Putnam
Utilities
Growth and
Income Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-04
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From the Trustees
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John A. Hill and George Putnam, III
Dear Fellow Shareholder:
We are pleased to report further progress in Putnam's reforms on behalf
of shareholders. The most significant news is the settlement that has
been reached with the Securities and Exchange Commission and with
regulatory authorities in the Commonwealth of Massachusetts regarding
market timing in Putnam funds. Putnam President and Chief Executive
Officer Ed Haldeman has sent a letter to all shareholders describing the
terms of the settlement. Putnam Investment Management, LLC will pay $55
million to the SEC and $55 million to the Commonwealth of Massachusetts.
Most of the amount to be paid is earmarked for restitution to fund
shareholders. An independent consultant will determine the final amount,
as well as the method and timing of distribution, of the restitution
payments.
Over the past several months, Putnam has also introduced a number of
voluntary reforms. We would like to call your attention to two of them.
Following the performance tables in the Performance Summary of this
report you can find expense and risk comparisons for your fund. The
expense comparison information enables you to estimate the amount you
have actually paid for ongoing expenses such as management fees and
distribution (or 12b-1) fees and to compare these expenses with the
average expenses of funds in the same Lipper peer group. The risk
comparison shows the fund's risk relative to similar funds as tracked by
Morningstar, an independent fund-rating company. We believe the expense
and risk information will provide valuable tools for you and your
financial advisor when you make decisions about your financial program.
We are pleased to report that Putnam Utilities Growth and Income Fund
achieved strong positive returns for the six months ended April 30, 2004.
The fund's return at net asset value exceeded that of its benchmark and was
in line with that of its Lipper peer group average. You will find the
details in the following report, which also provides a discussion of
performance and strategy during the semiannual period and offers the
management team's perspective on 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
June 16, 2004
Report from Fund Management
Fund highlights
* Putnam Utilities Growth and Income Fund advanced solidly during the
six months ended April 30, 2004, with class A shares gaining 8.62% at
net asset value (NAV) and 2.39% at public offering price (POP) for the
period.
* Stronger performance among the portfolio's traditional utility stocks
helped the fund perform better than the S&P Utilities Index, which
returned 8.19% for the same period.
* The fund performed in line with the 8.69% average return of its Lipper
Utility Funds peer group.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
As the overall stock market posted solid performance over the past six
months, utilities stocks largely kept pace and tallied strong advances
as well. The financial climate in the gas and power sector remained
positive throughout the period, providing an additional performance
boost for utilities stocks. Strong returns among the portfolio's
traditional gas, electric, and water utilities stocks helped the fund
finish ahead of the S&P Utilities Index, based on results at NAV. Less
robust returns among telecommunications stocks were a slight drag on
fund performance. The fund's bond holdings contributed to overall
returns, but bond returns in general were lower than stock gains. The
fund finished the period in line with the average return of the funds in
its Lipper category, again, based on NAV results.
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 remained favorable
throughout the semiannual period. Credit-rating agencies continued to
slow the pace of downgrades for utilities bonds, as many companies
involved in merchant-generation* and power-trading continued to refocus
on their core businesses instead of the riskier endeavors many had
undertaken in the early years of deregulation. Low interest rates and a
positive climate for corporate credit also contributed to favorable
financial conditions that allowed many companies with damaged balance
sheets to repair them. Bond prices rallied significantly during the
first half of the period, then declined somewhat.
Also contributing to the rally in utilities securities were relatively
high gas prices throughout the period, which continue to provide 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.
Normally, high natural gas prices would provide an incentive for
companies to explore and produce more natural gas in order to reap
additional profits. However, this has not been the case in recent
months. Natural gas reserves in North America appear to be lower than
expected, so the additional supply that might produce lower prices has
not come into the market. At the same time, demand has remained
relatively strong.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 4/30/04
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Equities
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S&P Utilities Index (utilities stocks) 8.19%
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S&P 500 Index (broad stock market) 6.27%
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Russell 1000 Growth Index (large-company growth stocks) 4.14%
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Russell 1000 Value Index (large-company value stocks) 8.15%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 1.25%
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JP Morgan Chase Global High Yield Index
(global high-yield corporate bonds) 6.39%
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Lehman Intermediate Treasury Bond Index
(intermediate-maturity U.S. Treasury bonds) 0.56%
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These indexes provide an overview of performance in different market
sectors for the six months ended 4/30/04.
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* Electric-generating companies allowed to sell power at varying rates;
also called unregulated utilities.
Strategy overview
Your fund's management team kept the fund's allocation to equities close to
our target allocation of 90% of net assets throughout the period. Interest
rates have begun to move up slightly, signaling a waning of the
appreciation in bond prices that has occurred over the past several years.
Indeed, returns from the fund's bond holdings did decline somewhat in the
final months of the period, although their performance was still solid.
Within equities, we maintained an allocation of 72% of the portfolio to
gas, power, and water, and the remainder to telecommunications,
including regional Bells. The portfolio weighting in telecommunications
remained relatively stable at 28%. With the telecommunications industry
continuing to face significant challenges, the management team chose not
to add new holdings to bring the telecommunications weighting back to
30%. Within the sector, the portfolio emphasized wireless providers. In
general, the team holds a more positive view of international rather
than domestic telecommunications markets, especially with respect to
foreign wireless companies, which possess numerous growth opportunities
and greater profit margins than their U.S. counterparts.
Within the bond portion of the portfolio, the management team focused on
a diversified collection of investment-grade utilities and telephone
bonds. These holdings provided strong performance over the period, with
strong gains coming from telecommunications bonds in growing, profitable
wireless companies balanced by solid returns from secured,
first-mortgage bonds in electric utilities.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS COMPARED]
TOP INDUSTRY WEIGHTINGS COMPARED
as of 10/31/03 as of 4/30/04
Electric utilities 59.0% 59.1%
Telecommunications 21.6% 21.2%
Natural gas utilities 8.0% 7.5%
Regional Bells 7.5% 7.1%
Telephone 1.0% 1.3%
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
Overweight positions -- relative to the benchmark index -- in two
California utilities stocks, PG&E and Edison International, provided
superior returns over the period. Both benefited from the continued
recovery of California utilities from the power crisis of 2000-2001.
They also benefited from ongoing 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. The fund
also enjoyed superior returns from its large position in the stock of
Sierra Pacific Resources, a Nevada-based electric power generating
company not represented in the fund's benchmark index.
Another overweight position, in the stock of TXU Corporation,
contributed substantially to returns over the period. This company,
formerly known as Texas Utilities, has nuclear, coal, gas, and lignite
power-generating operations and sells power-generating capacity in
Texas. Since it relies on fuels with relatively stable prices to
generate the power it sells, TXU was able to capitalize on higher
electricity prices to increase profitability.
As is often the case, not owning or having minimal positions in
underperforming securities can have a positive impact on fund returns.
During this period, not owning stock in El Paso Corporation, and having
an underweight position (relative to the benchmark) in Southern Company
all proved fortuitous decisions as these securities underperformed.
