PUTNAM
GLOBAL
UTILITIES
FUND
ANNUAL REPORT
SEPTEMBER 30, 1995
[PUTNAM LOGO]
BOSTON * LONDON * TOKYO
PERFORMANCE HIGHLIGHTS
> "Simply put, for all their fits and starts, emerging markets
still hold some of the world's best prospects for robust economic
growth and healthy earnings."
-- Business Week, September 4, 1995
FISCAL 1995 RESULTS AT A GLANCE
TOTAL RETURN: NAV POP
(change in value during period
plus reinvested distributions)
9 months ended 9/30/95 13.41% 6.87%
SHARE VALUE: NAV POP
1/3/95 (Commencement of operations) $8.50 $9.02
9/30/95 9.64 10.23
Data above represent past results and are not indicative of future
performance. For additional performance information, see pages 8
through 10. POP assumes 5.75% maximum sales charge. Performance
data reflect an expense limitation currently in effect. Without
the expense limitation, the fund's total return would have been
lower. The short-term results of a relatively new fund are not
necessarily indicative of its long-term prospects.
FROM THE CHAIRMAN
DEAR SHAREHOLDER:
LIKE THE MARATHON RUNNER IT IS DESIGNED TO BE, PUTNAM GLOBAL
UTILITIES FUND SET OFF ON A MEASURED PACE DURING ITS ABBREVIATED
INITIAL FISCAL YEAR. WHILE IT DID NOT QUITE KEEP UP WITH THE U.S.
STOCK MARKET'S SPRINT THUS FAR IN 1995, ITS TOTAL RETURN OF OVER
13% AT NET ASSET VALUE WAS QUITE RESPECTABLE.
OVER TIME, YOUR FUND'S GLOBAL ORIENTATION SHOULD YIELD
CONSISTENTLY SOLID RESULTS AS EMERGING ECONOMIES REQUIRE
INCREASINGLY GREATER SUPPLIES OF ENERGY AND EXPANSION OF
TELECOMMUNICATIONS FACILITIES AND AS MORE MATURE ECONOMIES
CONTINUE TO UPGRADE THEIR INFRASTRUCTURES. HOWEVER, TO ALLOW YOUR
FUND TO TAKE GREATER ADVANTAGE OF OPPORTUNITIES OUTSIDE THE
UTILITIES SECTOR, PUTNAM MANAGEMENT HAS RECOMMENDED A BROADER
STRATEGY AND A NAME CHANGE TO PUTNAM GLOBAL GROWTH AND INCOME
FUND. YOU WILL BE RECEIVING ADDITIONAL INFORMATION ABOUT THIS
PROPOSAL, INCLUDING A PROXY, IN THE NEAR FUTURE.
ALL IN ALL, WE ARE EXCITED ABOUT THE FUND'S PROSPECTS. IN THE
REPORT THAT FOLLOWS, FUND MANAGER SHELDON SIMON EXPLAINS HOW HE
HAS STRUCTURED THE PORTFOLIO OVER THE PAST SEVERAL MONTHS AND WHAT
HE SEES AS THE FUND ENTERS ITS FIRST FULL FISCAL YEAR.
RESPECTFULLY YOURS,
/S/ GEORGE PUTNAM
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
NOVEMBER 22, 1995
REPORT FROM THE FUND MANAGER
SHELDON SIMON
In light of the fact that the U.S. stock market reached several
record highs during Putnam Global Utilities Fund's first fiscal
year, your fund's performance may not initially appear impressive.
However, we believe the fund is actually off to quite a
respectable start. Much of the fund's portfolio has been invested
in overseas utilities stocks, many of which are in emerging
markets that have not yet fully recovered from upheavals sustained
in 1994.
Your fund doesn't fit easily into any Lipper category; thus,
comparing its performance to that of other funds is like comparing
apples to oranges. Nor do its holdings resemble those of the usual
benchmarks. It is, however, essential to have some sort of
performance yardstick for comparative purposes. So, in evaluating
the fund's total return (13.41% at net asset value), we compared
it with three different measures: the Lipper category average for
emerging market funds (-1.29%); the Lipper category average for
utility funds (18.96%), and the Europe, Australia, and Far East
(EAFE) component of the Morgan Stanley Capital International Index
(6.88%). Given the fund's relative strength over this abbreviated
initial fiscal year, we consider our strategies right
on target.
