Putnam
Utilities
Growth and
Income
Fund
[Graphic omitted: artwork]
ANNUAL REPORT
October 31, 1995
[Logo: BOSTON * LONDON * TOKYO]
Fund highlights
* "Regulation is always an issue with utilities. It's something we
have to watch very carefully. However, competition in electric utilities
hasn't had as much negative impact on the industry as expected."
-- Sheldon N. Simon, manager,
Putnam Utilities Growth and Income Fund
* "The electric utilities in general are in good shape for further
price appreciation."
-- Investor's Business Daily, 10/30/95
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
15 Portfolio holdings
21 Financial statements
From the Chairman
[Graphic omitted:
photo of
GEORGE PUTNAM]
(C) Karsh, Ottawa
Dear Shareholder:
An important feature in the investment strategy of Putnam Utilities Growth and
Income Fund is its ability to shift between stocks and bonds in its pursuit of
capital growth and current income. Your fund's management team put the feature
to good use during the fiscal year that ended on October 31, 1995.
The fund began the fiscal year with about 25% of its assets in utility bonds.
When the bond market moved sharply higher early in the period, fund management
took profits in a significant portion of the fund's fixed-income holdings and
stepped up the weighting of utility stocks.
Soon thereafter, stocks began their historic march to new highs, with utility
issues sharing in the market's strength, and your fund was clearly a
beneficiary. Your management team fills in the details in the report that
follows.
Respectfully yours,
/s/George Putnam
-------------
George Putnam
Chairman of the Trustees
December 20, 1995
Report from the Fund Managers
Sheldon Simon, lead manager
Christopher Ray
Putnam Utilities Growth and Income Fund sailed nimbly through this year's bull
markets, finishing its fiscal year on October 31, 1995, with a strong total
return of 20.71% for class A shares and 19.92% for class B shares, both at net
asset value. Stocks were in the lead during the period and your fund, with its
largest stock allocation since inception, participated fully in market advances
that reached several new highs. For more information on performance, please
refer to pages 8 through 10.
This year's investment environment was a dramatic turnaround after 1994's
downturn. Interest rates reversed direction and declined in 1995. This
reversal, coupled with slower economic growth, low inflation, and strong
corporate earnings, brought investors back to the markets and provided a more
hospitable environment for stocks. Utilities stocks, which had languished
through much of 1994, were among this year's stronger performers
* STRATEGY SHIFTS CAPTURE BENEFITS OF MARKET ADVANCES
Early in the year, the fund held about 25% of total assets in utility bonds. As
bonds rallied, we took profits in this sector and, with the proceeds, increased
the stock portion of the portfolio. In general, our focus was on the stocks of
small-to-midsized electric utility companies that had been overlooked by the
market and, as a result, were in our view attractively priced. The flexibility
of smaller companies that enabled them to meet the challenges of the newly
competitive utilities environment was an added attraction.
We further refined our focus to companies in high-growth areas, mainly in the
Southwest and Southeast, where population growth and expanding markets
compensate for any problems caused by increased competition. Our electric
utility stock position, which amounted to about 40% of the portfolio, at the
year's end, made a substantial contribution to performance.
Gas utility stocks, which made up about 16% of the portfolio at year-end, held
their own this year, with Panhandle Eastern and Columbia Gas Systems, two
pipeline stocks, being particularly strong performers.
Telephone stocks, about 16% of the portfolio, also showed solid gains this year
thanks to the increased usage that came from a thriving economy. In another
well-timed move, we took profits on foreign holdings that had benefited from
the U.S. dollar's weakness and redeployed these assets into the U.S. stock
market.
* LEARNING FROM THE MARKET'S CYCLE
In the past three years, we have demonstrated the effectiveness of our strategy
in very different market conditions. In fiscal 1993, for example, as interest
rates fell below 6%, utilities stocks and emerging markets made solid gains.
The fund's fiscal '93 performance, good in both absolute and relative terms,
placed both class A and class B shares in the top half of the 80 utilities
funds tracked by Lipper Analytical Services.
In fiscal 1994, as interest rates rose, markets declined and remained unsettled
for most of the year. All investments suffered, especially those such as
utilities that are most sensitive to interest rate changes. Concern about
deregulation and increased competition compounded the negative effects of
rising interest rates. The fund's fiscal '94 performance was down 7.30% at NAV,
but it still outperformed the majority of the utilities funds tracked by
Lipper, with class A and class B shares ranking 23 and 27, respectively, out of
63 funds, a good relative performance though weak in absolute terms.
