Putnam
Utilities
Growth and
Income Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-03
[GRAPHIC OMITTED: RULER]
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
We are pleased to report that Putnam Utilities Growth and Income Fund
delivered strong performance during the six months ended April 30, 2003,
a period that enjoyed a much improved market environment, especially
following the conclusion of military conflict in Iraq. While your fund
underperformed its benchmark index, it outperformed its Lipper category
average. You will find the details on page 7.
As the management team explains in the following report, the fund's
results were dampened somewhat by its emphasis on companies with
higher-quality balance sheets at a time when lower-quality companies
were rebounding from extremely depressed levels. The fund's exposure to
recovering California regulated utilities was instrumental in helping it
outperform its Lipper peer group for the period. The management team
also discusses a number of developing trends that they believe bode well
for the utilities industries and the fund in the months ahead.
As we look back on one of the most challenging periods in recent
investment history, we would like you to know how much we appreciate
your patience and continued confidence in Putnam. We believe those who
maintain a long-term focus and a diversified approach to investing
should eventually be rewarded for their fortitude.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
June 18, 2003
REPORT FROM FUND MANAGEMENT
FUND HIGHLIGHTS
* Putnam Utilities Growth and Income Fund advanced strongly during the
six months ended April 30, 2003, with class A shares gaining 9.32% at
net asset value and 3.02% at public offering price for the period.
* Due to differences in composition and emphasis, the fund
underperformed the Standard and Poor's Utilities Index, which returned
12.42% for the same period.
* However, the fund's composition and emphasis enabled it to
significantly outperform the 6.96% average return of its Lipper Utility
Funds peer group.
* Index and Lipper results should be compared to fund performance at
net asset value. See the Performance Summary on page 7 for complete fund
performance, comparative performance, and Lipper data.
* PERFORMANCE COMMENTARY
The performance of utility stocks improved significantly over the past
six months, as the harsh financial climate in the gas and power sector
eased and the overall market rallied following the end of the war in
Iraq. Lower-quality, financially stressed companies were the greatest
beneficiaries of the market rally as these types of companies stood to
benefit the most from banks' decisions to loosen access to capital. The
fund underperformed the Standard and Poor's Utilities Index due to the
management team's emphasis on stocks of companies with higher-quality
balance sheets in an environment that favored stocks of lower-quality
companies. In addition, the fund's exposure to the telecommunications
sector -- a sector not represented in the benchmark -- also detracted
from relative results as this sector underperformed utilities during the
period. The fund's emphasis on recovering California-based regulated
utilities was among the strategies that helped it to perform better than
the average return posted by its Lipper category group.
Fund Profile
Putnam Utilities Growth and Income Fund seeks capital growth and current
income by investing in stocks and bonds of utilities such as natural
gas, electric, and communications services companies. It may be suitable
for investors who want a long-term investment that can offer both income
and growth potential.
* MARKET OVERVIEW
The improvement in the market environment for utility stocks began in
October, when downward readjustment for utilities' bond ratings slowed
markedly. Agencies decided that they had lowered ratings sufficiently to
reflect their changed post-deregulation view of the risks in the
utilities business. This was a welcome sign for the merchant-generation
companies (electric-generating companies allowed to sell power at
varying rates; also called unregulated utilities) and power-trading
companies -- businesses within the utilities sector that had been
particularly hard hit by repeated downgrades. At the same time, banks
concluded that their loans to troubled utilities companies were worth
more if the borrowers remained solvent and they relented in negotiations
with several high-profile debtors. The confluence of these two events
spurred a rally in utilities stocks.
The improved conditions were not limited to the financial environment.
High gas prices pushed up merchant-power prices, since in most of the
United States gas sets the baseline price for power providers because it
is the highest cost fuel for power production. The profitability of gas
generators did not improve in most cases, since gas costs and power
revenues moved together. Merchant generators who used relatively stable
coal and nuclear fuel to generate power saw increased profits. The
primary cause of higher gas prices is the decline of the production of
natural gas in North America. We believe that continued high demand and
reduced supply of natural gas support a move to higher prices, which
suggests the need for careful stock selection.
MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 4/30/03
Equities
S&P Utilities Index 12.42%
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S&P 500 Index (broad U.S. stock market) 4.48%
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Russell 1000 Growth Index (growth stocks) 4.28%
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Russell 1000 Value Index (value stocks) 5.25%
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Bonds
Lehman Aggregate Bond Index (taxable U.S. bonds) 4.31%
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Credit Suisse First Boston (CSFB)
High Yield Index (high-yield bonds) 19.75%
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Lehman Intermediate Treasury Bond Index 1.91%
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These indexes provide an overview of performance in different market
sectors for the six months ended 4/30/03.
* STRATEGY OVERVIEW
In the final two months of the period, the management team increased the
fund's allocation to equities from just over 80% to almost 90%, as
confidence in the economic environment has improved and we believe that
the prolonged appreciation in bond prices is running out of steam as
interest rates recently dipped below 45-year lows. The fund's bond
holdings contributed positively to performance throughout the period in
an environment of declining interest rates in general and improved
perception of utilities in particular.
Within equities, the management team continues to allocate about 70% to
gas, power, and water, and 30% to telecommunications including regional
Bells. Overall, we are maintaining a slight emphasis on stocks of
companies with higher balance sheet quality. Where our research suggests
that the market has over-discounted potential negatives, we do own
stocks that are currently out of favor.
The fundamentals of the telecommunications sector have not changed
significantly as the industry continues to suffer from global
overcapacity. The stock price of companies that Putnam categorizes as
among the weaker competitors in the telecommunications sector rose amid
the rallies of low-quality companies at both the beginning and end of
the period. This hurt relative performance since the fund's allocation
favors larger well-established companies. As in our approach to the
utilities sectors, we currently are emphasizing financially strong
companies and those with exposure to the wireless sector.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTOR WEIGHTINGS COMPARED]
TOP INDUSTRY SECTOR WEIGHTINGS COMPARED*
as of 10/31/02 as of 4/30/03
Electric utilities 57.9% 56.8%
Telecommunications 20.6% 20.9%
Regional Bells 9.6% 8.2%
Natural gas utilities 5.9% 8.1%
Water utilities 1.8% 1.4%
Footnote reads:
*This chart shows how the fund's top industry sector weightings have
changed over the last six months. Weightings are shown as a percentage
of net assets. Holdings will vary over time.