During the period, U.S. stocks, about 25% of the portfolio, made
the biggest contribution; if short-term results were the
objective, the fund would have been helped by a larger U.S.
allocation. European stocks, about 20%, turned in positive
performances and were benefited by a decline in the U.S. dollar.
> THE GLOBAL UNIVERSE OF UTILITIES
With a global perspective in mind, we believed that emerging
markets presented the most attractive opportunities during the
period. As the fund began operations, the more mature markets were
generally well on their way to recovery after a tumultuous 1994.
This was especially true in the U.S. and, to a lesser extent,
Europe, where economic cycles follow much the same pattern as
those in the United States.
On the other hand, emerging markets, particularly those in Latin
America and Southeast Asia, still had a long way to go. While
these markets were in a slump, they represented countries in which
the world's strongest growth is expected, a potential that could
be as much as twice the rate of the industrial world for the rest
of the decade.* As an additional incentive, utilities tend to grow
at a much faster pace, usually at least twice that of a country's
growth rate. As a result, attractive utilities stocks that not
only offered the potential for outstanding capital growth but were
also underpriced relative to what we felt was their true value
seemed to us to represent a remarkable opportunity.
> STRATEGIES HELP PROTECT AGAINST VOLATILITY
IN EMERGING MARKETS
Although your fund's portfolio includes a relatively small number
of issues (about 40), it is diversified across several markets and
countries in order to help offset the volatility that
characterizes emerging market investments. Volatility, however,
can also offer opportunity. At a low point in the Argentine market
early in the year, we added to the fund's position there; since
then, these holdings have dramatically increased in value.
*Source: Business Week, "Global Investing", September 11, 1995.
ALLOCATIONS BY COUNTRY (9/30/95)+
UNITED KINGDOM 20.4%
ARGENTINA 6.9%
SPAIN 6.3%
CHINA 5.6%
PHILIPPINES 4.3%
MALAYSIA 4.2%
+ Based on net assets. Holdings will vary over time.
Even more importantly, we choose issues on a company-by-company
basis, a bottom-up approach requiring intensive research. We often
meet directly with management and, when possible, make company
visits. Since privatizations, the new issues of formerly
government-owned electric or telephone companies, are an important
component of the global utilities universe, we pay close attention
to their fundamentals and valuations. There is usually less
investor interest in issues traded in emerging markets than there
is in U.S. utility stocks. So the prices of emerging market
utility stocks tend to depend more upon a company's fundamentals
than on market activity. While emerging market investments are
generally thought of as best-suited to more aggressive investors,
your fund's holdings are generally in large-capitalization
companies. Furthermore, by the very nature of their product,
utilities are relatively stable and less subject to the whims of
the marketplace than many other companies.
One of the portfolio's largest holdings is Iberdrola, a
multi-million dollar Spanish electric company; Spain, generally
considered among the second-tier European countries, has a
somewhat less mature economy than its northern neighbors.
Iberdrola, as well as stocks in Argentina, the Philippines, and
Malaysia, have performed well thus far; however, we expect more of
them in the future. Our holding in mainland China, Huaneng Power,
in spite of strong fundamentals, hasn't yet contributed
significantly; here again, our approach is long term.
> THE FORECAST FAVORS EMERGING MARKETS
Emerging markets are steadily gaining strength. The fund's
holdings, largely in electric and telephone companies providing
essential infrastructure for development, should be among the
first to benefit from a surge in economic growth. Increased
consumption should then sustain their value. When emerging markets
are fully back in favor, we anticipate considerable capital
appreciation, probably in a short period of time.
TOP 10 HOLDINGS (9/30/95)
SPRINT CORP.
Telecommunications, U.S.
IBERDROLA S.A.
Electric company, Spain
EAST MIDLANDS ELECTRICITY PLC
Electric utility, U.K.
PHILIPPINE LONG DISTANCE TELEPHONE CO. SER. III $7.00
Telephone utility, Philippines
PACIFIC ENTERPRISES
Gas Utility, U.S.
