Putnam
Utilities
Growth and
Income Fund
[Art work]
Annual Report
October 31, 1994
[Putnam Logo]
Boston * London * Tokyo
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PERFORMANCE HIGHLIGHTS
Partisans of utility investments argue that now is a better time to be buying
than selling, given the outsized decline that has already occurred.
Your fund's performance results of -7.30% and -8.04% for class A and class B
shares, respectively, at net asset value were ahead of the 9.50% average loss
for the 63 utility funds tracked by Lipper over the period ended October 31,
1994. *
Performance should always be considered in light of a fund's investment strate-
gy. Putnam Utilities Growth and Income Fund is designed for capital growth and
current income through equity and debt securities issued by public utility com-
panies.
FISCAL 1994 RESULTS AT A GLANCE
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Class A Class B
Total return NAV POP NAV CDSC
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12 months ended 10/31/94
(change in value during
period plus reinvested
distributions) -7.30% -12.60% -8.04% -12.33%
Share value NAV POP NAV
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10/31/93 $10.56 $11.20 $10.52
10/31/94 9.06 9.61 9.02
Capital gains
Long- Short-
Distributions: No. Income term term Total
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Class A 4 $0.450 $0.167 $0.125 $0.742
Class B 4 0.378 0.167 0.125 0.670
Current return: NAV POP NAV
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End of period
Current dividend rate (1) 5.08% 4.79% 4.30%
Current 30-day SEC yield (2) 4.46 4.20 3.77
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Performance data represent past results and will differ for each share class.
For performance over longer periods, see pages 8 and 9. POP assumes 5.75% maxi-
mum sales charge. CDSC assumes 5% maximum contingent deferred sales charge.
(1) Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period. (2) Based only on investment income, calculated using
SEC guidelines.
* Lipper Analytical Services is an industry research firm; its calculations va-
ry over time, and do not reflect the effects of sales charges. Lipper ranked the
fund's class A and B shares 23 out of 63 and 27 out of 63 respectively, for the
1 year performance and 15 out of 25 for class A 3-year performance. Past perfor-
mance is no assurance of future results.
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FROM THE CHAIRMAN [Photograph of George Putnam]
* (C) Karsh, Ottawa
Dear Shareholder:
Putnam Utilities Growth and Income Fund's fiscal year that ended on October 31,
1994, represented an unsettled period for both stock and bond investors. Never-
theless, the fund demonstrated once again that diversification across both mar-
kets can take some of the uncertainty out of investing.
Early in the period, Fund Managers Sheldon Simon and Christopher Ray saw signs
that interest rates would soon start rising from their lowest point in a genera-
tion. They began taking defensive action; had they not done so, the toll on the
fund's results would likely have been greater in the wake of the Federal Reserve
Board's swift and vigorous moves to slow the pace of growth.
As we have recently seen, the Fed is adamantly sticking to its policy of keeping
inflation in check. The result is likely to be further uncertainty in both the
stock and bond markets. This, in turn, could translate into continued price vo-
latility over the next few months.
Sheldon and Chris have positioned the portfolio with this prospect in mind. In
the report that follows, they discuss the fund's fiscal '94 performance and out-
look for fiscal '95.
Respectfully yours,
George Putnam
Chairman of the Trustees
December 14, 1994
* (C) Copyrihgt
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REPORT FROM THE FUND MANAGERS
SHELDON SIMON, LEAD MANAGER
CHRISTOPHER RAY
As we forecast last April, fiscal 1994 has not been a favorable year for utility
securities, nor for Putnam Utilities Growth and Income Fund. Because of the
long-standing link between utility stocks and interest-rate trends, ongoing
long-term interest rate increases -- from below 6% to above 8% -- have contribu-
ted to significant declines in utility stock prices. Our portfolio positioning
reduced the fund's exposure to the hardest-hit sectors. Even so, the fund gene-
rated negative returns for the 12 months ended October 31, 1994.
Your fund's total returns of -7.30% and -8.04% for class A and class B shares,
respectively, at net asset value were still less than the average -9.50% repor-
ted for the 63 utility funds tracked by Lipper over the 12-month period. The
Standard & Poor's *(R) Utilities Index declined even more, with results of
- -12.16% as of period's end. Consequently, we believe the fund's flexibility and
diversification have been valuable assets in mitigating the impact of the year's
challenging market conditions.
ELECTRIC STOCK PERFORMANCE DECLINES
There is little doubt that once-staid electric utility stocks have suffered more
than most sectors of the utilities industry. Although many investors attribute
the decline to regulatory changes and increased competition, we consider this
year's interest rate upturns a key factor in these stocks' underperformance.
As we noted in our last report to the shareholders, the fund's portfolio alloca-
tion to electric utilities was reduced substantially this past spring. The shift
reflected expectations of ongoing turbulence in this sector -- a prediction that
has proven far more accurate than we anticipated -- although interest rate
trends were also a consideration. Thus, at the year's midpoint, electric utility
stocks made up only one third of the portfolio.
We recognize, however, that in a changing industry environment, management's
ability to effect positive change
* (R) Registered mark
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becomes more important than ever. By maintaining a portfolio based on bottom-up
research, rather than macroeconomics or market theory, and seeking to identify
the winners and losers of the utility sector in the same way that we approach
companies in other industries, we are working to capture the long-term growth
potential inherent in these events.
TARGETING TELEPHONE STOCKS FOR GROWTH POTENTIAL
In the first half of the fiscal year, we began to increase the fund's telephone
company stock holdings, perceiving attractive prices and a greater growth poten-
tial than electric utility companies. Here again, interest rate trends were an
influence: we believed that telephone stocks were likely to be less affected by
rising rates, in part, because we believe their long-term growth potential is
higher than those of electric utilities.
