Putnam
Capital
Appreciation
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The managers of a fund whose investment strategy emphasizes
diversification can find a market dominated by a single type of stock
frustrating indeed. Such was the case for Putnam Capital Appreciation Fund
during the fiscal year ended May 31, 1999. For most of the period,
large-company stocks led the market as stocks of smaller and midsize
companies took a back seat.
Despite the challenges presented by such a narrow market, your fund's
management team held fast to the established investment discipline. In the
following report, your fund's managers discuss fiscal 1999 performance and
look with optimism at prospects for the months ahead.
I am pleased to announce the appointment of Michael K. Arends to the
fund's management team. Before joining Putnam in 1997, Michael was with
Phoenix Duff and Phelps, Kemper Financial Services, and Institutional
Capital Corporation. He has 22 years of investment experience. After the
close of the fiscal period, Joseph P. Joseph also was appointed to the
fund's management team. Before joining Putnam in 1994, Joe was with Vert
Independent Capital Research, Price Waterhouse LLP, and Bramayya & Co. He
has 10 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 21, 1999
Report from the Fund Managers
Gerald S. Zukowski
Michael K. Arends
Thomas Haslett
Diversification is one of the classic guidelines of prudent investing, but
occasionally it may actually detract from short-term performance. This was
the case for the fiscal year ended May 31, 1999, when a small group of
large-company growth stocks dominated the U.S. equity market and
outperformed all other types of investments. For funds that invest across
a wide spectrum of companies, such as Putnam Capital Appreciation Fund,
this environment proved quite challenging. During this period, we made
some shifts in the focus of the fund's holdings and expanded the
management team to take better advantage of the fund's flexible strategy.
At the same time, we remained committed to strategic stock selection that
targets fundamentally strong companies with attractive prices.
Total return for 12 months ended 5/31/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------
-2.40% -8.01% -2.99% -7.73% -2.87% -6.27%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* PORTFOLIO HOLDINGS BROADENED
Since its inception in 1993, Putnam Capital Appreciation Fund's strength
has been its all-cap strategy, which gives it the flexibility to invest in
companies of all sizes and at different stages of growth. This approach,
combined with our intensive bottom-up stock selection process, has
resulted in solid long-term returns.
During fiscal 1999, however, even such a flexible strategy was challenged
by the narrow market. The fund's investments in small companies proved
problematic as these stocks remained severely out of favor. Conversely
large-company stocks, which were not as heavily represented in the
portfolio, provided the strongest returns through most of the period. We
have since repositioned the portfolio to place a greater emphasis on
stocks of midsize and large companies. Another manager (Michael Arends)
has joined the team to allow us to provide broader coverage of the equity
market.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and finance 11.3%
Telecommunications 10.1%
Pharmaceuticals 9.0%
Retail 8.9%
Electronics and
electrical equipment 8.1%
Footnote reads:
*Based on net assets as of 5/31/99. Holdings will vary over time.
Despite the challenging market conditions, we are pleased to report on a
number of stocks that performed well during the period. A rebound in the
semiconductor industry provided a boost for the fund, as holdings such as
QLogic Corp. posted significant gains.
QLogic Corp. designs semiconductors and other products that are used to
link computers to peripheral devices such as hard disk and CD-ROM drives.
The company has been extremely successful with its high-performance Fibre
Channel product line. While these holdings, along with others discussed in
this report, were viewed favorably at the end of the fiscal period, all
are subject to review and adjustment in accordance with the fund's
investment strategy and may vary in the future.
* LARGE AND MIDSIZE HOLDINGS PROVIDE BOOST
Some notable stocks among the fund's large-cap holdings were IBM, the
world's largest computer maker, and Tyco International, a rapidly growing
conglomerate. IBM recently reported first-quarter profits that far
exceeded Wall Street estimates. The company saw strong growth in personal
computers -- its traditional line of business -- as well as in its
evolving software and services businesses.
Tyco International's strengths are its ability to globalize its core
businesses, to excel in any market it enters, and to acquire
underperforming companies and bring them up to Tyco's high standards. In
the past few years, Tyco has diversified from primarily
construction-related businesses to leadership positions in a variety of
industry sectors, from disposable medical supplies and electrical
components to fire protection systems and security devices. Tyco's
impressive growth is a result of its status as a world-class manufacturer
and its ability to acquire competitors and turn them into growth vehicles
by cutting costs and making vast operational improvements.
"Putnam Capital Appreciation Fund is its family's most-flexible fund. Lead
manager Jerry Zukowski has used his ability to shift among companies with
varying market caps, sectors, and value/growth characteristics well."
- -- Morningstar.net, June 1, 1999
Among the fund's mid-cap holdings was Calpine Corporation, a power company
dedicated to providing customers with clean, competitively priced
electricity and thermal energy. Calpine recently acquired 14 geothermal
power plants from Pacific Gas and Electric Company. It now owns interests
in and operates 18 geothermal power plants and is the nation's largest
geothermal and green power producer. The company also broke ground for a
$275 million natural gas-fired power plant to be constructed on the Fort
Mojave Indian Reservation in Arizona.
* RETAIL STOCKS REAP REWARDS OF STRONG ECONOMY
Continued strength in the U.S. economy and rising consumer confidence
provided a significant boost for retail stocks throughout the period. In
1998, consumer spending rose at its fastest pace in 14 years and a surge
in early income-tax refunds and home mortgage refinancings has put more
disposable income into consumer pockets.
