Putnam
Utilities
Growth and
Income Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam has introduced a number of
reforms for the benefit of shareholders, including increasing the amount
of disclosure for our funds. For example, in the spring of this year we
began showing expense and risk comparisons in shareholder reports. We
are now including in this report portfolio turnover information for your
fund, which explains how the rate at which a fund buys and sells
portfolio securities might affect its return and its taxable
distributions to shareholders. Equity fund reports, furthermore, now
also list the largest brokerage relationships of your fund following the
Notes to the Financial Statements.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as Chair of the
New York Stock Exchange (NYSE) Pension Managers Advisory Committee and
as a Trustee of Commonfund, a not-for-profit asset management firm.
Richard B. Worley is Managing Partner of Permit Capital LLC, an
investment management firm. Both Ms. Drucker and Mr. Worley are
independent Trustees (i.e., Trustees who are not "interested persons" of
your fund or its investment advisor). Charles E. Haldeman, Jr., the
third new Trustee, is President and Chief Executive Officer of Putnam
Investments.
During the period covered by the following report, Putnam Utilities
Growth and Income Fund delivered solid absolute results. In the
following pages, the fund managers discuss fund performance, strategy,
and their outlook for fiscal 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 15, 2004
Report from Fund Management
Fund highlights
* For the 12 months ended October 31, 2004, Putnam Utilities Growth and
Income Fund returned 21.18% without sales charges and 14.23% with
maximum sales charges reflected.
* The fund's benchmark, the Standard & Poor's Utilities Index, returned
24.11% for the period.
* The average return for the fund's Lipper category, Utility Funds, was
22.78%.
* The fund's quarterly dividend was increased to $0.048 per share in
June. See page 5 for details.
* See the Performance Summary beginning on page 7 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
The 2004 fiscal year has been a favorable one for utility stocks and
bonds, and for the performance of your fund. Our security selection was
success ful in all three areas of the portfolio, which consists of
electric and gas stocks, telecommunications stocks, and bonds. However,
because the fund had a heavier weighting in telecom stocks than others
in its peer group, and because this sector was weak for much of the
year, the fund's return at net asset value (NAV) lags results for its
benchmark and for the average for its Lipper category.
Telecommunications stocks have rallied considerably since mid-summer,
and this allocation is now making a solid contribution to performance.
It is also important to remember that the benchmark index consists
entirely of utilities stocks, while your fund maintains a portion of its
portfolio in bonds to provide added stability and current income. Over
this period, stocks significantly outperformed bonds.
TOTAL RETURN FOR
PERIODS ENDED 10/31/04
Class A
(inception 11/19/90) NAV POP
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1 year 21.18% 14.23%
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5 years -6.39 -11.79
Annual average -1.31 -2.48
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10 years 108.04 96.13
Annual average 7.60 6.97
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Annual average
(life of fund) 7.76 7.30
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Data is historical. 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. Performance assumes reinvestment of
distributions and does not account for taxes. Returns at NAV do not
reflect a sales charge of 5.75%. For the most recent month-end
performance, visit www.putnaminvestments.com. A 2% short-term trading
fee may be applied to shares exchanged or sold within 5 days of
purchase.
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
Since your fund focuses its investments on two key areas of the
utilities industry, it is appropriate to review developments within
these areas rather than in the broad market. The electric utility
industry has continued to recover from its financial distress of two
years ago. At that time, deregulation and the resulting entry by
utilities into electric power trading drove many companies into crisis.
Rating agencies ultimately overreacted by tightening credit standards
severely. Since then, many companies have backed away from energy
trading or maintained strict limits on its scope. We see this as the
most visible facet of a broader "back to basics" move within the
industry. Utilities are closing, selling, or otherwise deemphasizing
their diversification efforts and focusing on their regulated
operations. State legislators and regulators have responded by
suspending moves toward deregulation in some states and in others even
reversing them. As a result, we've seen a surge in performance among
electric and gas utilities stocks in the second half of the fiscal year.
The telecommunications industry also strengthened over the past six
months. In the United States, this strength is due to consolidation in
the wireless industry, highlighted by Cingular's purchase of AT&T
Wireless, and the withdrawal of AT&T and MCI from the residential
(wireline) telephone market. Overseas, cash generation and cash raised
through asset sales have been driving the European telecom stocks,
which, in our opinion, are still undervalued even after their recent
gains. In Asia and Latin America, the market has recently begun to favor
high-quality companies of the type we seek for your fund.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 10/31/04
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Equities
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S&P Utilities Index (utilities stocks) 24.11%
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S&P 500 Index (broad stock market) 9.42%
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Russell 1000 Growth Index (large-company growth stocks) 3.38%
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Russell 1000 Value Index (large-company value stocks) 15.45%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 5.53%
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JP Morgan Global High Yield Index (global high-yield corporate bonds) 12.92%
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Lehman Intermediate Treasury Bond Index
(intermediate-maturity U.S. Treasury bonds) 3.26%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 10/31/04.
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Strategy overview
In keeping with the "back to basics" trend that is pervading the
electric utilities industry, we have been emphasizing stocks that offer
investment opportunities within their regulated service territories,
either due to growth or due to the need to replace aging infrastructure.
Accordingly, we are currently maintaining overweight positions in large
utilities based in California, Wisconsin, and Iowa. We focus on
utilities stocks backed by public utility commissions that understand
the role of financial incentives in meeting their ongoing business
needs. Some of these stocks may currently be experiencing financial
weakness, which is due in part to regulation, and which is keeping their
prices attractively low. We believe that the public utility commissions
will move forward with improved regulation and help these utilities
recover their financial strength so that they can better meet the needs
of the local economies. Consequently, such stocks can offer attractive
opportunities for the fund. Fundamentally, though, we select utilities
stocks based on our assessment of their valuations as well as the
companies' management and business strategies. Within the telecom sector
we seek out undervalued companies, operating in stable competitive and
regulatory environments, with management teams that are focused on
rewarding shareholders. We have established positions in several newly
listed companies that we expect to contribute to performance in the
coming year.
Over the period, we generally maintained between 9% and 10% of the
portfolio in high-quality utilities bonds and other fixed-income
securities; however, that allocation declined to just under 8% toward
the close of the fiscal year as utility stocks appreciated. After the
close of the fiscal year, we rebalanced the portfolio and brought the
fixed-income portion back to approximately 10%.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS COMPARED]
TOP INDUSTRY WEIGHTINGS COMPARED
as of 4/30/04 as of 10/31/04
Electric utilities 59.1% 58.0%
Telecommunications 21.2% 23.9%
Regional Bells 7.1% 6.9%
Natural gas utilities 7.5% 6.9%
Telephone 1.3% 0.8%
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
Over the past year, the greatest contributions to fund performance came
from positions in three west-coast utilities stocks. Edison
International owns California's second-largest electric utility,
Southern California Edison, which suffered as a result of the state's
energy crisis. Poor financial performance led to elimination of the
dividend, and the stock price fell precipitously. However, due to a
rescue plan approved by the Supreme Court of California and a more
favorable regulatory situation, the company's earnings have improved
dramatically and the dividend has been reinstated. PG&E, California's
largest electric utility, benefited from a similar rescue plan and has
also prospered due to refinancing and restructuring of its balance
sheet. It recently announced plans to reinstate dividends in early 2005.
Sierra Pacific Resources, another key contributor, is a smaller company
serving Nevada and parts of northern California, and one of the
fastest-growing electric utilities listed on the New York Stock
Exchange. The fund also benefited from the strong performance of Entergy
and Equitable Resources, a gas utility.
