Putnam
Capital
Appreciation
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Fund Manager Gerald Zukowski, who has compiled an enviable performance
record for your fund since its inception in 1993, has announced his
intention to retire during the first quarter of 2000. In preparation for
Jerry's departure, Michael Arends has been named the fund's lead manager.
We appreciate Jerry's decade of standout performance and wish him well in
retirement.
In a similar vein, this is the last letter to you and the other
shareholders of Putnam Capital Appreciation Fund that I will be signing.
After more than 30 years as Chairman of the Trustees and President of the
Putnam Funds, the time has come for me to step aside.
In June, John Hill will become Chairman. John is currently an independent
Trustee and has served on the board for the past 14 years. In addition, my
son, George Putnam, III, will take on the role of President. I am
confident that the leadership of the funds will be in exceptionally strong
hands.
I will become Chairman Emeritus, remain a shareholder, and stay in close
touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 19, 2000
Report from the Fund Managers
Gerald S. Zukowski
Michael K. Arends
Joseph P. Joseph
Thomas Haslett
Soaring technology stocks, an expanded management team, and a
repositioning of Putnam Capital Appreciation Fund's portfolio have all
contributed to solid returns for the first half of fiscal 2000. During the
six months ended November 30, 1999, we began to see the benefits of
strategic changes we made to the fund in the latter half of fiscal 1999.
We added new members to our management team, which allows us to achieve
broader, more in-depth coverage of small-, midsize-, and large-company
stocks. We have reduced the number of fund holdings considerably,
resulting in a more concentrated portfolio with greater long-term growth
potential. And finally, strong stock selection in some of the
best-performing areas of the stock market has resulted in improved
returns.
Total return for 6 months ended 11/30/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------
9.76% 3.44% 9.42% 4.42% 9.45% 5.60%
- --------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
During the semiannual period, the U.S. stock market experienced increased
levels of volatility as the Dow Jones Industrial Average reached a record
high of 11,000, retreated 11.5%, and then headed back into record
territory. Federal Reserve Board interest-rate increases in June, August,
and November also brought investor jitters and market turbulence. But
perhaps the most remarkable aspect of the period was the skyrocketing
performance of technology stocks. Shortly after the close of the period,
the Nasdaq composite index, a common measure of technology stock
performance, closed at a record high for the 52nd time in 1999. Technology
stocks continued to outperform every other sector of the market and as of
the end of the period the Nasdaq index had gained 52.15% for the year.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electronics and
electrical equipment 17.7%
Insurance and
finance 13.7%
Computer services
and software 11.7%
Telecommunications 11.7%
Broadcasting 8.0%
Footnote reads:
*Based on net assets as of 11/30/99. Holdings will vary over time.
We're pleased to report that your fund benefited substantially from this
technology surge and also took advantage of opportunities in
telecommunications, finance, and electronics. Since our last report six
months ago, technology stocks have come to represent a much larger portion
of the fund's portfolio.
* SOFTWARE, OPTICAL FIBER AMONG TECH HIGHLIGHTS
Within the technology sector, we have selected stocks from a range of
industries, such as software, where new holdings Oracle Corporation and
Adobe Systems were standouts during the period. Oracle, one of the
best-known names in database software, has repositioned itself to take
advantage of Internet and e-commerce opportunities and has also
successfully reduced operating expenses. Adobe specializes in
desktop-publishing software, which allows users to create and publish
visually appealing print and electronic presentations. Web and graphic
designers, professional publishers, and a variety of other businesses make
use of Adobe products. While these holdings and 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 well vary in the future.
Also capitalizing on Internet growth are makers of fiber optic equipment,
such as fund holding Corning Inc., originator of fiber optic cable more
than 20 years ago. Corning is benefiting from increased demand for faster,
higher-capacity Internet connections, cable modems, and high-speed phone
lines, which are made possible by fiber optics. JDS Uniphase, another fund
holding, produces chips that are used to increase the capacity of optical
fibers.
The fund's portfolio also includes the most obvious beneficiaries of
Internet growth -- the Internet companies themselves. Among the stocks
added to the portfolio during the period were Internet services companies
America Online, Yahoo! and CMG Information Services.
