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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-03
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
You may have read recent press coverage regarding investigations
involving Putnam Investments. Last month all Putnam shareholders were
sent a letter detailing the steps being taken by Putnam to address the
issues raised by federal and state regulators. Since then, a number of
remedial actions, some of which were discussed in last month's letter,
are being instituted under the terms of an order from the Securities and
Exchange Commission (SEC). These include stringent employee trading
restrictions, enhanced compliance standards and systems, new redemption
fees for certain fund shares held less than three months, and a process
for making full monetary restitution for any losses to fund
shareholders. This process will be directed by an independent third
party approved by the SEC and by Putnam's Board of Trustees.
The Board is also continuing its own independent investigation of these
issues and when complete a report will be issued detailing the
additional steps being taken to make sure that nothing like this happens
at Putnam again. We believe that the new senior management team at
Putnam is fully committed to re-establishing the firm as a model for the
highest ethical standards in the mutual fund industry. Our Board is
committed to working with Putnam's management to ensure that everything
possible is done to restore your full confidence in the Putnam
organization.
We are pleased to report that Putnam Utilities Growth and Income Fund
turned in strong positive results for the 12 months ended October 31,
2003. The fund's performance at net asset value exceeded that of its
Lipper peer group average. However, the fund underperformed its
benchmark, because of its heavier emphasis on stocks of higher-quality
companies as well as its ownership of bonds and telecom stocks, which
did not perform as strongly as utilities stocks. You will find the
details in the following report, which also provides a thorough
discussion of performance and strategy during the fiscal year and offers
the management team's view of prospects for the months ahead.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 17, 2003
Report from Fund Management
Fund highlights
* Putnam Utilities Growth and Income Fund advanced strongly during the
fiscal year ended October 31, 2003, with class A shares gaining 23.17%
at net asset value and 16.08% at public offering price for the year.
* Due to differences in composition and emphasis, the fund
underperformed the S&P Utilities Index, which returned 26.25% for the
same period.
* Superior stock selection enabled the fund to outperform the 19.12%
average return of its Lipper Utility Funds peer group based on results
at net asset value.
* The fund's quarterly distribution was reduced in June 2003. See page 5
for details.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
Utilities stock performance stayed strong throughout the fiscal year, as
the financial climate in the gas and power sector improved and the
overall stock market continued to rally. Lower-quality, financially
challenged companies gained the most from the market rally as these
companies stood to benefit most from bank decisions to increase access
to capital. The fund underperformed the S&P Utilities Index due to the
management team's continued 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 continued to face
difficulties in the United States and underperformed utilities during
the period. The fund's focus on recovering California-based regulated
utilities was a key strategy that helped it to finish ahead of the
average return of the funds in its Lipper category.
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
Market conditions for utilities stocks and bonds began to improve in
October 2002, and the environment remained favorable throughout the
annual period. Credit rating agencies continued to slow the pace of
downgrades for utilities bonds, as many companies involved in
merchant-generation* and power-trading began to abandon riskier
endeavors launched in the wake of deregulation and to refocus on their
core businesses. Lower interest rates and an improved climate for
corporate credit also enabled many of these utilities to repair damaged
balance sheets. The confluence of these events spurred a rally in
utilities stocks and bonds.
Also contributing to the rally in utilities securities were relatively
high gas prices throughout the period, which provided a favorable
backdrop for merchant-power prices. (In most of the United States, gas
sets the marginal price for power providers because it is the most
expensive fuel for power generation.) Since power revenues and gas
prices moved together, generators utilizing gas did not experience
improved profitability, while merchant generators that used relatively
stable coal, lignite, and nuclear fuel to generate power did enjoy
higher profits.
* Electric-generating companies allowed to sell power at varying rates;
also called unregulated utilities.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 10/31/03
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Equities
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S&P Utilities Index (utilities stocks) 26.25%
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S&P 500 Index (broad stock market) 20.80%
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Russell 1000 Growth Index (large-company growth stocks) 21.81%
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Russell 1000 Value Index (large-company value stocks) 22.87%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 4.90%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 30.49%
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Lehman Intermediate Treasury Bond Index
(intermediate-maturity U.S. Treasury bonds) 2.29%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 10/31/03.
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Strategy overview
The management team kept the fund's allocation to equities at 90% for
much of the period, reflecting our confidence that an improved economic
environment will continue to offer greater total return potential among
utilities stocks than among bonds. We believe the prolonged appreciation
in bond prices may taper soon. The fund's bond holdings did provide
strong performance, however, benefiting from our focus on the
top-performing sector of regulated utility operating companies. The fund
took profits on holdings that had appreciated to levels that we believed
were above fair value, and then reinvested those assets in the stocks of
companies that, by our measures, were high quality and financially
strong.
Within equities, the management team stayed close to its benchmark
allocation of 70% to gas, power, and water, and 30% to
telecommunications, including regional Bells. Many telecommunications
stocks performed poorly over the past year, however, effectively
reducing their proportionate contribution to fund returns while reducing
their portfolio weighting. Since the telecommunications industry
continues to face significant challenges in the United States, we chose
not to rebalance the fund's weighting to our target allocation. Within
the sector, we emphasized regional Bell operating companies, which
enjoyed more favorable regulatory and competitive environments than long
distance or wireless providers. Overall, the team holds a more positive
view of international telecommunications markets, especially with
respect to foreign wireless companies, which possess numerous growth
opportunities and greater profit margins than their U.S. counterparts.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS COMPARED]
TOP INDUSTRY WEIGHTINGS COMPARED
as of 4/30/03 as of 10/31/03
Electric Utilities 56.8% 59.0%
Telecommunications 20.9% 21.6%
Natural gas utilities 8.1% 8.0%
Regional Bells 8.2% 7.5%
Telephone 1.1% 1.0%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
The fund's overweight positions in two California utilities stocks, PG&E
and Edison International, and the bonds of Mission Energy (a subsidiary
of Edison), provided superior returns over the period. All three
benefited from the continued recovery of California regulated utilities
from the power crisis of 2000-2001. They also benefited from the
improvement in the financial environment for utilities, high retail
power prices, and the reversal of some of the more harmful aspects of
deregulation in California. For example, a regulatory ruling from early
2002 allowed utilities to levy a surcharge on their customers' bills in
order to repay the cost of having to buy power at higher prices than
those at which they sold it during California's power crisis. Although
the management team expects the pace of gains registered by these
securities over the period to slow in coming months, we believe that all
three remain prudent investments and continue to offer total return
potential.
CenterPoint Energy and TXU Corporation, which sell power-generating
capacity in Texas, were also top contributors to fund returns. In
addition to gas, these companies use coal, lignite, and nuclear fuel to
generate electric power. This means that even when gas prices rise, at
least part of these companies' energy costs remain stable, and they have
been able to make a profit when selling their generating capacity at
auction. In the case of Southern Company, Pepco Holdings, and
Consolidated Edison, the fund's underweight positions relative to the
benchmark boosted performance measurably as these securities all
underperformed over the period.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
1 PG&E Corp.
Electric utilities
2 Entergy Corp.
Electric utilities
3 Exelon Corp.
Electric utilities
4 Vodafone Group PLC
(United Kingdom)
Telecommunications
5 Edison International
Electric utilities
6 Dominion Resources, Inc.
Electric utilities
7 FPL Group, Inc.
Electric utilities
8 Verizon Communications, Inc.
Regional Bells
9 FirstEnergy Corp.
Electric utilities
10 TXU Corp.
Electric utilities
Footnote reads:
These holdings represent 40.5% of the fund's net assets as of 10/31/03.