[Graphic omitted: worm chart UTILITIES AND TREASURIES
Y axis reads (top to bottom) $13,800 to $9,800 in $2,000 increments
X axis reads (left to right) 10/94 to 10/95 in one month increments
A solid black line represents Lehman Bros. Long Term Corporate Utility Bond
Index ranging from $10,000 to $12,334
A solid white line represents Lehman Treasury Bond Index ranging from $10,000
to $11,537
A solid grey line represents S&P Utilities Index ranging from
$10,000 to $12,928
Lehman Bros. Lehman S&P Util.
Utilities Treasuries Index
----------- ---------- ----------
Oct-94 $ 10,000 $10,000 $10,000
Nov-94 10,059 9,980 9,857
Dec-94 10,213 10,041 9,912
Jan-95 10,479 10,227 10,684
Feb-95 10,812 10,445 10,663
Mar-95 10,915 10,511 10,596
Apr-95 11,100 10,648 10,992
May-95 11,759 11,079 11,334
Jun-95 11,888 11,165 11,383
Jul-95 11,765 11,125 11,675
Aug-95 12,032 11,254 11,913
Sep-95 12,189 11,362 12,660
Oct-95 12,334 11,537 12,928
Footnote reads:
The graph compares cumulative total returns for unmanaged indexes representing
three different investment types. The S&P Utilities Stock Index is a
capitalization weighted index representing stocks of 3 utility groups and 43 of
the largest utility companies listed on the NYSE. The Lehman Bros. Long Term
Corporate Utility Bond Index is one sector of the Lehman Bros. Corporate Bond
Index and includes publicly issued, fixed-rate nonconvertible, investment
grade, dollar-denominated instruments. The Lehman Bros. Treasury Bond Index is
composed of all U.S. Treasury publicly issued obligations with a minimum
maturity of 1 year and a minimum outstanding principal of $50 million and is
rebalanced monthly by market capitalization. Not intended to reflect fund
performance. Past performance does not assure future results.]
As fiscal 1995 began, interest rates were headed downward and the markets had
started their recovery. By the end of the year, the stock market had climbed to
new highs and the fund had more than made up whatever it lost in 1994.
Securities bought at bargain prices during the downturn made substantial gains,
while the negative effects of increased competition never fully materialized.
The fund's performance over this three-year period placed it well ahead of the
Lipper average for utilities funds, which we believe shows how a long-term,
consistently applied conservative approach pays off.
* A POSITIVE OUTLOOK
By shifting assets among different utilities sectors, searching out areas of
undervaluations, and reallocating assets between stocks and bonds, nonutility
and overseas holdings, we have cushioned recent downturns while keeping up with
market advances. Over the long term, we view these challenges as opportunities
that should enable us to more than offset periods of difficult performance.
Signs of a softening economy, continued low inflation, and low interest rates
are good news for utilities. More good news are the cost-cutting programs
implemented by utility companies. The utility industry has generally lagged
behind others in looking to increase profitability.
Although regulatory issues, now mainly at the state level, bear watching, we
continue to favor electric utilities. We have become more selective in our
telephone investments, emphasizing companies with strong fundamental potential
while paying close attention to their valuations, given this year's strong
performance. We now also see opportunities in the gas sector, where stock
prices have recently lagged behind both electric and telephone stocks, and are
consequently more attractive than they have been in some time.
[Graphic omitted: horizontal bar chart PORTFOLIO OVERVIEW BY INDUSTRY &
INVESTMENT, 10/31/95* showing
Electric utilities 39.9%
Other utilities 0.6%
Telephone utilities 15.9%
Oil and gas 17.5%
Nonutility stocks 10.5%
Cash and short-term investments 1.4%
Utility bonds 10.2%
Other bonds 3.6%
Footnote reads:
* Based on net assets on 10/31/95. Allocations will vary over time.]
For the last few years, we have had some non-utility stocks in the portfolio.
Our goals for these investments were twofold: to enhance total return and to
dampen the fund's risk exposure through increased diversification. On the
whole, these stocks have performed extremely well, especially during 1994.
However, we have currently lowered our allocation in this area, reflecting our
more positive outlook toward utility stocks.