* SMALL-COMPANY STOCKS CONTRIBUTE
TO PERFORMANCE
Throughout most of the semiannual period, stocks of smaller companies
delivered rather lackluster performance, especially relative to those of
midsize and large companies. We're pleased to report, however, that we
were able to identify some strong performers within the small-company
universe. One notable example is FactSet Research Systems, which provides
online database services to financial professionals. Founded in 1978,
FactSet integrates financial data from more than 100 databases to form a
data library that allows users to search, download, and manipulate data as
if from one database. Users include investment managers, bankers, and
other financial services professionals.
With its newly expanded management team, Putnam Capital Appreciation Fund
is able to achieve broader, more in-depth coverage of all sectors of
the small-, mid-, and large-cap markets.
True North Communications was also a strong performer. This advertising
and communications holding company owns several agencies, including a 50%
stake in an interactive marketing firm that has contributed significantly
to revenues. In addition, True North's realignment of its advertising
agency operations is expected to save nearly $25 million a year in
expenses.
* SECTORS OUTSIDE TECHNOLOGY MAKE CONTRIBUTIONS
The fund also took advantage of growth opportunities in telecommunications
with holdings such as Motorola, Inc. On the communications side of its
business, Motorola is keeping pace with the industry's astounding advances
by expanding its software operations to add Internet access to its phones
and other electronic devices. Cellular devices make up nearly 40% of
Motorola's sales and other products include two-way radios, pagers,
computers, and networking equipment. In addition, the company is working
on third-generation cell phones that can send video transmissions.
Motorola is also the third-largest maker of semiconductors -- a business
segment that is expected to grow rapidly as demand explodes for
semiconductor-powered wireless phones, cars, televisions, and other
devices.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
General Electric Co.
Electronics and electrical equipment
Merck & Co., Inc.
Pharmaceuticals
Tandy Corp.
Electronics and electrical equipment
Citigroup, Inc.
Insurance and finance
MediaOne Group Inc.
Broadcasting
Cisco Systems, Inc.
Business equipment and services
Microsoft Corp.
Computer services and software
Sun Microsystems, Inc.
Computer equipment
Intel Corp.
Electronics and electrical equipment
Bell Atlantic Corp.
Telecommunications
Footnote reads:
These holdings represent 25.6% of the fund's net assets as of 11/30/99.
Portfolio holdings will vary over time.
In the financial services portion of the fund's portfolio, the stock of
Citigroup helped boost returns during the period. Citigroup is the world's
largest financial services company, formed by the merger of Citicorp and
Travelers Group in 1998. Its businesses include insurance giant Travelers,
banking leader Citibank, and the Wall Street firm Salomon Smith Barney. In
addition to being the world leader in financial services, the company has
initiated cost-cutting programs, is diversifying its product lines, and is
focusing on building a strong Internet presence.
AT&T-Liberty Media is a fund holding that has reaped the rewards of the
cable and technology revolution. Partially owned by AT&T Corp., this
company is involved in some of the world's fastest-growing market
segments. It provides programming services through all media formats,
including electronic retailing and direct marketing, wireless
communications services, and high-speed Internet services. Liberty holds
equity positions in nearly 100 cable channels, including BET, Discovery
Channel, E!, Encore, QVC, and USA Networks. Liberty also has numerous
positions in overseas cable systems, many of which are in their infancy
and are expected to experience incredibly rapid growth. The company has
95% ownership of Liberty Digital, which includes music and online
properties.