We are emphasizing long-distance carriers over regional companies, considering
that long-distance services currently offer
[Line Chart - Page 5]
UTILITIES AND INTEREST RATES
For the 12 months ended 10/31/94
Lehman Brothers Long-Term
Treasury Index S&P Electric Index S&P Utilities Index
11/93 - 2.56 % - 5.10 % - 5.04 %
12/93 - 2.25 - 3.13 - 5.53
1/94 0.09 - 5.63 - 4.92
2/94 - 4.02 -10.99 -10.29
3/94 - 8.23 -15.13 -13.33
4/94 - 9.31 -14.38 -11.16
5/94 - 9.91 -19.26 -13.57
6/94 -10.77 -22.48 -13.35
7/94 - 7.74 -18.19 -10.45
8/94 - 8.42 -17.52 -10.72
9/94 -11.31 -19.53 -12.95
10/94 -11.61 -18.13 -12.26
The graph compares total return of the indicated indexes, but is not intended
to reflect performance of the fund, which will differ.
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greater opportunities for growth, both in the United States and overseas. In
Europe, in particular, efforts to privatize basic telephone infrastructures cu-
rrently under government or monopoly control seem likely to clear the way for
high growth potential in telecommunications and information services.
EXPANDING OPPORTUNITIES OVERSEAS
Although America's appetite for power appears insatiable, the demand overseas
has virtually exploded. To take advantage of this extraordinary growth poten-
tial, the fund has now invested nearly 10% of its assets outside the U.S. Al-
though we believe the greatest opportunities lie in the emerging markets, we
will temper the fund's exposure to these higher-risk areas by also buying stocks
in more established, relatively stable parts of the world. Consequently, the
fund's holdings include Denmark, the Netherlands, and the United Kingdom. as
well as Latin America and Asia. where China is a particular focus.
China currently has the highest level of economic growth in the world, and your
fund's lead manager was one of four investment managers from the United States
recently invited to attend a meeting in China to learn about Huangeng Power In-
ternational, currently regarded as China's premier power company. The company is
one of the first Chinese utility companies to issue publicly offered shares.
PORTFOLIO STRATEGY REFLECTS FUND PHILOSOPHY
When utilities are performing well, your fund can capitalize on their strength.
But when they are weak, we must protect the portfolio while positioning our
assets to take advantage of future opportunities. Consequently, we consider our
approach to diversification essential to the fund's successful performance.
We approach the overall portfolio in several distinct segments: domestic utili-
ties, which encompasses the telephone and electric stocks already discussed, as
well as oil, gas, and other utility companies; the international sector, which
may include any type of utility company; nonutility value-oriented stocks, which
we find have extraordinary potential as a result of extremely attractive valua-
tion, income, and the potential for fundamental improvement; and a portfolio of
fixed-income investments. Our current focus on equities over bonds (81% versus
approximately 15%) reflects our continued perception that utility stocks repre-
sent better relative values than bonds.
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[Bar Chart - Page 7]
DIVERSIFICATION BY INDUSTRY
Cash and
Electric Telephone Nonutility Oil and short-term Other
utilities utilities holdings gas investments utilities
37.00% 16.40% 16.10% 11.30% 3.40% 0.50%
Equity holdings as a percent of net assets as of 10/31/94.
The fund's bond holdings have emphasized more defensive shorter-term bonds,
which have been among the stronger-performing fixed-income sectors this year.
However, we are now seeing more attractive opportunities available in longer-
term bonds.
LOOKING AHEAD TO FISCAL '95
While individual investors tend to focus on income as their primary goal, we ba-
lance the fund's income priority with a focus on taking advantage of valuation
and growth opportunities. After the substantial interest rate increases endured
during fiscal 1994, we believe that rates are unlikely to continue their upward
climb for much longer. As rates stabilize, we may increase the fund's electric
utility holdings once again. In the meantime, we believe that our defensive, di-
versified approach will serve investors well in fiscal 1995 and beyond.
The views expressed throughout the report are exclusively those of Putnam Mana-
gement. They are not meant as investment advice. Although the described holdings
were viewed favorably as of October 31, 1994, there is no guarantee the fund
will continue to hold these securities in the future.
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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, assum-
ing you held the shares through the entire period and reinvested all distribu-
tions 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 va-
rying periods. For comparative purposes, we show how the fund performed relative
to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 10/31/94
Standard Standard
Class A Class B & Poor's *(R) & Poor's *(R)
NAV POP NAV CDSC 500 Index Utilities Index
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1 year -7.30% -12.60% -8.04% -12.33% 3.87% -12.16%
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3 years 23.12 16.09 -- -- 31.18 22.18
Annual average 7.18 5.10 -- -- 9.47 6.91
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Life of class A 36.29 28.44 -- -- 65.23 33.73
Annual average 8.15 6.54 -- -- 13.56 7.64
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Life of class B -- -- 17.69% 14.69% 22.29 19.08
Annual average -- -- 6.70% 5.61% 8.35 7.21
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TOTAL RETURN FOR PERIODS ENDED 9/30/94
(most recent calendar quarter)
Class A Class B
NAV POP NAV CDSC
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1 year -7.83% -13.10% -8.47% -12.74%
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3 years 23.55 16.43 -- --
Annual average 7.30 5.20 -- --
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Life of class A 35.39 27.59 -- --
Annual average 8.14 6.50 -- --
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Life of class B -- -- 17.03% 14.03%
Annual average -- -- 6.69% 5.55%
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Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions. The fund began offering what are now known as class
A shares on November 19, 1990. Effective April 27, 1992, the fund began offering
class B shares. Performance of each share class will differ. Performance data
represent past results and will differ for each share class. Investment returns
and principal value will fluctuate so an investor's shares, when sold, may be
worth more or less than their original cost.
STANDARD & POOR'S 500 INDEX is an unmanaged list of large-capitalization common
stocks and is frequently used as a general gauge of stock market performance.
STANDARD & POOR'S UTILITIES INDEX is an unmanaged list of common stocks issued
by utilities companies.
Both indexes assume reinvestment of all distributions and does not take into
account brokerage commissions or other costs. The fund's portfolio contains se-
curities that do not match those in the indexes.
* (R) Registered mark
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[Line Chart - Page 9]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 11/19/90
S&P 500 S&P Utilities Fund's Class A
Index Index shares at POP
$10,000 $10,000 $ 9,425
12,595 10,945 10,432
13,846 12,154 11,508
15,907 15,224 13,855
16,523 13,373 12,844
Past performance is no assurance of future results. A $10,000 investment in
the fund's class B shares at inception on (4/27/92) would have been valued at
$11,769 on 10/31/94 ($11,469 with a redemption at the end of the period).