This environment helped stocks such as Intimate Brands, Inc., a fund
holding and a retailer of women's intimate apparel and personal care
products. Best known for its more than 1,800 Victoria's Secret and Bath &
Body Works shops, the company has launched a number of successful
promotional programs to boost its brand recognition. Its well-received
Victoria's Secret fashion show was simulcast live on the Internet and was
viewed by an estimated 200 million people over a four-day period. The
company also distributes 426 million copies of its Victoria's Secret
catalog each year.
The bottom-up approach to stock selection
A key component of Putnam Capital Appreciation Fund's investment strategy is
its bottom-up stock selection process. The term "bottom-up" refers to focusing
on the merits and potential of individual companies before considering broad
economic trends. This approach assumes that individual stocks can deliver
strong performance even if they are in industries that aren't performing well.
The success of this process depends on rigorous, in-depth research, which is a
cornerstone of Putnam's investment philosophy. Your fund's management team
works closely with Putnam's Global Equity Research organization to examine and
monitor thousands of companies and industries. In addition, many Putnam
analysts have decades of experience in the businesses they follow, bringing a
sharper perspective to their analyses. At Putnam, we believe the teamwork
between this vast network of analysts and portfolio managers leads to stronger
investment decisions.
Another strong performer in your fund's portfolio was postage services
company Pitney Bowes, Inc. The company's strength is its focus on rapidly
growing consumer markets such as small businesses and Internet users.
Pitney Bowes recently announced a partnership in which 700 Office Depot
stores nationwide will carry the Pitney Bowes Personal Post postage meter
and scale, giving small businesses the versatility to affix postage to
envelopes of all sizes quickly and professionally. The stand-alone postage
system can be refilled online via phone modem in less than 30 seconds, 24
hours a day.
* MARKET SHOWS SIGNS OF BROADENING
In the final months of the fiscal year, stocks of small and midsize
companies finally began to show signs of improvement, moving from the
shadow of large-company stocks to investors' favor. Of course, it is too
soon to determine whether this change represents a long-term shift in
investor sentiment. As always, your fund remains true to its all-cap
investment style with a portfolio mix of small-, mid-, and
large-capitalization stocks. On a selective basis, we have been taking
some profits in highly valued growth stocks and shifting the proceeds to
attractively priced mid-cap holdings.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 5/31/99, there is no guarantee the fund will
continue to hold these securities in the future.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
General Electric Co.
Electronics and electrical equipment
IBM Corp.
Computer equipment
Tyco International Ltd.
Conglomerate
Microsoft Corp.
Computer services and software
Merck & Co., Inc.
Pharmaceuticals
SBC Communications, Inc.
Telecommunications
Lowe's Cos., Inc.
Retail
Ascend Communications, Inc.
Telecommunications
MediaOne Group Inc.
Broadcasting
Tandy Corp.
Electronics and electrical equipment
Footnote reads:
These holdings represent 19.5% of the fund's net assets as of 5/31/99.
Portfolio holdings will vary over time.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Capital
Appreciation Fund is designed for investors seeking capital appreciation
through investments in equities chosen for their growth potential.
TOTAL RETURN FOR PERIODS ENDED 5/31/99
Class A Class B Class M
(inception dates) (8/5/93) (11/2/94) (1/22/96)
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------
1 year -2.40% -8.01% -2.99% -7.73% -2.87% -6.27%
- --------------------------------------------------------------------------
5 years 141.67 127.67 133.19 131.19 135.56 127.37
Annual average 19.30 17.89 18.45 18.25 18.69 17.85
- --------------------------------------------------------------------------
Life of fund 208.30 190.58 195.55 194.55 199.16 188.81
Annual average 21.34 20.12 20.47 20.40 20.72 19.99
- --------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/99
Russell Standard &
Midcap Poor's Consumer
Growth Index 500 Index price index
- --------------------------------------------------------------------------
1 year 15.64% 21.03% 2.09%
- --------------------------------------------------------------------------
5 years 145.23 215.97 12.68
Annual average 19.65 25.88 2.42
- --------------------------------------------------------------------------
Life of fund 162.41 229.79 15.10
Annual average 17.99 22.71 2.44
- --------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50% respectively. Class B share returns for the 1-year and life-of-fund
periods reflect the applicable contingent deferred sales charge (CDSC),
which is 5% in the first year, declines to 1% in the sixth year, and is
eliminated thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and in the case
of class B and class M shares the higher operating expenses applicable to
such shares. All returns assume reinvestment of distributions at NAV.
Investment return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original cost.