* FOCUS ON BOTTOM-UP STOCK SELECTION CONTINUES
As we begin the second half of fiscal 2000, we will continue to rely on
our bottom-up process of stock selection, in which we focus on the merits
and potential of individual companies with less emphasis on broad economic
trends. We anticipate modestly trimming the fund's richly valued
technology holdings and re-deploying the proceeds into basic materials,
energy, and chemicals. We remain optimistic about the recent strategic
shifts we've made within the portfolio and will continue targeting the
most attractive opportunities among small-, midsize-, and large-company
stocks.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 11/30/99, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Capital Appreciation Fund is designed for investors seeking capital
appreciation through investments in equities chosen for their growth
potential.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 11/30/99
Class A Class B Class M
(inception dates) (8/5/93) (11/2/94) (11/22/96)
NAV POP NAV CDSC NAV POP
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months 9.76% 3.44% 9.42% 4.42% 9.45% 5.60%
- ---------------------------------------------------------------------------------------
1 year 13.03 6.52 12.34 7.34 12.44 8.48
- ---------------------------------------------------------------------------------------
5 years 167.74 152.32 158.26 156.26 160.94 151.77
Annual average 21.77 20.33 20.90 20.71 21.15 20.28
- ---------------------------------------------------------------------------------------
Life of fund 238.39 218.94 223.38 223.38 227.42 216.09
Annual average 21.27 20.14 20.41 20.41 20.64 19.97
- ---------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/99
Russell Standard &
Midcap Poor's Consumer
Growth Index 500 Index price index
- ------------------------------------------------------------------------
6 months 20.82% 7.36% 1.32%
- ------------------------------------------------------------------------
1 year 42.32 20.90 2.68
- ------------------------------------------------------------------------
5 years 197.28 236.51 12.49
Annual average 24.35 27.47 2.38
- ------------------------------------------------------------------------
Life of fund 217.05 254.06 16.62
Annual average 19.99 22.10 2.46
- ------------------------------------------------------------------------
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-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost. Performance data
reflect a voluntary expense limitation previously in effect. Without the
expense limitation, total returns would have been lower.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 11/30/99
Class A Class B Class M
- -------------------------------------------------------------------------
Distributions (number)* -- -- --
- -------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -------------------------------------------------------------------------
5/31/99 $21.93 $23.27 $21.66 $21.70 $22.49
- -------------------------------------------------------------------------
11/30/99 24.07 25.54 23.70 23.75 24.61
- -------------------------------------------------------------------------
*The fund did not make any distributions during the period.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (8/5/93) (11/2/94) (11/22/96)
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months 15.41% 8.78% 15.05% 10.05% 15.15% 11.12%
- --------------------------------------------------------------------------------------
1 year 17.86 11.09 17.15 12.15 17.31 13.22
- --------------------------------------------------------------------------------------
5 years 190.92 174.27 180.58 178.58 183.47 173.56
Annual average 23.81 22.36 22.92 22.74 23.17 22.30
- --------------------------------------------------------------------------------------
Life of fund 275.45 253.87 258.54 258.54 263.22 250.65
Annual average 22.96 21.83 22.08 22.08 22.33 21.66
- --------------------------------------------------------------------------------------
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.
</TABLE>
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
Standard & Poor's 500 Index* is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance.
Russell Midcap Growth Index is composed of all medium and medium/small
