and the
broad-based S&P 500 Index rising close to 11% over the same period. The
end of full-scale military operations in Iraq, along with encouraging
first- and second-quarter corporate earnings reports and strong GDP
growth all put investors in a more positive frame of mind. At the same
time, inflation has stayed low, which we attribute to the acceleration
of global outsourcing by large companies. An increasing number of
companies are producing and purchasing products and services in the most
cost-effective places around the world, often outside the United States.
Unlike many previous periods of stock market strength, however, this
upturn has found performance among most market sectors and investment
styles (including growth and value) charting a similar course. One
exception has been the energy sector, which rose less robustly as
concerns about high oil prices dampened performance there. The only
downside of the market's consistent strength was fewer buying
opportunities for the fund, as we found fewer compelling stock price
dislocations on which to capitalize.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 11/30/03
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Equities
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Russell 3000 Index (large-company stocks) 12.70%
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Russell 1000 Growth Index (large-company growth stocks) 12.43%
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Russell 1000 Value Index (large-company value stocks) 11.15%
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S&P 500 Index (broad stock market) 10.80%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) -1.04%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 9.63%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) -2.61%
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These indexes provide an overview of performance in different market
sectors for the six months ended 11/30/03.
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Strategy overview
Throughout this period of solid stock market price appreciation, we
remained focused on our core investment strategy. Although we always
work within the broad framework of macroeconomic trends and conditions,
we devote the majority of our time and effort to bottom-up stock
analysis and selection. In selecting stocks for the portfolio, we
carefully consider each company's underlying business worth. While the
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 the recent semiannual period, these price
dislocations were few and far between; consequently, the portfolio
experienced low turnover over the past six months. Nonetheless, we did
find several buying opportunities, both among stocks already held in the
portfolio and new candidates. In evaluating these stocks and deciding
how much emphasis to give them in the portfolio, we consider other
factors in addition to price. For example, we may hold a larger position
in a stock whose company looks more attractive relative to its
competitors, 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 TOP INDUSTRY WEIGHTINGS COMPARED]
TOP INDUSTRY WEIGHTINGS COMPARED
as of 5/31/03 as of 11/30/03
Retail 10.4% 11.1%
Commercial and
consumer services 4.0% 8.0%
Pharmaceuticals 7.8% 7.3%
Banking 8.7% 6.8%
Software 7.4% 6.0%
Footnote reads:
This chart shows how the fund's top 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, your fund had relatively low exposure to several
market sectors that performed well. This had an adverse affect on
performance. Sectors such as capital goods, basic materials, and
transportation, were all up approximately 20% over the period.
In the media sector, Viacom Inc. had a negative effect on your fund's
performance. A slow recovery in the radio industry hurt stock
performance, although most of Viacom's other businesses have advanced
along with the pick-up in economic growth. We believe the trends that
dampened Viacom's radio business performance, including a strong
up-front advertising market for television, weak demand for local
advertising dollars, and shift of advertising dollars away from radio
toward the Internet, will be less of a factor in 2004. Should these
trends dissipate as anticipated, we expect Viacom's radio business to
experience stronger growth going forward.
Colgate-Palmolive Company also had a negative impact on fund
performance. The stock's value dropped by approximately 10% after the
company reported what the market perceived as disappointing
third-quarter earnings. The company spent aggressively on several of
their key brands but had yet to see a corresponding uptick in demand. We
took advantage of the stock's attractive price to build the fund's
position, based on our analysis that showed Colgate-Palmolive to be a
company with solid financial fundamentals and growth potential. We
believe that sales are likely to improve in the coming quarters,
resulting in improved performance for the stock.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
1 AutoZone, Inc.
Retail
2 U.S. Bancorp
Banking
3 Microsoft Corp.
Software
4 Yahoo! Inc.
Commercial and consumer services
5 Capital One Financial Corp.
Consumer finance
6 Comcast Corp. Class A (Special)
Cable television
7 Colgate-Palmolive Co.
Consumer goods
8 Cardinal Health, Inc.
Health-care services
9 United Technologies Corp.
Aerospace and defense
10 Pfizer, Inc.
Pharmaceuticals
Footnote reads:
These holdings represent 37.2% of the fund's net assets as of 11/30/03.
The fund's holdings will change over time.
The technology sector provided mixed returns for the fund. On the
downside, we had a greater-than-benchmark position in software company
stocks, which performed poorly over the period. In terms of specific
software holdings, BMC Software, Inc. detracted from performance.
On a more positive note, global Internet company Yahoo! Inc. was the
largest contributor to fund returns over the period. We added this stock
to the portfolio last January because we believed investors had
underestimated the strength of its business model and management team.
Recently, the company has begun to capitalize on its core business as a
leading Internet search engine and access point for consumers and
businesses. In addition to providing people with access and search
capabilities, the company now sells different types of advertising space
on its Web site, including spot advertisements and monthly subscription
services to its huge user base. This is the first time Yahoo! Inc. has
begun to leverage its original search and access capabilities, and we
believe it has strong potential for the future.