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TOP HOLDINGS
1 PG&E Corp.
Electric utilities
2 Vodafone Group PLC
United Kingdom
Telecommunications
3 Exelon Corp.
Electric utilities
4 Entergy Corp.
Electric utilities
5 Dominion Resources, Inc.
Electric utilities
6 Edison International
Electric utilities
7 Verizon Communications, Inc.
Regional Bells
8 FPL Group, Inc.
Electric utilities
9 Sierra Pacific Resources
Electric utilities
10 TXU Corp.
Electric utilities
Footnote reads:
These holdings represent 40.7% of the fund's net assets as of 4/30/04.
The fund's holdings will change over time.
The stock that most negatively affected the fund's relative performance
over the period was Entergy, an integrated electric utility, which also
operates in Louisiana, Texas, Arkansas, and Mississippi as a regulated
utility. The fund has an overweight position in Entergy, which has been a
top-performing holding for over five years. Its performance over this
period was simply not as strong as it had been in previous years and the
impact on the portfolio was magnified because of our large position. The
company is financially strong with capable, shareholder-oriented
management. It currently faces a number of opportunities for growth through
the purchase of assets for sale at distressed prices.
As in the previous period, some significant negative influences on the
fund's relative performance came from companies that were either
under-represented in the portfolio or not held at all. Many of these
companies did not meet our strict criteria for quality and financial
soundness or had stocks that we considered overvalued. This was
certainly the case for Duke Energy, which benefited from the interest of
closed-end mutual funds in high-yield stocks during the first part of
this period. The fund held an underweight position in this stock, which
performed quite well.
The fund also had no position in merchant-power generation company
Reliant Energy, which outperformed over the period. This company was a
small-capitalization firm carrying high risk at the start of the period
and, therefore, did not fit our investment criteria.
In the telecommunications sector, not owning solidly performing stocks
of Sprint PCS and the wireless company spun off by British Telecom MMO2
negatively impacted the fund's relative performance over the period. An
overweight position in poorly performing Centurytel, which provides
government-subsidized local phone service in rural areas throughout the
United States, also detracted slightly from returns. Investors' reduced
appetite for risk led many to move money away from Brazilian stocks,
leading to underperformance by a large fund holding, TNE (Tele Norte
Leste Participacoes S.A.). The company remains financially sound and
continues to meet its earnings targets and expectations, and the fund
continued to hold this position at the end of the period.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
The fund's management team
The fund is managed by the Putnam Global Equity Research Team, using an
analyst-driven interdisciplinary process in which all members take part
in management of the fund.
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.
We believe Putnam Utilities Growth and Income Fund's portfolio of
high-quality, dividend-paying stocks and bonds should position it well
for the months ahead. Of course, broad market conditions will continue
to shape results. Recent economic data indicates building strength,
although the stock market has begun to concern itself with the
possibility of rising interest rates and this has dampened returns
somewhat. While rising interest rates could have a negative impact on
utilities stock prices initially, in our opinion, the utilities industry
continues to experience favorable conditions from both regulatory and
fundamental perspectives.
The time of capitalizing on gains made by companies recovering from the
California power crisis is drawing to a close. Consequently, we have
shifted our investment strategy to concentrate on stocks of companies
operating in areas that need to increase capital spending on power
generation and transmission facilities. Typically, these jurisdictions
are growing rapidly and the companies need to increase their power
output to meet customers' needs. Our first choice is to invest in those
companies operating where the regulators have already recognized the
need for capital spending and are supporting power companies through
favorable utility rates. California, Wisconsin, Iowa, and perhaps
Florida are areas that fit this description. Our second choice is to
invest in jurisdictions where regulators are not yet supportive but will
need to become supportive if they do not want to trigger economic
problems in their states. These states include Nevada and Arizona.
As always, fundamental research and quantitative analysis continue to
drive our strategy as we seek to identify companies whose stock prices
are undervalued relative to our estimate of their long-term business
worth. We believe this strategy will continue to serve the fund well
over 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 shows your fund's performance during the first half of its
fiscal year, which ended April 30, 2004. 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. Data represents past performance. Past
performance does not guarantee 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. For the most recent month-end performance, please visit
www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 4/30/04
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Class A Class B Class C Class M Class R
(inception dates) (11/19/90) (4/27/92) (7/26/99) (3/1/95) (12/1/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 8.62% 2.39% 8.12% 3.12% 8.16% 7.16% 8.34% 4.57% 8.53%
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1 year 22.38 15.35 21.63 16.63 21.54 20.54 21.97 17.72 22.11
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5 years -12.27 -17.29 -15.51 -16.78 -15.50 -15.50 -14.45 -17.47 -13.37
Annual average -2.58 -3.73 -3.31 -3.61 -3.31 -3.31 -3.07 -3.77 -2.83
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10 years 86.59 75.81 73.13 73.13 72.97 72.97 77.84 71.59 82.06
Annual average 6.44 5.80 5.64 5.64 5.63 5.63 5.93 5.55 6.17
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Annual average
(life of fund) 7.18 6.71 6.38 6.38 6.38 6.38 6.66 6.37 6.91
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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 (which for class A
shares does not reflect a reduction in sales charges that went into effect
on January 28, 2004; if this reduction had been in place for all periods
indicated, returns would have been higher). 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. Class R share returns have no initial sales charge
or CDSC. Performance for class B, C, M, and R 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.
A 2% redemption fee will be applied to shares exchanged or sold within 5
days of purchase.
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TOTAL RETURN FOR PERIODS ENDED 3/31/04 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M Class R
(inception dates) (11/19/90) (4/27/92) (7/26/99) (3/1/95) (12/1/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 13.74% 7.23% 13.25% 8.25% 13.41% 12.41% 13.46% 9.44% 13.65%
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1 year 34.52 26.82 33.58 28.58 33.62 32.62 33.90 29.29 34.21
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5 years -3.72 -9.25 -7.29 -8.68 -7.23 -7.23 -6.10 -9.36 -4.92
Annual average -0.75 -1.92 -1.50 -1.80 -1.49 -1.49 -1.25 -1.95 -1.00
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10 years 95.55 84.22 81.27 81.27 81.36 81.36 86.36 79.87 90.70
Annual average 6.94 6.30 6.13 6.13 6.13 6.13 6.42 6.05 6.67
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Annual average
(life of fund) 7.45 6.97 6.64 6.64 6.65 6.65 6.92 6.63 7.18
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/04
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Lipper Utility
S&P Utilities Funds category
Index average*
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6 months 8.19% 8.69%
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1 year 21.50 21.32
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5 years -9.54 -5.29
Annual average -1.98 -1.33
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10 years 75.21 105.67
Annual average 5.77 7.39
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Annual average
(life of fund) 6.85 8.38
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 4/30/04, there
were 85, 84, 61, and 31 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/04
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Class A Class B Class C Class M Class R
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Distributions (number) 2 2 2 2 2
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Income $0.074 $0.041 $0.044 $0.051 $0.067
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Capital gains -- -- -- -- --
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Total $0.074 $0.041 $0.044 $0.051 $0.067
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Share value: NAV POP NAV NAV NAV POP NAV
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10/31/03 $8.06 $8.55 $8.02 $8.02 $8.05 $8.34 --
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12/1/03* -- -- -- -- -- -- $8.20
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4/30/04 8.68 9.16+ 8.63 8.63 8.67 8.98 8.68
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Current return
(end of period)
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Current dividend rate 1 1.71% 1.62% 0.93% 1.02% 1.15% 1.11% 1.43%
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Current 30-day
SEC yield 2 1.88 1.78 1.13 1.12 1.38 1.33 1.63
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* Inception date of class R shares.