The fund's holdings will change over time.
The most significant negative influences on the fund's relative
performance over the period came from companies that were either
under-represented in the portfolio or not held at all. Many of these
companies did not meet the management team's criteria for quality and
financial soundness; indeed, some of the top stock-market performers
during the year were among what we consider the financially weakest
companies in the utilities universe. The Williams Companies, AES
Corporation, and Calpine Corporation were three highly leveraged
companies that performed exceptionally well, but which the fund did not
hold.
Relative performance was also hurt by the fund's exposure to Sierra
Pacific Resources, whose stock price suffered from an adverse regulatory
ruling and what investors perceived as an inappropriate management
response to the situation. Despite Sierra Pacific's disappointing
performance over the period, we have continued to hold the stock because
of its robust cash flow and strong legal position in coming regulatory
battles. The stock has recovered sharply since the end of the fiscal
year, supporting our thesis that it still has upside potential based on
its underlying fundamentals.
In the telecommunications sector, two international market leaders were
among the largest contributors to performance: NTT DoCoMo (Japan) and
Vodaphone (United Kingdom). SK Telecom (South Korea) also turned in
positive performance after a disappointing first half of the year. The
fund's smaller-than-benchmark position in Verizon for much of the year
also benefited results as this stock underperformed the benchmark until
September. In August, management increased the fund's Verizon holdings
to a larger-than-benchmark position, which benefited results when the
stock performed strongly in the period's final months.
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.
OF SPECIAL INTEREST
In April 2003, Joshua Brooks became a member of the Putnam Utilities
Team. Mr. Brooks, who joined Putnam in 2003 as Director, Global Equity
Research, has more than 12 years of investment experience. In October
2003, Kevin Murphy took over the supervision of the fund's bond
holdings. Kevin, who joined Putnam in 1999, has 15 years of investment
experience and a special expertise in investment-grade corporate bonds.
The fund's income level has been negatively affected by two factors:
First of all, the crisis created by deregulation prompted many utilities
companies to cut or eliminate their dividends and they have been slow to
increase them as the environment has become more favorable. Secondly,
the fund's income from bond coupons has declined measurably with the
substantial drop in yields over the course of a prolonged bond market
rally. These forces prompted a reduction in the fund's quarterly
distribution. The class A share distribution declined from $0.055 to
$0.037 per share effective as of June 2003. Other share classes
experienced similar adjustments.
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), Kevin Murphy (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.
With its portfolio of high-quality, dividend-paying stocks and bonds, we
believe that Putnam Utilities Growth and Income Fund is well positioned
for the months ahead. Of course, broad economic conditions will continue
to shape results. Recent economic data confirm that tax cuts, low
interest rates, and a gradually weakening dollar have succeeded in
bolstering the economy. These factors, combined with solid corporate
earnings reports and stabilizing employment figures kept the market
rally flourishing through the fund's fiscal year-end. However, it is
wise to keep in mind that market rallies historically precede, rather
than coincide with or lag, spurts in economic growth. We believe that
any further market advances will likely come from earnings growth. And
achieving significant earnings growth in 2004 and beyond, in our
opinion, will be challenging because of 2003's higher base.
Continued favorable conditions in the utilities industry from both
regulatory and fundamental perspectives are a second force shaping the
fund's outlook. We believe that the utilities industry's recovery from
the dislocation of deregulation is nearly complete. Accordingly, while
the fund's California utilities stocks and bonds -- and other similarly
dislocated securities -- still offer some appreciation potential going
forward, we believe it is unlikely to be as significant as it was this
past year. Therefore, we have reduced stock-specific risk in the
portfolio to focus on picking up smaller gains from a wider range of
overweight (greater than benchmark) positions.
Our strategy continues to be driven by fundamental research and
quantitative analysis as we seek to identify companies whose stock
prices are undervalued versus our estimate of their long-term business
worth. These companies should be competitively positioned, exhibit sound
underlying fundamentals, have good financials, and pay solid dividends.
We believe this strategy will serve the fund well across a full range of
market conditions.
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 fiscal year, which ended October 31, 2003. In accordance with
regulatory requirements, we also include performance for the most
current calendar quarter-end. Performance should always be considered in
light of a fund's investment strategy. Past performance does not
indicate future results. More recent returns may be less or more than
those shown. Investment return and principal value will fluctuate and
you may have a gain or a loss when you sell your shares. A profile of
your fund's strategy appears on the first page of this report. See page
9 for definitions of some terms used in this section.
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TOTAL RETURN FOR PERIODS ENDED 10/31/03
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Class A Class B Class C Class M
(inception dates) (11/19/90) (4/27/92) (7/26/99) (3/1/95)
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NAV POP NAV CDSC NAV CDSC NAV POP
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1 year 23.17% 16.08% 22.40% 17.40% 22.45% 21.45% 22.61% 18.37%
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5 years -15.41 -20.28 -18.45 -19.63 -18.49 -18.49 -17.51 -20.38
Annual average -3.29 -4.43 -4.00 -4.28 -4.01 -4.01 -3.78 -4.46
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10 years 59.15 50.05 47.74 47.74 47.61 47.61 51.73 46.36
Annual average 4.76 4.14 3.98 3.98 3.97 3.97 4.26 3.88
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Annual average
(life of fund) 6.79 6.30 5.99 5.99 5.99 5.99 6.27 5.97
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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.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/03
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S&P Lipper Utility
Utilities Funds category
Index average*
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1 year 26.25% 19.12%
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5 years -14.07 -3.13
Annual average -2.99 -0.77
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10 years 39.66 70.80
Annual average 3.40 5.40
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Annual average
(life of fund) 6.48 7.90
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 10/31/03, there were 87,
64, and 28 funds, respectively, in this Lipper category.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 10/31/93 to 10/31/03
Fund's class A S&P
Date shares at POP Utilities Index
10/31/93 9,425 10,000
10/31/94 8,740 8,390
10/31/95 10,550 10,500
10/31/96 12,299 11,715
10/31/97 14,654 12,797
10/31/98 17,740 16,253
10/31/99 19,423 16,512
10/31/00 21,178 22,434
10/31/01 16,858 17,382
10/31/02 12,183 11,062
10/31/03 $15,005 $13,966
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class C
shares would have been valued at $14,774 and $14,761, respectively, and
no contingent deferred sales charges would apply. A $10,000 investment
in the fund's class M shares would have been valued at $15,173 ($14,636
at public offering price). See first page of performance section for
performance calculation method.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/03
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Class A Class B Class C Class M
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Distributions (number) 4 4 4 4
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Income $0.1724 $0.1209 $0.1237 $0.1387
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Capital gains -- -- -- --
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Return of capital 1 0.0116 0.0081 0.0083 0.0093
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Total $0.1840 $0.1290 $0.1320 $0.1480
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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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10/31/03 8.06 8.55 8.02 8.02 8.05 8.34
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Current return (end of period)
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Current dividend rate 2 1.84% 1.73% 1.10% 1.10% 1.24% 1.20%
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Current 30-day SEC yield 3 2.43 2.29 1.68 1.68 1.93 1.86
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1 See page 36.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
3 Based only on investment income, calculated using SEC guidelines.
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TOTAL RETURN FOR PERIODS ENDED 9/30/03 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M
(inception dates) (11/19/90) (4/27/92) (7/26/99) (3/1/95)
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NAV POP NAV CDSC NAV CDSC NAV POP
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1 year 25.36% 18.23% 24.60% 19.60% 24.45% 23.45% 24.80% 20.51%
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5 years -15.75 -20.60 -18.84 -20.01 -18.89 -18.89 -17.84 -20.73
Annual average -3.37 -4.51 -4.09 -4.37 -4.10 -4.10 -3.85 -4.54
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10 years 56.34 47.39 45.12 45.12 44.99 44.99 48.91 43.64
Annual average 4.57 3.96 3.79 3.79 3.78 3.78 4.06 3.69
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Annual average
(life of fund) 6.68 6.19 5.88 5.88 5.88 5.88 6.15 5.86
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Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption (except on certain
redemptions of shares bought without an initial sales charge).