On another positive note, the fund acquired a new technology holding
over the period called Accenture. This company provides technology
outsourcing and management consulting services. The stock's valuation
had dropped due to the company's difficulties in digesting the
aftereffects of the technology bubble; however, we believe strong
fundamentals and an emerging earnings growth trend position this company
well for performance in the months ahead.
The portfolio's greater-than-benchmark position in the consumer
cyclicals sector was another positive contributor to fund returns. This
sector was the fourth-strongest performing sector over the period,
rising approximately 20%. Fund performance benefited particularly from a
new acquisition, Pulte Homes, which made the second-largest contribution
to returns over the period. This national home-building company has been
able to use cost advantages to gain market share and improve its
competitive position. Pulte also benefited from a positive real estate
market environment, which continued to demonstrate strength from both
new order and pricing perspectives.
Financial services companies were also top fund contributors over the
period. As the economy began to improve, consumers paid down their
credit card balances and investors became more comfortable with the
performance potential of credit card issuers. The fund garnered solid
returns from credit card companies Capital One Financial Corporation and
MBNA Corporation. During the period, MBNA was sold from the portfolio.
In a turnaround from last year, the manufacturing and service
conglomerate Tyco International Ltd. became a major positive contributor
to performance over the past six months. A new management team has taken
control of the company, bringing a new focus on improving the balance
sheet, cutting costs, and pruning the business back to a more profitable
core.
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 teams
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.
As we enter the second half of your fund's fiscal year, the stock market
remains strong and a number of sectors offer upside potential. Sectors
including communications services, energy, and health care, which have
lagged a bit in the recent market rally, may offer attractive
opportunities as we go forward. In addition, portfolio holdings in the
consumer staples and technology areas are also poised for additional
growth.
While the attractively priced stocks we seek for the fund were not
abundant during the recent period, we did make some prudent portfolio
additions and believe the months ahead will provide additional
opportunities to build portfolio positions and add new holdings with
solid performance potential. The economic backdrop for the fund remains
positive, and we will continue to monitor it closely for evidence of job
creation and increases in business spending that would signal additional
strength. This said, we continue to focus the bulk of our research and
analytical efforts 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 market's direction
in coming months, we remain committed to the disciplined process 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
the first half of its fiscal year, which ended November 30, 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 10 for definitions of some terms used in this section.
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TOTAL RETURN FOR PERIODS ENDED 11/30/03
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Class A Class B Class C Class M
(inception dates) (8/5/93) (11/2/94) (7/14/00) (1/22/96)
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NAV POP NAV CDSC NAV CDSC NAV POP
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6 months 11.10% 4.70% 10.61% 5.61% 10.69% 9.69% 10.78% 6.91%
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1 year 16.32 9.63 15.43 10.43 15.49 14.49 15.72 11.67
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5 years -6.58 -11.96 -9.88 -11.28 -9.79 -9.79 -8.90 -12.11
Annual average -1.35 -2.51 -2.06 -2.37 -2.04 -2.04 -1.85 -2.55
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10 years 149.81 135.51 132.18 132.18 137.67 137.67 137.51 129.20
Annual average 9.59 8.94 8.79 8.79 9.04 9.04 9.04 8.65
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Annual average
(life of fund) 10.48 9.85 9.68 9.68 9.95 9.95 9.92 9.54
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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 and expenses were limited. Had expenses not been limited,
returns would have been lower.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/03
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Lipper
Multi-Cap
Russell 3000 Core Funds
Index category average*
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6 months 12.70% 12.99%
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1 year 18.24 18.77
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5 years 3.60 18.10
Annual average 0.71 2.99
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10 years 171.30 160.94
Annual average 10.50 9.71
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Annual average
(life of fund) 10.51 9.90
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 11/30/03, there
were 596, 578, 276, and 81 funds, respectively, in this Lipper category.
PRICE AND DISTRIBUTION* INFORMATION 6 MONTHS ENDED 11/30/03
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Class A Class B Class C Class M
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Share value: NAV POP NAV NAV NAV POP
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5/31/03 $14.24 $15.11 $13.66 $13.94 $13.82 $14.32
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11/30/03 15.82 16.79 15.11 15.43 15.31 15.87
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* The fund made no distributions during the period.
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TOTAL RETURN FOR PERIODS ENDED 12/31/03 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M
(inception dates) (8/5/93) (11/2/94) (7/14/00) (1/22/96)
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NAV POP NAV CDSC NAV CDSC NAV POP
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6 months 12.90% 6.40% 12.45% 7.45% 12.40% 11.39% 12.58% 8.62%
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1 year 26.79 19.53 25.83 20.83 25.85 24.85 26.20 21.81
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5 years -9.65 -14.84 -12.83 -14.21 -12.24 -12.24 -11.87 -14.93
Annual average -2.01 -3.16 -2.71 -3.02 -2.58 -2.58 -2.49 -3.18
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10 years 136.39 122.70 119.68 119.68 124.76 124.76 124.63 116.68
Annual average 8.98 8.34 8.19 8.19 8.44 8.44 8.43 8.04
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Annual average
(life of fund) 10.70 10.07 9.89 9.89 10.16 10.16 10.13 9.76
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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
JP Morgan (formerly Chase) Global High Yield Index is an unmanaged index
used to mirror the investable universe of the U.S. dollar global
high-yield corporate debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
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.