* HOW FUND HOLDINGS AFFECTED PERFORMANCE
The fund owns large positions in a few carefully selected names like
PG&E, Edison International, and CenterPoint Energy that performed well
during the period. All three companies benefited from the improvement in
the financial environment for utilities and higher power prices. PG&E
and Edison were helped by the continued recovery of California regulated
utilities from the power crisis of 2000-2001. Reliant Resources, another
positive contributor to performance, made strong gains early in the
period, as the easing of the financial climate benefited all financially
stressed power generators; we took advantage of market appreciation to
liquidate this position in the first half of the period. The fund's
holdings in the electric utilities sector include Dominion Resources,
Entergy, and FPL Group -- companies that we believe fit our high-quality
balance sheet criteria.
[GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS]
TOP 10 EQUITY HOLDINGS*
Vodafone Group PLC
(United Kingdom)
Telecommunications
Entergy Corp.
Electric utilities
PG&E Corp.
Electric utilities
Dominion Resources, Inc.
Electric utilities
Edison International
Electric utilities
Exelon Corp.
Electric utilities
FPL Group, Inc.
Electric utilities
SBC Communications, Inc.
Regional Bells
Duke Energy Corp.
Electric utilities
Verizon Communications, Inc.
Regional Bells
Footnote reads:
*These holdings represent 38.2% of the fund's net assets as of 4/30/03.
The fund's holdings will change over time.
The single largest detractor from relative performance during the period
was the fund's substantial out-of-benchmark exposure to Sierra Pacific
Resources. This company's stock price suffered from an adverse
regulatory ruling made worse by what many investors thought was an
inappropriate response by the company's management team. Notwithstanding
Sierra Pacific's disappointing performance during the period, we have
continued to hold the stock because we believe that the company's
difficulties will diminish and the stock price will rise from its
currently oversold position.
The fund's Duke Energy holding also hurt performance during the period
as the company's exposure to rising natural gas prices put it at a
disadvantage to other power generators that are exclusively coal- and
nuclear-powered. The period was a difficult one for some of the
companies that specialize in trading energy and the fund's position in
Aquila, Inc. hurt performance. After concluding that Aquila was too
small to compete effectively in the energy-trading sector, we decided to
liquidate the fund's position.
In the telecommunications sector, the largest contributors to
performance were two market leaders: NTT DoCoMo (Japan) and Vodafone
(Europe), the fund's largest holding. The fund's smaller-than-benchmark
position in Sprint also benefited results as Sprint's stock
underperformed the benchmark during the period. The fund's positions in
SK Telecom (South Korea) detracted from performance as did the fund's
preference for stocks of conservative companies such as BellSouth,
CenturyTel, and Citizens Communications in an environment that favored
weaker companies.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
* THE FUND'S MANAGEMENT TEAM
The fund is managed by the Putnam Utilities Team. The members of the
team are Michael Yogg (Portfolio Leader), Stephen Balter (Portfolio
Member), James Prusko (Portfolio Member), and Joshua Brooks.
THE OUTLOOK FOR YOUR FUND
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
Recent stock-market performance indicates that the momentum of the
three-year-old bear market has been interrupted if not stopped. Most
markets registered gains in last year's final quarter and were generally
in positive territory for the first four months of 2003.
We believe that fundamentals must improve for the post-Iraq rally to
continue. The picture here is mixed. On the positive side, the news on
corporate profits has been generally good; of S&P 500 companies that
have reported first-quarter earnings so far, over 80% have met or
exceeded consensus analyst expectations. This is an encouraging pattern,
one that is all the more impressive in an environment of tightened
accounting practices. On the other hand, economic data have been almost
uniformly disappointing. Consumer sentiment has been an exception, but
its recent spike is reminiscent of a similar surge after the Gulf War.
The fund's management team expects that the financial recovery of the
electric utilities sector will continue, allowing better prices to
result in higher earnings. We believe that the continued resolution of
the California energy crisis will work to the benefit of the companies
in this region, several of which are held by the fund. We expect Sierra
Pacific's regulatory difficulties to be resolved and are watching for
continued financial improvement at Centerpoint Energy. Overall, we
believe that regulated utilities should fare relatively well and that
the regulatory climate may improve, including some re-regulation in
jurisdictions, like California, where deregulation has been problematic.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. The fund
concentrates its investments in one industry sector and involves more
risk than a fund that invests more broadly.
PERFORMANCE SUMMARY
This section provides information about your fund's performance during
its semiannual period, which ended April 30, 2003. In accordance with
regulatory requirements, we also include performance for the most
current calendar quarter-end. Performance should always be considered in
light of a fund's investment strategy. Past performance does not
indicate future results. More recent returns may be less or more than
those shown. Investment return and principal value will fluctuate and
you may have a gain or a loss when you sell your shares. A profile of
your fund's strategy appears on the first page of this report. See pages
8 and 9 for definitions of some terms used in this section.