+ Reflects a reduction in sales charges that took effect on January 28, 2004.
1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
Understanding your
fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. Using the
information below, you can estimate how these expenses affect your
investment and compare them with the expenses of other funds. You may
also pay one-time transaction expenses, including sales charges (loads)
and redemption fees, which are not shown in this section and would have
resulted in higher total expenses. For more information, see your fund's
prospectus or talk to your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam Utilities Growth and Income Fund from October 31,
2003, to April 30, 2004. It also shows how much a $1,000 investment
would be worth at the close of the period, assuming actual returns and
expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 4/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $7 $11 $11 $9 $8
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Ending value (after
expenses) $1,086 $1,081 $1,082 $1,083 $1,085
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* Expenses for each share class are calculated using the fund's annualized
expense ratio for each class, which represents the ongoing expenses as a
percentage of net assets for the six months ended 4/30/04. The expense
ratio may differ for each share class (see the table at the bottom of the
next page). Expenses are calculated by multiplying the expense ratio by the
average account value for the period; then multiplying the result by the
number of days in the period; and then dividing that result by the number
of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended April
30, 2004, use the calculation method below. To find the value of your
investment on October 31, 2003, go to www.putnaminvestments.com and log on
to your account. Click on the "Transaction History" tab in your Daily
Statement and enter 10/31/2003 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 10/31/03 [DIV] $1,000 X per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $7 (see table above) = $70
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to
help investors assess fund expenses. Per these guidelines, the table below
shows your fund's expenses based on a $1,000 investment, assuming a
hypothetical 5% annualized return. You can use this information to compare
the ongoing expenses (but not transaction expenses or total costs) of
investing in the fund with those of other funds. All mutual fund
shareholder reports will provide this information to help you make this
comparison. Please note that you cannot use this information to estimate
your actual ending account balance and expenses paid during the period.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 4/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $7 $10 $10 $9 $8
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Ending value (after
expenses) $1,018 $1,015 $1,015 $1,016 $1,017
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* Expenses for each share class are calculated using the fund's annualized
expense ratio for each class, which represents the ongoing expenses as a
percentage of net assets for the six months ended 4/30/04. The expense
ratio may differ for each share class (see the table at the bottom of this
page). Expenses are calculated by multiplying the expense ratio by the
average account value for the period; then multiplying the result by the
number of days in the period; and then dividing that result by the number
of days in the year.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment styles
or objectives. The expense ratio for each share class shown below indicates
how much of your fund's net assets have been used to pay ongoing expenses
during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class C Class M Class R
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Your fund's annualized
expense ratio 1.31% 2.06% 2.06% 1.81% 1.56%
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Average annualized expense
ratio for Lipper peer group + 1.34% 2.09% 2.09% 1.84% 1.59%
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+ For class A shares, expenses shown represent the average of the
expenses of front-end load funds viewed by Lipper as having the same
investment classification or objective as the fund, calculated in
accordance with Lipper's standard reporting methodology for comparing
expenses within a given universe. All Lipper data is for the most recent
fiscal periods available as of 3/31/04. For class B, C, M, and R shares,
Putnam has adjusted the Lipper total expense average to reflect higher
12b-1 fees incurred by these classes of shares. The peer group may
include funds that are significantly larger or smaller than the fund,
which may limit the comparability of the fund's expenses to the Lipper
average.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a risk
comparison to help you understand how your fund compares with other funds.
The comparison utilizes a risk measure developed by Morningstar, an
independent fund-rating agency. This risk measure is referred to as the
fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 1.88
U.S. stock
fund average 3.97
0% Increasing Risk 100%
Your fund's Overall Morningstar Risk is shown alongside that of the average
fund in its broad asset class, as determined by Morningstar. The risk bar
broadens the comparison by translating the fund's Overall Morningstar Risk
into a percentile, which is based on the fund's ranking among all funds
rated by Morningstar as of 3/31/04. A higher Overall Morningstar Risk
generally indicates that a fund's monthly returns have varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class A
shares only; information for other classes may vary. Overall Morningstar
Risk is based on historical data and does not indicate future results.
Morningstar does not purport to measure the risk associated with a current
investment in a fund, either on an absolute basis or on a relative basis.
Low Overall Morningstar Risk does not mean that you cannot lose money on an
investment in a fund. Copyright 2004 Morningstar, Inc. All Rights Reserved.
The information contained herein (1) is proprietary to Morningstar and/or
its content providers; (2) may not be copied or distributed; and (3) is not
warranted to be accurate, complete, or timely. Neither Morningstar nor its
content providers are responsible for any damages or losses arising from
any use of this information.
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 (since reduced to 5.25%) 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).
Class R shares are not subject to an initial sales charge or CDSC and
are available only to certain defined contribution plans.