Russell 3000 Index is an unmanaged index of the 3,000 largest U.S.
companies in the Russell universe.
S&P 500 Index is an unmanaged index of common stock performance.
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.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's shareholder services line
at 1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
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 period.
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.
The fund's portfolio
November 30, 2003 (Unaudited)
Common stocks (99.6%) (a)
Number of shares Value
Advertising and Marketing Services (0.3%)
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36,400 Harte-Hanks, Inc. $783,692
56,900 Valassis Communications, Inc. (NON) 1,547,680
--------------
2,331,372
Aerospace and Defense (3.1%)
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14,300 Alliant Techsystems, Inc. (NON) 729,729
90,167 Teledyne Technologies, Inc. (NON) 1,549,069
28,120 United Defense Industries, Inc.
(NON) 935,271
280,200 United Technologies Corp. 24,013,140
--------------
27,227,209
Airlines (0.5%)
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51,700 Continental Airlines, Inc. Class B
(NON) 964,205
50,700 ExpressJet Holdings, Inc. (NON) 796,497
207,293 Mesa Air Group, Inc. (NON) 2,497,881
--------------
4,258,583
Automotive (0.5%)
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12,500 American Axle & Manufacturing
Holdings, Inc. (NON) 495,375
94,251 Autoliv, Inc. 3,153,638
14,700 SPX Corp. (NON) 798,210
--------------
4,447,223
Banking (6.8%)
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99,279 Brookline Bancorp, Inc. 1,491,171
73,500 Comerica, Inc. 3,833,025
26,900 Commerce Bancorp, Inc. 1,390,192
50,194 Compass Bancshares, Inc. 1,963,087
14,800 Doral Financial Corp. 748,436
60,100 Fifth Third Bancorp 3,493,613
9,900 FirstFed Financial Corp. (NON) 465,300
79,400 Sovereign Bancorp, Inc. 1,799,204
33,800 TCF Financial Corp. 1,782,612
1,494,700 U.S. Bancorp 41,418,137
16,243 Westamerica Bancorp. 857,630
--------------
59,242,407
Biotechnology (0.7%)
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29,300 Amylin Pharmaceuticals, Inc. (NON) 766,781
47,600 Connetics Corp. (NON) 840,140
30,000 Invitrogen Corp. (NON) 2,045,100
28,100 Medicines Co. (NON) 769,097
52,900 Myogen, Inc. (NON) 643,264
15,025 Neurocrine Biosciences, Inc. (NON) 793,771
27,400 Telik, Inc. (NON) 553,754
--------------
6,411,907
Broadcasting (2.6%)
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567,600 Viacom, Inc. Class B 22,318,032
Building Materials (1.4%)
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442,200 Masco Corp. 12,027,840
Cable Television (3.1%)
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899,700 Comcast Corp. Class A (Special)
(NON) 27,125,955
Chemicals (0.8%)
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21,471 Albemarle Corp. 607,629
99,986 Georgia Gulf Corp. 2,847,601
35,700 MacDermid, Inc. 1,170,960
33,800 Nova Chemicals Corp. (Canada) 811,876
103,000 RPM, Inc. 1,558,390
--------------
6,996,456
Commercial and Consumer Services (8.0%)
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29,779 Arbitron, Inc. (NON) 1,271,563
394,200 eBay, Inc. (NON) 22,016,070
256,000 Iron Mountain, Inc. (NON) 9,420,800
29,767 Maximus, Inc. (NON) 1,128,169
10,192 Viad Corp. 250,621
78,700 Washington Group International, Inc.
(NON) 2,638,024
43,708 West Corp. (NON) 1,035,880
733,900 Yahoo!, Inc. (NON) 31,543,022
--------------
69,304,149
Communications Equipment (4.4%)
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75,214 Advanced Fibre Communications (NON) 1,681,033
57,700 Aspect Communications Corp. (NON) 849,344
755,800 Cisco Systems, Inc. (NON) 17,126,428
11,500 Comtech Telecommunications (NON) 383,387
56,900 Foundry Networks, Inc. (NON) 1,499,884
82,700 Inter-Tel, Inc. 2,001,340
301,300 QUALCOMM, Inc. 13,422,915
38,979 Scientific-Atlanta, Inc. 1,125,714
--------------
38,090,045
Computers (0.5%)
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26,900 Electronics for Imaging, Inc. (NON) 742,440
14,200 Hutchinson Technology, Inc. (NON) 462,494
18,300 Insight Enterprises, Inc. (NON) 342,210
96,300 Satyam Computer Svcs., Ltd. ADR
(India) 2,020,374
20,100 Verint Systems, Inc. (NON) 465,918
--------------
4,033,436
Conglomerates (4.6%)
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716,200 General Electric Co. 20,533,454
858,700 Tyco International, Ltd. (Bermuda) 19,707,165
--------------
40,240,619
Consumer Finance (3.9%)
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491,700 Capital One Financial Corp. 29,364,324
38,800 CompuCredit Corp. (NON) 918,784
288,104 Providian Financial Corp. (NON) 3,255,575
--------------
33,538,683
Consumer Goods (3.5%)
- -------------------------------------------------------------------------------
482,300 Colgate-Palmolive Co. 25,320,750
75,420 Dial Corp. (The) 1,951,870
108,975 Yankee Candle Co., Inc. (The) (NON) 3,216,942
--------------
30,489,562
Consumer Services (0.1%)
- -------------------------------------------------------------------------------
14,500 NetFlix, Inc. (NON) 710,500
Electric Utilities (0.7%)
- -------------------------------------------------------------------------------
42,600 Allegheny Energy, Inc. (NON) 457,950
29,500 Avista Corp. 520,380
100,600 DPL, Inc. 1,945,604
93,328 OGE Energy Corp. 2,223,073
45,712 Puget Energy, Inc. 1,062,804
--------------
6,209,811
Electronics (4.3%)
- -------------------------------------------------------------------------------
22,500 Advanced Digital Information Corp.