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any liabili-
ties, 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.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's 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.
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THE PUTNAM FUND SELECTOR *(TM)
The Putnam Fund Selector shows the many opportunities for investors within every
investment strategy. All investors should first accumulate a base of conservati-
ve, cash-equivalent investments. Then, with the help of your investment advisor,
diversify your portfolio by investing in the Putnam Family of Funds.
[Pyramid Graph - Page 10]
Risk/Reward
PUTNAM GROWTH FUNDS
PUTNAM GROWTH AND INCOME FUNDS
PUTNAM INCOME OR TAX-FREE FUNDS
MOST CONSERVATIVE INVESTMENTS
* (TM) Trademark
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PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund Capital Appreciation Fund
Diversified Equity Trust Europe Growth Fund
Global Growth Fund Health Sciences Trust
Investors Fund Natural Resources Fund *
New Opportunities Fund OTC Emerging Growth Fund
Overseas Growth Fund Vista Fund
Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust Dividend Growth Fund
Equity Income Fund The George Putnam Fund of Boston
The Putnam Fund for Growth and Income Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund American Government Income Fund
Balanced Government Fund Corporate Asset Trust
Diversified Income Trust Federal Income Trust
Global Governmental Income Trust High Yield Advantage Fund
High Yield Trust Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund Municipal Income Fund
Tax Exempt Income Fund Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds +
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio, and Pennsylvania
LIFESTAGE (SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments to help
maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS ++
Putnam money market funds:
Money Market Fund +++
Tax Exempt Money Market Fund
CDs and savings accounts **
* Formerly Energy-Resources Trust.
+ Not available in all states.
++ Relative to above.
+++ Formerly Putnam Daily Dividend Trust.
** Not offered by Putnam Investments. Certificates of deposit offer a fixed
rate of return and may be insured, up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete information, in-
cluding charges and expenses. Read it carefully before you invest or send
money.
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REPORT OF INDEPENDENT ACCOUNTANTS
For the Fiscal Year Ended October 31, 1994
To the Trustees and Shareholders of
Putnam Utilities Growth and Income Fund
We have audited the accompanying statement of assets and liabilities of Putnam
Utilities Growth and Income Fund, including the portfolio of investments owned,
as of October 31, 1994, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended and the "Financial Highlights" for each of the periods in-
dicated therein. 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
audits.
We conducted our audits in accordance with generally accepted auditing standar-
ds. Those standards require that we plan and perform the audit to obtain reason-
able assurance about whether the financial statements and "Financial Highlights"
are free of 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 October 31, 1994, 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 audits provide 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
Utilities Growth and Income Fund as of October 31, 1994, the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the "Financial High-
lights" for each of the periods indicated therein, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 16, 1994
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PORTFOLIO OF INVESTMENTS OWNED
October 31, 1994
COMMON STOCKS (79.2%)(a)
NUMBER OF SHARES VALUE
ELECTRIC UTILITIES (35.7%)
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100,000 Allegheny Power Systems, Inc. $ 2,075,000
70,000 Boston Edison Co. 1,636,250
650,000 CMS Energy Corp. 14,950,000
350,000 Carolina Power & Light Co. 9,231,250
183,000 Chilgener S.A., ADR (b) 5,169,750
200,000 China Light & Power Co., HKD (c) 1,040,580
869,550 Cinergy Corp. 20,108,344
150,000 Compania Boliviana Energia ADR (b) 3,637,500
100,000 Consolidated Edison Co. of New York, Inc. 2,487,500
128,950 Central Costanera ADR (b)(d) 4,513,250
61,500 DQE, Inc. 1,860,375
375,000 Detroit Edison Co. 9,890,625
386,500 East Midlands Electricity PLC 4,333,709
220,000 Eastern Utilities Assoc. 4,812,500
76,700 Empresa Nacional de Electridad ADR (b) 2,157,188
150,000 Empresa Nacional de Electricidad sponsored ADR (b) 6,881,250
56,800 Enersis, S.A., ADR (b) 1,668,500
800,000 Entergy Corp. 18,700,000
400,000 General Public Utilities Corp. 10,300,000
245,300 Hawaiian Electric Industries, Inc. 7,972,250
300,000 Hong Kong Electric Holdings Ltd. 943,500
400,000 Houston Industries Inc. 13,950,000
600,000 Huaneng Power International, Inc. (b) 11,100,000
282,000 IES Industries, Inc. 7,226,250
1,000,000 Iberdrola S.A. 6,594,700
200,000 Illinova Corp. 3,950,000
230,000 Montana Power Co. 5,290,000
350,000 NIPSCO Industries, Inc. 9,756,250
100,000 NY State Electric & Gas Corp. 1,900,000
200,000 National Power Ord. PLC 1,624,700
150,000 New England Electric Systems Inc. 4,706,250
500,000 Northeast Utilities 11,562,500
850,000 Pacific Gas & Electric Co. 19,125,000
150,000 Peco Energy Co. 3,843,750
850,000 Pinnacle West Capital Corp. 15,831,250
640,000 Public Service Co. of Colorado 17,440,000
500,000 Public Service Enterprise Group Inc. 13,125,000
100,000 Rochester Gas & Electric Corp. 2,087,500