However, there were electric utilities that detracted from performance
as well. In retrospect, we sold the fund's position in TXU too early and
should have established a larger position in Duke Energy, as both
strengthened considerably during the period. We had no exposure to
Reliant Resources, another strong performer. Also, Dominion Resources
and FPL Group have been good investments for the fund in the past but
their results this year were not as strong, in the latter case, due to
four very destructive hurricanes that struck its Florida service
territory.
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TOP HOLDINGS
(Percent of fund's net assets as of 10/31/04)
1 Vodafone Group PLC (5.5%)
(United Kingdom)
Telecommunications
2 PG&E Corp. (5.4%)
Electric utilities
3 Entergy Corp. (5.3%)
Electric utilities
4 Exelon Corp. (4.8%)
Electric utilities
5 Dominion Resources, Inc. (4.7%)
Electric utilities
6 Edison International (3.5%)
Electric utilities
7 FPL Group, Inc. (3.2%)
Electric utilities
8 Sierra Pacific Resources (3.0%)
Electric utilities
9 Verizon Communications, Inc. (3.0%)
Regional Bells
10 PPL Corp. (2.3%)
Electric utilities
Footnote reads:
The fund's holdings will change over time.
From the telecommunications sector, one of the top contributors to fund
performance was France Telecom, which benefited from continued cost
cutting and strong mobile performance. Another key contributor, Telus
Corporation (Canada) reported increased profits and raised its dividend.
One major detractor from performance was CenturyTel, which indicated
lower earnings expectations in January 2004 and subsequently experienced
a strong selloff. For much of the year, the stock has performed in line
with other telecommunications companies but its price has not fully
recovered. Nippon Telegraph & Telephone and NTT DoCoMo also had a
negative impact on performance during 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.
OF SPECIAL INTEREST
DIVIDEND INCREASED IN JUNE
During the fiscal year, several utilities stocks in the portfolio
increased or reinstated their dividends, increasing the fund's current
income and prompting an increase in the quarterly dividend. The dividend
for class A shares was increased from $0.0370 to $0.048 in June. Other
share classes experienced comparable increases.
The fund's management team
Your fund is managed by the members of the Putnam Global Equity Research
Team.
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 that the move toward deregulation and diversification in the
utilities industries has run its course. Looking forward, a handful of
large companies, such as Entergy and Exelon, may continue to expand
outside of the regulated service territories, but we believe the best
investment opportunities will lie with companies that have refocused on
their core businesses. In addition to maintaining our current focus on
such companies, we seek to target those that are poised to benefit from
increased investment, where incentives are in place to help them secure
needed capital, and whose stock prices don't fully reflect this
favorable situation.
Because telecommunications has been less regulated than the electric
utilities industry and has been subject to overinvestment in the past,
we do not consider it as healthy as the electric utilities industry and
are maintaining a close-to-benchmark allocation. Nevertheless, we are
seeing many attractively valued securities in this sector around the
world and will continue to investigate the opportunities they offer.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. The fund may invest
a portion of its assets in small and/or midsize companies. Such
investments increase the risk of greater price fluctuations. The fund
concentrates its investments in one region or in a limited number of
sectors and involves more risk than a fund that invests more broadly.
Mutual funds that invest in bonds are subject to certain risks including
interest-rate risk, credit risk, and inflation risk. As interest rates
rise, the prices of bonds fall. Long-term bonds are more exposed to
interest-rate risk than short-term bonds. Unlike bonds, bond funds have
ongoing fees and expenses.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended October 31, 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 10/31/04
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Class A Class B Class C Class M Class R
(inception date) (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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1 year 21.18% 14.23% 20.21% 15.21% 20.27% 19.27% 20.58% 16.39% 20.92%
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5 years -6.39 -11.79 -9.81 -11.17 -9.81 -9.81 -8.64 -11.84 -7.52
Annual average -1.31 -2.48 -2.04 -2.34 -2.04 -2.04 -1.79 -2.49 -1.55
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10 years 108.04 96.13 93.14 93.14 93.08 93.08 98.22 91.27 103.04
Annual average 7.60 6.97 6.80 6.80 6.80 6.80 7.08 6.70 7.34
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Annual average
(life of fund) 7.76 7.30 6.96 6.96 6.96 6.96 7.23 6.96 7.49
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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% short-term trading fee may be applied to shares exchanged or sold
within 5 days of purchase.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/04
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Lipper Utility
S&P Utilities Funds category
Index average*
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1 year 24.11% 22.78%
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5 years 4.98 1.54
Annual average 0.98 0.00
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10 years 106.61 135.56
Annual average 7.53 8.85
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Annual average
(life of fund) 7.65 9.03
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 10/31/04, there were 85,
63, and 36 funds, respectively, in this Lipper category.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 10/31/94 to 10/31/04
Fund's class A S&P Utilities
Date shares at POP Index
10/31/94 9,475 10,000
10/31/95 11,439 12,516
10/31/96 13,335 13,964
10/31/97 15,889 15,253
10/31/98 19,235 19,372
10/31/99 21,060 19,681
10/31/00 22,963 26,740
10/31/01 18,279 20,719
10/31/02 13,210 13,185
10/31/03 16,270 16,647
10/31/04 $19,613 $20,661
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class C
shares would have been valued at $19,314 and $19,308, respectively, and
no contingent deferred sales charges would apply. A $10,000 investment
in the fund's class M shares would have been valued at $19,822 ($19,127
at public offering price). A $10,000 investment in the fund's class R
shares would have been valued at $20,304. See first page of performance
section for performance calculation method.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/04
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Class A Class B Class C Class M Class R
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Distributions (number) 4 4 4 4 4
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Income $0.170 $0.101 $0.106 $0.125 $0.161
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Capital gains -- -- -- -- --
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Total $0.170 $0.101 $0.106 $0.125 $0.161
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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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10/31/04 9.58 10.11+ 9.53 9.53 9.57 9.92 9.57
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Current return
(end of period)
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Current dividend rate 1 2.00% 1.90% 1.26% 1.30% 1.55% 1.49% 2.09%
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Current 30-day
SEC yield 2 1.94 1.83 1.20 1.21 1.45 1.40 1.69
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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.
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TOTAL RETURN FOR PERIODS ENDED 9/30/04 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M Class R
(inception date) (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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1 year 18.70% 11.91% 17.87% 12.87% 17.94% 16.94% 18.25% 14.06% 18.58%
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5 years -6.89 -12.25 -10.33 -11.68 -10.28 -10.28 -9.16 -12.32 -7.95
Annual average -1.42 -2.58 -2.16 -2.45 -2.15 -2.15 -1.90 -2.60 -1.64
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10 years 101.33 89.74 86.88 86.88 86.78 86.78 92.03 85.25 96.47
Annual average 7.25 6.61 6.45 6.45 6.45 6.45 6.74 6.36 6.99
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Annual average
(life of fund) 7.50 7.04 6.70 6.70 6.70 6.70 6.98 6.70 7.24
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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 May 1, 2004, to
October 31, 2004. It also shows how much a $1,000 investment would be
worth at the close of the period, assuming actual returns and expenses.