Comparative indexes
JP Morgan Chase Global High Yield Index is an unmanaged index used to
mirror the investable universe of the U.S. dollar global high-yield
corporate debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman 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 is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests of
our shareholders. Our proxy voting guidelines and policies are available on
the Putnam Individual Investor Web site, www.putnaminvestments.com, by
calling Putnam's Shareholder Services at 1-800-225-1581, or on the SEC's
Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
The fund's portfolio
April 30, 2004 (Unaudited)
Common stocks (90.4%) (a)
Number of shares Value
Electric Utilities (55.8%)
- -------------------------------------------------------------------------------
151,900 Alliant Energy Corp. $3,776,234
159,020 Ameren Corp. 6,952,354
216,637 American Electric Power Co., Inc. 6,594,430
162,000 Consolidated Edison, Inc. 6,676,020
378,497 Dominion Resources, Inc. 24,151,894
103,939 DTE Energy Co. 4,055,700
69,823 Duke Energy Corp. 1,470,472
959,656 Edison International 22,455,950
14,100 Electrabel SA (Belgium) 4,623,358
893,922 Electricidade de Portugal SA (Portugal) 2,437,472
51,349 Empire District Electric Co. (The) 1,068,573
145,763 Energy East Corp. 3,432,719
444,187 Entergy Corp. 24,252,610
394,715 Exelon Corp. 26,422,224
237,378 FirstEnergy Corp. 9,281,480
278,650 FPL Group, Inc. 17,727,713
32,500 Great Plains Energy, Inc. 1,014,325
23,700 Hawaiian Electric Industries, Inc. 1,179,312
115,030 Iberdrola SA (Spain) 2,260,139
95,730 Korea Electric Power Corp. (South Korea) 1,564,470
21,600 NSTAR 1,045,440
1,096,983 PG&E Corp. (NON) 30,188,972
184,634 Pinnacle West Capital Corp. 7,211,804
257,700 PPL Corp. 11,042,445
248,513 Progress Energy, Inc. 10,628,901
101,386 Public Power Corp. 144A (Greece) 2,566,533
114,907 Public Service Enterprise Group, Inc. 4,929,510
90,797 Puget Energy, Inc. 1,993,902
138,900 SCANA Corp. 4,778,160
1,819,166 Sierra Pacific Resources (NON) 12,879,695
366,477 Southern Co. (The) 10,539,879
86,700 TransAlta Corp. (Canada) 1,069,878
375,302 TXU Corp. 12,812,810
188,000 Wisconsin Energy Corp. 5,903,200
37,200 WPS Resources Corp. 1,704,132
275,338 XCEL Energy, Inc. 4,606,405
--------------
295,299,115
Natural Gas Utilities (7.3%)
- -------------------------------------------------------------------------------
43,200 Energen Corp. 1,786,320
212,300 Equitable Resources, Inc. 9,975,977
39 KeySpan Corp. 1,410
63,048 Kinder Morgan, Inc. 3,796,120
179,250 MDU Resources Group, Inc. 4,015,200
62,800 National Fuel Gas Co. 1,537,972
205,690 NiSource, Inc. 4,146,710
59,235 ONEOK, Inc. 1,240,973
34,400 Piedmont Natural Gas Co., Inc. 1,393,200
70,600 Questar Corp. 2,504,182
136,700 Sempra Energy 4,340,225
35,600 South Jersey Industries, Inc. 1,468,144
111,555 Vectren Corp. 2,694,053
--------------
38,900,486
Oil & Gas (0.4%)
- -------------------------------------------------------------------------------
64,700 Enbridge, Inc. (Canada) 2,358,315
Power Producers (0.8%)
- -------------------------------------------------------------------------------
212,300 AES Corp. (The) (NON) 1,840,641
920,070 International Power PLC (United
Kingdom) (NON) 2,281,806
--------------
4,122,447
Regional Bells (6.6%)
- -------------------------------------------------------------------------------
231,244 BellSouth Corp. 5,968,408
437,900 SBC Communications, Inc. (SEG) 10,903,710
478,536 Verizon Communications, Inc. 18,059,949
--------------
34,932,067
Telecommunications (18.2%)
- -------------------------------------------------------------------------------
6,600 America Movil SA de CV ADR Ser. L
(Mexico) 223,080
473,735 AT&T Wireless Services, Inc. (NON) 6,542,280
125,667 CenturyTel, Inc. 3,629,263
3,616,000 China Telecom Corp., Ltd. (China) 1,052,341
533,362 Deutsche Telekom AG (Germany) (NON) 9,129,811
156,956 France Telecom SA (France) 3,761,314
232,144 Koninklijke (Royal) KPN NV
(Netherlands) 1,668,614
37,280 KT Corp. ADR (South Korea) 689,680
1,021 Nippon Telegraph and Telephone Corp.
(NTT) (Japan) 5,340,648
3,140 NTT DoCoMo, Inc. (Japan) 6,295,875
217,552 Portugal Telecom SGPS SA ADR (Portugal) 2,356,088
45,370 SK Telecom Co., Ltd. ADR (South Korea) 916,474
6,369 Swisscom AG (Switzerland) 1,972,762
155,300 Tele Norte Leste Participacoes SA
ADR (Brazil) 1,838,752
439,877 Telecom Corp. of New Zealand, Ltd.
(New Zealand) 1,556,348
583,063 Telecom Italia Mobile SpA (Italy) 3,315,463
2,708,624 Telecom Italia SpA (Italy) 8,648,239
604,010 Telefonica SA (Spain) 8,928,970
31,586 Telefonos de Mexico SA de CV
(Telmex) ADR Class L (Mexico) 1,078,346
100,000 Telenor ASA (Norway) 654,777
11,088,037 Vodafone Group PLC (United Kingdom) 26,759,399
--------------
96,358,524
Telephone (0.6%)
- -------------------------------------------------------------------------------
199,337 Telus Corp. (Canada) 3,131,175
Water Utilities (0.7%)
- -------------------------------------------------------------------------------
180,937 Aqua America, Inc. 3,700,162
--------------
Total Common stocks
(cost $419,887,105) $478,802,291
Corporate bonds and notes (7.9%) (a)
Principal amount Value
Cable Television (--%)
- -------------------------------------------------------------------------------
$120,000 Rogers Cable Inc. sec. notes 6 1/4s,
2013 (Canada) $115,553
Electric Utilities (3.3%)
- -------------------------------------------------------------------------------
810,000 AEP Texas Central Co. sr. notes
Ser. D, 5 1/2s, 2013 819,425
170,000 Appalachian Power Co. notes 3.6s,
2008 166,785
510,000 Arizona Public Services Co. notes
6 1/2s, 2012 548,693
50,000 CenterPoint Energy Houston Electric
LLC general ref. mtge. Ser. M2,
5 3/4s, 2014 51,299
95,000 Cleveland Electric Illuminating Co.
(The) sec. notes Ser. D, 7.43s,
2009 106,814
55,000 Cleveland Electric Illuminating Co.
(The) 144A sr. notes 5.65s, 2013 54,398
430,000 Connecticut Light & Power Co. 1st
mtge. Ser. D, 7 7/8s, 2024 522,269
585,000 Consumers Energy Co. 1st mtge.
Ser. B, 5 3/8s, 2013 575,776
40,000 Dayton Power & Light Co. (The) 144A
1st mtge. 5 1/8s, 2013 38,768
180,000 Detroit Edison Co. sec. notes 5.2s,
2012 181,205
1,155,000 Dominion Resources, Inc. sr. notes
8 1/8s, 2010 1,352,766
650,000 Duke Capital Corp. sr. notes Ser. A,
6 1/4s, 2005 677,675
275,000 Duquesne Light Co. 1st mtge. Ser. O,
6.7s, 2012 304,398
525,000 Entergy Arkansas Inc. 1st mtge.
5.4s, 2018 498,831
860,000 Exelon Generation Co., LLC sr. notes
6.95s, 2011 958,121
660,000 FirstEnergy Corp. notes Ser. B,
6.45s, 2011 694,847
60,000 FirstEnergy Corp. notes Ser. C,
7 3/8s, 2031 63,016
645,000 Florida Power & Light Co. 1st mtge.
5.95s, 2033 639,470
320,000 Florida Power & Light Co. 1st mtge.
5 5/8s, 2034 302,884
465,000 Florida Power Corp. 1st mtge. 5.9s,
2033 449,227
155,000 Indianapolis Power & Light 144A 1st
mtge. 6.3s, 2013 161,961
975,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 1,070,063
195,000 Monongahela Power Co. 1st mtge. 5s,
2006 197,681
105,000 Nevada Power Co. 144A 2nd mtge. 9s,
2013 116,025
140,000 New York State Electric & Gas Corp.
bonds 5 3/4s, 2023 132,065
740,000 Niagara Mohawk Power Corp. sr. notes
Ser. G, 7 3/4s, 2008 838,763
215,000 NiSource Finance Corp. company
guaranty 7 7/8s, 2010 250,280
390,000 Oncor Electric Delivery Co. sec.
notes 7 1/4s, 2033 435,359
355,000 Oncor Electric Delivery Co. sec.
notes 6 3/8s, 2012 384,612
105,000 Pacific Gas & Electric Co. 1st mtge.