TELEKOM MALAYSIA
Telephone service, Malaysia
PINNACLE WEST CAPITAL CORP.
Electric utility, U.S.
HUANENG POWER INTERNATIONAL INC. ADR
Electric utility, China
TELEDANMARK A/S ADS
Telephone service, Denmark
SOUTHERN ELECTRIC PLC
Electric utility, U.K.
These holdings represent 42.3% of the fund's net assets. Portfolio
holdings are subject to change.
More immediately, we expect the U.S. dollar to continue to
strengthen, but believe that the rate of appreciation in emerging
markets will far outstrip any negative effects this shift might
have on the fund. If, down the road, growth slows significantly in
the U.S. and Europe, we expect investors will increasingly turn to
emerging markets. We anticipate renewed investor interest in the
areas of the portfolio's greatest concentration will be another
factor that ultimately enhances fund performance.
The views expressed throughout the report are exclusively those of
Putnam Management. They are not meant as investment advice.
Although the described holdings were viewed favorably as of
9/30/95, there is no guarantee the fund will continue to hold
these securities in the future.
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. 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 back into the fund. We
show total return in two ways: on a cumulative long-term basis and
on average how the fund might have grown each year over varying
periods. For comparative purposes, we show how the fund performed
relative to appropriate indexes and benchmarks.
Performance should always be considered in light of a fund's
investment strategy. Putnam Global Utilities Fund is designed for
investors seeking capital growth and current income through
investments in stocks, principally those of utility companies, and
may invest a significant portion of its assets in countries
outside the United States, with an emphasis on emerging market
securities.
TOTAL RETURN FOR PERIOD ENDED 9/30/95
STANDARD MSCI
& POOR'S EAFE
NAV POP 500(R) INDEX INDEX
LIFE OF FUND
(SINCE 1/3/95) 13.41% 6.87% 29.66% 6.88%
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions. Performance data
represent past results. Investment returns and principal value
will fluctuate so an investor's shares, when sold, may be worth
more or less than their original cost. POP assumes maximum 5.75%
sales charge.
PROPOSED CHANGES TO FUND
Putnam Management plans to seek Trustee approval to eliminate the
fund's fundamental policy requiring it to concentrate at least 25%
of its assets in utilities stocks effective January, 1996. If the
Trustees approve this change, it will then be submitted to
shareholders for a vote. Proxies would be mailed in November.
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 1/3/95
[line graph depicting Fund shares at POP beginning at $9,425 on
1/3/95 t0 $10,688 on 9/30/95 and Standard & Poor's 500 Index and
MSCI EAFE Index beginning at $10,000 on 1/3/95 to $12,966 and
$10,687 on 9/30/95, respectively]
Past performance is no assurance of future results.
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
shares, not including any initial or contingent deferred sales charge.
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 maximum 5.75% sales
charge for class A shares.
COMPARATIVE BENCHMARKS
THE EUROPE, AUSTRALIA AND THE FAR EAST (EAFE) component of the
Morgan Stanley Capital International World Index is an unmanaged
list of international equity securities, excluding U.S., with all
values expressed in U.S. dollars. It includes approximately 1,045
securities issued by companies located or traded in markets in 18
countries.
STANDARD & POOR'S 500 INDEX is an unmanaged list of common stocks
that is frequently used as a general measure of stock
market performance.
LIPPER EMERGING MARKETS AVERAGE is an equal weighted average of
funds tracked by Lipper which seek long-term capital appreciation
by investing at least 65% of total assets in emerging market
equity securities, where "emerging market" is defined by a
country's GNP per capita or other economic measure.
LIPPER UTILITIES FUND AVERAGE is an equal weighted average of
funds tracked by Lipper which invest 65% of their equity portfolio
in utility shares.
Both indexes assume reinvestment of all distributions and do not
take into account brokerage commissions or other costs. The fund's
portfolio contains securities that differ from those in the
indexes. Investment in the fund is subject to special
international risks, such as currency fluctuations and political
developments.