TOTAL RETURN FOR PERIODS ENDED 4/30/03
Class A Class B Class C Class M
(inception dates) (11/19/90) (4/27/92) (7/26/99) (3/1/95)
NAV POP NAV CDSC NAV CDSC NAV POP
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6 months 9.32% 3.02% 8.81% 3.81% 8.96% 7.96% 8.91% 5.15%
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1 year -16.98 -21.78 -17.65 -21.67 -17.65 -18.45 -17.46 -20.31
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5 years -22.06 -26.51 -25.01 -26.09 -24.99 -24.99 -24.07 -26.71
Annual average -4.86 -5.98 -5.59 -5.87 -5.59 -5.59 -5.36 -6.03
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10 years 53.37 44.52 42.04 42.04 42.12 42.12 46.00 40.95
Annual average 4.37 3.75 3.57 3.57 3.58 3.58 3.86 3.49
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Annual average
(life of fund) 6.05 5.54 5.24 5.24 5.25 5.25 5.52 5.21
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Performance for class B, C,
and M shares before their inception is derived from the historical
performance of class A shares, adjusted for the applicable sales charge
(or CDSC) and higher operating expenses for such shares.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/03
Lipper Utility
S&P Utilities Funds category
Index average*
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6 months 12.42% 6.96%
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1 year -27.38 -16.47
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5 years -18.59 -12.63
Annual average -4.03 -2.81
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10 years 32.57 62.25
Annual average 2.86 4.87
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Annual average
(life of fund) 5.76 7.28
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*Over the 6-month and 1-, 5-, and 10-year periods ended 4/30/03, there
were 91, 88, 67, and 22 funds, respectively, in this Lipper category.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/03
Class A Class B Class C Class M
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Distributions
(number) 2 2 2 2
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Income $0.110 $0.084 $0.084 $0.093
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Capital gains -- -- -- --
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Total $0.110 $0.084 $0.084 $0.093
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Share value: NAV POP NAV NAV NAV POP
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10/31/02 $6.71 $7.12 $6.67 $6.67 $6.70 $6.94
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4/30/03 7.22 7.66 7.17 7.18 7.20 7.46
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Current return (end of period)
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Current
dividend
rate 1 3.05% 2.87% 2.34% 2.34% 2.56% 2.47%
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Current
30-day SEC
yield 2 2.84 2.67 2.12 2.12 2.36 2.27
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 3/31/03(most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (11/19/90) (4/27/92) (7/26/99) (3/1/95)
NAV POP NAV CDSC NAV CDSC NAV POP
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6 months 5.99% -0.03% 5.63% 0.63% 5.63% 4.62% 5.74% 2.11%
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1 year -25.62 -29.89 -26.24 -29.85 -26.16 -26.88 -25.96 -28.56
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5 years -28.63 -32.72 -31.33 -32.31 -31.28 -31.28 -30.44 -32.85
Annual average -6.52 -7.62 -7.24 -7.51 -7.23 -7.23 -7.00 -7.66
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10 years 42.95 34.73 32.39 32.39 32.50 32.50 36.13 31.31
Annual average 3.64 3.03 2.85 2.85 2.85 2.85 3.13 2.76
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Annual average
(life of fund) 5.51 5.01 4.72 4.72 4.72 4.72 4.99 4.69
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TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption (except on certain
redemptions of shares bought without an initial sales charge).
COMPARATIVE INDEXES
S&P Utilities Index is an unmanaged index of common stocks issued by
utilities companies.
S&P 500 Index is an unmanaged index of common stock performance.
Russell 1000 Growth Index is an unmanaged index of those companies in
the Russell 1000 Index chosen for their growth orientation.
Russell 1000 Value Index is an unmanaged index of those companies in the
Russell 1000 Index chosen for their value orientation.
Lehman Aggregate Bond Index is an unmanaged index of taxable U.S.
fixed-income securities.
Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged index
of high-yield debt securities.
Lehman Intermediate Treasury Index is an unmanaged index of Treasury
bonds with maturities between 1 and up to 10 years.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios, and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
THE FUND'S PORTFOLIO
April 30, 2003 (Unaudited)
COMMON STOCKS (89.3%) (a)
NUMBER OF SHARES VALUE
Combined Utilities (0.5%)
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300,162 United Utilities PLC (United Kingdom) $2,883,111
Electric Utilities (53.1%)
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97,500 Alliant Energy Corp. 1,712,100
142,065 Ameren Corp. 5,821,824
331,300 American Electric Power Co., Inc. 8,739,694
1,312,400 CenterPoint Energy, Inc. 10,367,960
199,000 Consolidated Edison, Inc. 7,735,130
421,600 Dominion Resources, Inc. 24,950,288
107,400 DPL, Inc. 1,486,416
184,389 DTE Energy Co. 7,434,564
1,006,200 Duke Energy Corp. 17,699,058
1,469,700 Edison International (NON) 21,442,923
14,100 Electrabel SA (Belgium) 3,379,401
893,922 Electricidade de Portugal SA (Portugal) 1,615,850
296,300 Energy East Corp. 5,398,586
596,300 Entergy Corp. 27,793,543
397,700 Exelon Corp. 21,094,008
431,300 FirstEnergy Corp. 14,547,749
312,000 FPL Group, Inc. 18,991,440
115,030 Iberdrola SA (Spain) 1,852,097
56,100 OGE Energy Corp. 1,006,995
1,726,734 PG&E Corp. (NON) 25,866,475
154,700 Pinnacle West Capital Corp. 5,139,134
348,900 Progress Energy, Inc. 14,577,042
117,525 Public Power Corp. 144A (Greece) (NON) 1,780,805