Performance data reflect a voluntary expense limitation previously in
effect. Without the expense limitation, total returns would have been
lower.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 8/5/93
Fund's class A Russell Midcap S&P 500 Consumer price
Date shares at POP Growth Index Index index
8/5/93 9,425 10,000 10,000 10,000
5/31/94 12,025 10,701 10,437 10,215
5/31/95 13,902 12,383 12,545 10,540
5/31/96 19,125 16,499 16,112 10,845
5/31/97 23,506 18,308 20,851 11,087
5/31/98 29,774 22,692 27,249 11,274
5/31/99 $29,058 $26,241 $32,979 $11,510
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $29,555 ($29,455 with a redemption at the end of the
period); a $10,000 investment in the fund's class M shares would have been
valued at $29,916 ($28,881 at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 5/31/99
Class A Class B Class M
- ---------------------------------------------------------------------------
Distributions (number) 1 1 1
- ---------------------------------------------------------------------------
Income $0.144 $0.002 $0.036
- ---------------------------------------------------------------------------
Capital gains
Long-term 0.305 0.305 0.305
- ---------------------------------------------------------------------------
Short-term 0.197 0.197 0.197
- ---------------------------------------------------------------------------
Total $0.646 $0.504 $0.538
- ---------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ---------------------------------------------------------------------------
5/31/98 $23.15 $24.56 $22.86 $22.91 $23.74
- ---------------------------------------------------------------------------
5/31/99 21.93 23.27 21.66 21.70 22.49
- ---------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (8/5/93) (11/2/94) (1/22/96)
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------
1 year 0.98% -4.83% 0.36% -4.54% 0.43% -3.09%
- -------------------------------------------------------------------------
5 years 166.92 151.48 157.36 155.36 160.13 150.92
Annual average 21.70 20.25 20.81 20.62 21.07 20.20
- -------------------------------------------------------------------------
Life of fund 225.31 206.62 211.65 210.65 215.43 204.51
Annual average 22.13 20.91 21.25 21.18 21.50 20.77
- -------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's 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.
Comparative benchmarks
Russell Midcap Index* is composed of all medium and medium/small companies
in the Russell 1000 Index. The Russell 1000 Index represents the universe
of stocks from which the most active money managers typically select.
Standard & Poor's 500 Index* is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment 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 for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the 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
amounts 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-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the fiscal year ended May 31, 1999
To the Trustees and Shareholders of
Putnam Capital Appreciation Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Capital
Appreciation Fund (the "fund") at May 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at May 31, 1999 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 14, 1999
<TABLE>
<CAPTION>
The fund's portfolio
May 31, 1999
COMMON STOCKS (98.3%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 General Dynamics Corp. $ 9,205,000
170,000 Raytheon Co. Class A 11,294,375
200,000 Raytheon Co. Class B 13,612,500
--------------
34,111,875
Automotive (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
145,900 Navistar International Corp. 7,203,813
145,900 Standard Automotive Corp. 1,641,375
--------------
8,845,188
Basic Industrial Products (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
96,800 Caterpillar, Inc. 5,311,900
96,900 Illinois Tool Works, Inc. 7,437,075
--------------
12,748,975
Biotechnology (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
91,700 BioChem Pharmaceutical, Inc. (NON) 1,753,763
53,200 Genzyme Corp. (NON) 2,157,925
--------------
3,911,688
Broadcasting (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
386,012 AT&T Corp. - Liberty Media, Class A (NON) 25,645,672
286,200 Cablevision Systems Corp. Class A (NON) 22,574,025
327,500 CBS Corp. (NON) 13,673,125
118,700 Comcast Corp. Class A 4,569,950
274,100 Infinity Broadcasting Corp. Class A (NON) 7,006,681
518,300 MediaOne Group Inc. (NON) 38,289,413
--------------
111,758,866
Building and Construction (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
195,800 Dayton Superior Corp. (NON) 3,512,163
136,900 Group Maintenance America Corp. 1,865,263
50,000 Southern Energy Homes, Inc. (NON) 232,813
--------------
5,610,239
Business Equipment and Services (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
142,100 Acxiom Corp. (NON) 3,836,700
585,700 Cendant Corp. 10,798,844
320,000 Corrpro Cos., Inc. (NON) 3,180,000