(NON) 341,325
348,687 Agere Systems, Inc. Class A (NON) 1,234,352
38,875 Belden, Inc. 765,838
93,912 Benchmark Electronics, Inc. (NON) 3,449,388
468,882 Celestica, Inc. (Canada) (NON) 7,164,517
58,170 Integrated Circuit Systems, Inc.
(NON) 1,730,558
116,400 Integrated Device Technology, Inc.
(NON) 2,194,140
16,300 International Rectifier Corp. (NON) 890,306
127,422 Lattice Semiconductor Corp. (NON) 1,206,686
24,000 QLogic Corp. (NON) 1,363,920
180,900 SanDisk Corp. (NON) 14,627,574
73,899 Storage Technology Corp. (NON) 1,862,255
202,100 Zarlink Semiconductor, Inc. (Canada)
(NON) 596,195
--------------
37,427,054
Energy (0.7%)
- -------------------------------------------------------------------------------
286,600 GlobalSantaFe Corp. (Cayman Islands) 6,161,900
Engineering & Construction (0.1%)
- -------------------------------------------------------------------------------
10,100 Centex Construction Products, Inc. 591,860
Entertainment (0.3%)
- -------------------------------------------------------------------------------
129,365 Regal Entertainment Group Class A 2,695,967
Financial (3.0%)
- -------------------------------------------------------------------------------
11,700 Chicago Mercantile Exchange 801,099
262,766 Citigroup, Inc. (SEG) 12,360,513
172,300 Freddie Mac 9,376,566
80,274 Interactive Data Corp. (NON) 1,352,617
36,645 PMI Group, Inc. (The) 1,364,293
5,689 Student Loan Corp. 807,895
--------------
26,062,983
Food (0.1%)
- -------------------------------------------------------------------------------
23,200 Chiquita Brands International, Inc.
(NON) 491,608
Forest Products and Packaging (0.3%)
- -------------------------------------------------------------------------------
41,700 Albany International Corp. 1,293,117
99,700 Domtar, Inc. (Canada) 1,156,520
--------------
2,449,637
Health Care Services (3.9%)
- -------------------------------------------------------------------------------
24,300 aaiPharma, Inc. (NON) 441,774
87,100 Apria Healthcare Group, Inc. (NON) 2,361,281
393,200 Cardinal Health, Inc. 24,040,248
55,847 Community Health Systems, Inc. (NON) 1,512,337
93,297 Health Net, Inc. (NON) 3,050,812
18,700 Henry Schein, Inc. (NON) 1,258,323
22,800 Manor Care, Inc. 805,296
600 WellChoice, Inc. (NON) 20,418
--------------
33,490,489
Homebuilding (3.0%)
- -------------------------------------------------------------------------------
3,065 NVR, Inc. (NON) 1,504,915
222,500 Pulte Homes, Inc. 21,257,650
37,791 Ryland Group, Inc. 3,482,441
--------------
26,245,006
Insurance (1.3%)
- -------------------------------------------------------------------------------
9,000 Delphi Financial Group Class A 477,900
51,828 IPC Holdings, Ltd. (Bermuda) 1,944,068
54,307 Odyssey Re Holdings Corp. 1,243,087
50,083 Radian Group, Inc. 2,471,596
69,665 RenaissanceRe Holdings, Ltd.
(Bermuda) 3,341,133
48,850 W.R. Berkley Corp. 1,668,228
--------------
11,146,012
Investment Banking/Brokerage (0.8%)
- -------------------------------------------------------------------------------
32,000 A.G. Edwards, Inc. 1,175,680
10,500 Affiliated Managers Group (NON) 698,250
50,300 Federated Investors, Inc. 1,446,125
49,500 Janus Capital Group, Inc. 688,545
25,900 National Financial Partners Corp.