169,500 Public Service Enterprise Group, Inc. 6,520,665
124,900 Puget Energy, Inc. 2,637,888
92,600 SCANA Corp. 2,939,124
1,909,100 Sierra Pacific Resources (NON) 7,044,579
444,000 Southern Co. (The) 12,915,960
94,600 Teco Energy, Inc. 1,020,734
604,300 TXU Corp. 12,037,656
82,200 Wisconsin Energy Corp. 2,164,326
560,930 XCEL Energy, Inc. 7,583,774
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305,297,788
Natural Gas Utilities (7.8%)
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32,000 Energen Corp. 1,049,600
142,800 Equitable Resources, Inc. 5,486,376
76,939 KeySpan Corp. 2,605,924
193,046 Kinder Morgan Management, LLC (NON) 6,619,547
36,348 Kinder Morgan, Inc. 1,709,083
141,500 MDU Resources Group, Inc. 4,211,040
78,500 National Fuel Gas Co. 1,841,610
374,152 NiSource, Inc. 7,071,473
66,600 NUI Corp. 937,062
125,235 ONEOK, Inc. 2,375,708
53,600 Piedmont Natural Gas Co., Inc. 2,002,496
56,400 Questar Corp. 1,703,280
92,600 Sempra Energy 2,485,384
75,800 South Jersey Industries, Inc. 2,651,484
95,000 Vectren Corp. 2,208,750
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44,958,817
Other (1.1%)
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70,999 S&P 500 Index Depositary Receipts (SPDR Trust Series 1) 6,525,518
Regional Bells (7.8%)
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430,000 BellSouth Corp. 10,960,700
758,700 SBC Communications, Inc. (SEG) 17,723,232
434,700 Verizon Communications, Inc. 16,249,086
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44,933,018
Semiconductor (0.1%)
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59,800 Advantest Corp. ADR (Japan) 496,938
Telecommunications (17.5%)
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49,260 AT&T Corp. 839,883
714,400 AT&T Wireless Services, Inc. (NON) 4,615,024
54,600 BCE, Inc. (Canada) 1,082,172
546,830 BT Group PLC (United Kingdom) 1,566,544
98,700 CenturyTel, Inc. 2,906,715
151,600 Citizens Communications Co. (NON) 1,656,988
257,500 Deutsche Telekom AG (Germany) (NON) 3,442,076
144,330 Hellenic Telecommunication Organization SA (Greece) 1,546,017
333 Japan Telecom Holdings Co., Ltd. (Japan) 910,416
254,799 Koninklijke (Royal) KPN NV (Netherlands) (NON) 1,694,456
78,350 KT Corp. (South Korea) 3,219,156
320 Nippon Telegraph and Telephone Corp. (NTT) (Japan) 1,121,771
4,750 NTT DoCoMo, Inc. (Japan) 9,799,564
400,834 Orange SA (France) (NON) 3,211,259
523,100 Portugal Telecom SGPS SA ADR (Portugal) 3,703,548
19,100 SK Telecom Co., Ltd. (South Korea) 2,657,802
28,500 Sprint Corp. (FON Group) 328,035
11,700 Swisscom AG (Switzerland) 3,619,847
25,156 TDC A/S (Denmark) 625,940
488,330 Telecom Corp. of New Zealand, Ltd. (New Zealand) 1,308,025
850,050 Telecom Italia Mobile SpA (Italy) 4,002,610
1,016,850 Telecom Italia SpA (Italy) 8,305,281
702,637 Telefonica SA (Spain) (NON) 7,769,463
47,600 Telefonos de Mexico SA de CV (Telmex) ADR Class L (Mexico) 1,437,996
398,019 Telstra Corp., Ltd. (Australia) 1,048,125
14,152,600 Vodafone Group PLC (United Kingdom) 27,934,076
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100,352,789
Water Utilities (1.4%)
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339,800 Philadelphia Suburban Corp. 7,696,470
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Total Common Stocks (cost $527,148,472) $513,144,449
CORPORATE BONDS AND NOTES (9.4%) (a)
PRINCIPAL AMOUNT VALUE
Cable Television (0.2%)
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$305,000 AT&T Broadband Corp. company guaranty 9.455s, 2022 $406,864
430,000 AT&T Broadband Corp. company guaranty 8 3/8s, 2013 524,631
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931,495
Electric Utilities (3.7%)
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680,000 AEP Texas Central Co. 144A notes 5 1/2s, 2013 708,662
330,000 Alabama Power Co. notes 5 1/2s, 2017 350,203
430,000 Alabama Power Co. sr. notes Ser. S, 5 7/8s, 2022 452,882
170,000 Appalachian Power Co. notes 3.6s, 2008 169,929
95,000 CenterPoint Energy Resources Corp. debs. 8.9s, 2006 106,927
120,000 CenterPoint Energy Resources Corp. notes 7 3/4s, 2011 133,500
430,000 Connecticut Light & Power Co. 1st mtge. Ser. D, 7 7/8s, 2024 527,742
700,000 Consolidated Edison Co. of New York debs. Ser. B, 7.15s, 2009 826,014
805,000 Constellation Energy Group, Inc. sr. notes 6 1/8s, 2009 889,287
1,530,000 Dominion Resources, Inc. sr. notes 8 1/8s, 2010 1,847,864
715,000 DTE Energy Co. sr. notes 7.05s, 2011 823,751
105,000 DTE Energy Co. sr. notes 6 3/8s, 2033 108,206
120,000 Duke Energy Corp. 144A 1st mtge. 3 3/4s, 2008 121,235
490,000 Duquesne Light Co. 1st mtge. Ser. O, 6.7s, 2012 559,599
1,535,000 FirstEnergy Corp. notes Ser. B, 6.45s, 2011 1,659,418
700,000 Florida Power & Light Co. 1st mtge. 5 5/8s, 2034 704,662
535,000 Florida Power Corp. 1st mtge. 5.9s, 2033 555,951
975,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 653,250
400,000 National Rural Utilities Cooperative Finance Corp. coll. trust 6s, 2006 439,195
20,000 National Rural Utilities Cooperative Finance Corp. coll. trust 3s, 2006 20,291
945,000 New Century Energies, Inc. coll. trust 6 3/8s, 2005 1,033,917
880,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 1,037,821
535,000 NiSource Finance Corp. company guaranty 7 7/8s, 2010 647,167
1,610,000 Peco Energy Co. 1st mtge. 4 3/4s, 2012 1,640,128
605,000 Pepco Holdings, Inc. 144A notes 5 1/2s, 2007 644,857
515,000 PP&L Capital Funding, Inc. company guaranty Ser. D, 8 3/8s, 2007 599,214
245,000 Progress Energy, Inc. sr. notes 6 3/4s, 2006 270,244
655,000 Progress Energy, Inc. sr. notes 6.05s, 2007 718,097
195,000 PSEG Power, LLC company guaranty 8 5/8s, 2031 256,516
625,000 PSEG Power, LLC company guaranty 6.95s, 2012 713,087
240,000 Public Service Electric & Gas Co. 1st mtge. FRN 6 3/8s, 2008 268,214
540,000 South Carolina Electric & Gas Co. 1st mtge. 5.8s, 2032 557,886
860,000 Tampa Electric Co. notes 6 7/8s, 2012 979,494
125,000 Teco Energy, Inc. notes 7s, 2012 121,250
110,000 Virginia Electric & Power Co. sr. notes 4 3/4s, 2013 111,428
-------------
21,257,888
Natural Gas Utilities (0.3%)