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 10/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $6.65 $10.62 $10.62 $9.29 $7.97
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Ending value (after expenses) $1,115.60 $1,111.80 $1,112.00 $1,113.00 $1,114.20
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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
10/31/04. 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 October
31, 2004, use the calculation method below. To find the value of your
investment on May 1, 2004, go to www.putnaminvestments.com and log on to
your account. Click on the "Transaction History" tab in your Daily
Statement and enter 05/01/2004 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 5/1/04 [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 $6.65 (see table above) = $66.50
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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 10/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $6.34 $10.13 $10.13 $8.87 $7.61
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Ending value (after expenses) $1,018.85 $1,015.08 $1,015.08 $1,016.34 $1,017.60
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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
10/31/04. 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+ 1.25% 2.00% 2.00% 1.75% 1.50%
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Average annualized expense
ratio for Lipper peer group++ 1.36% 2.11% 2.11% 1.86% 1.61%
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+ For the fund's most recent fiscal half year; may differ from expense
ratios based on one-year data in the financial highlights.
++ Average of the expenses of front-end load funds viewed by Lipper as
having the same investment classification or objective as the fund, as
of 9/30/04, calculated in accordance with Lipper's standard reporting
methodology for comparing expenses within a given universe (excluding
12b-1 fees and without giving effect to any expense offset and
brokerage service arrangements that may reduce fund expenses). To
facilitate comparison, Putnam has adjusted this average to reflect the
12b-1 fees carried by each class 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.
Understanding your fund's portfolio turnover
Putnam funds are actively managed by teams of experts who buy and sell
securities based on intensive analysis of companies, industries,
economies, and markets. Portfolio turnover is a measure of how often a
fund's managers buy and sell securities for your fund. A portfolio
turnover of 100%, for example, means that the managers sold and replaced
securities valued at 100% of a fund's assets within a one-year period.
Funds with high turnover may be more likely to generate capital gains
and dividends that must be distributed to shareholders as taxable
income. High turnover may also cause a fund to pay more brokerage
commissions and other transaction costs, which may detract from
performance.
Funds that invest in bonds may have higher turnover than funds that
invest only in stocks. Short-term bond funds tend to have higher
turnover than longer-term bond funds, because shorter-term bonds will
mature or be sold more frequently than longer-term bonds. You can use
the table below to compare your fund's turnover with the average
turnover for funds in its Lipper category.
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TURNOVER COMPARISONS
percentage of holdings that change every year
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2004 2003 2002 2001 2000
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Putnam Utilities Growth
and Income Fund 30% 40% 45% 92% 29%
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Lipper Utility Funds
category average 210% 252% 244% 252% 70%
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Turnover data for the fund is calculated based on the fund's
fiscal-year period, which ends on October 31. Turnover data for the
fund's Lipper category is calculated based on the average of the
turnover of each fund in the category for its fiscal year ended during
the indicated year. Fiscal years vary across funds in the Lipper
category, which may limit the comparability of the fund's portfolio
turnover rate to the Lipper average. Comparative data for 2004 is
based on information available as of 9/30/04.
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 1.83
U.S. stock
fund average 3.57
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 September 30, 2004. 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. NAV
is calculated by dividing the net assets of each class of shares by the
number of outstanding shares in the class.
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 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.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of
Putnam Utilities Growth and Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam
Utilities Growth and Income Fund (the "fund") at October 31, 2004, and
the results of its operations, the changes in its net assets and the
financial highlights for each of the periods indicated, in conformity
with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at October 31, 2004, by correspondence
with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 9, 2004
The fund's portfolio
October 31, 2004
Common stocks (90.3%) (a)
Number of shares Value
Electric Utilities (54.7%)
- -------------------------------------------------------------------------------
203,636 Alliant Energy Corp. $5,371,918
181,620 Ameren Corp. 8,717,760
165,112 American Electric Power Co., Inc.
(S) 5,437,138
289,700 Aquila, Inc. (NON) 918,349
328,217 CMS Energy Corp. (NON) 3,072,111
137,536 Consolidated Edison, Inc. (S) 5,975,939
400,297 Dominion Resources, Inc. (S) 25,747,103
144,139 DTE Energy Co. 6,156,177
633,189 Edison International 19,312,265
12,086 Electrabel SA (Belgium) 4,504,050
650,403 Electricidade de Portugal SA
(Portugal) 1,919,214
145,728 Energy East Corp. 3,672,346
444,187 Entergy Corp. 29,032,062
653,036 Exelon Corp. 25,873,286
155,195 FirstEnergy Corp. 6,414,209
253,007 FPL Group, Inc. 17,432,182
118,559 Great Plains Energy, Inc. (S) 3,377,746
47,400 Hawaiian Electric Industries, Inc. 1,329,096
82,193 Iberdrola SA (Spain) 1,793,928
95,730 Korea Electric Power Corp. (South
Korea) 1,980,473
734,600 National Thermal Power 144A (India)
(NON) 1,004,526
101,333 Northeast Utilities 1,958,767
21,600 NSTAR 1,068,552
910,404 PG&E Corp. (NON) (S) 29,169,344
200,162 Pinnacle West Capital Corp. 8,530,904
47,547 PNM Resources, Inc. (S) 1,106,894
237,300 PPL Corp. 12,339,600
194,845 Progress Energy, Inc. (S) 8,047,099
147,511 Public Service Enterprise Group,
Inc. (S) 6,282,493
90,797 Puget Energy, Inc. 2,111,938
121,233 SCANA Corp. 4,497,744
58,000 Scottish Power PLC ADR (United
Kingdom) 1,878,040
1,696,771 Sierra Pacific Resources (NON) (S) 16,289,002
255,262 Southern Co. (The) 8,063,727
216,794 Teco Energy, Inc. (S) 3,035,116
50,184 Westar Energy, Inc. 1,051,355
188,000 Wisconsin Energy Corp. 6,136,320
29,700 WPS Resources Corp. 1,410,750
313,845 XCEL Energy, Inc. (S) 5,366,750
--------------
297,386,273
Natural Gas Utilities (6.7%)
- -------------------------------------------------------------------------------
53,500 Atmos Energy Corp. 1,380,835
62,013 Energen Corp. 3,335,059
110,603 Equitable Resources, Inc. 6,116,346
179,250 MDU Resources Group, Inc. 4,597,763
49,344 National Fuel Gas Co. (S) 1,382,619
205,690 NiSource, Inc. 4,412,051
46,280 ONEOK, Inc. (S) 1,241,230
63,032 Questar Corp. 3,025,536
188,038 Sempra Energy 6,306,795
118,820 Southern Union Co. (NON) (S) 2,610,475
83,698 Vectren Corp. (S) 2,165,267
--------------
36,573,976
Power Producers (0.7%)
- -------------------------------------------------------------------------------
1,223,693 International Power PLC (United
Kingdom) (NON) 3,603,899
Regional Bells (6.3%)
- -------------------------------------------------------------------------------
247,444 BellSouth Corp. 6,599,331
464,611 SBC Communications, Inc. (SEG) 11,736,074
413,444 Verizon Communications, Inc. 16,165,660
--------------
34,501,065
Telecommunications (20.9%)
- -------------------------------------------------------------------------------
42,000 ALLTEL Corp. 2,307,060
36,900 American Tower Corp. Class A (NON) 634,311
62,047 CenturyTel, Inc. 1,991,088
5,022,000 China Telecom Corp., Ltd. (China) 1,613,152
488,479 Deutsche Telekom AG (Germany) (NON) 9,344,298
63,300 France Telecom SA 144A (France) 1,806,673
248,832 France Telecom SA (France) 7,102,023
86,160 Hellenic Telecommunication
Organization SA (Greece) 1,330,385
997,000 Hutchinson Telecommunications
International, Ltd. (Cayman
Islands) (NON) 685,342
310,816 Koninklijke (Royal) KPN NV
(Netherlands) 2,478,699
270,006 Nextel Communications, Inc. Class A
(NON) (S) 7,152,459
1,137 Nippon Telegraph & Telephone Corp.