Comparative indexes
JP Morgan (formerly Chase) Global High Yield Index is an unmanaged index
that is designed to mirror the investable universe of the U.S. dollar
global high-yield corporate debt market, including domestic and
international issues.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Intermediate Treasury Bond Index is an unmanaged index of
Treasury bonds with maturities between 1 and 10 years.
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.
S&P 500 Index is an unmanaged index of common stock performance.
S&P Utilities Index is an unmanaged index of common stock issued by
utilities companies.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Independent auditors' report
To the Trustees and Shareholders of
Putnam Utilities Growth and Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam
Utilities Growth and Income Fund (the "fund") at October 31, 2003, and
the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of investments owned at
October 31, 2003 by correspondence with the custodian, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 2003
The fund's portfolio
October 31, 2003
Common stocks (90.3%) (a)
Number of shares Value
Broadcasting (--%)
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2,176 Antena 3 Television SA (Spain) (NON) $71,070
Combined Utilities (0.4%)
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300,162 United Utilities PLC (United
Kingdom) 2,400,288
Electric Utilities (55.3%)
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142,600 Alliant Energy Corp. 3,430,956
150,820 Ameren Corp. 6,734,113
316,800 American Electric Power Co., Inc. 8,930,592
1,131,500 CenterPoint Energy, Inc. 11,100,015
169,500 Consolidated Edison, Inc. 6,859,665
414,931 Dominion Resources, Inc. 25,559,750
132,089 DTE Energy Co. 4,871,442
580,608 Duke Energy Corp. 10,538,035
1,312,160 Edison International (NON) 25,862,674
14,100 Electrabel SA (Belgium) 3,898,808
893,922 Electricidade de Portugal SA (Portugal) 2,026,061
334,063 Energy East Corp. 7,499,714
573,150 Entergy Corp. 30,892,785
485,600 Exelon Corp. 30,811,320
405,900 FirstEnergy Corp. 13,958,901
305,900 FPL Group, Inc. 19,498,066
115,030 Iberdrola SA (Spain) 1,918,586
1,411,634 PG&E Corp. (NON) 34,514,451
165,734 Pinnacle West Capital Corp. 6,059,235
265,013 Progress Energy, Inc. 11,422,060
195,275 Public Power Corp. 144A (Greece)
(NON) 4,207,989
151,500 Public Service Enterprise Group,
Inc. 6,191,805
125,297 Puget Energy, Inc. 2,848,001
92,600 SCANA Corp. 3,175,254
1,909,100 Sierra Pacific Resources (NON) 11,397,327
391,377 Southern Co. (The) 11,663,035
86,700 TransAlta Corp. (Canada) 1,245,879
604,153 TXU Corp. 13,786,771
123,800 Wisconsin Energy Corp. 4,054,450
321,938 XCEL Energy, Inc. 5,279,783
--------------
330,237,523
Natural Gas Utilities (7.8%)
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31,800 Energen Corp. 1,172,466
212,300 Equitable Resources, Inc. 8,746,760
54,139 KeySpan Corp. 1,893,241
76,703 Kinder Morgan Management, LLC (NON) 2,910,879
79,748 Kinder Morgan, Inc. 4,270,505
212,250 MDU Resources Group, Inc. 4,803,218
78,500 National Fuel Gas Co. 1,754,475
292,052 NiSource, Inc. 6,048,397
125,235 ONEOK, Inc. 2,490,924
53,600 Piedmont Natural Gas Co., Inc. 2,129,528
81,400 Questar Corp. 2,584,450
92,600 Sempra Energy 2,574,280
65,700 South Jersey Industries, Inc. 2,492,001
126,655 Vectren Corp. 2,989,058
--------------
46,860,182
Oil & Gas (0.4%)
- -------------------------------------------------------------------------------
64,700 Enbridge, Inc. (Canada) 2,540,122
Regional Bells (7.1%)
- -------------------------------------------------------------------------------
328,050 BellSouth Corp. 8,630,996
514,000 SBC Communications, Inc. (SEG) 12,325,720
170,537 Telus Corp. (Canada) 2,987,859
549,400 Verizon Communications, Inc. 18,459,840
--------------
42,404,415
Telecommunications (18.5%)
- -------------------------------------------------------------------------------
48,120 ALLTEL Corp. 2,274,632
43,500 America Movil SA de CV ADR Ser. L
(Mexico) 1,035,300
754,850 AT&T Wireless Services, Inc. (NON) 5,472,663
78,400 BCE, Inc. (Canada) 1,772,624
546,830 BT Group PLC (United Kingdom) 1,721,284
77,271 CenturyTel, Inc. 2,762,438
160,000 China Telecom Corp., Ltd. (China) 53,057
862,000 China Unicom, Ltd. (Hong Kong) 810,359
151,600 Citizens Communications Co. (NON) 1,887,420
66,350 Cosmote Mobile Communications SA
(Greece) 761,932
601,687 Deutsche Telekom AG (Germany) (NON) 9,441,101
541,188 Koninklijke (Royal) KPN NV
(Netherlands) (NON) 4,113,809
77,390 KT Corp. (South Korea) 3,081,208
483 Nippon Telegraph and Telephone Corp.
(NTT) (Japan) 2,157,898
4,978 NTT DoCoMo, Inc. (Japan) 10,780,382
3,137,840 Olivetti SpA (Italy) (NON) 8,187,765
376,852 Portugal Telecom SGPS SA ADR
(Portugal) 3,184,399
22,340 SK Telecom Co., Ltd. (South Korea) 3,946,796
9,632 Swisscom AG (Switzerland) 2,803,020
25,156 TDC A/S (Denmark) 808,590
307,080 Telecom Corp. of New Zealand, Ltd.