- -------------------------------------------------------------------------------------------------------------------
165,000 Duke Energy Field Services, LLC notes 7 7/8s, 2010 192,778
650,000 Duke Energy Field Services, LLC notes 5 3/4s, 2006 685,584
45,000 KeySpan Corp. notes 7 5/8s, 2010 54,348
260,000 National Fuel Gas Co. notes 5 1/4s, 2013 262,789
250,000 Southern California Gas Co. 1st mtge. 4.8s, 2012 255,628
245,000 Texas Eastern Transmission LP sr. notes 7s, 2032 273,775
-------------
1,724,902
Oil & Gas (0.2%)
- -------------------------------------------------------------------------------------------------------------------
240,000 Canadian Natural Resources, Ltd. sr. notes 5.45s, 2012 (Canada) 253,486
110,000 Devon Financing Corp. ULC company guaranty 7 7/8s, 2031 136,190
85,000 Devon Financing Corp. ULC company guaranty 6 7/8s, 2011 97,765
225,000 Louis Dreyfus Natural Gas Corp. notes 6 7/8s, 2007 250,743
430,000 MidAmerican Energy Holdings Co. sr. notes 4 5/8s, 2007 442,174
90,000 Motiva Enterprises, LLC 144A sr. notes 5.2s, 2012 90,903
-------------
1,271,261
Power Producers (0.1%)
- -------------------------------------------------------------------------------------------------------------------
345,000 Midland Funding II Corp. debs. Ser. A, 11 3/4s, 2005 368,288
Regional Bells (0.4%)
- -------------------------------------------------------------------------------------------------------------------
250,000 Ameritech Capital Funding company guaranty 6 1/4s, 2009 275,155
390,000 Bellsouth Capital Funding notes 7 3/4s, 2010 474,462
670,000 Telus Corp. notes 7 1/2s, 2007 (Canada) 743,700
865,000 Verizon Global Funding Corp. notes 7 1/4s, 2010 1,011,460
-------------
2,504,777
Telecommunications (3.4%)
- -------------------------------------------------------------------------------------------------------------------
410,000 AT&T Corp. sr. notes FRN 8s, 2031 456,491
375,000 AT&T Corp. sr. notes FRN 7.3s, 2011 411,458
160,000 AT&T Wireless Services, Inc. sr. notes 8 3/4s, 2031 199,238
2,270,000 AT&T Wireless Services, Inc. sr. notes 7 7/8s, 2011 2,615,276
265,000 British Telecommunications PLC bonds 8 7/8s, 2030 (United Kingdom) 352,533
1,525,000 British Telecommunications PLC notes 8 3/8s, 2010 (United Kingdom) 1,870,891
715,000 Cingular Wireless, LLC sr. notes 5 5/8s, 2006 779,334
750,000 Citizens Communications Co. notes 9 1/4s, 2011 947,945
330,000 Citizens Communications Co. sr. notes 7 5/8s, 2008 385,560
410,000 Deutsche Telekom International Finance BV bonds 8s,
2010 (Netherlands) 494,194
1,270,000 Deutsche Telekom International Finance BV company guaranty
8 3/4s, 2030 (Netherlands) 1,547,000
730,000 France Telecom notes 10s, 2031 (France) 970,985
935,000 France Telecom notes 7 3/4s, 2011 (France) 1,143,467
215,000 Koninklijke (Royal) KPN NV sr. unsub. notes 8 3/8s, 2030 (Netherlands) 271,915
55,000 Koninklijke (Royal) KPN NV sr. unsub. notes 8s, 2010 (Netherlands) 65,940
715,000 Sprint Capital Corp. company guaranty 7.9s, 2005 757,900
1,075,000 Sprint Capital Corp. company guaranty 6 7/8s, 2028 994,375
2,375,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 2,422,500
875,000 Verizon Wireless, Inc. notes 5 3/8s, 2006 944,943
205,000 Vodafone Group PLC notes 7 5/8s, 2005 (United Kingdom) 225,408
1,255,000 Vodafone Group PLC notes 7 3/4s, 2010 (United Kingdom) 1,516,299
90,000 Vodafone Group PLC bonds 6 1/4s, 2032 (United Kingdom) 95,958
-------------
19,469,610
Telephone (1.1%)
- -------------------------------------------------------------------------------------------------------------------
4,030,000 New England Telephone & Telegraph Co. debs. 7 7/8s, 2029 5,045,165
105,000 Telecorp PCS, Inc. company guaranty stepped-coupon zero %
(11 5/8s, 4/15/04), 2009 (STP) 107,625
950,000 Telefonica Europe BV company guaranty 7 3/4s, 2010 (Netherlands) 1,143,025
200,000 Voicestream Wireless Corp./Voicestream Wireless Capital
Corp. sr. disc. notes stepped-coupon zero % (11 7/8s, 11/15/04),
2009 (STP) 190,000
-------------
6,485,815
-------------
Total Corporate Bonds and Notes (cost $50,181,103) $54,014,036
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$132,890 Chase Manhattan Bank-First Union National Ser. 99-1,
Class A1, 7.134s, 2031 $146,818
365,534 LB-UBS Commercial Mortgage Trust Ser. 00-C4,
Class A1, 7.18s, 2009 410,737
239,266 TIAA Retail Commercial Mortgage Trust Ser. 99-1,
Class A, 7.17s, 2032 263,537
-------------
Total Collateralized Mortgage Obligations (cost $817,107) $821,092
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (--%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$94,758 Federal National Mortgage Association Pass-Through Certificates 7s,
November 1, 2031 $100,118
175,000 U.S. Treasury Bonds 4s, November 15, 2012 177,235
-------------
Total U.S. Government and Agency Obligations (cost $274,340) $277,353
SHORT-TERM INVESTMENTS (7.3%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$34,272,503 Short-term investments held as collateral for loaned securities
with yields ranging from 1.20% to 1.40% and due dates ranging
from May 1, 2003 to June 23, 2003 (d) $34,260,297
7,445,635 Short-term investments held in Putnam commingled cash account
with yields ranging from 1.18% to 2.625% and due dates ranging
from May 1, 2003 to June 16, 2003 (d) 7,445,635
-------------
Total Short-Term Investments (cost $41,705,932) $41,705,932
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $620,126,954) $609,962,862
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $574,842,876.
(NON) Non-income-producing security.
(STP) The interest and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest income at this rate.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at April
30, 2003.
(d) See Note 1 to the financial statements.
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
Depositary Receipts, representing ownership of foreign securities on
deposit with a custodian bank.
The rates shown on Floating Rate Notes (FRN) are the current
interest rates shown at April 30, 2003, which are subject to change
based on the terms of the security.