(Japan) 4,819,158
1,796 NTT DoCoMo, Inc. (Japan) 3,163,342
37,880 Portugal Telecom SGPS SA ADR
(Portugal) 428,802
89,070 SK Telecom Co., Ltd. ADR (South
Korea) (S) 1,757,351
278,600 Sprint Corp. (FON Group) 5,836,670
695,000 StarHub Ltd. (Singapore) (NON) 379,873
18,734 TDC A/S 144A (Denmark) 691,250
567,830 Telecom Corp. of New Zealand, Ltd.
(New Zealand) 2,240,716
3,069,513 Telecom Italia SpA (Italy) 10,189,736
632,437 Telefonica SA (Spain) 10,408,891
123,367 Telekom Austria AG (Austria) 1,871,942
234,822 Telus Corp. (Canada) 5,333,800
11,762,612 Vodafone Group PLC (United Kingdom) 30,062,643
--------------
113,629,664
Telephone (0.1%)
- -------------------------------------------------------------------------------
20,829 Belgacom SA (Belgium) (NON) 762,981
Utilities & Power (0.2%)
- -------------------------------------------------------------------------------
95,600 Southwest Water Co. 1,228,938
Water Utilities (0.7%)
- -------------------------------------------------------------------------------
165,254 Aqua America, Inc. 3,612,452
--------------
Total Common stocks
(cost $400,285,854) $491,299,248
Corporate bonds and notes (7.6%) (a)
Principal amount Value
Electric Utilities (3.3%)
- -------------------------------------------------------------------------------
$810,000 AEP Texas Central Co. sr. notes
Ser. D, 5 1/2s, 2013 $851,197
165,000 AEP Texas North Co. sr. notes
Ser. B, 5 1/2s, 2013 172,852
510,000 Arizona Public Services Co. notes
6 1/2s, 2012 570,366
50,000 CenterPoint Energy Houston Electric
LLC general ref. mtge. Ser. M2, 5 3/4s, 2014 53,423
95,000 Cleveland Electric Illuminating Co.
(The) sec. notes Ser. D, 7.43s,
2009 108,742
430,000 Connecticut Light & Power Co. 1st
mtge. Ser. D, 7 7/8s, 2024 552,921
585,000 Consumers Energy Co. 1st mtge.
Ser. B, 5 3/8s, 2013 605,700
50,000 Dayton Power & Light Co. (The) 144A
1st mtge. 5 1/8s, 2013 51,044
180,000 Detroit Edison Co. sec. notes 5.2s,
2012 188,596
1,155,000 Dominion Resources, Inc. sr. notes
8 1/8s, 2010 1,374,875
650,000 Duke Capital Corp. sr. notes Ser. A,
6 1/4s, 2005 665,491
275,000 Duquesne Light Co. 1st mtge. Ser. O,
6.7s, 2012 310,458
525,000 Entergy Arkansas Inc. 1st mtge.
5.4s, 2018 520,647
860,000 Exelon Generation Co., LLC sr. notes
6.95s, 2011 979,417
660,000 FirstEnergy Corp. notes Ser. B,
6.45s, 2011 723,146
645,000 Florida Power & Light Co. 1st mtge.
5.95s, 2033 691,143
320,000 Florida Power & Light Co. 1st mtge.
5 5/8s, 2034 326,959
465,000 Florida Power Corp. 1st mtge. 5.9s,
2033 478,284
155,000 Indianapolis Power & Light 144A 1st
mtge. 6.3s, 2013 168,116
100,000 Kansas Gas & Electric 1st mtge.
6.2s, 2006 103,882
975,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 1,235,813
195,000 Monongahela Power Co. 1st mtge. 5s,
2006 200,196
105,000 Nevada Power Co. 2nd mtge. 9s, 2013 122,325
140,000 New York State Electric & Gas Corp.
bonds 5 3/4s, 2023 139,591
740,000 Niagara Mohawk Power Corp. sr. notes
Ser. G, 7 3/4s, 2008 844,113
10,000 NiSource Finance Corp. company
guaranty 7 7/8s, 2010 11,870
390,000 Oncor Electric Delivery Co. sec.
notes 7 1/4s, 2033 468,318
355,000 Oncor Electric Delivery Co. sec.
notes 6 3/8s, 2012 393,875
105,000 Pacific Gas & Electric Co. 1st mtge.
6.05s, 2034 107,980
845,000 Pacific Gas & Electric Co. 1st mtge.
4.8s, 2014 846,008
70,000 PacifiCorp Sinking Fund 1st mtge.
5.45s, 2013 74,137
470,000 Pepco Holdings, Inc. notes 5 1/2s,
2007 493,804
135,000 Potomac Edison Co. 1st mtge. 8s,
2024 139,383
191,313 Power Receivable Finance LLC 144A
sr. notes 6.29s, 2012 201,355
10,000 PP&L Capital Funding, Inc. company
guaranty Ser. D, 8 3/8s, 2007 11,187
655,000 Progress Energy, Inc. sr. notes
6.05s, 2007 694,350
50,000 Public Service Company of New Mexico
sr. notes 4.4s, 2008 50,579
240,000 Public Service Electric & Gas Co.
1st mtge. FRN 6 3/8s, 2008 260,536
610,000 Public Service Electric & Gas Co.
secd. notes 5s, 2014 621,827
248,000 Public Services Co. of Colorado sr.
notes Ser. A, 6 7/8s, 2009 278,097
185,000 Rochester Gas & Electric notes
6 3/8s, 2033 200,454
55,000 Southern California Edison Co. 1st
mtge. 6s, 2034 58,099
120,000 Southern California Edison Co. 1st
mtge. 5s, 2014 122,935
275,000 Southern Power Co. sr. notes Ser. D,
4 7/8s, 2015 270,838
260,000 Tampa Electric Co. notes 6 7/8s,
2012 293,549
225,000 Western Resources, Inc. 1st mtge.
7 7/8s, 2007 249,125
195,000 Wisconsin Electric Power notes
4 1/2s, 2013 194,737
--------------
18,082,340
Natural Gas Utilities (0.2%)
- -------------------------------------------------------------------------------
70,000 Atmos Energy Corp. notes 4.95s, 2014 69,949
95,000 CenterPoint Energy Resources Corp.
debs. 8.9s, 2006 105,767
120,000 CenterPoint Energy Resources Corp.
notes 7 3/4s, 2011 140,198
170,000 Duke Energy Field Services, LLC
notes 7 7/8s, 2010 201,062
260,000 National Fuel Gas Co. notes 5 1/4s,
2013 267,817
240,000 Texas Eastern Transmission LP sr.
notes 7s, 2032 276,141
--------------
1,060,934
Oil & Gas (0.2%)
- -------------------------------------------------------------------------------
240,000 Canadian Natural Resources, Ltd. sr.
notes 5.45s, 2012 (Canada) 253,176
15,000 Kerr-McGee Corp. company guaranty
6 7/8s, 2011 17,038
430,000 MidAmerican Energy Holdings Co. sr.
notes 4 5/8s, 2007 440,538
115,000 Motiva Enterprises, LLC 144A sr.
notes 5.2s, 2012 118,867
--------------
829,619
Regional Bells (0.6%)
- -------------------------------------------------------------------------------
250,000 Ameritech Capital Funding company
guaranty 6 1/4s, 2009 270,000
390,000 Bellsouth Capital Funding notes
7 3/4s, 2010 456,243
25,000 Michigan Bell Telephone Co. debs.