6.05s, 2034 99,010
155,000 Pacific Gas & Electric Co. 1st mtge.
4.8s, 2014 148,216
70,000 PacifiCorp Sinking Fund 1st mtge.
5.45s, 2013 71,743
55,000 Panhandle Eastern Pipe Line sr.
notes 4.8s, 2008 55,859
470,000 Pepco Holdings, Inc. notes 5 1/2s,
2007 493,726
135,000 Potomac Edison Co. 1st mtge. 8s,
2024 130,621
196,597 Power Receivable Finance LLC 144A
sr. notes 6.29s, 2012 201,838
75,000 Powergen U.S. Funding, LLC company
guaranty 4 1/2s, 2004 75,789
10,000 PP&L Capital Funding, Inc. company
guaranty Ser. D, 8 3/8s, 2007 11,289
245,000 Progress Energy, Inc. sr. notes
6 3/4s, 2006 261,746
655,000 Progress Energy, Inc. sr. notes
6.05s, 2007 697,721
510,000 PSEG Power, LLC company guaranty
6.95s, 2012 563,566
50,000 Public Service Company of New Mexico
sr. notes 4.4s, 2008 49,890
240,000 Public Service Electric & Gas Co.
1st mtge. FRN 6 3/8s, 2008 259,866
150,000 Rochester Gas & Electric notes
6 3/8s, 2033 147,841
270,000 South Carolina Electric & Gas Co.
1st mtge. 5.8s, 2033 260,406
55,000 Southern California Edison Co. 1st
mtge. 6s, 2034 53,062
120,000 Southern California Edison Co. 1st
mtge. 5s, 2014 117,725
275,000 Southern Power Co. sr. notes Ser. D,
4 7/8s, 2015 257,886
260,000 Tampa Electric Co. notes 6 7/8s,
2012 282,218
225,000 Western Resources, Inc. 1st mtge.
7 7/8s, 2007 250,425
195,000 Wisconsin Electric Power notes
4 1/2s, 2013 187,284
--------------
17,271,203
Natural Gas Utilities (0.2%)
- -------------------------------------------------------------------------------
95,000 CenterPoint Energy Resources Corp.
debs. 8.9s, 2006 106,066
120,000 CenterPoint Energy Resources Corp.
notes 7 3/4s, 2011 134,363
165,000 Duke Energy Field Services, LLC
notes 7 7/8s, 2010 190,743
45,000 KeySpan Corp. notes 7 5/8s, 2010 52,402
260,000 National Fuel Gas Co. notes 5 1/4s,
2013 261,866
240,000 Texas Eastern Transmission LP sr.
notes 7s, 2032 254,098
--------------
999,538
Oil & Gas (0.2%)
- -------------------------------------------------------------------------------
240,000 Canadian Natural Resources, Ltd. sr.
notes 5.45s, 2012 (Canada) 245,192
15,000 Kerr-McGee Corp. company guaranty
6 7/8s, 2011 16,384
225,000 Louis Dreyfus Natural Gas Corp.
notes 6 7/8s, 2007 243,878
430,000 MidAmerican Energy Holdings Co. sr.
notes 4 5/8s, 2007 438,119
90,000 Motiva Enterprises, LLC 144A sr.
notes 5.2s, 2012 90,423
--------------
1,033,996
Regional Bells (0.5%)
- -------------------------------------------------------------------------------
250,000 Ameritech Capital Funding company
guaranty 6 1/4s, 2009 269,276
390,000 Bellsouth Capital Funding notes
7 3/4s, 2010 450,986
25,000 Michigan Bell Telephone Co. debs.
7.85s, 2022 29,296
865,000 Verizon Global Funding Corp. notes
7 1/4s, 2010 977,900
835,000 Verizon New England Inc. sr. notes
6 1/2s, 2011 904,814
--------------
2,632,272
Telecommunications (3.0%)
- -------------------------------------------------------------------------------
855,000 AT&T Corp. sr. notes 8.05s, 2011 938,160
160,000 AT&T Wireless Services, Inc. sr.
notes 8 3/4s, 2031 195,189
1,740,000 AT&T Wireless Services, Inc. sr.
notes 7 7/8s, 2011 2,004,163
225,000 British Telecommunications PLC bonds
8 7/8s, 2030 (United Kingdom) 284,631
1,450,000 British Telecommunications PLC notes
8 3/8s, 2010 (United Kingdom) 1,709,913
715,000 Cingular Wireless, LLC sr. notes
5 5/8s, 2006 757,012
50,000 Citizens Communications Co. sr.
notes 7 5/8s, 2008 52,038
410,000 Deutsche Telekom International
Finance BV bonds 8 1/2s, 2010
(Netherlands) 484,446
1,725,000 Deutsche Telekom International
Finance BV company guaranty 8 3/4s,
2030 (Netherlands) 2,140,967
195,000 Deutsche Telekom International
Finance BV notes 5 1/4s, 2013
(Netherlands) 193,565
490,000 France Telecom notes 9 1/2s, 2031
(France) 628,401
995,000 France Telecom notes 7 3/4s, 2011
(France) 1,176,287
105,000 Koninklijke (Royal) KPN NV sr.
unsub. notes 8 3/8s, 2030
(Netherlands) 128,726
55,000 Koninklijke (Royal) KPN NV sr.
unsub. notes 8s, 2010 (Netherlands) 64,332
1,805,000 Sprint Capital Corp. company
guaranty 7 5/8s, 2011 2,035,462
855,000 Sprint Capital Corp. company
guaranty 6 7/8s, 2028 839,389
620,000 Sprint Capital Corp. company
guaranty 6 1/8s, 2008 663,884
45,000 Sprint Capital Corp. notes 8 3/8s,
2012 52,814
150,000 Telecom Italia Capital 144A company
guaranty 6 3/8s, 2033 (Luxembourg) 147,123
70,000 Telecom Italia Capital 144A company
guaranty 5 1/4s, 2013 (Luxembourg) 68,922
230,000 Telecom Italia Capital 144A company
guaranty 4s, 2008 (Luxembourg) 227,988
105,000 United States Cellular Corp. notes
6.7s, 2033 102,587
570,000 Verizon Wireless, Inc. notes 5 3/8s,
2006 601,766
75,000 Vodafone Group PLC notes 7 7/8s,
2030 (United Kingdom) 89,600
205,000 Vodafone Group PLC notes 7 5/8s,
2005 (United Kingdom) 214,119
--------------
15,801,484
Telephone (0.7%)
- -------------------------------------------------------------------------------
2,305,000 New England Telephone & Telegraph
Co. debs. 7 7/8s, 2029 2,671,034
950,000 Telefonica Europe BV company
guaranty 7 3/4s, 2010 (Netherlands) 1,101,871
--------------
3,772,905
--------------
Total Corporate bonds and notes
(cost $40,207,038) $41,626,951
Short-term investments (8.9%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$41,836,480 Short-term investments held as collateral
for loaned securities with yields ranging
from 1.02% to 1.21% and due dates ranging
from May 3, 2004 to June 11, 2004 (d) $41,819,749
5,527,000 Short-term investments held in
Putnam commingled cash account with
yields ranging from 1.03% to 1.05%
and due dates ranging from May 3,
2004 to May 21, 2004 (d) 5,527,000
--------------
Total Short-term investments
(cost $47,346,749) $47,346,749
- -------------------------------------------------------------------------------
Total Investments
(cost $507,440,892) $567,775,991
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $529,538,099.
