N-CSR 1 pug1.txt PUTNAM UTILITIES GROWTH & INCOME FUND Putnam Utilities Growth and Income Fund Item 1. Report to Stockholders: ------------------------------- 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 [GRAPHIC OMITTED: RULER] [SCALE LOGO OMITTED] From the Trustees [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III] 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 -------------------------------------------------- 1 year 21.18% 14.23% -------------------------------------------------- 5 years -6.39 -11.79 Annual average -1.31 -2.48 -------------------------------------------------- 10 years 108.04 96.13 Annual average 7.60 6.97 -------------------------------------------------- Annual average (life of fund) 7.76 7.30 -------------------------------------------------- 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. ------------------------------------------------------------------------------ MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 10/31/04 ------------------------------------------------------------------------------ Equities ------------------------------------------------------------------------------ S&P Utilities Index (utilities stocks) 24.11% ------------------------------------------------------------------------------ S&P 500 Index (broad stock market) 9.42% ------------------------------------------------------------------------------ Russell 1000 Growth Index (large-company growth stocks) 3.38% ------------------------------------------------------------------------------ Russell 1000 Value Index (large-company value stocks) 15.45% ------------------------------------------------------------------------------ Bonds ------------------------------------------------------------------------------ Lehman Aggregate Bond Index (broad bond market) 5.53% ------------------------------------------------------------------------------ JP Morgan Global High Yield Index (global high-yield corporate bonds) 12.92% ------------------------------------------------------------------------------ Lehman Intermediate Treasury Bond Index (intermediate-maturity U.S. Treasury bonds) 3.26% ------------------------------------------------------------------------------ These indexes provide an overview of performance in different market sectors for the 12 months ended 10/31/04. ------------------------------------------------------------------------------ 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. [GRAPHIC OMITTED: TOP HOLDINGS] 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.
-------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN FOR PERIODS ENDED 10/31/04 -------------------------------------------------------------------------------------------------------------------------- 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) -------------------------------------------------------------------------------------------------------------------------- NAV POP NAV CDSC NAV CDSC NAV POP NAV -------------------------------------------------------------------------------------------------------------------------- 1 year 21.18% 14.23% 20.21% 15.21% 20.27% 19.27% 20.58% 16.39% 20.92% -------------------------------------------------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------------------------------------------------- Annual average (life of fund) 7.76 7.30 6.96 6.96 6.96 6.96 7.23 6.96 7.49 --------------------------------------------------------------------------------------------------------------------------
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. ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/04 ------------------------------------------------------------------------------ Lipper Utility S&P Utilities Funds category Index average* ------------------------------------------------------------------------------ 1 year 24.11% 22.78% ------------------------------------------------------------------------------ 5 years 4.98 1.54 Annual average 0.98 0.00 ------------------------------------------------------------------------------ 10 years 106.61 135.56 Annual average 7.53 8.85 ------------------------------------------------------------------------------ Annual average (life of fund) 7.65 9.03 ------------------------------------------------------------------------------ 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.
-------------------------------------------------------------------------------------------------------- PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/04 -------------------------------------------------------------------------------------------------------- Class A Class B Class C Class M Class R -------------------------------------------------------------------------------------------------------- Distributions (number) 4 4 4 4 4 -------------------------------------------------------------------------------------------------------- Income $0.170 $0.101 $0.106 $0.125 $0.161 -------------------------------------------------------------------------------------------------------- Capital gains -- -- -- -- -- -------------------------------------------------------------------------------------------------------- Total $0.170 $0.101 $0.106 $0.125 $0.161 -------------------------------------------------------------------------------------------------------- Share value: NAV POP NAV NAV NAV POP NAV -------------------------------------------------------------------------------------------------------- 10/31/03 $8.06 $8.55 $8.02 $8.02 $8.05 $8.34 -- -------------------------------------------------------------------------------------------------------- 12/1/03* -- -- -- -- -- -- $8.20 -------------------------------------------------------------------------------------------------------- 10/31/04 9.58 10.11+ 9.53 9.53 9.57 9.92 9.57 -------------------------------------------------------------------------------------------------------- Current return (end of period) -------------------------------------------------------------------------------------------------------- Current dividend rate 1 2.00% 1.90% 1.26% 1.30% 1.55% 1.49% 2.09% -------------------------------------------------------------------------------------------------------- Current 30-day SEC yield 2 1.94 1.83 1.20 1.21 1.45 1.40 1.69 --------------------------------------------------------------------------------------------------------
* 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.
---------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN FOR PERIODS ENDED 9/30/04 (MOST RECENT CALENDAR QUARTER) ---------------------------------------------------------------------------------------------------------------------------------- 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) ---------------------------------------------------------------------------------------------------------------------------------- NAV POP NAV CDSC NAV CDSC NAV POP NAV ---------------------------------------------------------------------------------------------------------------------------------- 1 year 18.70% 11.91% 17.87% 12.87% 17.94% 16.94% 18.25% 14.06% 18.58% ---------------------------------------------------------------------------------------------------------------------------------- 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 ---------------------------------------------------------------------------------------------------------------------------------- 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 ---------------------------------------------------------------------------------------------------------------------------------- Annual average (life of fund) 7.50 7.04 6.70 6.70 6.70 6.70 6.98 6.70 7.24 ----------------------------------------------------------------------------------------------------------------------------------
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 ------------------------------------------------------------------------------------------- Class A Class B Class C Class M Class R ------------------------------------------------------------------------------------------- Expenses paid per $1,000* $6.65 $10.62 $10.62 $9.29 $7.97 ------------------------------------------------------------------------------------------- Ending value (after expenses) $1,115.60 $1,111.80 $1,112.00 $1,113.00 $1,114.20 ------------------------------------------------------------------------------------------- * 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. ----------------------------------------------------------------------------- HOW TO CALCULATE THE EXPENSES YOU PAID ----------------------------------------------------------------------------- Total Value of your Expenses paid expenses investment on 5/1/04 [DIV] $1,000 x per $1,000 = paid ----------------------------------------------------------------------------- Example Based on a $10,000 investment in class A shares of your fund. ----------------------------------------------------------------------------- $10,000 [DIV] $1,000 x $6.65 (see table above) = $66.50 ----------------------------------------------------------------------------- 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.
------------------------------------------------------------------------------------- EXPENSES AND VALUE OF A $1,000 INVESTMENT assuming a hypothetical 5% annualized return for the 6 months ended 10/31/04 ------------------------------------------------------------------------------------- Class A Class B Class C Class M Class R ------------------------------------------------------------------------------------- Expenses paid per $1,000* $6.34 $10.13 $10.13 $8.87 $7.61 ------------------------------------------------------------------------------------- Ending value (after expenses) $1,018.85 $1,015.08 $1,015.08 $1,016.34 $1,017.60 -------------------------------------------------------------------------------------
* 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. ------------------------------------------------------------------------------ EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA ------------------------------------------------------------------------------ Class A Class B Class C Class M Class R ------------------------------------------------------------------------------ Your fund's annualized expense ratio+ 1.25% 2.00% 2.00% 1.75% 1.50% ------------------------------------------------------------------------------ Average annualized expense ratio for Lipper peer group++ 1.36% 2.11% 2.11% 1.86% 1.61% ------------------------------------------------------------------------------ + 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. ------------------------------------------------------------------------------ TURNOVER COMPARISONS percentage of holdings that change every year ------------------------------------------------------------------------------ 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------ Putnam Utilities Growth and Income Fund 30% 40% 45% 92% 29% ------------------------------------------------------------------------------ Lipper Utility Funds category average 210% 252% 244% 252% 70% ------------------------------------------------------------------------------ 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