(New Zealand) 912,568
753,913 Telecom Italia Mobile SpA (Italy) 3,478,804
643,507 Telefonica SA (Spain) (NON) 8,003,046
14,186 Telefonos de Mexico SA de CV
(Telmex) ADR Class L (Mexico) 456,080
309,141 Telenor ASA (Norway) 1,683,489
13,780,756 Vodafone Group PLC (United Kingdom) 28,938,399
--------------
110,529,063
Water Utilities (0.8%)
- -------------------------------------------------------------------------------
190,450 Philadelphia Suburban Corp. 4,498,429
--------------
Total Common stocks (cost $506,735,042) $539,541,092
Corporate bonds and notes (8.6%) (a)
Principal amount Value
Cable Television (--%)
- -------------------------------------------------------------------------------
$120,000 Rogers Cable Inc. sec. notes 6 1/4s,
2013 (Canada) $120,000
Electric Utilities (3.7%)
- -------------------------------------------------------------------------------
680,000 AEP Texas Central Co. sr. notes
Ser. D, 5 1/2s, 2013 685,838
215,000 Alabama Power Co. sr. notes Ser. S,
5 7/8s, 2022 215,801
170,000 Appalachian Power Co. notes 3.6s,
2008 166,523
50,000 CenterPoint Energy Houston Electric
LLC 144A general ref. mtge. 5 3/4s,
2014 51,994
65,000 CenterPoint Energy, Inc. 144A notes
7 1/4s, 2010 69,654
180,000 Cincinnati Gas & Electric bonds
Ser. B, 5 3/8s, 2033 159,163
95,000 Cleveland Electric Illuminating Co.
(The) sec. notes Ser. D, 7.43s, 2009 109,036
430,000 Connecticut Light & Power Co. 1st
mtge. Ser. D, 7 7/8s, 2024 526,764
700,000 Consolidated Edison Co. of New York
debs. Ser. B, 7.15s, 2009 806,936
95,000 Constellation Energy Group, Inc.
notes 7s, 2012 107,694
690,000 Constellation Energy Group, Inc. sr.
notes 6 1/8s, 2009 755,277
585,000 Consumers Energy Co. 144A 1st. mtge.
5 3/8s, 2013 580,571
40,000 Dayton Power & Light Co. (The) 144A
1st mtge. 5 1/8s, 2013 39,987
1,155,000 Dominion Resources, Inc. sr. notes
8 1/8s, 2010 1,381,032
650,000 DPL, Inc. sr. notes 6 7/8s, 2011 678,798
715,000 DTE Energy Co. sr. notes 7.05s, 2011 807,335
650,000 Duke Capital Corp. sr. notes Ser. A,
6 1/4s, 2005 678,941
265,000 Duke Energy Corp. 1st mtge. 5.3s,
2015 265,230
275,000 Duquesne Light Co. 1st mtge. Ser. O,
6.7s, 2012 307,905
525,000 Entergy Arkansas Inc. 144A 1st mtge.
5.4s, 2018 497,285
80,000 Enterprise Capital Trust II company
guaranty FRN Ser. B, 2.36s, 2028 65,002
1,120,000 FirstEnergy Corp. notes Ser. B,
6.45s, 2011 1,189,701
60,000 FirstEnergy Corp. notes Ser. C,
7 3/8s, 2031 64,096
645,000 Florida Power & Light Co. 1st mtge.
5.95s, 2033 651,387
420,000 Florida Power & Light Co. 1st mtge.
5 5/8s, 2034 403,500
535,000 Florida Power Corp. 1st mtge. 5.9s,
2033 526,397
145,000 Indianapolis Power & Light 144A 1st
mtge. 6.3s, 2013 148,112
975,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 648,375
195,000 Monongahela Power Co. 1st mtge. 5s,
2006 199,951
205,000 National Rural Utilities Cooperative
Finance Corp. coll. trust 6s, ,2006 221,973
20,000 National Rural Utilities Cooperative
Finance Corp. coll. trust 3s, 2006 20,250
105,000 Nevada Power Co. 144A 2nd mtge. 9s,
2013 111,563
495,000 New Century Energies, Inc. coll.
trust 6 3/8s, 2005 532,664
140,000 New York State Electric & Gas Corp.
bonds 5 3/4s, 2023 132,296
740,000 Niagara Mohawk Power Corp. sr. notes
Ser. G, 7 3/4s, 2008 857,209
215,000 NiSource Finance Corp. company
guaranty 7 7/8s, 2010 254,397
355,000 Oncor Electric Delivery Co. sec.
notes 6 3/8s, 2012 388,942
70,000 PacifiCorp Sinking Fund 1st mtge.
5.45s, 2013 71,990
55,000 Panhandle Eastern Pipe Line 144A
notes 4.8s, 2008 56,173
1,210,000 Peco Energy Co. 1st mtge. 4 3/4s,
2012 1,201,399
310,000 Pepco Holdings, Inc. notes 5 1/2s,
2007 327,998
135,000 Potomac Edison Co. 1st mtge. 8s,
2024 138,431
75,000 Powergen U.S. Funding, LLC company
guaranty 4 1/2s, 2004 76,589
515,000 PP&L Capital Funding, Inc. company
guaranty Ser. D, 8 3/8s, 2007 585,475
245,000 Progress Energy, Inc. sr. notes
6 3/4s, 2006 266,610
655,000 Progress Energy, Inc. sr. notes
6.05s, 2007 706,599
510,000 PSEG Power, LLC company guaranty
6.95s, 2012 571,037
50,000 Public Service Company of New Mexico
sr. notes 4.4s, 2008 50,444
240,000 Public Service Electric & Gas Co.
1st mtge. FRN 6 3/8s, 2008 262,415
150,000 Rochester Gas & Electric notes
6 3/8s, 2033 151,054
270,000 South Carolina Electric & Gas Co.
1st mtge. 5.8s, 2032 264,373
130,000 Southern California Edison Co. 1st
mtge. 8s, 2007 145,925
275,000 Southern Power Co. 144A bonds
4 7/8s, 2015 260,993
305,000 Southwestern Public Service Co. 144A
bonds 6s, 2033 299,038
445,000 Tampa Electric Co. notes 6 7/8s,
2012 481,731
195,000 TXU Energy Co. 144A notes 7s, 2013 213,196
130,000 Western Resources, Inc. 1st mtge.
7 7/8s, 2007 146,413
195,000 Wisconsin Electric Power notes
4 1/2s, 2013 189,326
45,000 XCEL Energy, Inc. 144A sr. notes
3.4s, 2008 43,663
--------------
21,818,451
Financial (--%)
- -------------------------------------------------------------------------------
45,000 USF&G Capital I 144A company
guaranty 8 1/2s, 2045 52,465
Natural Gas Utilities (0.2%)
- -------------------------------------------------------------------------------
95,000 CenterPoint Energy Resources Corp.
debs. 8.9s, 2006 108,162
120,000 CenterPoint Energy Resources Corp.
notes 7 3/4s, 2011 134,559
165,000 Duke Energy Field Services, LLC
notes 7 7/8s, 2010 192,794
45,000 KeySpan Corp. notes 7 5/8s, 2010 53,535
260,000 National Fuel Gas Co. notes 5 1/4s,
2013 257,089
240,000 Texas Eastern Transmission LP sr.
notes 7s, 2032 258,778
--------------
1,004,917
Oil & Gas (0.2%)
- -------------------------------------------------------------------------------
240,000 Canadian Natural Resources, Ltd. sr.
notes 5.45s, 2012 (Canada) 247,698
225,000 Louis Dreyfus Natural Gas Corp.
notes 6 7/8s, 2007 249,551
430,000 MidAmerican Energy Holdings Co. sr.
notes 4 5/8s, 2007 443,519
90,000 Motiva Enterprises, LLC 144A sr.
notes 5.2s, 2012 91,472
25,000 Noble Affiliates, Inc. sr. notes 8s,
2027 28,449
--------------
1,060,689
Regional Bells (0.4%)
- -------------------------------------------------------------------------------
250,000 Ameritech Capital Funding company
guaranty 6 1/4s, 2009 273,603
390,000 Bellsouth Capital Funding notes
7 3/4s, 2010 461,490
25,000 Michigan Bell Telephone Co. debs.