companies in the Russell 1000 Index with higher price-to-book ratios and
higher forecasted growth rates. The Russell 1000 represents the universe
of stocks from which the most active money managers typically select.
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 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 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 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.
<TABLE>
<CAPTION>
The fund's portfolio
November 30, 1999 (Unaudited)
COMMON STOCKS (97.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Automotive (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
40,100 SPX Corp. (NON) $ 2,987,450
Basic Industrial Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
62,900 Kaydon Corp. 1,721,888
15,000 Illinois Tool Works, Inc. 971,250
147,200 Timken Co. (The) 2,815,200
--------------
5,508,338
Biotechnology (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
63,600 Genentech, Inc. (NON) 5,461,650
Broadcasting (8.0%)
- --------------------------------------------------------------------------------------------------------------------------
164,000 AMFM, Inc. (NON) 11,592,750
856,000 AT&T Corp. -- Liberty Media Class A 35,791,500
120,900 Cablevision Systems Corp. Class A (NON) 8,289,206
358,000 CBS Corp. (NON) 18,616,000
49,400 Clear Channel Communications, Inc. (NON) 3,970,525
365,700 Charter Communications, Inc. (NON) 8,479,669
118,700 Comcast Corp. Class A 5,363,756
189,500 Cumulus Media Inc. Class A (NON) 7,580,000
178,800 Emmis Broadcasting Corp. Class A (NON) 14,482,800
31,800 Entercom Communications Corp. (NON) 1,818,563
274,100 Infinity Broadcasting Corp. Class A (NON) 9,987,519
209,300 Insight Communications Company, Inc. (NON) 5,180,175
746,635 MediaOne Group Inc. (NON) 59,170,824
--------------
190,323,287
Business Equipment and Services (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
405,675 Cendant Corp. (NON) 6,718,992
603,700 Cisco Systems, Inc. (NON) 53,842,494
298,200 Korn/Ferry Intl. (NON) 6,746,775
31,600 Modem Media . Poppe Tyson, Inc. (NON) 1,664,925
91,200 Pitney Bowes, Inc. 4,371,900
142,700 Specialty Equipment Companies, Inc. (NON) 3,157,238
287,400 True North Communications Inc. 11,442,113
--------------
87,944,437
Computer Equipment (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
75,900 Apple Computer, Inc. (NON) 7,428,713
382,600 Sun Microsystems, Inc. 50,598,850
--------------
58,027,563
Computer Services and Software (11.7%)
- --------------------------------------------------------------------------------------------------------------------------
215,000 4Front Software International, Inc. (NON) 4,568,750
106,700 Adobe Systems, Inc. 7,328,956
40,300 AppNet, Inc. (NON) 2,004,925
28,400 ARM Holdings Plc (United Kingdom) (NON) 4,203,200
111,100 BEA Systems, Inc. (NON) 9,026,875
28,900 Business Objects S.A. (France) (NON) 2,557,650
43,700 Clarify, Inc. (NON) 4,072,977
30,500 CMG Information Services, Inc. (NON) 4,493,031
349,100 Computer Associates International, Inc. 22,691,500
242,000 Computer Sciences Corp. (NON) 15,790,500
56,900 DoubleClick, Inc. (NON) 9,107,556
31,500 Extreme Networks, Inc. (NON) 2,090,813
102,200 FactSet Research Systems, Inc. 6,336,400
47,500 Inktomi Corp. (NON) 6,130,469
195,300 Intuit, Inc. (NON) 9,765,000
14,600 Juniper Networks, Inc. (NON) 4,046,025
168,000 Legato Systems, Inc. (NON) 11,345,250
49,000 Mercury Interactive Corp. (NON) 4,073,125
571,900 Microsoft Corp. (NON) 52,069,708
506,900 Oracle Corp. (NON) 34,374,156
114,000 Pinnacle Systems, Inc. (NON) 3,762,000
57,000 Portal Software, Inc. (NON) 6,672,563
29,100 Proxicom, Inc. (NON) 2,007,900
123,300 Rational Software Corp. (NON) 6,303,713
137,200 Remedy Corp. (NON) 4,784,850
23,600 Siebel Systems, Inc. (NON) 1,654,950
56,800 TIBCO Software, Inc. (NON) 5,509,600
178,300 TSI International Software, Ltd. (NON) 7,756,050
115,600 Usinternetworking, Inc. (NON) 6,336,325
65,500 USWeb Corp. (NON) 2,714,156
88,200 VERITAS Software Corp. (NON) 8,075,813
32,900 Yahoo! Inc. (NON) 6,999,475
--------------
278,654,261
Conglomerates (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
325,300 Corning Inc. 30,476,544
239,200 Minnesota Mining & Manufacturing Co. 22,858,550
668,200 Tyco International Ltd. 26,769,763