400,000 SCE Corp. 5,550,000
50,000 San Diego Gas & Electric Co. 1,000,000
330,000 Shandong Huaneng Power (b) 3,547,500
200,000 Sierra Pacific Resources 3,850,000
750,000 Southern Co. 14,812,500
400,000 Southern Electric PLC (c) 5,230,400
300,000 Southwestern Public Service Co. 7,837,500
289,200 TNP Enterprises, Inc. 4,012,650
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COMMON STOCKS
NUMBER OF SHARES VALUE
779,800 Texas Utilities Electric Co. $ 25,440,975
200,000 Union Electric Co. 7,175,000
200,000 United Illuminating Co. 6,100,000
150,000 Western Resources, Inc. 4,331,250
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372,370,246
TELEPHONE UTILITIES (16.4%)
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100,000 ALLTEL Corp. 2,587,500
240,000 Airtouch Communications (c) 7,170,000
200,000 American Telephone & Telegraph Co. 11,000,000
100,000 Ameritech Corp. 4,037,500
100,000 Bell Atlantic Corp. 5,237,500
130,000 BellSouth Corp. 6,922,500
100,000 British Telecommunications PLC (b) 6,437,500
250,000 Comsat Corp. 5,375,000
100,000 Empresas Telex-Chile SA ADR (b) 1,837,500
700,000 GTE Corp. 21,525,000
400,000 MCI Communications Corp. 9,200,000
550,000 NYNEX Corp. 21,587,500
97,500 Pacific Telesis Group 3,083,438
240,000 Rochester Telephone Corp. 5,880,000
100,000 Royal PTT Nederland (b)(d) 3,100,000
50,000 Southwestern Bell Corp. 2,093,750
550,000 Sprint Corp. 17,943,750
536,400 Tele Danmark A/S ADS (b) 15,421,500
100,000 Telephones de Mexico (b) 5,512,500
397,898 US WEST, Inc. 14,970,912
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170,923,350
GAS UTILITIES (11.3%)
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500,000 Consolidated Natural Gas Co. 18,125,000
125,000 Enron Corp. 4,046,875
275,000 Equitable Resources, Inc. 8,387,500
200,000 K N Energy, Inc. 4,925,000
100,000 MCN Corp. 3,800,000
100,000 NICOR Inc. 2,437,500
302,800 National Fuel Gas Co. 9,008,300
20,000 New Jersey Resources Corp. 435,000
800,000 Pacific Enterprises 17,200,000
571,400 Panhandle Eastern Corp. 13,427,900
24,800 Peoples Energy Corp. 700,600
100,000 Questar Corp. 2,875,000
300,000 Sonat, Inc. 9,750,000
250,000 Tranportadora De Gas Del Sur ADR (b)(d) 2,875,000
420,000 UGI Corp. (New) 8,452,500
15,000 Washington Energy Co. 204,375
340,000 Westcoast Energy, Inc. 5,567,500
200,000 Williams Cos., Inc. 5,800,000
---------------
118,018,050
REAL ESTATE (2.3%)
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160,600 Avalon Properties, Inc. 3,131,700
355,000 Crown American Realty Trust 4,881,250
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COMMON STOCKS
NUMBER OF SHARES VALUE
169,000 Equity Residential Properties Trust $ 5,048,875
160,000 Federal Realty Investment Trust 3,380,000
50,000 Glimcher Realty Trust 968,750
116,100 McArthur/Glen Realty Corp. 1,843,088
100,000 Paragon Group, Inc. 2,012,500
100,000 Simon Property Group, Inc. 2,387,500
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23,653,663
TOBACCO (1.7%)
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240,000 American Brands, Inc. 8,340,000
150,000 Philip Morris Cos., Inc. 9,187,500
---------------
17,527,500
INSURANCE (1.5%)
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180,000 Aetna Life & Casualty Co. 8,302,500
280,000 American General Corp. 7,700,000
---------------
16,002,500
PHARMACEUTICALS (1.5%)
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97,100 Bristol-Myers Squibb Co. 5,668,213
100,000 Lilly (Eli) & Co. 6,200,000
50,000 Warner-Lambert Co. 3,812,500
---------------
15,680,713
BANKS (1.5%)
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110,000 Bankers Trust New York Corp. 7,342,500
300,000 National City Corp. 8,137,500
---------------
15,480,000
RETAIL (1.4%)
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500,000 K Mart Corp. 8,187,500
425,300 Woolworth Corp. 6,592,150
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14,779,650
OILS (1.3%)
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40,000 Chevron Corp. 1,800,000
130,000 Exxon Corp. 8,173,750
68,200 Pennzoil Co. 3,512,300
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13,486,050
CONGLOMERATES (0.6%)
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50,000 ITT Corp. 4,412,500
50,000 Tenneco Inc. 2,212,500
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6,625,000
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COMMON STOCKS
NUMBER OF SHARES VALUE
WATER UTILITIES (0.6%)
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104,500 Pennsylvania Enterprises, Inc. $ 3,069,688
300,000 Welsh Water PLC (c) 3,167,670
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6,237,358
FINANCE (0.6%)
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200,000 American Express Co. 6,150,000
PUBLISHING (0.6%)
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100,000 Dun & Bradstreet Corp. 5,862,500
RAILROADS (0.5%)
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80,000 Norfolk Southern Corp. 5,040,000
ALCOHOLIC BEVERAGES (0.4%)
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150,000 Brown Forman Corp. Class B 4,612,500
BUILDING PRODUCTS (0.4%)
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100,000 Armstrong World Industries, Inc. 4,150,000
PHOTOGRAPHY (0.2%)
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50,000 Eastman Kodak Co. 2,406,250
SPECIALTY CONSUMER PRODUCTS (0.2%)
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50,000 Tambrands Inc. 2,050,000
REIT'S (0.2%)
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135,000 South West Property Trust, Inc. 1,653,750
ENVIRONMENTAL CONTROL (0.1%)