(NON) Non-income-producing security.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at April
30, 2004.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American Depositary
Receipts representing ownership of foreign securities on deposit with a
custodian bank.
The rates shown on Floating Rate Notes (FRN) are the current interest
rates shown at April 30, 2004.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at April 30, 2004: (as a
percentage of Market Value)
Belgium 0.8%
Canada 1.2
France 1.0
Germany 1.6
Greece 0.5
Italy 2.1
Japan 2.0
Netherlands 1.0
Portugal 0.8
South Korea 0.6
Spain 2.0
United Kingdom 5.5
United States 79.3
Other 1.6
------
Total 100.0%
Forward currency contracts to buy at April 30, 2004 (Unaudited)
(aggregate face value $10,508,467)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
Australian Dollar $191,003 $204,364 6/16/04 $(13,361)
British Pound 4,827,703 4,958,128 6/16/04 (130,425)
Danish Krone 314,210 325,256 6/16/04 (11,046)
Hong Kong Dollar 2,346,839 2,353,456 6/16/04 (6,617)
Norwegian Krone 626,256 615,878 6/16/04 10,378
Swedish Krona 2,007,961 2,051,385 6/16/04 (43,424)
- ------------------------------------------------------------------------------------------------------
$(194,495)
- ------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at April 30, 2004 (Unaudited)
(aggregate face value $30,895,931)
Aggregate Delivery Unrealized
Value face value date appreciation
- ------------------------------------------------------------------------------------------------------
British Pound $3,970,809 $4,007,728 6/16/04 $36,919
Canadian Dollar 5,246,383 5,399,365 6/16/04 152,982
Euro 16,374,920 16,823,751 6/16/04 448,831
Japanese Yen 332,470 337,069 6/16/04 4,599
Mexican Peso 2,013,504 2,058,147 6/16/04 44,643
New Zealand Dollar 543,446 592,074 6/16/04 48,628
Swiss Franc 1,654,744 1,677,797 6/16/04 23,053
- ------------------------------------------------------------------------------------------------------
$759,655
- ------------------------------------------------------------------------------------------------------
Futures contracts outstanding at April 30, 2004 (Unaudited)
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Note
5 yr (Short) $1,649,063 $1,673,007 Jun-04 $23,944
U.S. Treasury Note
10 yr (Short) 110,500 113,347 Jun-04 2,847
U.S. Treasury Bond
20 yr (Long) 2,570,252 2,625,910 Jun-04 (55,658)
- ------------------------------------------------------------------------------------------------------
$(28,867)
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
April 30, 2004 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value, including $39,872,451
of securities on loan (identified cost $507,440,892) (Note 1) $567,775,991
- -------------------------------------------------------------------------------
Cash 54,115
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 2,071,077
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 92,954
- -------------------------------------------------------------------------------
Receivable for securities sold 5,570,480
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 8,625
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 770,033
- -------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 142,225
- -------------------------------------------------------------------------------
Total assets 576,485,500
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 2,433,436
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,002,701
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 941,820
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 154,913
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 128,512
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,242
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 177,688
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 204,873
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 41,819,749
- -------------------------------------------------------------------------------
Other accrued expenses 82,467
- -------------------------------------------------------------------------------
Total liabilities 46,947,401
- -------------------------------------------------------------------------------
Net assets $529,538,099
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $676,104,423
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,712,102
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (209,160,674)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 60,882,248
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $529,538,099
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($424,885,363 divided by 48,940,878 shares) $8.68
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.75 of $8.68)* $9.16
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($97,165,824 divided by 11,258,407 shares)** $8.63
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($4,095,249 divided by 474,285 shares)** $8.63
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,390,596 divided by 391,076 shares) $8.67
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $8.67)* $8.98
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($1,067 divided by 123 shares) $8.68
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Six months ended April 30, 2004 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $161,330) $7,793,795
- -------------------------------------------------------------------------------
Interest 1,444,946
- -------------------------------------------------------------------------------
Securities lending 75,267
- -------------------------------------------------------------------------------
Total investment income 9,314,008
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,918,528
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 854,762
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 13,308
- -------------------------------------------------------------------------------
Administrative services (Note 2) 6,861
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 555,635
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 524,045
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 19,215
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 14,193
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 2
- -------------------------------------------------------------------------------
Other 150,127
- -------------------------------------------------------------------------------
Non-recurring costs (Note 5) 19,312
- -------------------------------------------------------------------------------
Costs assumed by manager (Note 5) (19,312)
- -------------------------------------------------------------------------------
Total expenses 4,056,676
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (232,995)
- -------------------------------------------------------------------------------
Net expenses 3,823,681
- -------------------------------------------------------------------------------
Net investment income 5,490,327
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 15,261,771
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (51,900)
- -------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,061,352)
- -------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 33,416
- -------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 1,073,511
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts and credit default contracts during the period 25,453,518
- -------------------------------------------------------------------------------
Net gain on investments 40,708,964
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $46,199,291
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
Increase (decrease) in net assets 2004* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $5,490,327 $14,790,631
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 14,181,935 (55,427,923)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 26,527,029 162,054,504
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 46,199,291 121,417,212
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (3,783,937) (11,117,606)
- -------------------------------------------------------------------------------
Class B (497,558) (1,810,630)
- -------------------------------------------------------------------------------
Class C (20,162) (63,431)
- -------------------------------------------------------------------------------
Class M (22,370) (88,044)
- -------------------------------------------------------------------------------
Class R (8) --
- -------------------------------------------------------------------------------
From return of capital
Class A -- (773,845)
- -------------------------------------------------------------------------------
Class B -- (126,030)
- -------------------------------------------------------------------------------
Class C -- (4,415)
- -------------------------------------------------------------------------------
Class M -- (6,128)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (109,810,960) (94,298,032)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (67,935,704) 13,129,051
Net assets
- -------------------------------------------------------------------------------
Beginning of period 597,473,803 584,344,752
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $1,712,102 and
$545,810, respectively) $529,538,099 $597,473,803
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.06 $6.71 $9.56 $13.86 $14.06 $13.62
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .09 .19 .23 .25 .36 .39
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .60 1.34 (2.84) (2.73) .75 .87
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .69 1.53 (2.61) (2.48) 1.11 1.26
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.07) (.17) (.22) (.25) (.38) (.39)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.53) (.93) (.43)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.02) (.04) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) (.18) (.24) (1.82) (1.31) (.82)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.68 $8.06 $6.71 $9.56 $13.86 $14.06
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.62* 23.17 (27.73) (20.40) 9.04 9.49
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $424,885 $478,304 $469,497 $846,231 $1,128,437 $1,000,789
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .65* 1.23 1.12 1.05 1.01 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.06* 2.65 2.68 2.14 2.78 2.80
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.82* 40.12 44.93 91.91 29.42 17.58