7.85s, 2022 29,873
140,000 Telus Corp. notes 8s, 2011 (Canada) 160,954
670,000 Telus Corp. notes 7 1/2s, 2007
(Canada) 744,084
865,000 Verizon Global Funding Corp. notes
7 1/4s, 2010 987,885
--------------
2,657,889
Telecommunications (3.1%)
- -------------------------------------------------------------------------------
945,000 AT&T Corp. sr. notes 8s, 2031 1,071,590
855,000 AT&T Corp. sr. notes 7.8s, 2011 968,950
160,000 AT&T Wireless Services, Inc. sr.
notes 8 3/4s, 2031 192,408
1,990,000 AT&T Wireless Services, Inc. sr.
notes 7 7/8s, 2011 2,273,937
265,000 British Telecommunications PLC bonds
8 7/8s, 2030 (United Kingdom) 341,213
1,600,000 British Telecommunications PLC notes
8 3/8s, 2010 (United Kingdom) 1,936,760
715,000 Cingular Wireless, LLC sr. notes
5 5/8s, 2006 771,002
600,000 Citizens Communications Co. notes
9 1/4s, 2011 748,876
330,000 Citizens Communications Co. sr.
notes 7 5/8s, 2008 378,791
410,000 Deutsche Telekom International
Finance BV bonds 8s, 2010
(Netherlands) 493,439
1,270,000 Deutsche Telekom International
Finance BV company guaranty
8 3/4s, 2030 (Netherlands) 1,598,714
195,000 Deutsche Telekom International
Finance BV notes 5 1/4s,
2013 (Netherlands) 193,798
490,000 France Telecom notes 10s, 2031
(France) 646,712
935,000 France Telecom notes 7 3/4s, 2011
(France) 1,128,002
105,000 Koninklijke (Royal) KPN NV sr.
unsub. notes 8 3/8s, 2030
(Netherlands) 131,044
55,000 Koninklijke (Royal) KPN NV sr.
unsub. notes 8s, 2010 (Netherlands) 65,551
2,065,000 Sprint Capital Corp. company
guaranty 7 5/8s, 2011 2,271,944
1,075,000 Sprint Capital Corp. company
guaranty 6 7/8s, 2028 1,011,652
620,000 Sprint Capital Corp. company
guaranty 6 1/8s, 2008 652,994
230,000 Telecom Italia Capital 144A bank
guaranty 4s, 2008 (Luxembourg) 229,718
150,000 Telecom Italia Capital 144A company
guaranty 6 3/8s, 2033 (Luxembourg) 148,202
70,000 Telecom Italia Capital 144A company
guaranty 5 1/4s, 2013 (Luxembourg) 69,819
1,080,000 Verizon Wireless, Inc. notes 5 3/8s,
2006 1,153,692
75,000 Vodafone Group PLC notes 7 7/8s,
2030 (United Kingdom) 90,120
205,000 Vodafone Group PLC notes 7 5/8s,
2005 (United Kingdom) 219,960
--------------
18,788,888
Telephone (1.0%)
- -------------------------------------------------------------------------------
4,030,000 New England Telephone & Telegraph
Co. debs. 7 7/8s, 2029 4,749,126
105,000 Telecorp PCS, Inc. company guaranty
stepped-coupon zero % (11 5/8s,
4/15/04), 2009 (STP) 109,264
950,000 Telefonica Europe BV company
guaranty 7 3/4s, 2010 (Netherlands) 1,121,106
--------------
5,979,496
--------------
Total Corporate bonds and notes
(cost $49,474,305) $51,482,795
Collateralized mortgage obligations (--%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$42,037 Lehman Brothers Floating Rate
Commercial Mtg. Trust 144A Ser.
03-C4, Class A, 1.72s, 2015 $42,037
146,976 TIAA Retail Commercial Mortgage
Trust Ser. 99-1, Class A, 7.17s,
2032 160,255
--------------
Total Collateralized mortgage
obligations (cost $205,013) $202,292
U.S. government and agency obligations (--%) (a) (cost $60,950)
Principal amount Value
- -------------------------------------------------------------------------------
$57,724 Federal National Mortgage
Association Pass-Through
Certificates 7s, November 1, 2031 $60,779
Short-term investments (8.0%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$36,149,347 Short-term investments held as
collateral for loaned
securities with yields ranging from
1.04% to 1.07% and due dates ranging
from November 3, 2003 to December
22, 2003 (d) $36,123,897
11,854,188 Short-term investments held in
Putnam commingled cash account with
yields ranging from 0.95% to 1.15%
and due dates ranging from November
3, 2003 to December 24, 2003 (d) 11,854,188
--------------
Total Short-term investments (cost $47,978,085) $47,978,085
- -------------------------------------------------------------------------------
Total Investments (cost $604,453,395) $639,265,043
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $597,473,803.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at October
31, 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 October 31, 2003.