233,200 Korn/Ferry Intl. (NON) 3,089,900
254,700 Pitney Bowes, Inc. 16,237,125
389,300 True North Communications Inc. 9,099,888
81,300 Unidigital, Inc. (NON) 365,850
763,500 U.S. Foodservice (NON) 33,975,750
--------------
80,584,057
Chemicals (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
85,400 Air Products & Chemicals, Inc. 3,501,400
123,200 Dow Chemical Co. 14,968,800
165,700 du Pont (E.I.) de Nemours & Co., Ltd. 10,842,994
135,000 MacDermid, Inc. 5,433,750
65,000 W.R. Grace & Co. (NON) 1,157,813
--------------
35,904,757
Computer Equipment (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
238,500 Cisco Systems, Inc. (NON) 25,996,500
218,700 Hewlett-Packard Co. 20,626,144
581,200 IBM Corp. 67,600,825
132,300 Sun Microsystems, Inc. (NON) 7,904,925
--------------
122,128,394
Computer Services and Software (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
535,300 4Front Software International, Inc. (NON) 5,353,000
267,200 Acclaim Entertainment, Inc. (NON) 1,728,450
280,700 Adobe Systems, Inc. 20,806,888
170,000 BMC Software, Inc. (NON) 8,404,375
255,100 Computer Associates International, Inc. 12,069,419
273,700 Computer Sciences Corp. (NON) 17,704,969
141,200 Compuware Corp. (NON) 4,386,025
154,800 Diamond Multimedia Systems, Inc. (NON) 682,088
54,000 Electronic Data Systems Corp. 3,037,500
745,600 Microsoft Corp. (NON) 60,160,600
135,900 National Computer Systems Inc. 4,246,875
473,600 Parametric Technology Corp. (NON) 6,571,200
400,000 PLATINUM Technology, Inc. (NON) 11,650,000
71,600 Pomeroy Computer Resources, Inc. (NON) 1,029,250
40,000 Sterling Commerce, Inc. (NON) 1,555,000
195,500 Sterling Software, Inc. (NON) 4,753,094
111,200 Storage Technology Corp. (NON) 2,210,100
--------------
166,348,833
Conglomerates (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
814,800 Ogden Corp. 20,319,075
737,000 Tyco International Ltd. 64,395,375
118,000 United Technologies Corp. 7,323,375
--------------
92,037,825
Consumer Durable Goods (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
100,700 Global-Tech Appliance, Inc. (NON) 528,675
108,200 Home Security International, Inc. (NON) 689,775
103,300 Maytag Corp. 7,289,106
--------------
8,507,556
Consumer Non Durables (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
58,500 Kellwood Co. 1,389,375
163,500 Kimberly-Clark Corp. 9,595,406
170,000 Nike, Inc. 10,359,375
200,000 Styling Technology Corp. (NON) 2,800,000
--------------
24,144,156
Consumer Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
62,100 America Online, Inc. (NON) 7,413,188
264,000 Darden Restaurants, Inc. 5,626,500
256,800 Steiner Leisure Ltd. (NON) 7,350,900
128,700 Sylvan Learning Systems, Inc. (NON) 3,507,075
--------------
23,897,663
Electronics and Electrical Equipment (8.1%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 Bell Microproducts, Inc. (NON) 1,406,250
17,700 Celestica Inc. (Canada) (NON) 701,363
200,000 Emerson Electric Co. 12,775,000
788,200 General Electric Co. 80,150,088
87,500 Honeywell, Inc. 8,279,688
208,400 Intel Corp. 11,266,625
265,200 Motorola, Inc. 21,961,875
442,200 Pioneer-Standard Electronics, Inc. 4,339,088
190,000 QLogic Corp. (NON) 20,852,500
89,700 Semtech Corp. (NON) 3,750,581
459,200 Tandy Corp. 37,884,000
71,000 Texas Instruments, Inc. 7,765,625
230,000 Vishay Intertechnology, Inc. (NON) 4,786,875
143,850 WESCO International, Inc. (NON) 2,850,028
--------------
218,769,586
Energy-Related (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
270,000 Calpine Corp. (NON) 14,630,625
Entertainment (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
146,000 Time Warner, Inc. 9,937,125
69,600 Viacom, Inc. Class B (NON) 2,679,600
--------------
12,616,725
Environmental Control (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
410,570 Republic Services, Inc. (NON) 9,648,395
482,600 Waste Management, Inc. 25,517,475
--------------
35,165,870
Food and Beverages (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
362,500 Heinz (H.J.) Co. 17,513,281
400,000 Scheid Vineyards, Inc. Class A (NON) (AFF) 2,150,000
155,900 Seagram Co., Ltd. 8,097,056
180,000 Wendy's International, Inc. 4,905,000
--------------
32,665,337
Health Care (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
273,800 Boston Scientific Corp. (NON) 10,387,288
919,300 Epitope, Inc. (NON) (AFF) 5,515,800
808,300 Foundation Health Systems, Inc. Class A (NON) 14,448,363
323,100 Omega Orthodontics, Inc. (NON) (AFF) 131,259
251,900 United Healthcare Corp. 14,673,175
362,700 WeLLPoint Health Networks, Inc. (NON) 29,900,081
--------------
75,055,966
Information Systems (--%)
- --------------------------------------------------------------------------------------------------------------------------
159,300 OptiSystems Solutions Ltd. 901,041
Insurance and Finance (11.3%)
- --------------------------------------------------------------------------------------------------------------------------
181,200 Aetna Inc. 16,455,225
247,000 AFLAC Inc. 12,597,000