7.85s, 2022 29,871
360,000 SBC Communications, Inc. notes 5.1s,
2014 362,504
360,000 SBC Communications, Inc. notes
4 1/8s, 2009 361,955
1,765,000 Verizon New England, Inc. sr. notes
6 1/2s, 2011 1,962,722
--------------
3,443,295
Telecommunications (2.6%)
- -------------------------------------------------------------------------------
275,000 AT&T Wireless Services, Inc. notes
8 1/8s, 2012 335,494
160,000 AT&T Wireless Services, Inc. sr.
notes 8 3/4s, 2031 214,803
1,740,000 AT&T Wireless Services, Inc. sr.
notes 7 7/8s, 2011 2,072,874
840,000 British Telecommunications PLC notes
8 3/8s, 2010 (United Kingdom) 1,017,615
410,000 Deutsche Telekom International
Finance BV bonds 8 1/2s, 2010
(Netherlands) 493,951
1,625,000 Deutsche Telekom International
Finance BV company guaranty
8 3/4s, 2030 (Netherlands) 2,128,636
195,000 Deutsche Telekom International
Finance BV notes 5 1/4s, 2013
(Netherlands) 201,613
490,000 France Telecom notes 9 1/4s, 2031
(France) 661,470
995,000 France Telecom notes 7 3/4s, 2011
(France) 1,195,020
105,000 Koninklijke (Royal) KPN NV sr.
unsub. notes 8 3/8s, 2030
(Netherlands) 136,813
380,000 Koninklijke (Royal) KPN NV sr.
unsub. notes 8s, 2010 (Netherlands) 454,762
1,805,000 Sprint Capital Corp. company
guaranty 7 5/8s, 2011 2,111,050
1,110,000 Sprint Capital Corp. company
guaranty 6 7/8s, 2028 1,192,052
45,000 Sprint Capital Corp. notes 8 3/8s,
2012 55,228
150,000 Telecom Italia Capital company
guaranty 6 3/8s, 2033 (Luxembourg) 155,681
70,000 Telecom Italia Capital SA company
guaranty 5 1/4s, 2013 (Luxembourg) 71,672
230,000 Telecom Italia Capital SA company
guaranty 4s, 2008 (Luxembourg) 231,531
105,000 United States Cellular Corp. notes
6.7s, 2033 106,546
75,000 Vodafone Group PLC notes 7 7/8s,
2030 (United Kingdom) 96,396
1,085,000 Vodafone Group PLC notes 7 3/4s,
2010 (United Kingdom) 1,276,610
--------------
14,209,817
Telephone (0.7%)
- -------------------------------------------------------------------------------
2,305,000 New England Telephone & Telegraph
Co. debs. 7 7/8s, 2029 2,794,278
950,000 Telefonica Europe BV company
guaranty 7 3/4s, 2010 (Netherlands) 1,126,125
--------------
3,920,403
--------------
Total Corporate bonds and notes
(cost $38,975,049) $41,546,408
Warrants (0.4%) (a) (NON) Expiration
Number of warrants date Value
- -------------------------------------------------------------------------------
295,931 Hanaro Telecom 144A (South Korea) 9/15/05 $847,594
7,677 SK Telecom 144A (South Korea) 7/15/05 1,204,034
--------------
Total Warrants (cost $1,934,497) $2,051,628
Short-term investments (16.4%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$78,703,353 Short-term investments held as collateral
for loaned securities with yields ranging
from 1.75% to 2.03% and due dates ranging
from November 1, 2004 to December 6, 2004 (d) $78,677,098
10,452,736 Putnam Prime Money Market Fund (e) 10,452,736
--------------
Total Short-term investments
(cost $89,129,834) $89,129,834
- -------------------------------------------------------------------------------
Total Investments
(cost $530,325,234) $624,027,118
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $544,251,921.
(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 October
31, 2004.
(S) Securities on loan, in part or in entirety, at October 31, 2004.
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in
Putnam Prime Money Market Fund.
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 at October 31, 2004.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at October 31, 2004: (as
a percentage of Market Value)
Belgium 1.0%
Canada 1.0
France 2.0
Germany 1.7
Italy 1.9
Japan 1.5
Netherlands 1.3
South Korea 1.1
Spain 2.2
United Kingdom 7.0
United States 77.1
Other 2.2
Total 100.0%
Forward currency contracts to buy at October 31, 2004
(aggregate face value $8,788,172)
Aggregate Delivery Unrealized
Value face value date appreciation
- ------------------------------------------------------------------------------------------------------
Australian Dollar $197,825 $184,020 12/15/04 $13,805
Danish Krone 334,365 317,602 12/15/04 16,763
Euro 458,095 435,284 12/15/04 22,811
Hong Kong Dollar 2,354,405 2,349,072 12/15/04 5,333
Japanese Yen 1,505,899 1,457,897 12/15/04 48,002
Norwegian Krone 673,020 620,366 12/15/04 52,654
Swedish Krona 2,159,502 2,024,095 12/15/04 135,407
Swiss Franc 1,489,854 1,399,836 12/15/04 90,018
- ------------------------------------------------------------------------------------------------------
$384,793
- ------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at October 31, 2004
(aggregate face value $26,527,076)
Aggregate Delivery Unrealized
Value face value date depreciation
- ------------------------------------------------------------------------------------------------------
British Pound $6,257,011 $6,114,118 12/15/04 $(142,893)
Canadian Dollar 4,245,198 3,955,939 12/15/04 (289,259)
Euro 15,201,713 14,481,783 12/15/04 (719,930)
Mexican Peso 25,291 25,175 12/15/04 (116)
New Zealand Dollar 2,060,954 1,950,061 12/15/04 (110,893)
- ------------------------------------------------------------------------------------------------------
$(1,263,091)
- ------------------------------------------------------------------------------------------------------
Futures contracts outstanding at October 31, 2004
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Bond (Long) $910,750 $877,209 Dec-04 $33,541
U.S. Treasury Note
5 yr (Short) 4,455,000 4,426,693 Dec-04 (28,307)
U.S. Treasury Note
10 yr (Long) 567,813 557,401 Dec-04 10,412
- ------------------------------------------------------------------------------------------------------
$15,646
- ------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at October 31, 2004
Gross
Notional unrealized
amount appreciation
- ------------------------------------------------------------------------------------------------------
Agreement with Merrill Lynch International effective July 1, 2004,
maturing on July 1, 2007, to receive a premium equal to
1.4413% times the notional amount. Upon a credit default event
of Consolidated Natural Gas, 6.625%, December 12, 2008, the
fund makes a payment of the proportional notional amount times
the difference between the par value and the then-market value
of Consolidated Natural Gas, 6.625%, December 12, 2008. $135,000 $894
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
October 31, 2004
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value, including $76,145,548 of securities
on loan (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $519,872,498) $613,574,382
- -------------------------------------------------------------------------------
Affiliated issuers (identified cost $10,452,736) (Note 5) 10,452,736
- -------------------------------------------------------------------------------
Cash 3,760
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 1,922,674
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 264,608
- -------------------------------------------------------------------------------
Receivable for securities sold 2,819,157
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 384,793
- -------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 1,639
- -------------------------------------------------------------------------------
Total assets 629,423,749
Liabilities
- -------------------------------------------------------------------------------
Payable for variation margin (Note 1) 1,375
- -------------------------------------------------------------------------------
Payable for securities purchased 2,363,129
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,130,774
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 5) 925,682
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 257,271
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 132,934
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,537
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 176,654
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 1,263,091
- -------------------------------------------------------------------------------
Credit default contracts outstanding, at value (upfront
payment received $1,946) (Note 1) 1,052
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 78,677,098
- -------------------------------------------------------------------------------
Other accrued expenses 240,231
- -------------------------------------------------------------------------------
Total liabilities 85,171,828
- -------------------------------------------------------------------------------
Net assets $544,251,921
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $638,557,451
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 900,395
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (188,044,522)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 92,838,597
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $544,251,921
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($444,697,544 divided by 46,409,970 shares) $9.58
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.75 of $9.58)* $10.11
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($92,191,375 divided by 9,676,178 shares)** $9.53
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($3,655,110 divided by 383,567 shares)** $9.53
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,613,362 divided by 377,624 shares) $9.57
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $9.57)* $9.92
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($94,530 divided by 9,876 shares) $9.57
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Year ended October 31, 2004
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $373,159) $15,224,426
- -------------------------------------------------------------------------------
Interest (including interest income of $57,022 from
investments in affiliated issuers) (Note 5) 2,699,781
- -------------------------------------------------------------------------------
Securities lending 130,882
- -------------------------------------------------------------------------------
Total investment income 18,055,089
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,748,424
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 1,101,964