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150,000 Chemical Waste Mgmt., Inc. 1,425,000
AEROSPACE (0.1%)
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100,000 GenCorp Inc. 1,200,000
METALS AND MINING (0.1%)
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50,000 Freeport-McMoRan, Inc. Class A 1,137,500
TOTAL COMMON STOCKS (cost $868,350,018) $826,471,580
CORPORATE BONDS AND NOTES (12.4%)
PRINCIPAL AMOUNT VALUE
ELECTRIC UTILITIES (10.3%)
- -------------------------------------------------------------------------------
$ 4,000,000 Allegheny Generating Co. deb. 6 7/8s, 2023 $ 3,197,500
3,500,000 BVPS II Funding Corp. notes 8.33s, 2007 3,115,000
4,000,000 Chugach Electric Co. 1st mtge. Ser. A, 9.14s, 2022 4,015,000
3,432,000 Citizens Utilities Co. bonds, 7.68s, 2034 3,404,115
3,000,000 Commonwealth Edison Co. notes 6 1/2s, 2000 2,737,500
4,000,000 Consumers Power Co., mtge. 8 3/4s, 1998 4,072,500
4,000,000 Delmarva Power & Light Co. med. term. notes 5.69s, 1998 3,747,500
3,000,000 Detroit Edison Co. 1st mtge. 6.34s, 2000 2,767,500
<PAGE>
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
$ 1,455,000 Georgia Power Co. 1st mtge. ARP 9.23s, 2019 $ 1,434,084
4,993,107 Indiana-Michigan Power Co. deb. 9.82s, 2022 5,261,487
3,000,000 Interstate Power Co. mtge. 7 5/8s, 2023 2,634,375
7,000,000 Kansas C. Power & Light Co. med. term. notes 5 3/4s,1998 6,619,375
5,000,000 Midwest Power Systems mtge. 8 1/8s, 2023 4,518,750
5,000,000 NY State Electric & Gas Corp. 1st mtge. 8 7/8s, 2021 4,903,125
3,000,000 Pacificorp secd. med. term. notes 9.15s, 2011 3,101,250
5,000,000 Pennsylvania Power & Light Co. 1st mtge. 9 1/4s, 2019 4,993,750
6,000,000 Philadelphia Electric Co. 1st Ref. mtge. 5 3/8s, 1998 5,497,500
3,500,000 Public Ser. Co. of Colorado med. term. notes 9.08s,1999 3,648,750
7,000,000 Public Ser. Co. of New Hampshire 1st mtge. 8 7/8a, 1996 7,113,750
6,500,000 Puget Sound Power & Light Co. 1st mtge. 7 7/8s, 1997 6,548,750
4,000,000 Texas Utilities Co. 1st mtge. 7 3/8s, 1999 3,825,000
5,000,000 Texas Utilities Electric Co. secd. fac. bonds 7.46s,2015 4,362,500
10,000,000 oledo Edison Co. med. term notes 7.82s, 2003 8,612,500
7,500,000 Union Electric Co. 1st mtge. 8 3/4s, 2021 7,321,875
---------------
107,453,436
GAS UTILITIES (1.0%)
- -------------------------------------------------------------------------------
4,000,000 Michigan Consolidated Gas 1st mtge. 8 1/4s, 2014 3,872,500
3,000,000 ONEOK Inc. deb. 9.7s, 2019 3,198,750
3,000,000 Washington National Gas Co. 1st mtge. 8.4s, 2022 2,868,750
---------------
9,940,000
COMBINED UTILITIES (0.8%)
- -------------------------------------------------------------------------------
4,000,000 Pacific Gas & Electric Co. 1st. mtge., Ser. 93-B,
5 3/8s, 1998 3,695,000
4,650,000 San Diego Gas & Electric Co. Ser. 11, 1st mtge.
9 5/8s, 2020 4,774,969
---------------
8,469,969
OIL AND GAS (0.3%)
- -------------------------------------------------------------------------------
4,000,000 Southern Union Gas Sr. notes 7.6s, 2024 3,335,000
---------------
TOTAL CORPORATE BONDS AND NOTES (cost $138,782,143) $129,198,405
PREFERRED STOCKS (1.3%)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
19,370 Cleveland Electric Illuminating Co. Sinking Fund, Ser.
N, $9.125, pfd. $ 1,791,725
458,000 Public Serv. Co. of New Hampshire 1st mtge. $2.65 pfd. 11,736,250
---------------
TOTAL PREFERRED STOCKS (cost $15,746,228) $ 13,527,975
FOREIGN BONDS AND NOTES (2.3%)(a)(e)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------
$ 3,000,000 Australian Gas & Light Co. Sr. notes 6 3/8s, 2003 $ 2,591,250
10,000,000 Hydro Quebec bonds, 9.4s, 2021 10,275,000
5,000,000 Iberdrola notes, 7 1/2s, 2002 4,750,000
2,000,000 Nova Scotia Power Corp. deb. 9.4s, 2021 2,076,250
4,000,000 Telekom Malaysia Berhard unsub. 4s, 2004 (c) 3,980,000
---------------
TOTAL FOREIGN BONDS AND NOTES (cost $27,253,500) $ 23,672,500
<PAGE>
<PAGE>
CONVERTIBLE PREFERRED STOCKS (0.8%) (a)
NUMBER OF SHARES VALUE
ELECTRONICS AND ELECTRICAL EQUIPMENT (0.4%) (a)
- -------------------------------------------------------------------------------
300,000 Westinghouse Electric Ser. C, $1.30 cv. pfd. (d) $ 4,387,500
OILS (0.4%)
- -------------------------------------------------------------------------------
100,000 Tenneco Inc. $2.80 cv. pfd. 4,162,500
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $8,456,606) $ 8,550,000
CONVERTIBLE BONDS AND NOTES (0.4%) (cost $2,756,251)(a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------
$ 5,000,000 Cellular Communications, Inc. cv. sub. deb., zero%, 1999 4,118,750
SHORT-TERM INVESTMENTS (3.4%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------
$10,000,000 Federal National Mortgage Assn. disc. notes 4.88s,
November 30, 1994 $ 9,960,685
25,049,000 Interest in $497,257,000 joint repurchase agreement
dated October 31, 1994 with Lehman Brothers, Inc.
due November 1, 1994 with respect to various U.S.
Treasury Obligation . maturity value of $25,052,260
for an effective yield of 4.75% 25,052,260
---------------
TOTAL SHORT-TERM INVESTMENTS (cost $35,012,949) $ 35,012,945
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $1,096,357,695)(f) $1,040,552,155
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,043,057,176, which co-
rrespond to a net asset value per class A and class B share of $9.06 and
$9.02, respectively.
(b) Securities whose value are determined or significantly influenced by trading
on exchanges not in the United States or Canada. ADR or ADS after the name
of a foreign holding stands for American Depository Receipts or American De-
pository Shares respectively, representing foreign securities on deposit
with a domestic custodian bank.