48,600 American Capital Strategies, Ltd. 944,663
71,000 American Express Co. 8,604,313
111,000 American International Group, Inc. 12,688,688
630,000 ARM Financial Group, Inc. 9,450,000
271,500 Bank of America Corp. 17,562,656
226,100 Bank One Corp. 12,788,781
500,000 Beacon Capital Partners 144A 7,687,500
100,000 Charter One Financial, Inc. 2,843,750
309,700 Chase Manhattan Corp. 22,453,250
446,900 Citigroup, Inc. 29,607,125
133,000 Dime Bancorp, Inc. 2,709,875
6,900 Donaldson, Lufkin & Jenrette, Inc. (NON) 284,625
43,600 Fannie Mae 2,964,800
145,800 Federated Investors, Inc. 2,551,500
148,000 Fifth Third Bancorp 10,091,750
323,500 First Union Corp. 14,901,219
576,400 Firstar Corp. 16,607,525
62,300 Fremont General Corp. 1,319,981
260,000 Long Beach Financial Corp. (NON) 3,721,250
328,000 Mercantile Bancorp., Inc. 19,167,500
48,000 MMI Companies, Inc. 828,000
87,800 Morgan Stanley, Dean Witter, Discover and Co. 8,472,700
36,000 Nationwide Financial Services, Inc. Class A 1,554,750
299,650 Preferred Employers Holdings, Inc.(NON) (AFF) 2,060,094
161,900 Providian Financial Corp. 15,532,281
44,500 Schwab (Charles) Corp. 4,708,656
675,600 Scottish Annuity & Life Holdings, Ltd. 6,587,100
100,000 SLM Holding Corp. 4,150,000
104,600 The Equitable Companies, Inc. 7,341,613
321,000 The PMI Group, Inc. 18,778,500
1,071,400 UniCapital Corp. (NON) 6,026,625
96,400 Waddell & Reed Financial, Inc. 2,361,800
--------------
306,405,095
Medical Supplies and Devices (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
304,200 Baxter International, Inc. 19,639,913
564,050 Bergen Brunswig Corp. Class A 12,409,100
201,600 Medtronic, Inc. 14,313,600
--------------
46,362,613
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
79,300 Alcoa Inc. 4,361,500
235,900 Metals USA, Inc. (NON) 2,712,850
66,600 Nucor Corp. 3,325,838
145,000 USX-U.S. Steel Group 3,905,938
--------------
14,306,126
Oil and Gas (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,400,000 Abacan Resource Corp. (Canada) (NON) 372,000
210,000 Ashland, Inc. 8,557,500
204,600 Burlington Resources Inc. 8,785,013
582,000 Conoco, Inc. 15,786,750
76,000 Enron Corp. 5,424,500
83,500 Halliburton Co. 3,454,813
563,300 Newpark Resources, Inc. (NON) 5,069,700
292,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 16,516,250
84,600 Schlumberger Ltd. 5,091,863
469,000 Seitel, Inc. (NON) 7,416,063
253,100 Ultramar Diamond Shamrock Corp. 5,568,200
149,000 Unocal Corp. 5,922,750
266,300 Williams Cos., Inc. 13,797,669
--------------
101,763,071
Packaging and Containers (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
118,000 Sealed Air Corp. (NON) 7,330,750
350,000 Shorewood Packaging Corp. (NON) 5,993,750
837,000 Smurfit-Stone Container Corp. (NON) 18,047,813
--------------
31,372,313
Paper and Forest Products (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
67,500 Bowater, Inc. 3,476,250
266,200 Temple Inland, Inc. 17,835,400
111,500 Weyerhaeuser Co. 6,919,969
166,000 Willamette Industries, Inc. 7,034,250
--------------
35,265,869
Pharmaceuticals (9.0%)
- --------------------------------------------------------------------------------------------------------------------------
49,700 Allergan, Inc. 4,622,100
390,000 Elan Corp. PLC ADR (Ireland) (NON) 21,060,000
66,300 Genentech, Inc. (NON) 5,805,394
835,100 ICN Pharmaceuticals, Inc. 27,453,913
189,500 Johnson & Johnson 17,552,438
160,000 Lilly Eli & Co. 11,430,000
133,100 Maxim Pharmaceuticals, Inc. (NON) 1,347,638
801,600 Merck & Co., Inc. 54,108,000
106,600 North American Vaccine, Inc. (NON) 572,975
50,000 Pfizer, Inc. 5,350,000
447,000 Pharmacia & Upjohn, Inc. 24,780,563
720,000 Schering-Plough Corp. 32,445,000
581,600 Warner-Lambert Co. 36,059,200
--------------
242,587,221
Photography (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
217,600 Eastman Kodak Co. 14,715,200
Publishing (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
218,500 Journal Register Co. (NON) 3,796,438
124,000 McGraw-Hill, Inc. 6,432,500
100,000 World Color Press, Inc. (NON) 2,550,000
--------------
12,778,938
Real Estate (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
190,600 Anthracite Capital, Inc. 1,322,288
69,900 Anworth Mortgage Asset Corp. 345,131
113,800 Apartment Investment &
Management Co. Class A (R) 4,779,600
305,200 Capital Automotive (R) 3,948,525
450,000 Captec Net Lease Realty, Inc. (R) 6,046,875
67,600 Centertrust Retail Properties, Inc. (R) 806,975
219,000 Chastain Capital Corp. (R) 1,416,656
208,000 Engel General Developers, Ltd. (NON) (AFF) 416,000
278,600 Hanover Capital Mortgage Holdings, Inc. (R) 1,532,300
208,900 Healthcare Realty Trust, Inc. (R) 4,517,463
218,400 Novastar Financial, Inc. (R) 1,419,600
701,800 Prime Retail, Inc. (R) 6,272,338
383,600 Prison Realty Trust Inc. (R) 4,842,950
6,200 SL Green Realty Corp. (R) 134,850
845,000 Wilshire Real Estate Investment Trust, Inc. (R) (AFF) 3,591,250
--------------
41,392,801
Recreation (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