Forward currency contracts to buy at October 31, 2003
(aggregate face value $9,070,491)
- -------------------------------------------------------------------------------------------------------
Market Aggregate Delivery Unrealized
value face value date appreciation
- -------------------------------------------------------------------------------------------------------
Australian Dollars $187,853 $171,570 12/17/03 $16,283
British Pounds 1,478,303 1,452,973 12/17/03 25,330
Danish Krone 305,092 284,827 12/17/03 20,265
Hong Kong Dollars 2,356,860 2,344,003 12/17/03 12,857
Japanese Yen 3,183,573 3,007,485 12/17/03 176,088
Swedish Krona 1,965,116 1,809,633 12/17/03 155,483
- -------------------------------------------------------------------------------------------------------
$406,306
- -------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at October 31, 2003
(aggregate face value $18,326,621)
- -------------------------------------------------------------------------------------------------------
Unrealized
Market Aggregate Delivery appreciation/
value face value date (depreciation)
- -------------------------------------------------------------------------------------------------------
Canadian Dollars $5,469,571 $5,309,007 12/17/03 $(160,564)
Euro 9,513,125 8,925,365 12/17/03 (587,760)
Mexican Peso 1,180,741 1,181,222 12/17/03 481
New Zealand Dollars 534,006 493,329 12/17/03 (40,677)
Norwegian Krone 941,107 897,139 12/17/03 (43,968)
Swiss Francs 1,607,067 1,520,559 12/17/03 (86,508)
- -------------------------------------------------------------------------------------------------------
$(918,996)
- -------------------------------------------------------------------------------------------------------
Futures contracts outstanding at October 31, 2003
Unrealized
Market Aggregate Expiration appreciation/
value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
U. S. Treasury Bond
20 yr (Long) $1,087,188 $1,048,998 Dec-03 $38,190
U. S. Treasury Note
5 yr (Long) 1,900,814 1,903,541 Dec-03 (2,727)
U. S. Treasury Note
10 yr (Short) 1,684,453 1,666,108 Dec-03 (18,345)
- ------------------------------------------------------------------------------------------------------
$17,118
- ------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at October 31, 2003
(premium received $138,628)
Notional Market
amount value
- ------------------------------------------------------------------------------------------------------
Agreement with Deutsche Bank AG effective September 19, 2003,
maturing on September 20, 2008, to receive a premium equal to
2.95% times the notional amount. For each credit default event
related to one of the 100 issues within the TRACER 100, 09/20/2008
Bond Index, the fund makes a payment of the proportional notional
amount times the difference between the par value and the then-
market value of the defaulted issue. $4,700,000 $114,680
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
October 31, 2003
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value, including $34,086,248
of securities on loan (identified cost $604,453,395) (Note 1) $639,265,043
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 2,434,444
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 332,362
- -------------------------------------------------------------------------------
Receivable for securities sold 1,400,916
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 4,953
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 406,787
- -------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 110,841
- -------------------------------------------------------------------------------
Total assets 643,955,346
Liabilities
- -------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 23,137
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 7,669,397
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,037,042
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 134,036
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 119,364
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 879
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 206,081
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 919,477
- -------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 53,581
- -------------------------------------------------------------------------------
Credit default contracts outstanding, at value (premiums
received $138,628) (Note 1) 114,680
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 36,123,897
- -------------------------------------------------------------------------------
Other accrued expenses 79,972
- -------------------------------------------------------------------------------
Total liabilities 46,481,543
- -------------------------------------------------------------------------------
Net assets $597,473,803
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $785,915,383
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 545,810
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (223,342,609)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 34,355,219
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $597,473,803
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($478,304,258 divided by 59,323,046 shares) $8.06
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $8.06)* $8.55
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($111,162,763 divided by 13,869,310 shares)** $8.02
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($3,699,447 divided by 461,249 shares)** $8.02
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($4,307,335 divided by 535,036 shares) $8.05
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $8.05)* $8.34
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended October 31, 2003
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $336,584) $17,432,408
- -------------------------------------------------------------------------------
Interest 5,161,319
- -------------------------------------------------------------------------------
Securities lending 136,388
- -------------------------------------------------------------------------------
Total investment income 22,730,115
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,050,708
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,129,684
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 27,540
- -------------------------------------------------------------------------------
Administrative services (Note 2) 13,415
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,184,820
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,093,271
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 37,394
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 34,068
- -------------------------------------------------------------------------------
Other 572,003
- -------------------------------------------------------------------------------
Total expenses 8,142,903
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (203,419)
- -------------------------------------------------------------------------------
Net expenses 7,939,484
- -------------------------------------------------------------------------------
Net investment income 14,790,631
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (54,124,776)
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (57,263)
- -------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,327,971)
- -------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 76,198
- -------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 5,889
- -------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (349,401)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts and credit default contracts during the year 162,403,905
- -------------------------------------------------------------------------------
Net gain on investments 106,626,581
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $121,417,212
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended October 31
Increase (decrease) in net assets 2003 2002
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $14,790,631 $21,597,161
- -------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (55,427,923) (164,816,045)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies 162,054,504 (121,647,675)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 121,417,212 (264,866,559)
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
- -------------------------------------------------------------------------------
Class A (11,117,606) (17,845,811)
- -------------------------------------------------------------------------------
Class B (1,810,630) (3,176,354)
- -------------------------------------------------------------------------------
Class C (63,431) (92,301)
- -------------------------------------------------------------------------------
Class M (88,044) (138,941)
- -------------------------------------------------------------------------------
From return of capital
- -------------------------------------------------------------------------------
Class A (773,845) (1,896,919)
- -------------------------------------------------------------------------------
Class B (126,030) (337,630)
- -------------------------------------------------------------------------------
Class C (4,415) (9,811)
- -------------------------------------------------------------------------------
Class M (6,128) (14,769)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (94,298,032) (201,791,213)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets 13,129,051 (490,170,308)
Net assets
- -------------------------------------------------------------------------------
Beginning of year 584,344,752 1,074,515,060
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $545,810 and $122,988,
respectively) $597,473,803 $584,344,752
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.71 $9.56 $13.86 $14.06 $13.62
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 .23 .25 .36 .39
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.34 (2.84) (2.73) .75 .87
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.53 (2.61) (2.48) 1.11 1.26
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.17) (.22) (.25) (.38) (.39)
- -------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (1.53) (.93) (.43)
- -------------------------------------------------------------------------------------------------------------
From return of capital (.01) (.02) (.04) -- --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.24) (1.82) (1.31) (.82)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.06 $6.71 $9.56 $13.86 $14.06
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 23.17 (27.73) (20.40) 9.04 9.49
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $478,304 $469,497 $846,231 $1,128,437 $1,000,789
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.23 1.12 1.05 1.01 1.00
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.65 2.68 2.14 2.78 2.80
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.12 44.93 91.91 29.42 17.58
- -------------------------------------------------------------------------------------------------------------
(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
- -------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.67 $9.51 $13.78 $13.98 $13.54
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (a) .14 .16 .16 .26 .28
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.34 (2.82) (2.70) .74 .87
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.48 (2.66) (2.54) 1.00 1.15
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.16) (.17) (.27) (.28)
- -------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (1.53) (.93) (.43)
- -------------------------------------------------------------------------------------------------------------
From return of capital (.01) (.02) (.03) -- --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.18) (1.73) (1.20) (.71)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.02 $6.67 $9.51 $13.78 $13.98
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.40 (28.35) (20.93) 8.19 8.69
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $111,163 $107,158 $213,564 $335,411 $566,426
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.98 1.87 1.80 1.76 1.75
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.89 1.92 1.39 2.06 2.06
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.12 44.93 91.91 29.42 17.58
- -------------------------------------------------------------------------------------------------------------
(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
- ---------------------------------------------------------------------------------------------------------------
For the
period
July 26,
1999+ to
Per-share Year ended October 31 October 31
operating performance 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) .14 .16 .16 .25 .07
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.34 (2.82) (2.70) .74 (.26)
- ---------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.48 (2.66) (2.54) .99 (.19)
- ---------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.16) (.18) (.31) (.11)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (1.53) (.93) --
- ---------------------------------------------------------------------------------------------------------------
From return of capital (.01) (.02) (.03) -- --
- ---------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.18) (1.74) (1.24) (.11)
- ---------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.02 $6.67 $9.51 $13.79 $14.04
- ---------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.45 (28.37) (20.93) 8.12 (1.33)*
- ---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,699 $3,332 $6,028 $4,734 $486
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.98 1.87 1.80 1.76 .47*
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.87 1.93 1.38 1.94 .53*
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.12 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
- ---------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.70 $9.55 $13.83 $14.03 $13.60
- ---------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income (a) .16 .18 .19 .29 .32
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.34 (2.83) (2.71) .75 .86
- ---------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.50 (2.65) (2.52) 1.04 1.18
- ---------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------
From net
investment income (.14) (.18) (.20) (.31) (.32)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (1.53) (.93) (.43)
- ---------------------------------------------------------------------------------------------------------------
From return of capital (.01) (.02) (.03) -- --
- ---------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.20) (1.76) (1.24) (.75)
- ---------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.05 $6.70 $9.55 $13.83 $14.03
- ---------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 22.61 (28.16) (20.72) 8.49 8.87
- ---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,307 $4,358 $8,692 $13,320 $14,045
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.73 1.62 1.55 1.51 1.50
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.16 2.17 1.64 2.28 2.30
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.12 44.93 91.91 29.42 17.58
- ---------------------------------------------------------------------------------------------------------------
(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
October 31, 2003
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 shares, and are subject to a contingent
deferred sales charge, if those shares are redeemed within six years of
purchase. Class C shares are subject to the same fees and expenses as
class B shares, except that class C shares have a one-year 1.00%
contingent deferred sales charge and do not convert to class A shares.