(NON) 655,270
117,680 Waddell & Reed Financial, Inc. 2,599,551
--------------
7,263,421
Leisure (0.3%)
- -------------------------------------------------------------------------------
87,204 Brunswick Corp. 2,620,480
Lodging/Tourism (1.6%)
- -------------------------------------------------------------------------------
285,800 Marriott International, Inc. Class A 13,098,214
70,472 Orient-Express Hotels, Ltd. Class A
(Bermuda) 1,128,257
--------------
14,226,471
Machinery (0.6%)
- -------------------------------------------------------------------------------
40,294 Briggs & Stratton Corp. 2,719,845
105,942 Terex Corp. (NON) 2,732,244
--------------
5,452,089
Manufacturing (0.6%)
- -------------------------------------------------------------------------------
59,300 Acuity Brands, Inc. 1,414,305
107,700 Flowserve Corp. (NON) 2,291,856
26,600 IDEX Corp. 1,050,168
21,200 York International Corp. 846,940
--------------
5,603,269
Medical Technology (2.8%)
- -------------------------------------------------------------------------------
87,200 American Medical Systems Holdings,
Inc. (NON) 1,982,056
33,600 Atherogenics, Inc. (NON) 480,480
41,736 C.R. Bard, Inc. 3,155,242
19,100 Inamed Corp. (NON) 1,496,676
327,600 Medtronic, Inc. 14,807,520
38,800 Sybron Dental Specialties, Inc.
(NON) 1,117,828
25,800 Ventana Medical Systems, Inc. (NON) 972,144
--------------
24,011,946
Metals (--%)
- -------------------------------------------------------------------------------
3,200 Carpenter Technology Corp. 85,760
Natural Gas Utilities (0.3%)
- -------------------------------------------------------------------------------
37,700 Energen Corp. 1,468,038
46,700 UGI Corp. 1,510,745
--------------
2,978,783
Office Equipment & Supplies (0.4%)
- -------------------------------------------------------------------------------
60,331 Hon Industries, Inc. 2,563,464
18,200 United Stationers, Inc. (NON) 734,370
--------------
3,297,834
Oil & Gas (0.8%)
- -------------------------------------------------------------------------------
68,900 Cabot Oil & Gas Corp. Class A 1,829,984
25,500 Comstock Resources, Inc. (NON) 415,650
11,400 Denbury Resources, Inc. (Canada)
(NON) 144,096
54,506 FMC Technologies, Inc. (NON) 1,159,888
40,137 Noble Energy, Inc. 1,591,432
70,600 Tesoro Petroleum Corp. (NON) 895,208
103,800 Vintage Petroleum, Inc. 1,080,558
--------------
7,116,816
Pharmaceuticals (7.3%)
- -------------------------------------------------------------------------------
27,700 Bradley Pharmaceuticals, Inc. (NON) 651,504
255,500 Forest Laboratories, Inc. (NON) 13,960,520
442,612 Johnson & Johnson 21,816,345
76,000 King Pharmaceuticals, Inc. (NON) 981,160
21,100 Kos Pharmaceuticals, Inc. (NON) 938,950
12,600 Medicis Pharmaceutical Corp. Class A 830,088
702,184 Pfizer, Inc. (SEG) 23,558,273
22,816 Watson Pharmaceuticals, Inc. (NON) 1,075,546
--------------
63,812,386
Photography/Imaging (0.1%)
- -------------------------------------------------------------------------------
43,000 Lexar Media, Inc. (NON) 918,480
Real Estate (0.3%)
- -------------------------------------------------------------------------------
50,610 American Financial Realty Trust (R) 860,370
11,800 Apartment Investment & Management
Co. Class A (R) 401,790
10,038 CBL & Associates Properties (R) 564,638
13,115 Mills Corp. (R) 568,535
--------------
2,395,333
Regional Bells (0.1%)
- -------------------------------------------------------------------------------
123,400 Cincinnati Bell, Inc. (NON) 704,614
Retail (11.1%)
- -------------------------------------------------------------------------------
25,200 Abercrombie & Fitch Co. Class A
(NON) 739,620
632,400 AutoZone, Inc. (NON) 60,495,384
18,400 Claire's Stores, Inc. 853,760
474,100 Family Dollar Stores, Inc. 18,290,778
25,400 Finish Line Class A (NON) 777,494
99,461 Foot Locker, Inc. 2,198,088
66,300 Hollywood Entertainment Corp. (NON) 905,658
42,700 Michaels Stores, Inc. 2,017,575
111,200 Movie Gallery, Inc. (NON) 1,967,128
91,075 Rent-A-Center, Inc. (NON) 2,959,027
27,405 Ross Stores, Inc. 1,501,246
29,600 ShopKo Stores, Inc. (NON) 492,840
134,200 Supervalu, Inc. 3,465,044
--------------
96,663,642
Software (6.0%)
- -------------------------------------------------------------------------------
114,752 Amdocs, Ltd. (Guernsey) (NON) 2,871,095
582,026 BMC Software, Inc. (NON) 9,679,092
52,785 Hyperion Solutions Corp. (NON) 1,751,406
1,406,500 Microsoft Corp. 36,147,050
44,500 Progress Software Corp. (NON) 932,720
26,000 WebEx Communications, Inc. (NON) 513,760
--------------
51,895,123
Staffing (0.1%)
- -------------------------------------------------------------------------------
27,400 AMN Healthcare Services, Inc. (NON) 465,252
Technology Services (3.0%)
- -------------------------------------------------------------------------------
719,564 Accenture, Ltd. Class A (Bermuda)
(NON) 17,917,143
40,959 CACI International, Inc. Class A
(NON) 2,038,529
11,200 Factset Research Systems, Inc. 464,240
12,100 Imagistics International, Inc. (NON) 440,803
126,900 Mercury Computer Systems, Inc. (NON) 3,039,255
24,800 Transaction Systems Architects, Inc.