517,300 Circus Circus Enterprises, Inc. (NON) 10,927,963
170,100 MGM Grand, Inc. (NON) 7,144,200
562,500 Mirage Resorts, Inc. 11,531,250
472,700 Royal Caribbean Cruises Ltd. 18,494,388
--------------
48,097,801
Retail (8.9%)
- --------------------------------------------------------------------------------------------------------------------------
58,700 Abercrombie & Fitch Co. Class A (NON) 4,938,138
373,500 Albertsons, Inc. 19,982,250
106,200 Ann Taylor Stores Corp. (NON) 4,586,513
407,000 BJ's Wholesale Club, Inc. (NON) 10,582,000
36,000 Circuit City Stores, Inc. 2,585,250
34,500 Claire's Stores, Inc. 1,009,125
275,000 Cole National Corp. Class A (NON) 2,526,563
182,000 Dollar General Corp. 4,834,375
265,000 Duckwall-Alco Stores, Inc. (NON) (AFF) 2,716,250
139,400 Federated Department Stores, Inc. (NON) 7,597,300
54,200 Gap, Inc. (The) 3,390,888
95,700 Home Depot, Inc. (The) 5,442,938
443,000 Intimate Brands, Inc. 22,952,938
220,000 Jo-ann Stores Inc. Class A (NON) 3,698,750
187,600 Limited, Inc. (The) 9,168,950
770,000 Lowe's Cos., Inc. 39,991,875
228,900 Officemax, Inc. (NON) 2,632,350
509,400 Pier 1 Imports, Inc. 5,635,238
843,400 Rite Aid Corp. 21,085,000
250,000 Saks, Inc. (NON) 6,906,250
321,300 The Men's Wearhouse, Inc. (NON) 8,203,191
840,000 TJX Cos., Inc. (The) 25,200,000
548,600 Wal-Mart Stores, Inc. 23,384,075
--------------
239,050,207
Specialty Consumer Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
42,600 Mattel, Inc. 1,126,238
Telecommunications (10.1%)
- --------------------------------------------------------------------------------------------------------------------------
151,050 ADC Telecommunications Inc. (NON) 7,382,569
370,800 Adelphia Communications Corp. (NON) 27,995,400
511,000 American Telephone & Telegraph Co. 28,360,500
419,000 Ascend Communications, Inc. (NON) 38,836,063
504,100 Bell Atlantic Corp. 27,599,475
228,000 Cable & Wireless PLC ADR (United Kingdom) 8,721,000
199,100 General Instrument Corp. (NON) 7,702,681
536,666 Hellenic Telecommunication
Organization S.A. (Greece) 11,603,107
361,200 Lucent Technologies, Inc. 20,543,250
182,600 MCI WorldCom, Inc. (NON) 15,772,075
112,600 Nortel Networks Corp. (Canada) 8,445,000
29,300 QUALCOMM, Inc. (NON) 2,849,425
871,900 SBC Communications, Inc. 44,575,863
119,200 Sprint Corp. 13,439,800
206,600 Swisscom AG-ADR (Switzerland) 7,527,988
--------------
271,354,196
Textiles (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
91,200 Mohawk Industries, Inc. (NON) 2,656,200
217,900 Novel Denim Holdings Ltd. (Hong Kong) 2,015,575
--------------
4,671,775
Transportation (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
242,000 Airborne Freight Corp. 6,261,750
170,000 CNF Transportation, Inc. 7,055,000
159,000 Continental Airlines, Inc. (NON) 6,240,750
111,400 FDX Corp. (NON) 6,133,963
386,000 GATX Corp. 14,981,625
259,110 MIF Ltd. (Norway) 4,447,959
110,000 Northwest Airlines Corp. Class A (NON) 3,657,500
385,000 Sea Containers, Ltd. Class A 12,993,750
706,000 Southwest Airlines Co. 22,636,125
48,000 UAL Corp. (NON) 3,228,000
100,000 USFreightways Corp. 3,937,500
--------------
91,573,922
Utilities (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
139,200 CiNergy Corp. 4,750,200
46,300 Consolidated Edison, Inc. 2,248,444
193,400 Constellation Energy Group 6,031,663
298,000 Endesa S. A. 6,425,625
506,600 MCN Corp. 10,132,000
--------------
29,587,932
--------------
Total Common Stocks (cost $2,253,308,706) $2,652,756,540
CONVERTIBLE BONDS AND NOTES (0.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,000,000 Preferred Employers Holdings, Inc.
cv. sub. notes 7s, 2003 $ 1,528,000
2,000,000 World Airways, Inc. cv. sr. sub. deb 8s, 2004 400,000
--------------
Total Convertible Bonds and Notes
(cost $4,000,000) $ 1,928,000
CONVERTIBLE PREFERRED STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
326,800 Cendant Corp. $0.65 cv. pfd. $ 8,415,100
112,200 Standard Automotive Corp. $1.02 cv. pfd. 1,444,575
--------------
Total Convertible Preferred Stocks
(cost $15,234,174) $ 9,859,675
SHORT-TERM INVESTMENTS (0.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 25,000,000 General Electric Capital Corp. effective yield of
4.8%, July 14, 1999 $ 24,856,667
774,000 Interest in $277,448,000 joint repurchase agreement
dated May 28, 1999 with Credit Suisse First Boston
due June 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $774,412 for an
effective yield of 4.79% 774,000
--------------
Total Short-Term Investments (cost $25,630,667) $ 25,630,667
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,298,173,547) (b) $2,690,174,882
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,698,613,382.
(b) The aggregate identified cost on a tax basis is $2,303,510,575, resulting in gross unrealized appreciation and
depreciation of $543,305,392 and $156,641,085, respectively, or net unrealized appreciation of $386,664,307.
(NON) Non-income-producing security.
(AFF) Affiliated Companies (Note 5).