(c) Non-income producing securities.
(d) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registra-
tion, normally to qualified institutional buyers. At October 31, 1994, these
securities amounted to $18,855,750 or 1.8% of net assets.
(e) U.S. Dollar-denominated.
(f) The aggregate identified cost for federal income tax purposes is
$1,096,946,118, resulting in gross unrealized appreciation and depreciation
of $34,071,818 and $90,465,781 respectively, or net unrealized depreciation
of $56,393,963.
CONCENTRATIONS IN THE UTILITIES INDUSTRY AS A PERCENTAGE OF NET ASSETS:
Common Stocks 64.0%
Corporate Bonds and Notes 10.3%
Preferred Stocks 1.3%
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1994
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,096,357,695) (Note 1) $1,040,552,155
Cash 4,027,688
Dividends, interest and other receivables 7,986,141
Receivable for shares of the fund sold 1,345,009
Receivable for securities sold 23,284,274
- -------------------------------------------------------------------------------
TOTAL ASSETS 1,077,195,267
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased 28,512,100
Payable for shares of the fund repurchased 3,104,364
Payable for compensation of Manager (Note 2) 1,726,480
Payable for administrative services (Note 2) 9,351
Payable for compensation of Trustees (Note 2) 2,610
Payable for investor servicing and custodian fees (Note 2) 183,719
Payable for distribution fees (Note 2) 540,801
Other accrued expenses 58,666
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 34,138,091
- -------------------------------------------------------------------------------
NET ASSETS $1,043,057,176
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $1,103,642,984
Accumulated net realized loss on investment transactions (4,780,268)
Net unrealized depreciation of investments (55,805,540)
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $1,043,057,176
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($541,619,467 divided by 59,782,091 shares) $9.06
Offering price per share (100/94.25 of $9.06) * $9.61
Net asset value and offering price per class B share
($501,437,709 divided by 55,573,491 shares) ** $9.02
- -------------------------------------------------------------------------------
* 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.
<PAGE>
<PAGE>
STATEMENT OF OPERATIONS
Year ended October 31, 1994
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Interest $ 15,413,981
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $254,873) 51,692,778
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 67,106,759
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,207,214
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,538,874
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 42,342
- -------------------------------------------------------------------------------
Reports to shareholders 57,935
- -------------------------------------------------------------------------------
Auditing 37,054
- -------------------------------------------------------------------------------
Legal 27,177
- -------------------------------------------------------------------------------
Postage 210,751
- -------------------------------------------------------------------------------
Distribution fees -- class A (Note 2) 1,489,338
- -------------------------------------------------------------------------------
Distribution fees -- class B (Note 2) 5,317,810
- -------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,964
- -------------------------------------------------------------------------------
Administrative services (Note 2) 29,186
- -------------------------------------------------------------------------------
Registration fees 32,005
- -------------------------------------------------------------------------------
Other 41,784
- -------------------------------------------------------------------------------
TOTAL EXPENSES 16,033,434
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 51,073,325
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1, 3 and 5) (8,817,934)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments
during the year (138,565,058)
- -------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (147,382,992)
- -------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(96,309,667)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year ended October 31
1994 1993
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 51,073,325 $ 38,890,050
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments (8,817,934) 40,194,488
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (138,565,058) 65,555,087
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (96,309,667) 144,639,625
- -------------------------------------------------------------------------------
Undistributed net investment income
included in price of shares sold and
repurchased, net -- 649,258
- -------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (28,496,427) (27,572,961)
- -------------------------------------------------------------------------------
Class B (21,635,196) (11,920,400)
- -------------------------------------------------------------------------------
In excess of net investment income
Class A -- (172,869)
- -------------------------------------------------------------------------------
Class B -- (950,764)
- -------------------------------------------------------------------------------
Net realized gain on investments
Class A (18,587,199) (237,269)
- -------------------------------------------------------------------------------
Class B (15,941,065) (73,301)
- -------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (12,251,877) 609,744,505
- -------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (193,221,431) 714,105,824
- -------------------------------------------------------------------------------
NET ASSETS
Beginning of year $1,236,278,607 $ 522,172,783
- -------------------------------------------------------------------------------
END OF YEAR (distributions in excess
of net investment income of $0 and
$1,123,633, respectively) $1,043,057,176 $1,236,278,607
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
For the period For the period
April 27, 1992 November 19, 1990
(commencement of (commencement of
operations) to operations) to
Year ended October 31 October 31 Year ended October 31 October 31
1994 1993 1992 1994 1993 1992 1991
Class B Class A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.52 $9.22 $8.87 $10.56 $9.24 $8.91 $8.50
- -----------------------------------------------------------------------------------------------------------------------------------
Investment operations
Net investment income .39 .42 .26 .46 .51 .52 .52(a)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.22) 1.34 .36 (1.22) 1.33 .37 .36
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.83) 1.76 .62 (.76) 1.84 .89 .88
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (.38) (.43) (.27) (.45) (.51) (.56) (.47)
- -----------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- (.03) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (.29) -- -- (.29) (.01) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.67) (.46) (.27) (.74) (.52) (.56) (.47)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.02 $10.52 $9.22 $9.06 $10.56 $9.24 $8.91
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (c) (8.04) 19.54 7.06(b) (7.30) 20.40 10.31 10.70(b)
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $501,438 $551,794 $103,075 $541,619 $684,484 $419,098 $158,918
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.83 1.86 .94 1.08 1.12 1.32 1.22(a)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (b) 4.10 3.98 2.45 4.84 4.97 5.60 5.63(a)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 112.32 123.57 21.16 112.32 123.57 21.16 111.19
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Reflects a voluntary expense limitation during the period. As a result of such limitation, expenses of the fund for the period
ended October 31, 1991 reflect a reduction of approximately $0.04 share. See Note 2.
(b) Not annualized.
(c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
</TABLE>
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The fund seeks capital
growth and current income primarily through investments in equity and debt secu-
rities issued by public utility companies.