(NON) 488,064
26,300 United Online, Inc. (NON) 478,923
88,123 VeriSign, Inc. (NON) 1,428,474
--------------
26,295,431
Telecommunications (0.3%)
- -------------------------------------------------------------------------------
20,832 Commonwealth Telephone Enterprises,
Inc. (NON) 783,700
56,300 Dobson Communications Corp. (NON) 332,170
293,900 Infonet Services Corp. (NON) 558,410
96,300 Primus Telecommunications GP (NON) 1,019,817
--------------
2,694,097
Telephone (0.1%)
- -------------------------------------------------------------------------------
49,200 Time Warner Telecom, Inc. Class A
(NON) 519,060
Textiles (0.4%)
- -------------------------------------------------------------------------------
28,762 Mohawk Industries, Inc. (NON) 2,073,164
78,221 Wolverine World Wide, Inc. 1,626,215
--------------
3,699,379
Tire & Rubber (0.1%)
- -------------------------------------------------------------------------------
53,700 Cooper Tire & Rubber 1,074,537
--------------
Total Common stocks (cost $776,761,858) $865,560,508
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/$12.50 $89,644
Short-term investments (5.9%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$44,977,709 Short-term investments held as
collateral for loaned securities
with yields ranging from 1.00% to
1.10% and due dates ranging from
December 1, 2003 to January 16,
2004 (d) $44,962,362
6,379,910 Short-term investments held in
Putnam commingled cash account with
yields ranging from 1.01% to 1.11%
and due dates ranging from December 1,
2003 to January 23, 2004 (d) 6,379,910
--------------
Total Short-term investments (cost $51,342,272) $51,342,272
- -------------------------------------------------------------------------------
Total Investments (cost $828,250,513) $916,992,424
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $868,705,707.
(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 November
30, 2003.
(R) Real Estate Investment Trust.
ADR after the name of a foreign holding stands for American Depositary
Receipts, representing ownership of foreign securities on deposit with a
custodian bank.
(d) See Note 1 to the financial statements.
The accompanying notes are an integral part of these financial
statements.
Futures contracts outstanding at November 30, 2003 (Unaudited)
Unrealized
Market Aggregate Expiration appreciation/
value face value date (depreciation)
- ----------------------------------------------------------------------------------------
Russell 2000 Index (Long) $3,825,500 $3,761,020 Dec-03 $64,480
S&P 500 Index (Long) 528,900 529,358 Dec-03 (458)
- ----------------------------------------------------------------------------------------
$64,022
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
November 30, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value, including $43,774,643
of securities on loan (identified cost $828,250,513) (Note 1) $916,992,424
- -------------------------------------------------------------------------------
Cash 58,615
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 618,720
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 327,445
- -------------------------------------------------------------------------------
Receivable for securities sold 5,371,583
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 14,550
- -------------------------------------------------------------------------------
Total assets 923,383,337
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 2,070,656
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,076,631
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,394,938
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 351,381
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 148,541
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 944
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 542,043
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 44,962,362
- -------------------------------------------------------------------------------
Other accrued expenses 130,134
- -------------------------------------------------------------------------------
Total liabilities 54,677,630
- -------------------------------------------------------------------------------
Net assets $868,705,707
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,075,034,133
- -------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (1,214,726)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (293,919,633)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 88,805,933
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $868,705,707
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($461,215,262 divided by 29,154,844 shares) $15.82
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $15.82)* $16.79
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($380,585,212 divided by 25,180,546 shares)** $15.11
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($3,732,302 divided by 241,862 shares)** $15.43
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($23,172,931 divided by 1,513,371 shares) $15.31
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $15.31)* $15.87
- -------------------------------------------------------------------------------
* 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
Six months ended November 30, 2003 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $5,128) $5,414,785
- -------------------------------------------------------------------------------
Interest 41,186
- -------------------------------------------------------------------------------
Securities lending 43,224
- -------------------------------------------------------------------------------
Total investment income 5,499,195
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,795,071
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 990,227
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 14,456
- -------------------------------------------------------------------------------
Administrative services (Note 2) 5,744
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 625,348
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,988,182
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 16,769
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 93,994
- -------------------------------------------------------------------------------
Other 399,260
- -------------------------------------------------------------------------------
Total expenses 6,929,051
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (215,130)
- -------------------------------------------------------------------------------
Net expenses 6,713,921
- -------------------------------------------------------------------------------
Net investment loss (1,214,726)
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 84,418,380
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 225,408
- -------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 158,829
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 72
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
contracts during the period 12,022,724
- -------------------------------------------------------------------------------
Net gain on investments 96,825,413
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $95,610,687
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
Decrease in net assets 2003* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment loss $(1,214,726) $(3,067,961)
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 84,802,689 (200,306,095)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 12,022,724 44,483,254
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 95,610,687 (158,890,802)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (140,925,213) (221,253,238)
- -------------------------------------------------------------------------------
Total decrease in net assets (45,314,526) (380,144,040)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 914,020,233 1,294,164,273
- -------------------------------------------------------------------------------
End of period (including accumulated net
investment loss of $1,214,726 and $--,
respectively) $868,705,707 $914,020,233
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Nov. 30
Per-share (Unaudited) Year ended May 31
operating performance 2003 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.24 $15.89 $18.32 $23.75 $21.93 $23.15
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) .01 -- (d) -- (d) -- (d) (.02) .17
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.57 (1.65) (2.43) (.75) 2.39 (.75)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.58 (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 $15.82 $14.24 $15.89 $18.32 $23.75 $21.93
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 11.10* (10.38) (13.26) (5.06) 10.65 (2.40)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $461,215 $495,165 $697,394 $911,299 $999,789 $1,246,913
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .58* 1.22 1.08 1.00 .96 .93
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .04* .01 .02 -- (e) (.10) .77
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.15* 107.08 133.78 263.98 188.16 92.49
- ---------------------------------------------------------------------------------------------------------------------------------
* 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).