REPORT OF INDEPENDENT ACCOUNTANTS
For the period January 3, 1995 (commencement of operations) to
September 30, 1995
To the Trustees and Shareholders of
Putnam Global Utilities Fund
We have audited the accompanying statement of assets and
liabilities of Putnam Global Utilities Fund, including the
portfolio of investments owned, as of September 30, 1995, the
related statement of operations, the statement of changes in net
assets and the financial highlights for the period January 3, 1995
(commencement of operations) to September 30, 1995. These
financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we perform our
audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free from material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities
owned as of September 30, 1995, by correspondence with the
custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Global Utilities Fund as of September
30, 1995, the results of its operations, the changes in its net
assets and the financial highlights for the period January 3, 1995
(commencement of operations) to September 30, 1995, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 10, 1995
PORTFOLIO OF INVESTMENTS OWNED
September 30, 1995
Common Stocks (89.5%)*
Number of Shares Value
Electric Utilities(45.4%)
1,500 CMS Energy Corp. $ 39,375
1,600 Central Costanera 144A
ADR(Argentina)+ 40,800
2,000 Central Puerto 144A
ADR (Argentina) 31,500
1,000 Chilectra S.A. 144A
ADR(Chile) 44,500
1,000 Chilgener S.A. ADR(Chile) 21,125
8,000 China Light & Power Co.
(Hong Kong)+ 41,392
1,500 Compania Boliviana Energia
ADR(Bolivia) 43,875
6,300 East Midlands Electricity PLC
(United Kingdom)+ 85,532
400 Empresa Nacional de
Electricidad S.A. ADR(Spain) 20,600
1,000 Empresa Nacional de
Electricidad S.A. ADR(Chile) 20,125
7,500 Hong Kong Electric
Holdings Ltd.(Hong Kong) 25,078
3,800 Huaneng Power International,
Inc. ADR(China)+ 65,550
12,000 Iberdrola S.A. (Spain)+ 90,760
1,000 National Power PLC
ADR(United Kingdom) 33,375
2,500 Pinnacle West Capital Corp. 65,625
7,600 Scottish Power
(United Kingdom) 42,282
3,800 Shandong Huaneng
Power ADR(China) 33,725
4,100 Southern Electric
PLC(United Kingdom)+ 58,126
803,345
Gas Pipelines(7.7%)
1,300 Enron Corp. 43,550
1,000 Enron Global Power & Pipelines 22,875
4,700 Transportadora de Gas
del Sur ADR(Argentina) 49,350
1,400 Westcoast Energy, Inc. 20,825
136,600
Gas Utilities(7.4%)
500 British Gas PLC ADR
(United Kingdom) 20,875
1,300 K N Energy, Inc. 35,425
3,000 Pacific Enterprises 75,375
131,675
Common Stocks (continued)
Number of Shares Value
Telecommunication(3.9%)
800 Royal PTT N.V. 144A
ADR(Netherlands)+ $ 28,376
1,000 Vodafone Group PLC
ADR (United Kingdom) 41,000
69,376
Telephone Services(21.0%)
1,000 GTE Corp. 39,250
2,100 MCI Communications Corp. 54,729
1,000 NYNEX Corp. 47,750
2,600 Sprint Corp. 91,000
2,500 Tele Danmark A/S ADS
(Denmark) 64,688
10,000 Telekom Malaysia(Malaysia) 75,224
372,641
Water Utilities(4.1%)
4,250 Welsh Water PLC
(United Kingdom)+ 52,192
2,000 Yorkshire Water PLC
(United Kingdom) 19,756
71,948
Total Common Stocks
(cost $1,426,506) $1,585,585
Preferred Stocks (0.4%)*(cost $4,353)
Number of Shares Value
Water Utilities(0.4%)
4,590 Welsh Water PLC pfd.
(United Kingdom)+ $ 7,490
Convertible Preferred Stocks (4.4%)*
(cost $70,441)
Telephone Utilities(4.4%)
Number of Shares Value
1,300 Philippine Long Distance
Telephone Co. Ser. III $7.00
cv. pfd. (Philippines) $ 77,188
Short-Term Investments (4.6%)*($81,029)
Principal Amount Value
$ 81,000 Interest in $652,192,000
joint repurchase agreement
dated September 29, 1995 with
Goldman, Sachs & Co. due
October 2, 1995 with respect
to various U.S. Treasury
obligations-maturity value
of $81,043 for an effective
yield of 6.375%
$ 81,029
Total Investments
(cost $1,582,329)*** $1,751,292
Notes
* Percentages indicated are based on net assets of $1,771,111,
which corresponds to a net asset value per share of $9.64.