--------------
80,104,857
Consumer Non Durables (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
350,900 Kimberly-Clark Corp. 22,413,738
303,100 Procter & Gamble Co. 32,734,800
--------------
55,148,538
Consumer Services (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
529,890 America Online, Inc. (NON) 38,516,379
43,700 Coinstar, Inc. (NON) 456,119
121,700 Valassis Communications, Inc. (NON) 4,791,938
--------------
43,764,436
Electronics and Electrical Equipment (17.7%)
- --------------------------------------------------------------------------------------------------------------------------
122,400 Altera Corp. (NON) 6,594,300
81,800 Analog Devices, Inc. (NON) 4,698,388
31,100 Applied Micro Circuits Corp. (NON) 2,585,188
120,400 ATMI, Inc. (NON) 3,664,675
8,400 Broadcom Corp. (NON) 1,504,125
142,200 Cypress Semiconductor Corp. (NON) 3,874,950
103,000 Dallas Semiconductor Corp. 5,941,813
62,600 DII Group Inc., (The) (NON) 3,951,625
131,000 Emerson Electric Co. 7,467,000
68,907 Flextronics International Ltd. (NON) 5,714,974
714,800 General Electric Co. 92,924,000
563,000 Intel Corp. 43,175,063
164,000 LSI Logic Corp. (NON) 9,911,750
270,200 Methode Electronics, Inc. 7,295,400
90,600 Microchip Technology, Inc. (NON) 5,741,775
309,000 Motorola, Inc. 35,303,250
67,900 Nanometrics, Inc. (NON) 1,527,750
125,500 Novellus Systems, Inc. (NON) 10,306,688
76,300 Oak Industries, Inc. (NON) 5,746,344
131,400 Plexus Corp. (NON) 5,173,875
180,000 QLogic Corp. (NON) 20,362,500
24,700 SDL, Inc. (NON) 4,019,925
74,400 Solectron Corp. (NON) 6,128,700
50,000 STMicroelectronics N.V. ADR (France) 6,243,750
968,500 Tandy Corp. 74,211,313
199,000 Teradyne, Inc. (NON) 8,668,938
229,700 Texas Instruments, Inc. 22,065,556
168,900 Vishay Intertechnology, Inc. (NON) 4,887,544
155,700 Xilinx, Inc. (NON) 13,935,150
--------------
423,626,309
Energy-Related (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
223,500 Baker Hughes, Inc. 5,643,375
16,500 Calpine Corp. (NON) 973,500
62,700 Nabors Industries, Inc. (NON) 1,665,469
--------------
8,282,344
Entertainment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
143,500 Viacom, Inc. Class B (NON) 7,139,125
Food and Beverages (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
219,100 Coca-Cola Co. 14,748,169
554,800 U.S. Foodservice (NON) 10,055,750
101,100 Wendy's International, Inc. 2,230,519
--------------
27,034,438
Health Care (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
290,000 Epitope, Inc. (NON) 1,323,125
Insurance and Finance (13.7%)
- --------------------------------------------------------------------------------------------------------------------------
138,700 American Express Co. 20,987,044
138,750 American International Group, Inc. 14,325,938
172,000 Bank of America Corp. 10,062,000
500,000 Beacon Capital Partners (NON) 6,625,000
387,000 Capital One Financial Corp. 18,019,688
290,600 Chase Manhattan Corp. 22,448,850
1,314,650 Citigroup, Inc. 70,826,769
62,100 Duff & Phelps Credit Rating Co. 4,944,713
470,700 Fannie Mae 31,360,388
300,500 Federal Home Loan Mortgage Corp. 14,837,188
64,400 Fifth Third Bancorp 4,508,000
56,200 Finova Group, Inc. 2,089,938
880,248 Firstar Corp. 22,886,448
103,700 Hartford Life, Inc. 4,640,575
63,400 Legg Mason, Inc. 2,230,888
11,700 M & T Bank Corp. 5,499,000
248,800 Merrill Lynch & Co., Inc. 20,059,500
56,400 Morgan (J.P.) & Co., Inc. 7,416,600
276,300 North Fork Bancorporation, Inc. 5,560,538
267,600 Peoples Heritage Financial Group, Inc. 4,532,475
262,800 Providian Financial Corp. 20,794,050
105,500 Radian Group, Inc. 5,156,313
151,400 UnionBanCal Corp. 6,671,063
--------------
326,482,966
Medical Supplies and Devices (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
281,700 Baxter International, Inc. 19,032,356
150,000 Medtronic, Inc. 5,831,250
--------------
24,863,606
Oil and Gas (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,960,000 Abacan Resource Corp. (Canada) (NON) 235,200
267,600 Apache Corp. 9,583,425
129,000 BP Amoco Plc ADR (United Kingdom) 7,860,938
523,300 Conoco, Inc. 13,769,331
203,547 Conoco, Inc. Class B 5,330,387
44,400 Devon Energy Corp. 1,565,100
370,700 Enron Corp. 14,109,769
98,900 Marine Drilling Co., Inc. (NON) 1,668,938
41,000 Precision Drilling Corp. (Canada) (NON) 881,500