- ------------------------------------------------------------------------------
Forward Currency Contracts to Buy at April 30, 2003 (Unaudited)
(aggregate face value $6,750,291)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
Australian Dollar $165,623 $159,841 6/18/03 $5,782
Canadian Dollar 1,755,390 1,686,031 6/18/03 69,359
Danish Krone 293,113 288,295 6/18/03 4,818
Hong Kong Dollar 2,343,740 2,343,571 6/18/03 169
Japanese Yen 451,673 458,709 6/18/03 (7,036)
Swedish Krona 1,872,270 1,813,844 6/18/03 58,426
- ------------------------------------------------------------------------------
$131,518
- ------------------------------------------------------------------------------
Forward Currency Contracts to Sell at April 30, 2003 (Unaudited)
(aggregate face value $11,478,883)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
British Pound $36,650 $35,975 6/18/03 $(675)
Euro 9,018,053 8,685,460 6/18/03 (332,593)
Mexican Peso 760,182 682,254 6/18/03 (77,928)
New Zealand Dollar 485,996 485,944 6/18/03 (52)
Swiss Franc 1,582,743 1,589,250 6/18/03 6,507
- ------------------------------------------------------------------------------
$(404,741)
- ------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 2003 (Unaudited)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
U.S. Treasury Note
5 yr (Short) $1,365,000 $1,361,388 Jun-03 $(3,612)
U.S. Treasury Note
10 yr (Short) 575,625 571,997 Jun-03 (3,628)
- ------------------------------------------------------------------------------
$(7,240)
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value, including $32,794,786 of securities
on loan (identified cost $620,126,954) (Note 1) $609,962,862
- -------------------------------------------------------------------------------------------
Cash 2,780
- -------------------------------------------------------------------------------------------
Foreign currency (cost $10) (Note 1) 9
- -------------------------------------------------------------------------------------------
Dividends, interest and other receivables 2,698,004
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 254,453
- -------------------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 145,061
- -------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 1,503
- -------------------------------------------------------------------------------------------
Total assets 613,064,672
Liabilities
- -------------------------------------------------------------------------------------------
Payable for variation margin (Note 1) 8,594
- -------------------------------------------------------------------------------------------
Payable for securities purchased 1,291,929
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 832,920
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 928,799
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 96,862
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 105,527
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,280
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 181,876
- -------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 418,284
- -------------------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 36,191
- -------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 34,260,297
- -------------------------------------------------------------------------------------------
Other accrued expenses 59,237
- -------------------------------------------------------------------------------------------
Total liabilities 38,221,796
- -------------------------------------------------------------------------------------------
Net assets $574,842,876
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $830,303,530
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (530,432)
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (244,497,112)
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (10,433,110)
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $574,842,876
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($462,064,534 divided by 64,033,616 shares) $7.22
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $7.22)* $7.66
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($105,174,717 divided by 14,662,604 shares)** $7.17
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($3,447,180 divided by 479,956 shares)** $7.18
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($4,156,445 divided by 576,911 shares) $7.20
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $7.20)* $7.46
- -------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on
group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended April 30, 2003 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $129,934) $8,288,382
- -------------------------------------------------------------------------------------------
Interest 3,524,005
- -------------------------------------------------------------------------------------------
Securities lending 73,688
- -------------------------------------------------------------------------------------------
Total investment income 11,886,075
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,961,727
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 571,244
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,797
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,856
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 572,463
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 526,206
- -------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 16,983
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 16,198
- -------------------------------------------------------------------------------------------
Other 281,529
- -------------------------------------------------------------------------------------------
Total expenses 3,969,003
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (98,470)
- -------------------------------------------------------------------------------------------
Net expenses 3,870,533
- -------------------------------------------------------------------------------------------
Net investment income 8,015,542
- -------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (73,899,390)
- -------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (97,498)
- -------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,297,440)
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in foreign
currencies during the period (113,684)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures contracts
during the period 117,379,859
- -------------------------------------------------------------------------------------------
Net gain on investments 41,971,847
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $49,987,389
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
April 30 October 31
2003* 2002
- -------------------------------------------------------------------------------------------------------
Decrease in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $8,015,542 $21,597,161
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency
transactions (75,294,328) (164,816,045)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and
assets and liabilities in foreign currencies 117,266,175 (121,647,675)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 49,987,389 (264,866,559)
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (7,286,693) (17,845,811)
- -------------------------------------------------------------------------------------------------------
Class B (1,282,787) (3,176,354)
- -------------------------------------------------------------------------------------------------------
Class C (41,053) (92,301)
- -------------------------------------------------------------------------------------------------------
Class M (58,429) (138,941)
- -------------------------------------------------------------------------------------------------------
From return of capital
Class A -- (1,896,919)
- -------------------------------------------------------------------------------------------------------
Class B -- (337,630)
- -------------------------------------------------------------------------------------------------------
Class C -- (9,811)
- -------------------------------------------------------------------------------------------------------
Class M -- (14,769)
- -------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (50,820,303) (201,791,213)
- -------------------------------------------------------------------------------------------------------
Total decrease in net assets (9,501,876) (490,170,308)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 584,344,752 1,074,515,060
- -------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net investment
income of $530,432 and undistributed net investment income
of $122,988, respectively) $574,842,876 $584,344,752
- -------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.71 $9.56 $13.86 $14.06 $13.62 $12.49
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .10 .23 .25 .36 .39 .37
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .52 (2.84) (2.73) .75 .87 2.14
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .62 (2.61) (2.48) 1.11 1.26 2.51
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.11) (.22) (.25) (.38) (.39) (.38)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (1.53) (.93) (.43) (1.00)
- ------------------------------------------------------------------------------------------------------------------
From return of capital -- (.02) (.04) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.24) (1.82) (1.31) (.82) (1.38)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.22 $6.71 $9.56 $13.86 $14.06 $13.62
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 9.32* (27.73) (20.40) 9.04 9.49 21.06