+ Non-income-producing security.
***The aggregate identified cost for federal income tax purposes
is $1,582,329, resulting in gross unrealized appreciation and
depreciation of $198,756 and $29,793, respectively, or net
unrealized appreciation of $168,963.
ADR after the name of a foreign holding stands for American
Depository Receipt, representing ownership of foreign securities
on deposit with a domestic custodian bank.
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.
The accompanying notes are an integral part of these financial
statements.
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
ASSETS
Investments in securities, at value
(identified cost $1,582,329) (Note 1) $1,751,292
Cash 738
Dividends and interest receivable 10,053
Receivable from Manager (Note 3) 17,360
Unamortized organization expense (Note 1) 5,632
TOTAL ASSETS 1,785,075
LIABILITIES
Payable for compensation of Manager (Note 3) 3,530
Payable for organization expense (Note 1) 6,425
Payable for administrative services (Note 3) 10
Payable for compensation of Trustees (Note 3) 74
Other accrued expenses 3,925
Total liabilities 13,964
NET ASSETS $1,771,111
REPRESENTED BY
Paid-in capital (Notes 1, 2, and 5) $1,558,084
Undistributed net investment income (Note 1) 50,435
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (6,331)
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 168,923
TOTAL REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $1,771,111
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
Net asset value and redemption price per share
($1,771,111 divided by 183,657 shares) $9.64
Offering price per share (100/94.25 of $9.64)* $10.23
*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.
The accompanying notes are an integral part of these financial
statements.
STATEMENT OF OPERATIONS
For the period January 3, 1995 (commencement of operations) to
September 30, 1995
INVESTMENT INCOME
Dividends (net of foreign tax of $2,962) $47,749
Interest 3,201
TOTAL INVESTMENT INCOME 50,950
EXPENSES:
Compensation of Manager (Note 3) 9,700
Investor servicing and custodian fees (Note 3) 6,524
Compensation of Trustees (Note 3) 543
Reports to shareholders 368
Auditing 16,306
Legal 9,808
Postage 57
Registration fees 553
Administrative services (Note 3) 30
Amortization of organization expense (Note 1) 793
Fees waived by Manager (Note 3) (36,617)
Other expenses 3
TOTAL EXPENSES 8,068
FEES PAID INDIRECTLY (NOTE 3) (6,823)
NET EXPENSES 1,245
NET INVESTMENT INCOME 49,705
Net realized loss on investments (Notes 1 and 4) (6,302)
Net unrealized appreciation of investments during the period
168,963
Net unrealized depreciation on foreign currency translation during
the period (40)
NET GAIN ON INVESTMENT TRANSACTIONS 162,621
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS$212,326
The accompanying notes are an integral part of these financial
statements.
Statement of changes of net assets
For the period
January 3, 1995
(commencement
of operations)
to September 30,
1995
INCREASE IN NET ASSETS
OPERATIONS:
Net investment income $49,705
Net realized loss on investment transactions (6,302)
Net unrealized appreciation of investment transactions168,963
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (40)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 212,326
Increase from capital share transactions (Note 5) 1,538,785
Total increase in net assets 1,751,111
NET ASSETS
Beginning of period 20,000
END OF PERIOD (including undistributed
net investment income of $50,435) $1,771,111
The accompanying notes are an integral part of these financial
statements.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
For the period
January 3, 1995
(commencement
of operations)
to September 30,
1995
NET ASSET VALUE, BEGINNING OF PERIOD $8.50
INVESTMENT OPERATIONS:
Net investment income .27(a)
Net realized and unrealized loss on investments .87
TOTAL FROM INVESTMENT OPERATIONS 1.14
NET ASSET VALUE, END OF PERIOD $9.64
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%) (b) 13.41(d)
NET ASSETS, END OF PERIOD (IN THOUSANDS) 1,771
Ratio of expenses to average net assets (%) .49(a)(c)(d)
Ratio of net investment income to average net assets (%)3.04(a)(d)
Portfolio turnover (%) 21.68(d)
(a) Reflects an expense limitation during the period (See Note
3). As a result of such limitation, expenses
of the fund reflect a reduction of approximately $0.20 per
share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) The ratios of expenses to average net assets for the period
ended September 30, 1995 includes amounts paid through expense
offset arrangements (See Note 3).