292,000 Royal Dutch Petroleum Co. Plc ADR (Netherlands) 16,936,000
380,700 Schlumberger Ltd. 22,865,794
61,000 Williams Cos., Inc. 2,058,750
--------------
96,865,132
Packaging and Containers (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
183,300 Smurfit-Stone Container Corp. (NON) 3,517,069
Paper and Forest Products (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
166,000 Willamette Industries, Inc. 6,868,250
Pharmaceuticals (7.4%)
- --------------------------------------------------------------------------------------------------------------------------
75,100 Allergan, Inc. 7,387,963
211,300 Bristol-Myers Squibb Co. 15,438,106
54,000 Elan Corp. PLC ADR (Ireland) (NON) 1,478,250
320,900 Johnson & Johnson 33,293,375
160,000 Lilly Eli & Co. 11,480,000
959,000 Merck & Co., Inc. 75,281,500
459,600 Schering-Plough Corp. 23,497,050
84,625 Warner-Lambert Co. 7,589,805
54,800 Watson Pharmaceuticals, Inc. (NON) 2,037,875
--------------
177,483,924
Photography (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
62,200 Eastman Kodak Co. 3,848,625
Real Estate (--%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Engel General Developers Ltd. (NON) 290,000
Recreation (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Mandalay Resort Group (NON) 5,828,125
45,200 Royal Caribbean Cruises Ltd. 2,231,750
--------------
8,059,875
Retail (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
316,300 American Eagle Outfitters, Inc. 14,450,956
261,700 Ann Taylor Stores Corp. (NON) 11,302,169
177,200 Circuit City Stores, Inc. 8,594,200
194,200 Duane Reade, Inc. (NON) 4,296,675
95,700 Home Depot, Inc. (The) 7,566,281
430,000 Intimate Brands, Inc. 18,436,250
88,900 Lowe's Cos., Inc. 4,428,331
840,000 TJX Cos., Inc. (The) 21,997,500
528,600 Wal-Mart Stores, Inc. 30,460,575
--------------
121,532,937
Telecommunications (11.7%)
- --------------------------------------------------------------------------------------------------------------------------
300,389 Adelphia Communications Corp. (NON) 16,896,881
100,000 American Telephone & Telegraph Co. 5,587,500
630,100 Bell Atlantic Corp. 39,893,206
75,900 Carrier Access Corp. (NON) 4,449,638
156,200 CIENA Corp. (NON) 6,863,038
147,000 E-Tek Dynamics, Inc. (NON) 11,025,000
2,200 Finisar Corp. (NON) 253,550
160,200 General Instrument Corp. (NON) 10,493,100
132,900 GST Telecommunications, Inc. (Canada) (NON) 1,137,956
80,700 IPC Communications, Inc. (NON) 4,811,738
124,300 JDS Uniphase Corp. (NON) 28,433,625
543,355 Lucent Technologies, Inc. 39,698,875
92,300 NEXTEL Communications, Inc. Class A (NON) 9,149,238
177,300 Nokia Corp. ADR (Finland) 24,500,644
498,500 Nortel Networks Corp. (Canada) 36,889,000
6,600 QUALCOMM, Inc. (NON) 2,391,263
159,400 Sawtek Inc. (NON) 7,272,625
80,500 Scientific-Atlanta, Inc. 4,694,156
126,900 Sprint Corp. (FON Group) (NON) 8,803,688
53,500 Sprint Corp. (PCS Group) (NON) 4,908,625
13,500 Sycamore Networks, Inc. (NON) 2,997,000
159,100 Telesp Celular Participacoes S.A. ADR (Brazil) (NON) 4,564,181
165,900 Telesp Participacoes S.A. ADR (Brazil) 2,986,200
--------------
278,700,727
Transportation (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
255,000 MIF Ltd. (Norway) 4,747,366
180,200 Sea Containers, Ltd. Class A 5,597,443
--------------
10,344,809
--------------
Total Common Stocks (cost $1,824,220,312) $2,334,188,078
CONVERTIBLE PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
33,420 Calpine Capital Trust 5.75% cv. pfd. $ 2,038,620
166,000 Cendant Corp. 1.3% cv. pfd. 3,755,750
--------------
Total Convertible Preferred Stocks (cost $8,721,558) $ 5,794,370
SHORT-TERM INVESTMENTS (1.8%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,000,000 U. S. Treasury Bill effective yield of 4.56%, December 16, 1999 (SEG) $ 1,996,208
40,000,000 Interest in $500,000,000 joint tri-party repurchase agreement
dated November 30, 1999 with Merrill Lynch, Pierce,
Fenner & Smith, Inc. due December 1, 1999 with respect
to various U. S. Treasury obligations -- maturity value
of $40,006,288 for an effective yield of 5.66% 40,000,000
--------------
Total Short-Term Investments (cost $41,996,208) $ 41,996,208
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,874,938,078) (b) $2,381,978,656
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,388,172,894.