Class M shares are sold with a maximum front end sales charge of 3.50%
and pay an ongoing distribution fee that is higher than class A shares
but lower than class B and class C shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are valued at fair 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 foreign investments are traded are expected to materially
affect the value of the investments, then those investments are valued,
taking into consideration these events, at their fair value following
procedures approved by the Trustees. Securities quoted in foreign
currencies are translated into U.S. dollars at the current exchange
rate. Short-term investments having remaining maturities of 60 days or
less are valued at amortized cost, which approximates fair value. Other
investments, including restricted securities, are valued at fair value
following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending 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.
Futures and written option contracts outstanding at period end are
listed after The fund's portfolio.
G) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront
payment to a counter party, the protection seller, in exchange for the
right to receive a contingent payment as a result of a credit event
related to a specified security or index. The upfront payment received
by the fund, as the protection seller, is recorded as a liability on the
fund's books. The credit default contracts are marked to market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss. Payments received or made as a
result of a credit event or termination of the contract are recognized,
net of a proportional amount of the upfront payment, as realized gains
or losses. In addition to bearing the risk that the credit event will
occur, the fund could be exposed to market risk due to unfavorable
changes in interest rates or in the price of the underlying security or
index, the possibility that the fund may be unable to close out its
position at the same time or at the same price as if it had purchased
comparable publicly traded securities or that the counterparty may
default on its obligation to perform. Credit default contracts
outstanding at period end are listed after The fund's portfolio.
H) TBA purchase commitments The fund may enter into "TBA" (to be
announced) commitments to purchase securities for a fixed unit price at
a future date beyond customary settlement time. Although the unit price
has been established, the principal value has not been finalized.
However, the amount of the commitments will not significantly differ
from the principal amount. The fund holds, and maintains until
settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
I) 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 October 31, 2003, the value of
securities loaned amounted to $34,086,248. The fund received cash
collateral of $36,123,897 which is pooled with collateral of other
Putnam funds into 32 issuers of high grade short-term investments.
J) Line of credit During the period, the fund was entered into a
committed line of credit with certain banks. The line of credit
agreement included restrictions that the fund maintain an asset coverage
ratio of at least 300% and borrowings must not exceed prospectus
limitations. For the period ended August 6, 2003 the fund had no
borrowings against the line of credit. Effective August 6, 2003, the
fund no longer participated in a committed line of credit.
K) 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, 2003, the fund had a capital loss carryover of
$218,318,499 available to the extent allowed by tax law to offset future
net capital gain, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
- --------------------------------
$166,676,667 October 31, 2010
51,641,832 October 31, 2011
L) 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. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses and both realized and unrealized gains and losses on certain
futures contracts. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the
year ended October 31, 2003, the fund reclassified $1,288,098 to
decrease undistributed net investment income with a decrease to
accumulated net realized losses of $1,288,098.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $83,767,391
Unrealized depreciation (53,962,737)
------------
Net unrealized appreciation 29,804,654
Capital loss carryforward (218,318,499)
Cost for federal income
tax purposes $609,460,389
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 subsidiary of Putnam, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
Under the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the
extent permitted by the fund's investment restrictions to cover any
advances made by the sub custodian bank for the settlement of securities
purchased by the fund. At October 31, 2003, the payable to the
subcustodian bank represents the amount due for cash advanced for the
settlement of a security purchased.
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 year ended October 31, 2003, the
fund's expenses were reduced by $203,419 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,208 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Trustee compensation and expenses in the
Statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the Statement of assets
and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C and class M shares pursuant to rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, Inc., for services provided
and expenses incurred by it in distributing shares of the fund. The
Plans provide for payments by the fund to Putnam Retail Management at an
annual rate of up to 0.35%, 1.00%, 1.00% and 0.75% of the average net
assets attributable to class A, class B, class C and class M shares,
respectively. The Trustees have approved payment by the fund at the
annual rates of 0.25%, 1.00%, 1.00% and 0.75% of the average net assets
attributable to class A, class B, class C and class M shares,
respectively.
For the year ended October 31, 2003, Putnam Retail Management, acting as
underwriter, received net commissions of $39,673 and $393 from the sale
of class A and class M shares, respectively, and received $190,937 and
$1,114 in contingent deferred sales charges from redemptions of class B
and class C shares, respectively. A deferred sales charge of up to 1.00%
and 0.65% is assessed on certain redemptions of class A and class M
shares, respectively. For the year ended October 31, 2003, Putnam Retail
Management, acting as underwriter, received $8,439 and no monies on
class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended October 31, 2003, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $233,808,270 and
$333,347,297, respectively. Purchases and sales of U.S. government
obligations aggregated $174,262 and $177,263, respectively.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ----------------------------------------------------------------
Written options
outstanding at
beginning of year -- $--
- ----------------------------------------------------------------
Options opened 225,438 76,198
Options expired (225,438) (76,198)
- ----------------------------------------------------------------
Written options
outstanding at
end of year -- $--
- ----------------------------------------------------------------
Note 4
Capital shares
At October 31, 2003, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended October 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 5,968,805 $38,806,411
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 750,808 10,520,396
- ----------------------------------------------------------------
6,719,613 49,326,807
Shares repurchased (17,417,636) (127,026,184
- ----------------------------------------------------------------
Net decrease (10,698,023) $(77,699,377)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 2,651,899 $19,667,659
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 236,911 1,708,515
- ----------------------------------------------------------------
2,888,810 21,376,174
Shares repurchased (5,091,519) (36,936,965)
- ----------------------------------------------------------------
Net decrease (2,202,709) $(15,560,791)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 336,269 $2,535,396
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 5,154 56,002
- ----------------------------------------------------------------
341,423 2,591,398
Shares repurchased (379,438) (2,852,232)
- ----------------------------------------------------------------
Net decrease (38,015) $(260,834)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 297,759 $2,243,451
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,009 86,962
- ----------------------------------------------------------------
305,768 2,330,413
Shares repurchased (421,614) (3,107,443)
- ----------------------------------------------------------------
Net decrease (115,846) $(777,030)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Note 5
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order
by the Securities and Exchange Commission (SEC) in partial
resolution of administrative and cease-and-desist proceedings
initiated by the SEC on October 28, 2003 in connection with alleged
excessive short-term trading by at least six Putnam Management
investment professionals. The SEC's findings reflect that four of
those employees engaged in such trading in funds over which they had
investment decision-making responsibility and had access to
non-public information regarding, among other things, current
portfolio holdings, and valuations. The six individuals no longer
have investment responsibilities with Putnam Management. Under the
order, Putnam Management will make restitution for losses
attributable to excessive short-term trading by Putnam employees,
institute new employee trading restrictions and enhanced employee
trading compliance, retain an independent compliance consultant, and
take other remedial actions. Putnam Management neither admitted nor
denied the order's findings, which included findings that Putnam
Management willfully violated provisions of the federal securities
laws. A civil monetary penalty and other monetary relief, if any,
will be determined at a later date. If a hearing is necessary to
determine the amounts of such penalty or other relief, Putnam
Management will be precluded from arguing that it did not violate
the federal securities laws in the manner described in the SEC
order, the findings set forth in the SEC order will be accepted as
true by the hearing officer and additional evidence may be
presented. Putnam Management, and not the investors in any Putnam
fund, will bear all costs, including restitution, civil penalties
and associated legal fees. Administrative proceedings instituted by
the Commonwealth of Massachusetts on October 28, 2003 against Putnam
Management in connection with alleged market timing activities by
Putnam employees and by participants in some Putnam-administered
401(k) plans are pending. Putnam Management has committed to make
complete restitution for any losses suffered by Putnam shareholders
as a result of any improper market-timing activities by Putnam
employees or within Putnam-administered 401(k) plans.