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $462,065 $469,497 $846,231 $1,128,437 $1,000,789 $825,884
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .62* 1.12 1.05 1.01 1.00 1.05
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.46* 2.68 2.14 2.78 2.80 2.87
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 25.84* 44.93 91.91 29.42 17.58 23.64
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.67 $9.51 $13.78 $13.98 $13.54 $12.42
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .08 .16 .16 .26 .28 .28
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .50 (2.82) (2.70) .74 .87 2.12
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .58 (2.66) (2.54) 1.00 1.15 2.40
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.16) (.17) (.27) (.28) (.28)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (1.53) (.93) (.43) (1.00)
- ------------------------------------------------------------------------------------------------------------------
From return of capital -- (.02) (.03) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.18) (1.73) (1.20) (.71) (1.28)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.17 $6.67 $9.51 $13.78 $13.98 $13.54
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.81* (28.35) (20.93) 8.19 8.69 20.19
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $105,175 $107,158 $213,564 $335,411 $566,426 $706,220
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .99* 1.87 1.80 1.76 1.75 1.80
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.09* 1.92 1.39 2.06 2.06 2.13
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 25.84* 44.93 91.91 29.42 17.58 23.64
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS C
- -----------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 July 26, 1999+
operating performance (Unaudited) Year ended October 31 to October 31
- -----------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.67 $9.51 $13.79 $14.04 $14.34
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income (a) .07 .16 .16 .25 .07
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .52 (2.82) (2.70) .74 (.26)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations .59 (2.66) (2.54) .99 (.19)
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net
investment income (.08) (.16) (.18) (.31) (.11)
- -----------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (1.53) (.93) --
- -----------------------------------------------------------------------------------------------------
From return of capital -- (.02) (.03) -- --
- -----------------------------------------------------------------------------------------------------
Total distributions (.08) (.18) (1.74) (1.24) (.11)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.18 $6.67 $9.51 $13.79 $14.04
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.96* (28.37) (20.93) 8.12 (1.33)*
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,447 $3,332 $6,028 $4,734 $486
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .99* 1.87 1.80 1.76 .47*
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.08* 1.93 1.38 1.94 .53*
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 25.84* 44.93 91.91 29.42 17.58
- -----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.70 $9.55 $13.83 $14.03 $13.60 $12.47
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .08 .18 .19 .29 .32 .32
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .51 (2.83) (2.71) .75 .86 2.13
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .59 (2.65) (2.52) 1.04 1.18 2.45
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.18) (.20) (.31) (.32) (.32)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (1.53) (.93) (.43) (1.00)
- ------------------------------------------------------------------------------------------------------------------
From return of capital -- (.02) (.03) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.20) (1.76) (1.24) (.75) (1.32)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.20 $6.70 $9.55 $13.83 $14.03 $13.60
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.91* (28.16) (20.72) 8.49 8.87 20.54
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,156 $4,358 $8,692 $13,320 $14,045 $13,828
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .87* 1.62 1.55 1.51 1.50 1.55
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.21* 2.17 1.64 2.28 2.30 2.40
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 25.84* 44.93 91.91 29.42 17.58 23.64
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam Utilities Growth and Income 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 growth
and current income primarily through investments in equity and debt
securities issued by public utility companies.
The fund offers class A, class B, class C and class M shares. Class A
shares are sold with a maximum front-end sales charge of 5.75%. Class B
shares, which convert to class A shares after approximately eight years,
do not pay a front-end sales charge but pay a higher ongoing
distribution fee than class A and class M shares, and are subject to a
contingent deferred sales charge, if those shares are redeemed within
six years of purchase. Class C shares are subject to the same fees and
expenses as class B shares, except that class C shares have a one-year
1.00% contingent deferred sales charge and do not convert to class A
shares. Class M shares are sold with a maximum front-end sales charge of
3.50% and pay an ongoing distribution fee that is higher than class A
shares but lower than class B and class C shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at the last reported sales price on its
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Market quotations are not considered to be
readily available for certain debt obligations; such investments are
valued at market value on the basis of valuations furnished by an
independent pricing service or dealers, approved by the Trustees. Such
services or dealers determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and various relationships,
generally recognized by institutional traders, between securities. For
foreign investments, if trading or events occurring in other markets
after the close of the principal exchange in which the securities are
traded are expected to materially affect the value of the investments,
then those investments are valued, taking into consideration these
events, at their fair value following procedures approved by the
Trustees. Short-term investments having remaining maturities of 60 days
or less are valued at amortized cost, which approximates fair value.
Other investments, including restricted securities, are valued at fair
value following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis. Dividend income is recognized on the ex-dividend date except that
certain dividends from foreign securities are recognized as soon as the
fund is informed of the ex-dividend date. Non-cash dividends, if any,
are recorded at the fair market value of the securities received.
D) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
E) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short-term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position. Forward currency contracts outstanding at
period end are listed after The fund's portfolio.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Future contracts outstanding at period end are listed after The fund's
portfolio.
G) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At April 30, 2003, the value of
securities loaned amounted to $32,794,786. The fund received cash
collateral of $34,260,297 which is pooled with collateral
of other Putnam funds into 45 issuers of high-grade short-term investments.
H) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and that
borrowings not exceed prospectus limitations. For the six months ended
April 30, 2003, the fund had no borrowings against the line of credit.
I) 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 October 31, 2002, the fund had a capital loss carryover of
approximately $166,677,000 available to the extent allowed by tax law to
offset future net capital gain, if any. This capital loss carryover will
expire on October 31, 2010.
The aggregate identified cost on a tax basis is $622,646,233, resulting
in gross unrealized appreciation and depreciation of $56,331,674 and
$69,015,045, respectively, or net unrealized depreciation of
$12,683,371.
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services
and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.70% of the first $500 million
of average net assets, 0.60% of the next $500 million, 0.55% of the next
$500 million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion and
0.43% 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 wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the six months ended April 30, 2003,
the fund's expenses were reduced by $98,470 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,226 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan"),
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C and class M shares pursuant to rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, Inc., for services provided
and expenses incurred by it in distributing shares of the fund. The
Plans provide for payments by the fund to Putnam Retail Management at an
annual rate of up to 0.35%, 1.00%, 1.00% and 1.00% of the average net
assets attributable to class A, class B, class C and class M shares,
respectively. The Trustees have approved payment by the fund at the
annual rates of 0.25%, 1.00%, 1.00% and 0.75% of the average net assets
attributable to class A, class B, class C and class M shares,
respectively.