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.02 $6.67 $9.51 $13.78 $13.98 $13.54
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .06 .14 .16 .16 .26 .28
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .59 1.34 (2.82) (2.70) .74 .87
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .65 1.48 (2.66) (2.54) 1.00 1.15
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.04) (.12) (.16) (.17) (.27) (.28)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.53) (.93) (.43)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.02) (.03) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.04) (.13) (.18) (1.73) (1.20) (.71)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.63 $8.02 $6.67 $9.51 $13.78 $13.98
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.12* 22.40 (28.35) (20.93) 8.19 8.69
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $97,166 $111,163 $107,158 $213,564 $335,411 $566,426
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.03* 1.98 1.87 1.80 1.76 1.75
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .68* 1.89 1.92 1.39 2.06 2.06
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.82* 40.12 44.93 91.91 29.42 17.58
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------------
Six months For the
ended period
April 30 July 26, 1999+
Per-share (Unaudited) Year ended October 31 to October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.02 $6.67 $9.51 $13.79 $14.04 $14.34
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .06 .14 .16 .16 .25 .07
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .59 1.34 (2.82) (2.70) .74 (.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .65 1.48 (2.66) (2.54) .99 (.19)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.04) (.12) (.16) (.18) (.31) (.11)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.53) (.93) --
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.02) (.03) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.04) (.13) (.18) (1.74) (1.24) (.11)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.63 $8.02 $6.67 $9.51 $13.79 $14.04
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.16* 22.45 (28.37) (20.93) 8.12 (1.33)*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,095 $3,699 $3,332 $6,028 $4,734 $486
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.03* 1.98 1.87 1.80 1.76 .47*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .67* 1.87 1.93 1.38 1.94 .53*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.82* 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
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.05 $6.70 $9.55 $13.83 $14.03 $13.60
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .07 .16 .18 .19 .29 .32
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .60 1.34 (2.83) (2.71) .75 .86
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .67 1.50 (2.65) (2.52) 1.04 1.18
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.14) (.18) (.20) (.31) (.32)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.53) (.93) (.43)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.02) (.03) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.05) (.15) (.20) (1.76) (1.24) (.75)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.67 $8.05 $6.70 $9.55 $13.83 $14.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.34* 22.61 (28.16) (20.72) 8.49 8.87
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,391 $4,307 $4,358 $8,692 $13,320 $14,045
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .90* 1.73 1.62 1.55 1.51 1.50
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .81* 2.16 2.17 1.64 2.28 2.30
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.82* 40.12 44.93 91.91 29.42 17.58
- ---------------------------------------------------------------------------------------------------------------------------------
* 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 R
- ----------------------------------------------------------------------
For the period
December 1,
2003+
to April 30
Per-share (Unaudited)
operating performance 2004
- ----------------------------------------------------------------------
Net asset value,
beginning of period $8.20
- ----------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------
Net investment income (a) .07
- ----------------------------------------------------------------------
Net realized and unrealized
gain on investments .48
- ----------------------------------------------------------------------
Total from
investment operations .55
- ----------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------
From net
investment income (.07)
- ----------------------------------------------------------------------
Total distributions (.07)
- ----------------------------------------------------------------------
Net asset value,
end of period $8.68
- ----------------------------------------------------------------------
Total return at
net asset value (%)(b) 6.68*
- ----------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------
Net assets, end of period
(in thousands) $1
- ----------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .65*
- ----------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .78*
- ----------------------------------------------------------------------
Portfolio turnover (%) 12.82*
- ----------------------------------------------------------------------
+ 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.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
April 30, 2004 (Unaudited)
Note 1
Significant Accounting Policies
Putnam Utilities Growth and Income Fund (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. The fund seeks capital growth
and current income primarily through investments in equity and debt
securities issued by public utility companies.
The fund offers class A, class B, class C, class M and class R shares.
The fund began offering class R shares on December 1, 2003. Class A
shares are sold with a maximum front-end sales charge of 5.25%. Prior to
January 28, 2004, the maximum front-end sales charge for class A shares
was 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, class M and class R
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 and class R shares but lower than class
B and class C shares. Class R shares are sold without a front-end sales
charge and pay an ongoing distribution fee that is higher than class A
shares, but lower than class B, class C and class M shares. Class R
shares are offered to qualified employee-benefit plans.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam) a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchanging into another fund)
within 5 days of purchase.
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. Many securities markets and
exchanges outside the U.S. close prior to the close of the New York Stock
Exchange and therefore the closing prices for securities in such markets or
on such exchanges may not fully reflect events that occur after such close
but before the close of the New York Stock Exchange. Accordingly, on
certain days, the fund will fair value foreign securities taking into
account multiple factors, including movements in the U.S. securities
markets. The number of days on which fair value prices will be used will
depend on market activity and it is possible that fair value prices will be
used by the fund to a significant extent. 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, net
of applicable withholding taxes, 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.
All premiums/discounts are amortized/accreted on a yield-to-maturity
basis.
D) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
E) 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, if any, 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. Risks may exceed amounts recognized on the statement
of assets and liabilities. 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, if any,
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. The maximum amount of the payment
may equal the notional amount, at par, of the underlying index or
security as a result of a related credit event. An upfront payment
received by the fund, as the protection seller, is recorded as a
liability on the fund's books. An upfront payment made by the fund, as
the protection buyer, is recorded as an asset 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. The risk of loss may exceed the fair value of
these contracts recognized on the statement of assets and liabilities.
Credit default contracts outstanding at period end, if any, are listed
after the fund's portfolio.
H) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At April 30, 2004, the value of
securities loaned amounted to $39,872,451. The fund received cash
collateral of $41,819,749, which is pooled with collateral of other
Putnam funds into 27 issuers of high grade short-term investments.
I) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986 (the "Code"), 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 the Code 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
The aggregate identified cost on a tax basis is $512,447,886, resulting
in gross unrealized appreciation and depreciation of $77,660,293 and
$22,332,188, respectively, or net unrealized appreciation of
$55,328,105.
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.70% of the first $500 million
of average net assets, 0.60% of the next $500 million, 0.55% of the next
$500 million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion and
0.43% thereafter.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses) through
December 31, 2004, to the extent that the fund's net expenses as a
percentage of average net assets exceed the average expense ratio for
the fund's Lipper peer group of front-end load funds.
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. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended April 30, 2004, the
fund paid PFTC $626,676 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the six months ended April 30, 2004,
the fund's expenses were reduced by $232,995 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,221, as a quarterly retainer, 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 , class M and class R 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 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%, 1.00% and
1.00% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively. The Trustees have approved
payment by the fund at the annual rates of 0.25%, 1.00%, 1.00%, 0.75%
and 0.50% of the average net assets attributable to class A, class B,
class C, class M and class R shares, respectively.