The fund offers both class A and class B shares. The fund commenced its public
offering of Class B shares on April 27, 1992. Class A shares are sold with a ma-
ximum front-end sales charge of 5.75%. Class B shares do not pay a front-end sa-
les charge, but pay a higher ongoing distribution fee than class A shares, and
are subject to a contingent deferred sales charge if those shares are redeemed
within six years of purchase. Expenses of the fund are borne pro-rata by the
holders of both classes of shares, except that each class bears expenses unique
to that class (including the distribution fees applicable to such class), and
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 divi-
dends on each class of shares.
The following is a summary of significant accounting policies consistently fo-
llowed 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 avail-
able are stated at market value, which is determined using the last reported sa-
le price or, if no sales are reported -- as in the case of some securities tra-
ded over-the-counter -- the last reported bid price, except that certain U.S.
government obligations are stated at the mean between the last reported bid and
asked prices. Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost which approximates market value, and other in-
vestments are stated at fair value following procedures approved by the Trus-
tees. Market quotations are not considered to be readily available for long-term
corporate bonds and notes; such investments are stated at fair value on the ba-
sis of valuations furnished by a pricing service, approved by the Trustees,
which determines valuations for normal, institutional-size trading units of such
securities using methods based on market transactions for comparable securities
and various relationships between securities which are generally recognized by
institutional traders.
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. The order permits the fund's cash balance to be deposited
into a single joint account along with the cash of other registered investment
companies managed by Putnam Investment Management, Inc., the fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc., and certain other accounts.
These balances may be invested in one or more repurchase
<PAGE>
<PAGE>
agreements and/or short-term money market instruments.
C REPURCHASE AGREEMENTS The fund or any joint trading account, through its cus-
todian, 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. The fund's Manager 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). In-
terest income is recorded on the accrual basis and dividend income is recorded
on the ex-dividend date.
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 In-
ternal 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. Therefo-
re, no provision has been made for federal taxes on income and capital gains or
unrealized appreciation of securities held, and excise tax on income and capital
gains.
At October 31, 1994, the fund had a capital loss carryover of approximately
$7,361,000, which will expire October 31, 2002. In order to provide more level
daily distributions, the fund may at times pay taxable distributions from net
realized short-term gains that could have been retained by the fund and offset
by the capital loss carryover. In such circumstances, the fund would lose the
benefit of the carryover.
F DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the exdividend date. At certain times, the fund may pay distribu-
tions at a level rate even though, as a result of market conditions or invest-
ment decisions, the fund may not achieve projected investment results for a gi-
ven period. The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from ge-
nerally accepted accounting principles. These differences include treatment of
wash sales, capital loss carryforwards, and non-taxable dividends. Reclassifica-
tions are made to the fund's capital accounts to reflect income and gains avail-
able for distribution (or available capital loss carryovers) under income tax
regulations. For the year ended October 31, 1994 the fund reclassified $941,702
to increase distributions in excess of net investment income and $468,807 to de-
crease realized losses and $472,895 to increase paid-in capital. In addition
there has been a redesignation of gains from income of $761,323.
G UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in connection
with its organizations, aggregated $23,433. These expenses are being amortized
on a straight-line basis over a 5-year period.
H EQUALIZATION Prior to November 1, 1993, the fund used an accounting practice
known as equalization to keep a continuing shareholder's per share interest in
undistributed net investment income unaffected by sales or repurchases of fund
shares. This was accomplished by allocating a per share portion of the proceeds
from sales and the costs of repurchases of shares to undistributed net invest-
ment income.
As of November 1, 1993, the fund discontinued using equalization. This change
has no effect on the fund's total net assets, net asset value per
<PAGE>
<PAGE>
share, or its net increase (decrease) in net assets from operations. Disconti-
nuing the use of equalization will result in simpler financial statements. The
cumulative effect of the change was to decrease undistributed net-investment in-
come and increase paid-in capital previously reported through October 31, 1993
by $3,284,461.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management for management and investment advi-
sory 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: 0.70% of the first
$500 million of average net assets, 0.60% of the next $500 million, 0.55% of the
next $500 million, and 0.50% of any amount over $1.5 billion, subject to reduc-
tion in any year under current law to the extent that expenses (exclusive of
brokerage, interest and taxes) of the fund exceed 2.5% of the first $30 million
of average net assets, 2.0% 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
expenses) received by affiliates of the Manager on the fund's portfolio transac-
tions.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative ser-
vices to the fund. The aggregate amount of all such reimbursements is determined
annually by the Trustees. For the year ended October 31, 1994, the fund paid
$29,186 for these services.
Trustees of the fund receive an annual Trustee's fee of $2,610 and an additional
fee for each Trustees' meeting attended. Trustees who are not inter-ested per-
sons of the Manager and who serve on committees of the Trustees receive additio-
nal fees for attendance at certain committee meetings.
Custodial functions for the fund are being provided by Putnam Fiduciary Trust
Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing
agent functions are currently provided by Putnam Investor Services, a division
PFTC.
Fees paid for these investor servicing and custodial functions for the year
ended October 31, 1994 amounted to $1,538,874.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended October 31, 1994 have been reduced by credits allowed by
PFTC.
The fund has adopted a distribution plan with respect to its class A shares (the
"Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of Class A Plan is to compensate Putnam Mutual Funds Corp., a who-
lly-owned subsidiary of Putnam Investments, Inc., for services provided and ex-
penses incurred by it in distributing class A shares. The Trustees have approved
payment by the fund to Putnam Mutual Funds Corp. at an annual rate of 0.25% of
the fund's average net assets attributable to class A shares. For the year ended
October 31, 1994, the fund paid $1,489,338 in distribution fees for class A sha-
res.
The fund has adopted a separate distribution plan with respect to its class B
shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The purpose of the Class B Plan is to compensate Putnam Mutual
Funds Corp. for services provided and expenses incurred by it in distributing
class B shares. The Class B Plan provides for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate of 1.00% of the
<PAGE>
<PAGE>
funds average net assets attributable to class B shares. For the year ended Oc-
tober 31, 1994, the fund paid fees of $5,317,810 for class B shares.