(d) Not annualized.
The accompanying notes are an integral part of these financial
statements.
NOTES TO FINANCIAL STATEMENTS
For the period January 3, 1995 (commencement of operations) to
September 30, 1995
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is a series of Putnam Investment Funds (the "Trust")
which is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
The objective of the fund is to seek capital growth and current
income by investing primarily in equity securities issued by
companies in the utilities industries.
The following is a summary of significant accounting policies
followed by the fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
A) SECURITY VALUATION Investments for which market quotations are
readily available are stated at market value, which is determined
using the last reported sale price, or, if no sales are
reported as in the case of some securities traded
over-the-counter-the last reported bid price, except that certain
U.S. government obligations are stated at the mean between the bid
and asked prices. Market quotations are not considered to be
readily available for long term corporate bonds and notes; such
investments are stated at fair market value on the basis of
valuations furnished by a pricing service, approved by the
Trustees. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates
market value, and other investments are stated at fair market
value following procedures approved by the Trustees.
B) JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the fund may transfer
uninvested cash balances into a joint trading account along with
the cash of other registered investment companies and certain
other accounts managed by Putnam Investment Management, Inc.
("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. These balances may be
invested in one or more repurchase agreements and/or short-term
money market instruments.
C) REPURCHASE AGREEMENTS The fund, or any joint trading account,
through their 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. 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 accounted for on the trade date (date the order
to buy or sell is executed). Interest income is recorded on the
accrual basis and dividend income is recorded on the ex-dividend
date. Discount on zero coupon and stepped-coupon bonds is
according to the effective yield method.
E) FEDERAL TAXES It is the policy of the fund to distribute all of
its income within the prescribed time and otherwise comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies. It is also the intention of the
fund to distribute an amount sufficient to avoid imposition of any
excise tax under Section 4982 of the Internal Revenue Code of 1986.
Therefore, no provision has been made for federal taxes on income,
capital gains or
unrealized appreciation on securities held and excise tax on
income and capital gains. At September 30, 1995, the Fund had a
capital loss carryover of approximately $6,000 available to offset
future net capital gain, if any, which will expire on September
30, 2003.
F) DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders
from net investment income are recorded by the fund on the
ex-dividend date. Capital gain distributions, if any, are recorded
on the ex-dividend date and paid 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 treatment of organization expenses. 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 September 30, 1995, the
fund reclassified $730 to increase undistributed net investment
income, $29 to increase accumulated net realized loss, and $701 to
decrease paid-in-capital.
G) EXPENSES OF THE TRUST Expenses directly charged or
attributable to the fund will be paid from the assets of the fund.
Generally, expenses of the Trust will be allocated among and
charged to the assets of each fund on a basis that the Trustees
deem fair and equitable, which may be based on the relative assets
of each fund or the nature of the services performed and relative
applicability to each fund.
H) UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the
fund in connection with its organization, its registration with
the Securities and Exchange Commission and with various states and
the initial public offering of its shares were $6,425. These
expenses are being amortized on a straight line basis over a
five-year period. The fund will reimburse Putnam managment for the
payment of these expenses.
I) FOREIGN CURRENCY TRANSLATION The accounting records of the
fund are maintained in U.S. dollars. The market value of foreign
securities, currency holdings, 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 accrued 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 fluctuations are included with the net realized
and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net exchange
gains or losses on closed forward currency contracts, disposition
of foreign currencies 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 gains and losses on foreign
currency transactions 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.
NOTE 2
INITIAL CAPITALIZATION AND OFFERING PRICE OF SHARES
The fund was established as a Massachusetts business trust under
the laws of Massachusetts on October 31, 1994.