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
ADR after the name of a foreign holding stands for American Depository Receipts respectively, representing
ownership of foreign securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,298,173,547) (Note 1) $2,690,174,882
- -----------------------------------------------------------------------------------------------
Cash 288,414
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 2,060,653
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 803,740
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 61,508,428
- -----------------------------------------------------------------------------------------------
Total assets 2,754,836,117
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 45,016,294
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,083,823
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,767,863
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 291,372
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 49,374
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,586
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,697,294
- -----------------------------------------------------------------------------------------------
Other accrued expenses 311,129
- -----------------------------------------------------------------------------------------------
Total liabilities 56,222,735
- -----------------------------------------------------------------------------------------------
Net assets $2,698,613,382
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,342,546,446
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 6,753,608
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (42,687,742)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 392,001,070
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,698,613,382
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,246,913,496 divided by 56,851,073 shares) $21.93
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $21.93)* $23.27
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,361,513,169 divided by 62,852,676 shares)** $21.66
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($90,186,717 divided by 4,156,480 shares) $21.70
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $21.70)* $22.49
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charges.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $97,453) (including dividend income of
$1,260,389 from investments in affiliated issuers) (Note 5) $ 44,524,391
- -----------------------------------------------------------------------------------------------
Interest 9,000,458
- -----------------------------------------------------------------------------------------------
Total investment income 53,524,849
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 16,029,567
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,857,912
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 62,102
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 33,307
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 3,621,645
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 14,108,048
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 813,368
- -----------------------------------------------------------------------------------------------
Reports to shareholders 215,002
- -----------------------------------------------------------------------------------------------
Auditing 67,781
- -----------------------------------------------------------------------------------------------
Legal 20,704
- -----------------------------------------------------------------------------------------------
Postage 847,742
- -----------------------------------------------------------------------------------------------
Other 581,726
- -----------------------------------------------------------------------------------------------
Total expenses 40,258,904
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (611,242)
- -----------------------------------------------------------------------------------------------
Net expenses 39,647,662
- -----------------------------------------------------------------------------------------------
Net investment income 13,877,187
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1, 3 and 5)
(including realized loss of $12,247,784 on sales of
investments in affiliated issuers) (45,947,002)
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (61,006)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies during the year (69,190,584)
- -----------------------------------------------------------------------------------------------
Net loss on investments (115,198,592)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(101,321,405)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 13,877,187 $ 8,172,787
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (46,008,008) 95,643,722
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies (69,190,584) 295,714,232
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (101,321,405) 399,530,741
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (9,606,931) (4,172,539)
- ---------------------------------------------------------------------------------------------------------------
Class B (151,081) (147,312)
- ---------------------------------------------------------------------------------------------------------------
Class M (183,347) (169,011)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (33,490,827) (20,953,406)
- ---------------------------------------------------------------------------------------------------------------
Class B (37,921,426) (22,686,031)
- ---------------------------------------------------------------------------------------------------------------
Class M (2,556,667) (1,774,614)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (490,122,175) 1,920,758,165
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (675,353,859) 2,270,385,993
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 3,373,967,241 1,103,581,248
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
of $6,753,608 and $3,294,580, respectively) $2,698,613,382 $3,373,967,241
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $23.15 $18.76 $16.33 $12.24 $10.74
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .17(c) .17(c) .13(c) .14 .06(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.75) 4.77 3.48 4.37 1.59
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.58) 4.94 3.61 4.51 1.65
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.14) (.09) (.10) (.13) (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.50) (.46) (1.08) (.29) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.64) (.55) (1.18) (.42) (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.93 $23.15 $18.76 $16.33 $12.24
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.40) 26.67 22.91 37.57 15.61
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,246,913 $1,530,290 $525,804 $173,321 $103,555
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .93 1.03 1.20 1.29 1.13(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .77 .77 .79 1.05 1.89(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 92.49 31.08 38.35 76.68 15.32
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid
through expense offset and brokerage service arrangements. Prior periods exclude these amounts. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation in effect during the period. As a result of this limitation, expenses of the fund for
the period ended May 31, 1996 reflect a reduction of less than $0.01 per share for both class A and class B.
(e) Distributions from net investment income amounted to less than $0.01 per share for class B.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Nov. 2, 1994+
operating performance Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $22.86 $18.59 $16.24 $12.19 $11.08
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .03(c) --(c) --(c) .04 .06(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.73) 4.73 3.45 4.35 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.70) 4.73 3.45 4.39 1.26
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income --(e) --(e) (.02) (.05) (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.50) (.46) (1.08) (.29) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.50) (.46) (1.10) (.34) (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.66 $22.86 $18.59 $16.24 $12.19
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.99) 25.72 21.95 36.62 11.55*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,361,513 $1,723,054 $543,015 $153,905 $89,962
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.55 1.78 1.95 2.05 1.12*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .15 .02 .03 .30 .65*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 92.49 31.08 38.35 76.68 15.32
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid
through expense offset and brokerage service arrangements. Prior periods exclude these amounts. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation in effect during the period. As a result of this limitation, expenses of the fund for
the period ended May 31, 1996 reflect a reduction of less than $0.01 per share for both class A and class B.
(e) Distributions from net investment income amounted to less than $0.01 per share for class B.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Jan. 22, 1996+
operating performance Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $22.91 $18.62 $16.29 $13.84
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .06(c) .06(c) .04(c) .02(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.73) 4.73 3.46 2.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.67) 4.79 3.50 2.45
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.04) (.04) (.09) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.50) (.46) (1.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.54) (.50) (1.17) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.70 $22.91 $18.62 $16.29
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.87) 26.04 22.28 17.70 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $90,187 $120,624 $34,763 $2,025
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.43 1.53 1.70 .66*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .27 .28 .23 .16*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 92.49 31.08 38.35 76.68
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid
through expense offset and brokerage service arrangements. Prior periods exclude these amounts. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation in effect during the period. As a result of this limitation, expenses of the fund for
the period ended May 31, 1996 reflect a reduction of less than $0.01 per share for both class A and class B.
(e) Distributions from net investment income amounted to less than $0.01 per share for class B.
</TABLE>
Notes to financial statements
May 31, 1999
Note 1
Significant accounting policies
Putnam Capital Appreciation Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end
management investment company. The fund seeks capital appreciation by
investing primarily in common stocks that offer potential for capital
appreciation. Current income is only an incidental consideration in
selecting investments for the fund.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than
class A shares, and are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class M shares are
sold with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of
some securities traded over-the-counter -- the last reported bid price.