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 308,960
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 26,391
- -------------------------------------------------------------------------------
Administrative services (Note 2) 14,441
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,088,779
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 989,656
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 38,845
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 26,843
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 94
- -------------------------------------------------------------------------------
Other 392,500
- -------------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 6) 33,299
- -------------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 6) (33,299)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 5) (5,204)
- -------------------------------------------------------------------------------
Total expenses 7,731,693
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (311,240)
- -------------------------------------------------------------------------------
Net expenses 7,420,453
- -------------------------------------------------------------------------------
Net investment income 10,634,636
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 35,271,766
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (7,095)
- -------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,007,822)
- -------------------------------------------------------------------------------
Net realized gain on credit default contracts (Notes 1) 33,416
- -------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (382,332)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts and credit default contracts during the year 58,865,710
- -------------------------------------------------------------------------------
Net gain on investments 92,773,643
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $103,408,279
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended October 31
Increase (decrease) in net assets 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $10,634,636 $14,790,631
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 34,290,265 (55,427,923)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 58,483,378 162,054,504
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 103,408,279 121,417,212
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (8,329,555) (11,117,606)
- -------------------------------------------------------------------------------
Class B (1,115,824) (1,810,630)
- -------------------------------------------------------------------------------
Class C (48,439) (63,431)
- -------------------------------------------------------------------------------
Class M (50,690) (88,044)
- -------------------------------------------------------------------------------
Class R (499) --
- -------------------------------------------------------------------------------
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) (147,085,154) (94,298,032)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (53,221,882) 13,129,051
- -------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------
Beginning of year 597,473,803 584,344,752
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $900,395 and $545,810,
respectively) $544,251,921 $597,473,803
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -----------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.06 $6.71 $9.56 $13.86 $14.06
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (a) .18 (d) .19 .23 .25 .36
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.51 1.34 (2.84) (2.73) .75
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.69 1.53 (2.61) (2.48) 1.11
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net
investment income (.17) (.17) (.22) (.25) (.38)
- -----------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.53) (.93)
- -----------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.02) (.04) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.18) (.24) (1.82) (1.31)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.58 $8.06 $6.71 $9.56 $13.86
- -----------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 21.18 23.17 (27.73) (20.40) 9.04
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $444,698 $478,304 $469,497 $846,231 $1,128,437
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.28 (d) 1.23 1.12 1.05 1.01
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.11 (d) 2.65 2.68 2.14 2.78
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.95 40.12 44.93 91.91 29.42
- -----------------------------------------------------------------------------------------------------------------------
(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 brokerage service and expense offset arrangements (Note 2).
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during
the period. As a result of such waivers, the expenses of the fund for the period ended October 31, 2004 reflect a
reduction of less than 0.01% of average net assets for class A shares (Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- -----------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.02 $6.67 $9.51 $13.78 $13.98
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (a) .12 (d) .14 .16 .16 .26
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.49 1.34 (2.82) (2.70) .74
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.61 1.48 (2.66) (2.54) 1.00
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.12) (.16) (.17) (.27)
- -----------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.53) (.93)
- -----------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.02) (.03) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.13) (.18) (1.73) (1.20)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.53 $8.02 $6.67 $9.51 $13.78
- -----------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.21 22.40 (28.35) (20.93) 8.19
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $92,191 $111,163 $107,158 $213,564 $335,411
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 2.03 (d) 1.98 1.87 1.80 1.76
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.37 (d) 1.89 1.92 1.39 2.06
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.95 40.12 44.93 91.91 29.42
- -----------------------------------------------------------------------------------------------------------------------
(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 brokerage service and expense offset arrangements (Note 2).
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during
the period. As a result of such waivers, the expenses of the fund for the period ended October 31, 2004 reflect
a reduction of less than 0.01% of average net assets for class B shares (Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- -----------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.02 $6.67 $9.51 $13.79 $14.04
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (a) .12 (d) .14 .16 .16 .25
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.50 1.34 (2.82) (2.70) .74
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.62 1.48 (2.66) (2.54) .99
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net
investment income (.11) (.12) (.16) (.18) (.31)
- -----------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.53) (.93)
- -----------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.02) (.03) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.13) (.18) (1.74) (1.24)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.53 $8.02 $6.67 $9.51 $13.79
- -----------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.27 22.45 (28.37) (20.93) 8.12
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,655 $3,699 $3,332 $6,028 $4,734
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 2.03 (d) 1.98 1.87 1.80 1.76
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.36 (d) 1.87 1.93 1.38 1.94
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.95 40.12 44.93 91.91 29.42
- -----------------------------------------------------------------------------------------------------------------------
(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 brokerage service and expense offset arrangements (Note 2).
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund
during the period. As a result of such waivers, the expenses of the fund for the period ended October 31, 2004
reflect a reduction of less than 0.01% of average net assets for class C shares (Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- -----------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.05 $6.70 $9.55 $13.83 $14.03
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (a) .14 (d) .16 .18 .19 .29
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.51 1.34 (2.83) (2.71) .75
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.65 1.50 (2.65) (2.52) 1.04
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net
investment income (.13) (.14) (.18) (.20) (.31)
- -----------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (1.53) (.93)
- -----------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.02) (.03) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.15) (.20) (1.76) (1.24)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.57 $8.05 $6.70 $9.55 $13.83
- -----------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.58 22.61 (28.16) (20.72) 8.49
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,613 $4,307 $4,358 $8,692 $13,320
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.78 (d) 1.73 1.62 1.55 1.51
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.61 (d) 2.16 2.17 1.64 2.28
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.95 40.12 44.93 91.91 29.42
- -----------------------------------------------------------------------------------------------------------------------
(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 brokerage service and expense offset arrangements (Note 2).
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund
during the period. As a result of such waivers, the expenses of the fund for the period ended October 31, 2004
reflect a reduction of less than 0.01% of average net assets for class M shares (Note 5).