For the six months ended April 30, 2004, Putnam Retail Management,
acting as underwriter, received net commissions of $11,595 and $179 from
the sale of class A and class M shares, respectively, and received
$161,755 and $187 in contingent deferred sales charges from redemptions
of class B and class C shares, respectively. A deferred sales charge of
up to 1.00% and 0.65% is assessed on certain redemptions of class A and
class M shares, respectively. For the six months ended April 30, 2004,
Putnam Retail Management, acting as underwriter, received $414 and no
monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2004, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $68,604,738 and $180,130,789, respectively. There
were no purchases or sales of U.S. government securities.
Note 4
Capital shares
At April 30, 2004, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 1,945,304 $16,855,389
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 389,579 3,353,006
- ----------------------------------------------------------------
2,334,883 20,208,395
Shares repurchased (12,717,051) (107,010,878)
- ----------------------------------------------------------------
Net decrease (10,382,168) $(86,802,483)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 591,550 $5,075,052
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 50,739 433,893
- ----------------------------------------------------------------
642,289 5,508,945
Shares repurchased (3,253,192) (27,440,870)
- ----------------------------------------------------------------
Net decrease (2,610,903) $(21,931,925)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 121,443 $1,059,448
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,917 16,443
- ----------------------------------------------------------------
123,360 1,075,891
Shares repurchased (110,324) (936,198)
- ----------------------------------------------------------------
Net increase 13,036 $139,693
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 15,489 $133,522
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,428 20,850
- ----------------------------------------------------------------
17,917 154,372
Shares repurchased (161,877) (1,371,625)
- ----------------------------------------------------------------
Net decrease (143,960) $(1,217,253)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
For the period December 1, 2003
(commencement of operations)
to April 30, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 122 $1,000
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1 8
- ----------------------------------------------------------------
123 1,008
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 123 $1,008
- ----------------------------------------------------------------
At April 30, 2004, Putnam, LLC owned 123 class R shares of the
fund (100% of class R shares outstanding), valued at $1,067.
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division'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.
For the period ended April 30, 2004, Putnam Management has assumed
$19,312 of legal, shareholder servicing and communication, audit, and
Trustee fees incurred by the Fund in connection with these matters.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. The fund may experience increased redemptions as a result
of these matters, which could result in increased transaction costs and
operating expenses.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Investors should carefully consider the investment objective, risks,
charges, and expenses of a fund before investing. For a prospectus
containing this and other information for any Putnam fund or product,
call your financial advisor at 1-800-225-1581 and ask for a prospectus.
Please read the prospectus carefully before investing.
Growth Funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund+
Income Funds
American Government Income Fund
Diversified Income Trust
Global Income Trust*
High Yield Advantage Fund*+
High Yield Trust*
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund++
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York,
Ohio and Pennsylvania
Asset Allocation Funds
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* A 1% redemption fee on total assets redeemed or exchanged between 6 and
90 days of purchase may be imposed for all share classes of these funds.
+ Closed to new investors.
++ An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the fund seeks to preserve your investment at $1.00 per share,
it is possible to lose money by investing in the fund.
With the exception of money market funds, a 2% redemption fee will be
applied to shares exchanged or sold within 5 days of purchase.
Check your account balances and the most recent month-end performance at
www.putnaminvestments.com.
Services for shareholders
Investor services
Help your investment grow Set up a program for systematic investing with
as little as $25 a month from a Putnam fund or from your own savings or
checking account. (Regular investing does not guarantee a profit or
protect against loss in a declining market.)
Switch funds easily* You can move money from one Putnam fund to another
within the same class of shares without a service charge.
Access your money easily You can have checks sent regularly or redeem
shares any business day at the then-current net asset value, which may
be more or less than the original cost of the shares. Class B and class
C shares carry a sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial
advisor or directly from Putnam. To open an account by mail, send a
check made payable to the name of the fund along with a completed fund
application. To add to an existing account, complete the investment slip
found at the top of your Confirmation of Activity statement and return
it with a check payable to your fund.
For more information
Visit www.putnaminvestments.com
A secure section of our Web site contains complete information on your
account, including balances and transactions, updated daily. You may also
conduct transactions, such as exchanges, additional investments, and
address changes. Log on today to get your password.
Use our toll-free number 1-800-225-1581 Ask a helpful Putnam
representative or your financial advisor for details about any of these
or other services, or see your prospectus.
* This privilege is subject to change or termination. An exchange of
funds may result in a taxable event. In addition, a 2% redemption fee
will be applied to shares exchanged or sold within 5 days of purchase,
and certain funds have imposed a 1% redemption fee on total assets
redeemed or exchanged between 6 and 90 days of purchase.
Putnam puts your interests first
In January, Putnam announced a number of voluntary initiatives designed
to reduce fund expenses, provide investors with more useful information,
and help safeguard the interests of all Putnam investors. For details,
visit www.putnaminvestments.com.
Cost-cutting initiatives
Reduced sales charges
Effective immediately, the maximum sales charge for class A shares has been
reduced to 5.25% for equity funds (formerly 5.75%) and 4.50% for most
income funds (formerly 4.75%).*
Lower class B purchase limit
To help ensure that investors are in the most cost-effective share class,
the maximum amount that can be invested in class B shares has been reduced
to $100,000. (Larger trades or accumulated amounts will be directed to
class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including management fees for
all funds, will be maintained at or below the average of each fund's
industry peers in its Lipper load-fund universe. For more information,
please see the Statement of Additional information.
Additional measures are being taken to reduce expenses for shareholders
in the six global and international funds that had short-term trading
issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being revised to
disclose additional information that will help shareholders compare
funds and weigh their costs and risks along with their potential
benefits. Shareholders will find easy-to-understand information about
fund expense ratios, portfolio manager compensation, risk comparisons,
brokerage commissions, and employee and trustee ownership of Putnam
funds. Disclosure of breakpoint discounts is also being enhanced to
alert investors to potential cost savings.
Protecting investors' interests
New short-term trading fee introduced
To discourage short-term trading, which can interfere with a fund's
long-term strategy, a 2% short-term trading fee will be imposed on any
Putnam fund shares redeemed or exchanged within five calendar days of
purchase.
* The maximum sales charge for class A shares of Putnam U.S. Intermediate
Government Income Fund remains 3.25%.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President, Associate
Treasurer and Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
Francis J. McNamara, III
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, the most recent copy of
Putnam's Quarterly Performance Summary, and Putnam's Quarterly Ranking
Summary. For more recent performance, please visit
www.putnaminvestments.com. Investors should carefully consider the
investment objective, risks, charges, and expenses of a fund, which are
described in its prospectus. For this and other information or to request a
prospectus, call 1-800-225-1581 toll free. Please read the prospectus
carefully before investing. 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.
Not FDIC Insured May Lose Value No Bank Guarantee
SA026-214211 840/884/869 6/04
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- ---------------------------------
(a) The registrant's principal executive officer and principal financial
officer 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 generally 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.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: June 28, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: June 28, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 28, 2004