(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
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Nov. 30
Per-share (Unaudited) Year ended May 31
operating performance 2003 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.66 $15.35 $17.84 $23.39 $21.66 $22.86
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.05) (.09) (.12) (.15) (.18) .03
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.50 (1.60) (2.37) (.72) 2.36 (.73)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.45 (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 $15.11 $13.66 $15.35 $17.84 $23.39 $21.66
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(c) 10.61* (11.01) (13.96) (5.70) 9.90 (2.99)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $380,585 $391,161 $554,719 $796,227 $1,047,040 $1,361,513
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) .96* 1.97 1.83 1.70 1.63 1.55
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.34)* (.74) (.73) (.70) (.79) .15
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.15* 107.08 133.78 263.98 188.16 92.49
- ---------------------------------------------------------------------------------------------------------------------------------
* 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) 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
Six months period
ended July 14,
Nov. 30 2000+
Per-share (Unaudited) Year ended May 31 to May 31
operating performance 2003 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.94 $15.67 $18.21 $27.15
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment loss (a) (.05) (.10) (.12) (.11)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.54 (1.63) (2.42) (4.15)
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.49 (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 $15.43 $13.94 $15.67 $18.21
- -----------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.69* (11.04) (13.95) (17.40)*
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,732 $2,993 $3,405 $2,175
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .96* 1.97 1.83 1.54*
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.34)* (.74) (.71) (.44)*
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.15* 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
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Nov. 30
Per-share (Unaudited) Year ended May 31
operating performance 2003 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.82 $15.49 $17.96 $23.47 $21.70 $22.91
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a) (.03) (.06) (.08) (.11) (.14) .06
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.52 (1.61) (2.39) (.72) 2.36 (.73)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.49 (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 $15.31 $13.82 $15.49 $17.96 $23.47 $21.70
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.78* (10.78) (13.75) (5.49) 10.07 (2.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $23,173 $24,702 $38,646 $55,231 $70,129 $90,187
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .83* 1.72 1.58 1.50 1.46 1.43
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.21)* (.49) (.48) (.50) (.59) .27
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.15* 107.08 133.78 263.98 188.16 92.49
- ---------------------------------------------------------------------------------------------------------------------------------
* 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.
Notes to financial statements
November 30, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam Capital Appreciation Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end
management investment company. The fund seeks capital appreciation by
investing primarily in common stocks that offer potential for capital
appreciation. Current income is only an incidental consideration in
selecting investments for the fund.
The fund offers class A, class B, class C and class M shares. The fund
will begin offering class R shares on December 1, 2003. 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 the last reported sales price on their
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. Such valuations and
procedures are reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrange ments,
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. 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) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
E) 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.
F) 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 November 30, 2003, the value
of securities loaned amounted to $43,774,643. The fund received cash
collateral of $44,962,362 which is pooled with collateral of other
Putnam funds into 32 issuers of high grade short-term investments.
G) Line of credit During the period, the fund was entered into a
committed line of credit with certain banks. The line of credit
agreement included restrictions that the fund maintain an asset coverage
ratio of at least 300% and borrowings must not exceed prospectus
limitations. For the period ended August 6, 2003, the fund had no
borrowings against the line of credit. Effective August 6, 2003, the
fund no longer participated in a committed line of credit.
H) 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 $298,382,870
available to the extent allowed by tax law to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- --------------------------------
$142,653,062 May 31, 2010
155,729,808 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.
The aggregate identified cost on a tax basis is $849,928,892, resulting
in gross unrealized appreciation and depreciation of $88,106,282 and
$21,042,750, respectively, or net unrealized appreciation of
$67,063,532.
I) Distributions to shareholders 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.
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 six months ended November 30,
2003, the fund's expenses were reduced by $215,130 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,365 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 Trustee compensation and expenses in the
Statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses 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 six months ended November 30, 2003, Putnam Retail Management,
acting as underwriter, received net commissions of $41,524 and $1,221
from the sale of class A and class M shares, respectively, and received
$303,572 and $2,477 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 six months ended
November 30, 2003, Putnam Retail Management, acting as underwriter,
received $688 and no monies on class A and class M redemptions,
respectively.