During the year ended October 31, 1994, Putnam Mutual Funds Corp., acting as the
underwriter, received net commissions of $359,378 from the sale of class A sha-
res of the fund.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of
class A shares purchased as part of an investment of $1 million or more. For the
year ended October 31, 1994, Putnam Mutual Funds Corp., acting as underwriter,
received $15,127 on class A redemptions.
Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred sa-
les charges on its class B share redemptions within six years of purchase. The
charge is based on declining rates, which begin at 5.00% of the net asset value
of the redeemed shares. Putnam Mutual Funds Corp. has received contingent defe-
rred sales charges of $688,162 from such redemptions for the year ended October
31, 1994.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended October 31, 1994, purchases and sales of investment
securities other than short-term investments aggregated $1,238,648,353 and
$1,272,756,745, respectively. There were no purchases or sales of U.S. govern-
ment obligations during the year. In determining the net gain or loss on securi-
ties sold, the cost of securities has been determined on the identified cost ba-
sis.
NOTE 4
CAPITAL SHARES
At October 31, 1994, there was an unlimited number of shares of beneficial inte-
rest authorized, divided into two classes, designated class A and class B capi-
tal stock. Transactions in capital shares were as follows:
YEAR ENDED OCTOBER 31 1994
CLASS A SHARES AMOUNT
Shares sold 13,601,088 $129,166,605
Shares issued in connection with
reinvestment of distributions 4,152,123 39,384,659
17,753,211 168,551,264
Shares repurchased (22,805,796) (214,474,268)
NET DECREASE (5,052,585) $(45,923,004)
YEAR ENDED OCTOBER 31 1993
CLASS A SHARES AMOUNT
Shares sold 27,864,206 $279,912,275
Shares issued in connection with
reinvestment of distributions 2,198,303 21,882,646
30,062,509 301,794,921
Shares repurchased (10,595,862) (106,373,479)
Portion represented by undistributed net
investment income -- (304,640)
NET INCREASE 19,466,647 $195,116,802
YEAR ENDED OCTOBER 31 1994
CLASS B SHARES AMOUNT
Shares sold 17,161,346 $164,989,889
Shares issued in connection with
reinvestment of distributions 3,428,176 32,433,804
20,589,522 197,423,693
Shares repurchased (17,486,953) (163,752,566)
NET INCREASE 3,102,569 $33,671,127
<PAGE>
<PAGE>
YEAR ENDED OCTOBER 31 1993
CLASS B SHARES AMOUNT
Shares sold 43,138,289 $434,011,920
Shares issued in connection with
reinvestment of distributions 1,045,890 10,504,722
44,184,179 444,516,642
Shares repurchased (2,892,200) (29,544,321)
Portion represented by undistributed net
investment income -- (344,618)
NET INCREASE 41,291,979 $414,627,703
NOTE 5
RECLASSIFICATION OF CAPITAL ACCOUNTS
Effective November 1, 1993 Putnam Utilities Growth and Income Fund has adopted
the provisions of Statement of Position (SOP) 93-2 .Determination, Disclosure
and Financial Statement Presentation of Income, Capital Gain and Return of Capi-
tal Distributions by Investment Companies. The SOP requires the fund to report
the undistributed net investment income (accumulated loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate amounts avail-
able for future tax distributions (or to offset future realized capital gains)
in implementing the SOP the fund has reclassified $4,483,557 to decrease accumu-
lated net realized gain, $4,408,094 to increase undistributed net investments
income, with an increase or $75,463 to increase paid-in capital. These adjust-
ments represent the cumulative amounts necessary to report these balances on a
tax basis through October 31, 1993. These reclassifications which have no impact
on the total net asset value of the fund are primarily attributable to tax equa-
lization which is treated differently in the computation of distributable income
and capital gains under federal income tax rules and regulations versus genera-
lly accepted accounting principles.
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FEDERAL TAX INFORMATION
For federal income tax purposes, distributions totaling $.575 and $.503 for
Class A and Class B shares, respectively, were designated as "dividend income"
for federal income tax purposes. The fund has designated approximately 99.59%
of the distributions as qualifying for the dividends-received deductions for
corporations.
In addition, the long term capital gain of $.167 per share for Class A and Class
B is taxable as "capital gains" for federal income tax purposes.
The form 1099 you receive in January 1995 will show the tax status of distribu-
tions paid to your account in calendar 1994. If you are a shareholder in an IRA
or other tax-sheltered retirement plan, this statement is for information only
and will serve as a record of distributions reinvested in your account during
the fiscal year. Money invested in these plans generally is not subject to fede-
ral income tax until you withdraw it.
As required by law, your fund reports to the Internal Revenue Service on a ca-
lendar year basis the amount of distributions paid to each shareholder.
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OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal every
year since the award's 1990 inception. DALBAR, an independent research firm, ran
more than 10,000 tests of 38 shareholder service components. In every category,
Putnam outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from a
Putnam fund or from your checking or savings account. *
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the then-
current net asset value, which may be more or less than their original cost.
For details about any of these or other services, contact your financial advisor
or call the toll-free number shown below and speak with a helpful Putnam repre-
sentative.
To make an additional investment in this or any other Putnam fund, contact your
financial advisor or call our toll-free number:
1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to con-
tinue purchasing shares during periods of low price levels.
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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
A.J.C. Smith W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice President
Patricia C. Flaherty Lawrence J. Lasser
Senior Vice President Vice President
Gordon H. Silver Peter Carman
Vice President Vice President
Brett C. Browchuk Thomas V. Reilly
Vice President Vice President
Sheldon Simon Christopher Ray
Vice President and Fund Manager Vice President and Fund Manager
William N. Shiebler John R. Verani
Vice President Vice President
Paul M. O.Neil John D. Hughes
Vice President Vice President and Treasurer
Beverly Marcus
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 accom-
panied by the current prospectus, which gives details of sales charges, invest-
ment objectives and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information, or to request a
prospectus, call toll-free: 1-800-225-1581.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
Paid
Putnam
Investments
A30/A55-15428
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APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
(6) The copyright symbol has been replaced by (C).
(7) The dagger symbol has been replaced by (+).
(8) The registered mark symbol has been replaced by (R).