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+
Per-share to October 31
operating performance 2004
- --------------------------------------------------------------
Net asset value,
beginning of period $8.20
- --------------------------------------------------------------
Investment operations:
- --------------------------------------------------------------
Net investment income (a) (d) .15
- --------------------------------------------------------------
Net realized and unrealized
gain on investments 1.38
- --------------------------------------------------------------
Total from
investment operations 1.53
- --------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------
From net
investment income (.16)
- --------------------------------------------------------------
Total distributions (.16)
- --------------------------------------------------------------
Net asset value,
end of period $9.57
- --------------------------------------------------------------
Total return at
net asset value (%)(b) 18.86*
- --------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------
Net assets, end of period
(in thousands) $95
- --------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) (d) 1.41*
- --------------------------------------------------------------
Ratio of net investment income to
average net assets (%)(d) 1.71*
- --------------------------------------------------------------
Portfolio turnover (%) 29.95
- --------------------------------------------------------------
+ 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 brokerage service and expense offset
arrangements (Note 2).
(d) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class R shares (Note 5).
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
October 31, 2004
Note 1
Significant accounting policies
Putnam Utilities Growth and Income Fund (the "fund"), a Massachusetts
business trust, 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 concentrates its investments in one sector which
involves more risk than a fund that invests more broadly.
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. The redemption fee is accounted for as an
addition to paid-in-capital.
Investment income, realized and unrealized gains and losses and expenses
of the fund are borne pro-rata based on the relative net assets of each
class to the total net assets of the fund, except that each class bears
expenses unique to that class (including the distribution fees
applicable to such classes). 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) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are 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.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when 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.
F) 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. Risks may exceed amounts recognized on the
statement of assets and liabilities. Forward currency contracts
outstanding at period end, if any, are listed after the fund's
portfolio.
G) 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. If a written call
option is exercised, the premium originally received is recorded as an
addition to sales proceeds. If a written put option is exercised, the
premium originally received is recorded as an addition to the cost of
investments.
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.
H) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront or
periodic 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.
Periodic payments received or paid by the fund are recorded as realized
gains or losses. 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. Risks of loss may exceed amounts
recognized on the statement of assets and liabilities. Credit default
contracts outstanding at period end, if any, are listed after the fund's
portfolio.
I) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the statement of operations. At October 31, 2004, the value of
securities loaned amounted to $76,145,548. The fund received cash
collateral of $78,677,098, which is pooled with collateral of other
Putnam funds into 23 issuers of high grade short-term investments.
J) 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 of 1986 (the "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 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, 2004, the fund had a capital loss carryover of
$186,468,295 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
- -----------------------------------
$134,826,463 October 31, 2010
51,641,832 October 31, 2011
K) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses and both unrealized and realized gains and losses on certain
futures contracts. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the
year ended October 31, 2004, the fund reclassified $735,044 to decrease
undistributed net investment income and $272,778 to decrease
paid-in-capital, with a decrease to accumulated net realized loss of
$1,007,822.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $103,464,639
Unrealized depreciation (11,323,332)
------------
Net unrealized appreciation 92,141,307
Capital loss carryforward (186,468,295)
Cost for federal income
tax purposes $531,885,811
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 waive fees
and reimburse expenses of the fund through October 31, 2005 to the
extent necessary to ensure that the fund's expenses do not exceed the
average expenses of the front-end load funds viewed by Lipper Inc. as
having the same investment classification or objective as the fund.
The expense reimbursement is based on a comparison of the fund's
expenses with the average annualized operating expenses of the funds
in its Lipper peer group for each calendar quarter during the fund's
last fiscal year, excluding 12b-1 fees and without giving effect to
any expense offset and brokerage service arrangements that may reduce
fund expenses. For the year ended October 31, 2004, Putnam Management
did not waive any of its management fee to the fund.
For the period ended October 31, 2004, Putnam Management has assumed
$33,299 of legal, shareholder servicing and communication, audit and
Trustee fees incurred by the fund in connection with certain legal and
regulatory matters. (including those described in Note 6).
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 year ended October 31, 2004,
the fund paid PFTC $1,209,752 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 year ended, October 31, 2004,
the fund's expenses were reduced by $311,240 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee,
of which $1,223, 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 Trustees have terminated the
Pension Plan with respect to any Trustee first elected after 2003.
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 an annual rate 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 year ended October 31, 2004, Putnam Retail Management, acting
as underwriter, received net commissions of $19,045 and $290 from the
sale of class A and class M shares, respectively, and received
$230,256 and $667 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% and 0.65% is assessed on certain
redemptions of class A and class M shares, respectively. For the year
ended October 31, 2004, Putnam Retail Management, acting as
underwriter, received $572 and no monies on class A and class M
redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended October 31, 2004, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $160,885,199 and $311,187,322, respectively. There were no
purchases or sales of U.S. government securities.
Note 4
Capital shares
At October 31, 2004, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended October 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 4,436,675 $39,241,504
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 842,583 7,396,481
- ----------------------------------------------------------------
5,279,258 46,637,985
Shares repurchased (18,192,334) (155,899,215)
- ----------------------------------------------------------------
Net decrease (12,913,076) $(109,261,230)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 5,278,942 $38,806,411
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,440,671 10,520,396
- ----------------------------------------------------------------
6,719,613 49,326,807
Shares repurchased (17,417,636) (127,026,184)
- ----------------------------------------------------------------
Net decrease (10,698,023) $(77,699,377)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 1,323,158 $11,647,942
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 111,883 976,625
- ----------------------------------------------------------------
1,435,041 12,624,567
Shares repurchased (5,628,173) (48,540,669)
- ----------------------------------------------------------------
Net decrease (4,193,132) $(35,916,102)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 2,651,899 $19,667,659
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 236,911 1,708,515
- ----------------------------------------------------------------
2,888,810 21,376,174
Shares repurchased (5,091,519) (36,936,965)
- ----------------------------------------------------------------
Net decrease (2,202,709) $(15,560,791)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 163,950 $1,440,945
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 4,619 40,438
- ----------------------------------------------------------------
168,569 1,481,383
Shares repurchased (246,251) (2,153,798)
- ----------------------------------------------------------------
Net decrease (77,682) $(672,415)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 336,269 $2,535,396
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 5,154 56,002
- ----------------------------------------------------------------
341,423 2,591,398
Shares repurchased (379,438) (2,852,232)
- ----------------------------------------------------------------
Net decrease (38,015) $(260,834)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 76,722 $688,262
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 5,392 47,318
- ----------------------------------------------------------------
82,114 735,580
Shares repurchased (239,526) (2,060,124)
- ----------------------------------------------------------------
Net decrease (157,412) $(1,324,544)
- ----------------------------------------------------------------
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 October 31, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 9,823 $88,651
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 54 494
- ----------------------------------------------------------------
9,877 89,145
Shares repurchased (1) (8)
- ----------------------------------------------------------------
Net increase 9,876 $89,137
- ----------------------------------------------------------------
Note 5
Investment in Putnam
Prime Money Market Fund
The fund invests in Putnam Prime Money Market Fund, an open-end management
investment company managed by Putnam Management. Management fees paid by
the fund are reduced by an amount equal to the management fees paid by
Putnam Prime Money Market Fund with respect to assets invested by the fund
in Putnam Prime Money Market Fund. For the year ended October 31, 2004,
management fees paid were reduced by $5,204 relating to the fund's
investment in Putnam Prime Money Market Fund. Income distributions earned
by the fund are recorded as income in the statement of operations and
totaled $57,022 for the period ended October 31, 2004.
Note 6
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") 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.