For the six months ended April 30, 2003, Putnam Retail Management,
acting as underwriter received net commissions of $18,464 and $238 from
the sale of class A and class M shares, respectively, and received
$104,148 and $210 in contingent deferred sales charges from redemptions
of class B and class C shares, respectively. A deferred sales charge of
up to 1.00% and 0.65% is assessed on certain redemptions of class A and
class M shares, respectively. For the six months ended April 30, 2003,
Putnam Retail Management, acting as underwriter received $414 and no
monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2003, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $147,523,843 and
$205,634,280, respectively. Purchases and sales of U.S. government
obligations aggregated $174,262 and $--, respectively.
Note 4
Capital shares
At April 30, 2003, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2003
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 3,525,782 $21,487,266
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 465,168 6,442,062
- ---------------------------------------------------------------------------
3,990,950 27,929,328
Shares repurchased (9,978,403) (68,766,253)
- ---------------------------------------------------------------------------
Net decrease (5,987,453) $(40,836,925)
- ---------------------------------------------------------------------------
Year ended October 31, 2002
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 6,179,092 $52,428,681
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 1,539,397 13,837,250
- ---------------------------------------------------------------------------
7,718,489 66,265,931
Shares repurchased (26,174,107) (213,238,251)
- ---------------------------------------------------------------------------
Net decrease (18,455,618) $(146,972,320)
- ---------------------------------------------------------------------------
Six months ended April 30, 2003
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,421,178 $9,457,327
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 82,271 1,135,014
- ---------------------------------------------------------------------------
1,503,449 10,592,341
Shares repurchased (2,912,864) (19,962,475)
- ---------------------------------------------------------------------------
Net decrease (1,409,415) $(9,370,134)
- ---------------------------------------------------------------------------
Year ended October 31, 2002
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 2,820,415 $24,052,687
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 274,368 2,460,936
- ---------------------------------------------------------------------------
3,094,783 26,513,623
Shares repurchased (9,481,614) (78,122,877)
- ---------------------------------------------------------------------------
Net decrease (6,386,831) $(51,609,254)
- ---------------------------------------------------------------------------
Six months ended April 30, 2003
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 94,650 $648,947
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 2,402 33,895
- ---------------------------------------------------------------------------
97,052 682,842
Shares repurchased (116,360) (796,878)
- ---------------------------------------------------------------------------
Net decrease (19,308) $(114,036)
- ---------------------------------------------------------------------------
Year ended October 31, 2002
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 273,199 $2,377,216
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 7,784 69,849
- ---------------------------------------------------------------------------
280,983 2,447,065
Shares repurchased (415,409) (3,499,593)
- ---------------------------------------------------------------------------
Net decrease (134,426) $(1,052,528)
- ---------------------------------------------------------------------------
Six months ended April 30, 2003
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 85,613 $571,101
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 3,929 54,290
- ---------------------------------------------------------------------------
89,542 625,391
Shares repurchased (163,513) (1,124,599)
- ---------------------------------------------------------------------------
Net decrease (73,971) $(499,208)
- ---------------------------------------------------------------------------
Year ended October 31, 2002
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 95,720 $782,640
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 12,297 110,075
- ---------------------------------------------------------------------------
108,017 892,715
Shares repurchased (367,706) (3,049,826)
- ---------------------------------------------------------------------------
Net decrease (259,689) $(2,157,111)
- ---------------------------------------------------------------------------
[PHOTO OMITTED: SAMUEL PUTNAM]
PUTNAM IS A LEADER IN GLOBAL MONEY MANAGEMENT
Putnam Investments traces its heritage to the early 19th century when
ship captains hired trustees to manage their money while they were away
at sea. In a landmark 1830 decision that involved one such trustee,
Massachusetts Supreme Judicial Court Justice Samuel Putnam established
The Prudent Man Rule, a legal foundation for responsible money
management. In 1937, his great-great grandson founded Putnam with The
George Putnam Fund of Boston, the first fund to offer a balanced
portfolio of stocks and bonds. Today, Putnam Investments is one of the
largest investment management firms in the world, and this balanced
approach remains the foundation of everything we do.
With over 65 years of experience, Putnam has nearly $251 billion in
assets under management, over 100 mutual funds, over 13 million
shareholder accounts, and nearly 3,000 institutional and 401(k) clients.
(Information as of 12/31/02.)
We're one of the largest mutual fund companies in the United States.
Putnam has won the DALBAR award for service twelve times in the past
thirteen years. Putnam offers products in every investment category,
including growth, value, and blend as well as international and fixed
income.
Teamwork is a cornerstone of Putnam's investment philosophy. Our funds
are managed by teams in a collaborative environment that promotes an
active exchange of information.
Putnam's disciplined investment philosophy is based on style
consistency. We aim for less volatility over the short term and strong,
consistent performance over time. Our truth in labeling approach helps
us adhere to every fund's stated objective, style, and risk positioning.
We are committed to helping financial advisors provide sound, sensible
guidance, information, and expertise to help investors reach their
financial goals.
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
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
BLEND FUNDS
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund
Global Equity Fund
Global Natural Resources Fund
International Capital Opportunities Fund
International Equity Fund
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
VALUE FUNDS
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund *
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Income Trust
High Yield Advantage Fund *
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund +
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
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds +
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
* Closed to new investors.
+ An investment in a money market fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government
agency. Although the funds seek to preserve your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President, Treasurer and
Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Brett C. Browchuk
Vice President
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Beth S. Mazor
Vice President
Richard A. Monaghan
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
Joshua A. Brooks
Vice President
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Utilities
Growth and Income Fund. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives details
of sales charges, investment objectives, and operating policies of the
fund, and the most recent copy of Putnam's Quarterly Performance Summary
and Putnam's Quarterly Ranking Summary. For more information or to
request a prospectus, call toll free: 1-800-225-1581. The fund's
Statement of Additional Information contains additional information
about the fund's Trustees and is available without charge upon request
by calling 1-800-225-1581.
Visit www.putnaminvestments.com or call 1-800-225-1581.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA026-88646 840/884/869 6/03
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
There have been no significant changes in the registrant's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: June 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: June 24, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: June 24, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 24, 2003