(b) The aggregate identified cost on a tax basis is $1,800,274,568, resulting in gross unrealized appreciation and
depreciation of $543,305,392 and $41,601,304, respectively, or net unrealized depreciation of $501,704,088.
(NON) Non-income-producing security.
(SEG) This security was pledged and segregated with the custodian to cover margin requirements for futures contracts at
November 30, 1999
ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign
securities on deposit with a domestic custodian bank.
- ---------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- ---------------------------------------------------------------------------------
S & P 500 Index (long) $7,305,375 $7,141,974 Dec-99 $163,401
- ---------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,874,938,078) (Note 1) $2,381,978,656
- -----------------------------------------------------------------------------------------------
Cash 4,349,693
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 990,969
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 624,799
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 29,747,226
- -----------------------------------------------------------------------------------------------
Total assets 2,417,691,343
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for variation margin 99,225
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 16,239,285
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 8,141,259
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,090,591
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 296,721
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 36,563
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,608
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,498,718
- -----------------------------------------------------------------------------------------------
Other accrued expenses 112,479
- -----------------------------------------------------------------------------------------------
Total liabilities 29,518,449
- -----------------------------------------------------------------------------------------------
Net assets $2,388,172,894
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,809,635,962
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 5,249,247
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 66,083,433
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 507,204,252
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,388,172,894
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,114,268,360 divided by 46,289,522 shares) $24.07
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $24.07)* $25.54
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,195,783,811 divided by 50,457,212 shares)** $23.70
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($78,120,723 divided by 3,288,628 shares) $23.75
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $23.75)* $24.61
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charges.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended November 30, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends $ 11,195,323
- -----------------------------------------------------------------------------------------------
Interest 3,100,549
- -----------------------------------------------------------------------------------------------
Total investment income 14,295,872
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,498,313
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,734,568
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,036
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,474
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,441,863
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 5,628,237
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 311,639
- -----------------------------------------------------------------------------------------------
Reports to shareholders 17,862
- -----------------------------------------------------------------------------------------------
Auditing 31,575
- -----------------------------------------------------------------------------------------------
Legal 8,243
- -----------------------------------------------------------------------------------------------
Postage 170,221
- -----------------------------------------------------------------------------------------------
Other 253,053
- -----------------------------------------------------------------------------------------------
Total expenses 16,113,084
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (312,851)
- -----------------------------------------------------------------------------------------------
Net expenses 15,800,233
- -----------------------------------------------------------------------------------------------
Net investment loss (1,504,361)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (including realized loss of $18,799,029
on sales of investments in affiliated issuers) (Notes 1, 3 and 5) 110,340,943
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,568,548)
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,220)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies during the period 538
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the period 115,202,644
- -----------------------------------------------------------------------------------------------
Net gain on investments 223,974,357
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $222,469,996
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
1999* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (1,504,361) $ 13,877,187
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 108,771,175 (46,008,008)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies 115,203,182 (69,190,584)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 222,469,996 (101,321,405)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A -- (9,606,931)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (151,081)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (183,347)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A -- (33,490,827)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (37,921,426)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (2,556,667)
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (532,910,484) (490,122,175)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (310,440,488) (675,353,859)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 2,698,613,382 3,373,967,241
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $5,249,247 and $6,753,608, respectively) $2,388,172,894 $2,698,613,382
- ---------------------------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Nov. 30
operating performance (Unaudited) Year ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $21.93 $23.15 $18.76 $16.33 $12.24 $10.74
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .02(c) .17(c) .17(c) .13(c) .14 .06(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.12 (.75) 4.77 3.48 4.37 1.59
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.14 (.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 $24.07 $21.93 $23.15 $18.76 $16.33 $12.24
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 9.76* (2.40) 26.67 22.91 37.57 15.61
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,114,268 $1,246,913 $1,530,290 $525,804 $173,321 $103,555
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .47* .93 1.03 1.20 1.29 1.13(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .11* .77 .77 .79 1.05 1.89(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.92* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 Nov. 2, 1994+