Short-term investments having remaining maturities of 60 days or less are
stated at amortized cost which approximates market, and other investments
are stated at fair value following procedures approved by the Trustees.
Foreign securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date.
E) 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 accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended May
31, 1999, the fund had no borrowings against the line of credit.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At May 31, 1999, the fund had a capital loss carryover of approximately
$36,305,000 available to offset future net capital gain, if any, which
will expire on May 31, 2007.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, and nontaxable
dividends. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. For the year ended May 31,
1999, the fund reclassified $476,800 to decrease undistributed net
investment income and $3,010,048 to decrease paid-in-capital, with a
decrease to accumulated net realized losses of $3,486,848. The calculation
of net investment income per share in the financial highlights table
excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.65% of the first $500
million of average net assets, 0.55% of the next $500 million, 0.50% of
the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and
0.38% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended May 31, 1999, fund expenses were reduced by $611,242
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $2,920
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing
shares of the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class M shares,
respectively. The Trustees have approved payment by the fund to an annual
rate of 0.25%, 0.85% and 0.75% of the average net assets attributable to
class A, class B and class M shares respectively. Prior to July 22, 1998,
the annual rate was 1.00% of the average net assets attributable to class
B shares.
For the year ended May 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $868,811 and $46,471 from the sale
of class A and class M shares, respectively and $4,334,333 in contingent
deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended May 31, 1999, Putnam Mutual Funds Corp., acting
as underwriter received $87,943 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended May 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $2,786,584,757 and
$3,012,698,836, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Note 4
Capital shares
At May 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 17,214,139 $ 381,173,721
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,917,532 40,920,114
- -----------------------------------------------------------------------------
19,131,671 422,093,835
Shares
repurchased (28,393,131) (622,371,499)
- -----------------------------------------------------------------------------
Net decrease (9,261,460) $(200,277,664)
- -----------------------------------------------------------------------------
Year ended May 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 51,074,128 $1,123,253,209
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,143,129 23,946,747
- -----------------------------------------------------------------------------
52,217,257 1,147,199,956
Shares
repurchased (14,135,542) (309,703,535)
- -----------------------------------------------------------------------------
Net increase 38,081,715 $ 837,496,421
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 14,733,005 $ 324,951,994
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,657,373 35,036,895
- -----------------------------------------------------------------------------
16,390,378 359,988,889
Shares
repurchased (28,917,768) (625,889,357)
- -----------------------------------------------------------------------------
Net decrease (12,527,390) $(265,900,468)
- -----------------------------------------------------------------------------
Year ended May 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 57,943,337 $1,265,178,122
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,013,073 21,030,886
- -----------------------------------------------------------------------------
58,956,410 1,286,209,008
Shares
repurchased (12,789,657) (276,546,324)
- -----------------------------------------------------------------------------
Net increase 46,166,753 $1,009,662,684
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,265,021 $ 27,716,635
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 123,959 2,622,987
- -----------------------------------------------------------------------------
1,388,980 30,339,622
Shares
repurchased (2,498,516) (54,283,665)
- -----------------------------------------------------------------------------
Net decrease (1,109,536) $(23,944,043)
- -----------------------------------------------------------------------------
Year ended May 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,053,490 $88,211,779
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 90,372 1,877,929
- -----------------------------------------------------------------------------
4,143,862 90,089,708
Shares
repurchased (744,948) (16,490,648)
- -----------------------------------------------------------------------------
Net increase 3,398,914 $73,599,060
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note 5
Transactions with Affiliated Issuers
Transactions during the year with companies in which the fund owns at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Name of Affiliate cost cost Income Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Residential
Investment Trust, Inc. $ -- $ 7,345,680 $ 21,612 $ --
Anworth Mortgage Asset Corp. -- 1,265,400 48,480 --
Bonded Motors, Inc. -- 1,985,027 -- --
Calpine Corp. 855,411 21,966,615 -- --
Captec Net Lease Realty, Inc. -- 642,600 548,841 --
Chastain Capital Corp. -- 5,715,000 165,728 --
Complete Management, Inc. -- 10,837,398 -- --
Duckwall-Alco Stores, Inc. -- -- -- 2,716,250
Engel General Developers, Ltd. -- 120,000 -- 416,000
Epitope, Inc. -- 904,484 -- 5,515,800
4Front Software International, Inc. 1,100,000 188,985 -- --
Hanover Capital Mortgage
Holdings, Inc. -- -- 133,728 --
Omega Orthodontics, Inc. -- 500,000 -- 131,259
Preferred Employers Holdings, Inc. 1,106,250 -- -- 2,060,094
Scheid Vineyards Inc. Class A 1,011,375 -- -- 2,150,000
Unidigital Inc. -- 1,043,545 -- --
West Coast Entertainment Corp. -- 5,144,373 -- --
Wilshire Real Estate
Investment Trust, Inc. -- 1,478,400 342,000 3,591,250
- -------------------------------------------------------------------------------------------------------------------
Totals $4,073,036 $59,137,507 $1,260,389 $16,580,653
</TABLE>
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the fund
hereby designated $98,340 as capital gain, which included $98,340 as 20%
capital gain, for its taxable year ended May 31, 1999.
The fund has designated 98.93% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Justin Scott
Vice President
Gerald S. Zukowski
Vice President and Fund Manager
Thomas Haslett
Vice President and Fund Manager
Michael K. Arends
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Capital
Appreciation Fund. It may also be used as sales literature when preceded
or accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN002 53221 433/948/2BN 7/99