During the period October 31, 1994 to January 3, 1995, the fund
had no operations other than those related to organizational
matters, including the initial capital contribution of $20,000 and
the issuance of 2,353 shares to Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments, Inc.
At September 30, 1995 Putnam Investments Management, Inc. owned
176,471 shares of the fund (96.09% of shares outstanding), valued
at $1,701,180.
NOTE 3
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management for management and investment
advisory services is paid quarterly based on the average net
assets of the fund for the quarter. Such fee is based on the
following annual rates: 0.80% of the first $500 million of average
net assets, 0.70% of the next $500 million, 0.65% of the next $500
million, 0.60% of the next $5 billion, 0.575% of the next $5
billion, 0.555% of the next $5 billion, 0.54% of the next $5
billion, and 0.53% thereafter, subject, under current law, to
reduction in any year to the extent that expenses (exclusive of
distribution fees, brokerage, interest and taxes) of the fund
exceed 2.5% of the first $30 million of average net assets, 2% of
the next $70 million and 1.5% of any amount over $100 million and
by the amount of certain brokerage commissions and fees (less
expense) received by affiliates of the Manager on the fund's
portfolio transactions.
Through December 31, 1995, the fund's manager has agreed to limit
the fund's expenses to the extent that expenses (exclusive of
brokerage, interest, taxes, deferred organizational and
extraordinary expenses and distribution fees) exceed an annual
rate of .60% of the fund's average net assets.
The fund also reimburses the Manager 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.
Trustees of the fund receive an annual Trustee's fee of $100 and
an additional fee for each Trustees' meeting attended. Trustees
who are not interested persons of the Putnam management and who
serve on committees of the Trustees receive additional fees for
attendance at certain committee meetings.
During the year ended September 30, 1995, the fund adopted a
Trustee Fee Deferral Plan (the "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 in the fund
and are invested in the fund or in other Putnam funds until
distribution in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided
by Putnam Investor Services, a division of PFTC.
For the period January 3, 1995 (commencement of operations) to
September 30, 1995, fund expenses were reduced by $6,823 under
expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude
these credits. The fund could have invested a portion of the
assets utilized in connection with the offset arrangements in an
income-producing asset if it had not entered into such
arrangements.
The fund has adopted a distribution plan (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940, although the
fund is not currently making any payments pursuant to this plan.
The purpose of the plan is to compensate Putnam Mutual Funds
Corp., a wholly-owned subsidiary of Putnam Investments, Inc., for
services provided and expenses incurred by it in distributing
shares of the fund. The Trustees have approved payment by the
fund to Putnam Mutual Funds Corp. at an annual rate of up to 0.35%
of the fund's average net assets.
During the period January 3, 1995 (commencement of operations) to
September 30, 1995, Putnam Mutual Funds Corp., acting as the
underwriter, received no net commissions from the sale of shares
of the fund.
NOTE 4
PURCHASES AND SALES OF SECURITIES
During the period January 3, 1995 (commencement of operations) to
September 30, 1995, purchases and sales of investment securities
other than short-term investments aggregated $1,827,722 and
$320,092, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
NOTE 5
CAPITAL SHARES
For the period January 3, 1995 (commencement of operations) to
September 30, 1995 there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares
were as follows:
FOR THE PERIOD JANUARY 3, 1995
(COMMENCEMENT OF OPERATIONS) TO
SEPTEMBER 30, 1995
Shares Amount
Shares sold 181,635 $1,541,857
Shares repurchased (331) (3,072)
NET INCREASE 181,304 $1,538,785
Federal tax information
(Unaudited)
The Form 1099 you receive in January 1996 will show the tax status
of all distributions paid to your account in calendar 1995.
FUND INFORMATION
INVESTMENT
MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust
Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Anthony W. Regan
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Sheldon Simon
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
Global Utilities Fund. It may also be used as sales literature
when preceded or accompanied by the current prospectus, which
gives details of sales charges, investment objectives, and
operating policies of the fund, and the most recent copy of the
Putnam Quarterly Performance Summary. For more information, or to
request a prospectus, call toll free:
1-800-225-1581.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