The fund may experience increased redemptions as a result of these
matters, which could result in increased transaction costs and operating
expenses.
Putnam Management has negotiated an offer of settlement with the staff of
the SEC, which the staff has agreed to recommend to the Commissioners of
the SEC. The offer of settlement would resolve matters arising out of the
SEC's investigation of Putnam Management's brokerage practices. The
settlement would involve the alleged failure by Putnam Management to
adequately disclose its practices relating to the allocation of brokerage
on portfolio transactions to broker-dealers who sold shares of Putnam
mutual funds. Putnam Management ceased directing brokerage to
broker-dealers in connection with the sale of fund shares as of January 1,
2004. Under the offer of settlement, Putnam Management would pay a civil
penalty in the amount of $40 million and disgorgement in the amount of one
dollar ($1). The total amount of the payment would be paid to certain
Putnam funds, pursuant to a distribution plan to be submitted to the SEC.
The settlement remains subject to final documentation and approval by the
Commissioners of the SEC.
Federal tax information
(Unaudited)
The fund has designated 100% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended October 31, 2004, the fund hereby designates
100%, or the maximum amount allowable, of its net taxable income as
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
Brokerage commissions
(Unaudited)
Brokerage commissions are paid to firms that execute trades on behalf of
your fund. When choosing these firms, Putnam is required by law to seek
the best execution of the trades, taking all relevant factors into
consideration, including expected quality of execution and commission
rate. Listed below are the largest relationships based upon brokerage
commissions for your fund and the other funds in Putnam's Research group
for the year ended October 31, 2004. The other Putnam mutual funds in
this group are Putnam Global Natural Resources Fund, Putnam Health
Sciences Trust, Putnam Research Fund, Putnam VT Health Sciences Fund,
Putnam VT Research Fund, and Putnam VT Utilities Growth and Income Fund.
The top five firms that received brokerage commissions for trades
executed for the Research group are (in descending order) Citigroup,
Merrill Lynch, Goldman Sachs, UBS, and Deutsche Bank. Commissions paid
to these firms together represented approximately 47% of the total
brokerage commissions paid for the year ended October 31, 2004.
Commissions paid to the next 10 firms together represented approximately
34% of the total brokerage commissions paid during the period. These
firms are (in alphabetical order) Bank of America, CSFB, JP Morgan,
Leerink Swann, Lehman, Morgan Stanley, RBC, Sanford Bernstein, SG Cowen,
and Standard & Poor's.
Additional information about brokerage commissions is available on the
Securities and Exchange Commission (SEC) Web site at www.sec.gov. Putnam
funds disclose commissions by firm to the SEC in semiannual filings on
form N-SAR.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
Myra R. Drucker (1/16/48)
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a
member of the Investment Committee of the Kresge Foundation (a
charitable trust). She is also Chair of the New York Stock Exchange
(NYSE) Pension Managers Advisory Committee and a member of the Executive
Committee of the Committee on Investment of Employee Benefit Assets.
Until August 31, 2004, Ms. Drucker was Managing Director and a member of
the Board of Directors of General Motors Asset Management and Chief
Investment Officer of General Motors Trust Bank. Ms. Drucker also served
as a member of the NYSE Corporate Accountability and Listing Standards
Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker
held various executive positions in the investment management industry.
Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company 's pension assets. Ms.
Drucker was also Staff Vice President and Director of Trust Investments
for International Paper (a paper, paper distribution, packaging and
forest products company) and previously served as Manager of Trust
Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in
Literature and Psychology from Sarah Lawrence College and pursued
graduate studies in economics, statistics and portfolio theory at Temple
University.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of Michigan State University Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). He also serves on the board of the Whitehead Institute
for Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company), and, prior to March 2000, he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc. (a private equity firm investing in commercial
real estate).
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited
Partnership (a registered investment adviser involved in institutional
real estate investments). Prior to 1990, he served as Executive Vice
President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the
predecessor company of Cabot Partners) and as a Senior Vice President of
the Beal Companies (a real estate management, investment and development
firm).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company). Mr.
Stephens serves as a Director of TransCanada Pipelines Limited. Until
2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public
utility company), Qwest Communications, and Norske Canada, Inc. (a paper
manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well,
Inc. (a diversified printing company). He served as Chairman of
Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest
products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
Richard B. Worley (11/15/45)
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues)
and is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment
Officer of Morgan Stanley Dean Witter Investment Management and as a
Managing Director of Morgan Stanley, a financial services firm. Mr.
Worley also was the Chairman of Miller Anderson & Sherrerd, an
investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
Charles E. Haldeman, Jr.* (10/29/48)
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr. Haldeman was also a
partner and director of Cooke & Bieler, Inc. (an investment management
firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
George Putnam, III* (8/10/51), Trustee since 1984 and President since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is the Chairman of Putnam Investments and Consultant to Marsh
& McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to November 2004, Mr. Smith was a Director of Marsh &
McLennan Companies, Inc. Prior to May 2000 and November 1999, Mr. Smith
was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of October 31, 2004, there were 110 Putnam Funds. All Trustees other
than Ms. Drucker and Messrs. Worley and Haldeman serve as Trustees of
all Putnam funds. Ms. Drucker and Messrs. Worley and Haldeman currently
serve as Trustees of 82 Putnam funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Haldeman, Putnam, III, and Smith are deemed "interested persons"
by virtue of their positions as officers of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. and as
shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the
President of your fund and each of the other Putnam funds. Mr. Haldeman
is President and Chief Executive Officer of Putnam Investments. Mr.
Smith serves as a Consultant to Marsh & McLennan Companies, Inc. and as
Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer
and Principal Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments.
Prior to July 2001, Partner,
PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance
Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to
2004, Associate, Ropes & Gray LLP; prior to
2000, Law Clerk, Massachusetts Supreme
Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004,
General Counsel, State Street Research &
Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and
Putnam Management. During 2002, Chief
Operating Officer, Atalanta/Sosnoff Management
Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003,
Senior Vice President, United Asset
Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square, Boston, MA 02109.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
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
Richard B. Worley
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
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
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
Charles A. Ruys de Perez
Vice President and
Chief Compliance 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.
AN026-216543 12/04
No Bank Guarantee May Lose Value Not FDIC Insured
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson, Mr. Stephens and Mr. Worley qualify as "audit
committee financial experts" (as such term has been defined by the
Regulations) based on their review of their pertinent experience and
education. Certain other Trustees, although not on the Audit and Pricing
Committee, would also qualify as "audit committee financial experts."
The SEC has stated that the designation or identification of a person as
an audit committee financial expert pursuant to this Item 3 of Form N-CSR
does not impose on such person any duties, obligations or liability that
are greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
October 31, 2004 $57,370* $-- $4,473 $107
October 31, 2003 $50,790 $-- $4,148 $--
* Includes fees of $ 476 billed by the fund's independent auditor
to the fund for audit procedures necessitated by regulatory and
litigation matters. These fees were reimbursed to the fund by
Putnam.
For the fiscal years ended October 31, 2004 and October 31, 2003,
the fund's independent auditors billed aggregate non-audit fees in
the amounts of $119,494 and $106,225 respectively, to the fund,
Putnam Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing services
to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees Fees represent fees billed for services relating to
fund expense processing.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
October 31, 2004 $-- $-- $-- $--
October 31, 2003 $-- $-- $-- $--
Item 5. Audit Committee: Not applicable
- -------------------------
Item 6. Schedule of Investments: Not applicable
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- --------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
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.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: December 29, 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: December 29, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: December 29, 2004