operating performance (Unaudited) Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $21.66 $22.86 $18.59 $16.24 $12.19 $11.08
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (.05)(c) .03(c) --(c) --(c) .04 .06(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.09 (.73) 4.73 3.45 4.35 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.04 (.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 $23.70 $21.66 $22.86 $18.59 $16.24 $12.19
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 9.42* (2.99) 25.72 21.95 36.62 11.55*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,195,784 $1,361,513 $1,723,054 $543,015 $153,905 $89,962
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .82* 1.55 1.78 1.95 2.05 1.12*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.24)* .15 .02 .03 .30 .65*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.92* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 Jan. 22, 1996+
operating performance (Unaudited) Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $21.70 $22.91 $18.62 $16.29 $13.84
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (.03)(c) .06(c) .06(c) .04(c) .02(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.08 (.73) 4.73 3.46 2.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.05 (.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 $23.75 $21.70 $22.91 $18.62 $16.29
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 9.45 * (2.87) 26.04 22.28 17.70*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $78,121 $90,187 $120,624 $34,763 $2,025
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .72* 1.43 1.53 1.70 .66*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.14)* .27 .28 .23 .16*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.92* 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
November 30, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Capital Appreciation Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end
management investment company. The fund seeks capital appreciation by
investing primarily in common stocks that offer potential for capital
appreciation. Current income is only an incidental consideration in
selecting investments for the fund.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than
class A shares, and are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class M shares are
sold with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is higher than class A but lower than class B
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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sales price on its principle exchange, or if no sales are
reported -- as in the case of some securities traded over-the-counter --
the last reported bid price. 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 stated at
amortized cost, which approximates market value. Other investments,
including restricted securities, are stated at fair value following
procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam 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). Gains or losses on securities sold are determined on
the identified cost basis.
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. Investments in foreign securities involve
certain risks, including those related to economic instability,
unfavorable political developments, and currency fluctuations, not present
with domestic investments.
F) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended November 30, 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.
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 Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended November 30, 1999, fund expenses were reduced by
$312,851 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 $3,011
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and meeting
fees for the three years preceding retirement. Pension expense for the
fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B 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%, 0.95% and 0.75% of the average net assets attributable to
class A, class B and class M shares respectively. Prior to September 10,
1999 the annual rate was 0.85% of the average net assets attributable to
class B shares.
For the six months ended November 30, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $89,032 and $4,603 from
the sale of class A and class M shares, respectively and $2,153,128 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended November 30, 1999, Putnam Mutual
Funds Corp., acting as underwriter received $17,041 on class A
redemptions.
Note 3
Purchases and sales of securities
During the six months ended November 30, 1999, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $1,645,936,039 and $2,195,881,997, respectively.
There were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At November 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,023,142 $ 68,063,117
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
3,023,142 68,063,117
Shares
repurchased (13,584,693) (306,289,270)
- -----------------------------------------------------------------------------
Net decrease (10,561,551) $(238,226,153)
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 17,214,139 $ 381,173,721
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of 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)
- -----------------------------------------------------------------------------
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,652,007 $ 36,633,499
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
1,652,007 36,633,499
Shares
repurchased (14,047,471) (311,903,066)
- -----------------------------------------------------------------------------
Net decrease (12,395,464) $(275,269,567)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 243,724 $ 5,439,086
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
243,724 5,439,086
Shares
repurchased (1,111,576) (24,853,850)
- -----------------------------------------------------------------------------
Net decrease (867,852) $ (19,414,764)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Note 5
Transactions with Affiliated Issuers
Transactions during the year with companies in which the fund owned at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates cost cost Income Value
- -----------------------------------------------------------------------------
Name of Affiliates
- -----------------------------------------------------------------------------
Duckwall-Alco Stores, Inc. $ -- $ 2,724,625 $ -- $ --
Engel General Developers, Ltd. -- 447,600 -- --
Epitope, Inc. -- 5,750,813 -- --
Pentegra Dental Group, Inc.* -- 1,488,600 -- --
Preferred Employers Holdings -- 4,241,836 -- --
Scheid Vineyards Inc. Class A -- 3,281,375 -- --
Wilshire Real Estate Investment
Trust, Inc. -- 13,520,000 -- --
- -----------------------------------------------------------------------------
Totals $ -- $31,454,849 $ -- $ --
*Formerly Omega Orthodontics Inc.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
* DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+ Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
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
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** 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.putnaminv.com.
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
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
Gerald S. Zukowski
Vice President and Fund Manager
Michael K. Arends
Vice President and Fund Manager
Joseph P. Joseph
Vice President and Fund Manager
Thomas Haslett
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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
SA002 57708 433/948/2BN 1/00