Note 3
Purchases and sales of securities
During the six months ended November 30, 2003, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $547,379,243 and $683,975,992, respectively.
There were no purchases and sales of U.S. government obligations.
Written option transactions during the period are summarized as follows:
Contract Premiums
Amounts Received
- ----------------------------------------------------------------
Written options
outstanding at
beginning of year -- $--
- ----------------------------------------------------------------
Options opened 213,830 302,753
Options exercised (97,642) (143,924)
Options expired (116,188) (158,829)
Options closed -- --
- ----------------------------------------------------------------
Written options
outstanding at
end of year -- $--
- ----------------------------------------------------------------
Note 4
Capital shares
At November 30, 2003, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended November 30, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 1,995,573 $29,910,354
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ----------------------------------------------------------------
1,995,573 29,910,354
Shares repurchased (7,611,988) (116,289,231)
- ----------------------------------------------------------------
Net decrease (5,616,415) $(86,378,877)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended November 30, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 1,056,624 $15,226,991
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ----------------------------------------------------------------
1,056,624 15,226,991
Shares repurchased (4,519,927) (66,081,231)
- ----------------------------------------------------------------
Net decrease (3,463,303) $(50,854,240)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended November 30, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 107,961 $1,601,321
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ----------------------------------------------------------------
107,961 1,601,321
Shares repurchased (80,753) (1,194,055)
- ----------------------------------------------------------------
Net increase 27,208 $407,266
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Six months ended November, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 111,577 $1,606,721
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- --
- ----------------------------------------------------------------
111,577 1,606,721
Shares repurchased (385,832) (5,706,083)
- ----------------------------------------------------------------
Net decrease (274,255) $(4,099,362)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Note 5
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order by
the Securities and Exchange Commission (SEC) in partial resolution of
administrative and cease-and-desist proceedings initiated by the SEC on
October 28, 2003 in connection with alleged excessive short-term trading
by at least six Putnam Management investment professionals. The SEC's
findings reflect that four of those employees engaged in such trading in
funds over which they had investment decision-making responsibility and
had access to non-public information regarding, among other things,
current portfolio holdings, and valuations. The six individuals are no
longer employed by Putnam Management. Under the order, Putnam Management
will make restitution for losses attributable to excessive short-term
trading by Putnam employees, institute new employee trading restrictions
and enhanced employee trading compliance, retain an independent
compliance consultant, and take other remedial actions. Putnam
Management neither admitted nor denied the order's findings, which
included findings that Putnam Management willfully violated provisions
of the federal securities laws. A civil monetary penalty and other
monetary relief, if any, will be determined at a later date. If a
hearing is necessary to determine the amounts of such penalty or other
relief, Putnam Management will be precluded from arguing that it did not
violate the federal securities laws in the manner described in the SEC
order, the findings set forth in the SEC order will be accepted as true
by the hearing officer and additional evidence may be presented. Putnam
Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal
fees. Administrative proceedings instituted by the Commonwealth of
Massachu setts on October 28, 2003 against Putnam Management in
connection with alleged market timing activities by Putnam employees and
by participants in some Putnam-administered 401(k) plans are pending.
Putnam Management has committed to make complete restitution for any
losses suffered by Putnam shareholders as a result of any improper
market-timing activities by Putnam employees or within
Putnam-administered 401(k) plans.
The SEC's and Commonwealth's allegations and related matters also serve
as the general basis for numerous lawsuits, including purported class
action lawsuits filed against Putnam Management and certain related
parties, including certain Putnam funds. Putnam Management has agreed to
bear any costs incurred by Putnam funds in connection with these
lawsuits. Based on currently available information, Putnam Management
believes that the likelihood that the pending private lawsuits and
purported class action lawsuits will have a material adverse financial
impact on the fund is remote, and the pending actions are not likely to
materially affect its ability to provide investment management services
to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. In addition, Marsh & McLennan Companies, Inc., Putnam
Management's parent company, has engaged counsel to conduct a separate
review of Putnam Management's policies and controls related to
short-term trading. The fund may experience increased redemptions as a
result of these matters, which could result in increased transaction
costs and operating expenses.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Investors should consider the investment objective, risks, charges, and
expenses of a fund before investing. For a prospectus containing this
and other information for any Putnam fund or product, call your
financial advisor at 1-800-225-1581 and ask for a prospectus. Please
read the prospectus carefully before investing.
Growth Funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund+
Income Funds
American Government Income Fund
Diversified Income Trust
Global Income Trust*
High Yield Advantage Fund+*
High Yield Trust*
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund [DOUBLE DAGGER]
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund [DOUBLE DAGGER]
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
Asset Allocation Funds
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* A 1% redemption fee on total assets redeemed or exchanged within 90
days of purchase may be imposed for all share classes of these funds.
+ Closed to new investors.
[DOUBLE DAGGER] An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. Although the funds seek
to preserve your investment at $1.00 per share, it is
possible to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
Fund information
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
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
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
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
SA002-203423 433/948/2BN 1/04
Not FDIC Insured May Lose Value No Bank Guarantee
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
(a) 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.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
- ------------------
(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: January 23, 2004
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: January 23, 2004
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: January 23, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: January 23, 2004