The SEC's and Commonwealth's allegations and related matters also
serve as the general basis for numerous lawsuits, including
purported class action lawsuits filed against Putnam Management and
certain related parties, including certain Putnam funds. Putnam
Management has agreed to bear any costs incurred by Putnam funds in
connection with these lawsuits. Based on currently available
information, Putnam Management believes that the likelihood that the
pending private lawsuits and purported class action lawsuits will
have a material adverse financial impact on the fund is remote, and
the pending actions are not likely to materially affect its ability
to provide investment management services to its clients, including
the Putnam funds.
Review of these matters by counsel for Putnam Management and by
separate independent counsel for the Putnam funds and their
independent Trustees is continuing. In addition, Marsh & McLennan
Companies, Inc., Putnam Management's parent company, has engaged
counsel to conduct a separate review of Putnam Management's policies
and controls related to short-term trading. The fund may experience
increased redemptions as a result of these matters, which could
result in increased transaction costs and operating expenses.
Federal tax information
(Unaudited)
For the year ended October 31, 2003, a portion of the Fund's
distribution represents a return of capital and is therefore not taxable
to shareholders. The return of capital is entirely due to foreign
currency losses.
The fund has designated 100% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended October 31, 2003, the fund hereby designates
100%, or the maximum amount allowable, of its net taxable income as
qualified dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2004 will show the tax status of
all distributions paid to your account in calendar 2003.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care, and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He served
as Chairman of the Federal Energy Regulatory Commission from 1977 to
1981 and has held positions on the staff of the U.S. House of
Representatives, the U.S. Treasury Department, and the Securities and
Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee Putnam Investment Trust (a closed-end investment company). He
is also a Trustee of Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget, and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure). He also serves on
the board of the Whitehead Institute for Biomedical Research (a
non-profit research institution) and has been President of the Yale
University Council since 1993. Prior to February 2002, he was a Director
of State Farm Indemnity Company (an automobile insurance company) and
prior to March 2000 he was a Director of New England Electric System (a
public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition, and privatization policies --
serving as an advisor to governments and corporations worldwide. Dr.
Joskow holds a Ph.D. and M. Phil from Yale University and B.A. from
Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a partner in and Chairman of Cambus-Kenneth Bloodstock,
LLC (cattle and thoroughbred horses). She is President Emeritus of Mount
Holyoke College.
Dr. Kennan serves as a Trustee of Northeast Utilities and is a Director
of Talbots, Inc. She has served as Director on a number of other boards,
including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire
Life Insurance, and Kentucky Home Life Insurance. She is a Trustee of
Centre College and of Midway College in Midway, Kentucky. She is also a
member of The Trustees of Reservations. Dr. Kennan has served on the
oversight committee of the Folger Shakespeare Library, as President of
Five Colleges Incorporated, as a Trustee of Notre Dame University, and
is active in various educational and civic associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history, and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University, and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of Alex. Brown Realty, Inc., The Liberty
Corporation (a broadcasting company), Progress Energy, Inc. (a utility
company, formerly known as Carolina Power & Light), and Sonoco Products,
Inc. (a packaging company). Mr. Mullin is Trustee Emeritus of Washington
& Lee University, where he served as Chairman of the Investment
Committee. Prior to May 2001, he was a Director of Graphic Packaging
International Corp.
Mr. Mullin also served as a Director of Dillon, Read & Co., Inc. until
October 1997 and The Ryland Group, Inc. until January 1998. Mr. Mullin
is a graduate of Washington & Lee University and The Wharton Graduate
School, University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center, as a
Trustee of Sea Education Association, and as a Director of Brandywine
Trust Company. Prior to December 2001, he was President and Trustee of
Cabot Industrial Trust (a publicly traded real estate investment trust).
Prior to February 1998, Mr. Patterson was Executive Vice President and
Director of Acquisitions of Cabot Partners Limited Partnership (a
registered investment advisor involved in institutional real estate
investments). Prior to 1990, he served as Executive Vice President of
Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of
Cabot Partners) and as a Senior Vice President of the Beal Companies (a
real estate management, investment, and development firm).
Mr. Patterson practiced law and held various positions in state
government, and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, Norske Canada, Inc. (a
paper manufacturer), and Qwest Communications. Until 2003, Mr. Stephens
was a Director of Mail-Well, Inc. (a diversified printing company). He
served as Chairman of Mail-Well until 2001 and as CEO of
MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Mr. Thorndike serves on the boards of various corporations and
charitable organizations.
Mr. Thorndike is a Director of Courier Corporation (a book publisher and
manufacturer) and The Providence Journal Co. (a newspaper publisher). He
is also a Trustee of Northeastern University and an honorary Trustee of
Massachusetts General Hospital, where he previously served as Chairman
and President. Prior to September 2000, he was a Director of Bradley
Real Estate, Inc.; prior to April 2000, he was a Trustee of Eastern
Utilities Associates; and prior to December 2001, he was a Trustee of
Cabot Industrial Trust.
Mr. Thorndike has also served as Chairman of the Board and Managing
Partner of Wellington Management Company/Thorndike, Doran, Paine & Lewis
(a registered investment advisor that manages mutual funds and
institutional assets), as a Trustee of the Wellington Group of Funds
(currently The Vanguard Group), and as Chairman and a Director of Ivest
Fund, Inc. Mr. Thorndike is a graduate of Harvard College.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is Chairman of Putnam Investments and a Director of Marsh &
McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of October 31, 2003, there were 102 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers or shareholders of the fund or Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc. George Putnam, III is the President of your fund and each of the
other Putnam funds. Mr. Smith serves as a Director of Marsh & McLennan
Companies, Inc.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer and Principal Financial
Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and Putnam
Management
Karnig H. Durgarian (1/13/56)
Vice President and Principal Executive Officer
Since 2002
Senior Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to July 2001,
Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Gordon H. Silver (7/3/47)
Vice President
Since 1990
Senior Managing Director, Putnam Investments, Putnam
Management and Putnam Retail Management
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
William H. Woolverton (1/17/51)
Vice President and Chief Legal Officer
Since 2003
Managing Director, Putnam Investments, Putnam Management and
Putnam Retail Management
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square, Boston, MA 02109.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Auditors
PricewaterhouseCoopers LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President, Treasurer and
Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and Principal Executive Officer
Steven D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Assistant Treasurer and Principal Accounting Officer
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam 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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
AN026-203406 840/884/869 12/03
Not FDIC Insured May Lose Value No Bank Guarantee
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(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: December 23, 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: December 23, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: December 23, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: December 23, 2003