The nonutility and overseas sectors will probably play smaller roles over the
near term. We will, however, act opportunistically to acquire attractively
priced issues with solid fundamentals. Our stock/bond allocation is unlikely to
change over the near term, as utility stocks still appear more attractive than
bonds at the end of the fiscal year. However, should the yield spread between
utility stocks and bonds begin to favor bonds, we will adjust allocations
accordingly. All sectors will maintain our focus on total return; this
combination of capital appreciation and dividend income has served the fund
well though recent up and down markets and we believe it will continue to do so
in the future.
The views expressed here are exclusively those of Putnam Management. They ar
not meant as investment advice. Although the described holdings were viewed
favorably as of 10/31/95, 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 in the fund.
Performance should always be considered in light of a fund's investment
strategy. Putnam Utilities Growth and Income Fund is designed for capital
growth and current income through equity and debt securities issued by public
utility companies.
TOTAL RETURN FOR PERIODS ENDED 10/31/95
Class A Class B Class M
(11/19/90) (4/27/92) (3/1/95)
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------
1 year 20.71% 13.80% 19.92% 14.92% -- --
- -------------------------------------------------------------------
3 years 34.72 27.02 31.82 28.82 -- --
- -------------------------------------------------------------------
Annual average 10.44 8.30 9.65 8.81 -- --
- -------------------------------------------------------------------
Life-of-class 64.52 55.03 41.13 38.13 17.50% 13.41%
Annual average 10.58 9.26 10.31 9.64 -- --
- -------------------------------------------------------------------
COMPARATIVE INDEX RETUENS FOR PEROIDS ENDED 10/31/95
S&P Consumer
Utilities Price Index
- ---------------------------------------------------------
1 year 29.52% 2.81%
- ---------------------------------------------------------
3 years 42.51 8.39
Annual average 12.53 2.72
- ---------------------------------------------------------
Life of class A 73.21 14.87
Annual average 11.74 2.84
- ---------------------------------------------------------
Life of class B 54.24 10.18
Annual average 13.14 2.80
- ---------------------------------------------------------
Life of class M 22.04 1.86
The performance data represent past results, do not reflect future performance,
and will differ for each share class. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment returns
and principal value will fluctuate so that an investor's shares, when sold, may
be worth more or less than their original cost. POP assumes 5.75% maximum
sales charge for class A shares and 3.50% for class M shares. CDSC for class B
shares assumes 5% maximum contingent deferred sales charge.
[Graphic omitted: worm chart GROWTH OF A $10,000 INVESTMENT
Y axis reads (top to bottom) $22,000 to $8,000 in $2,000 increments
X axis reads (left to right) 11/19/90 to 10/31/95 in one year increments
A solid black line represents Fund's Class A at POP ranging from $9,425
to $15,503
A solid white line represents S&P Utilities Index ranging from $10,000
to $17,321
A solid grey line represents S&P 500 ranging from $10,000 to $21,006
Class A S&P Util. Index S&P 500
---------- ---------- ----------
11/19/90 $ 9,425 $10,000 $10,000
10/31/91 10,432 10,945 12,709
10/31/92 11,508 12,154 13,971
10/31/93 13,855 15,224 16,050
10/31/94 12,844 13,373 16,672
10/31/95 15,503 17,321 21,066
Footnote reads:
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 $14,113 on 10/331/95 ($13,813 with a redemption at the end of the peroid).
A $10,000 investment in the fund's class M shares at inception on 3/1/95
would have been valued at $11,750 at net asset value on 10/31/95 ($11,341
at public offering price).]
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION
12 months ended 10/31/95
Class A Class B Class M
- -------------------------------------------------------------------------------
Distributions:
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
No. 4 4 3
- -------------------------------------------------------------------------------
Income $0.460 $0.391 $0.329
- -------------------------------------------------------------------------------
Capital gains
- -------------------------------------------------------------------------------
Long-term -- -- --
- -------------------------------------------------------------------------------
Short-term 0.014 0.014 --
- -------------------------------------------------------------------------------
Total 0.474 0.405 0.329
- -------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -------------------------------------------------------------------------------
10/31/94 $ 9.06 $ 9.61 $ 9.02 -- --
- -------------------------------------------------------------------------------
3/1/95 -- -- -- $ 9.14 $ 9.47
- -------------------------------------------------------------------------------
(inception of class M shares)
- -------------------------------------------------------------------------------
10/31/95 10.40 11.03 10.36 10.38 10.76
- -------------------------------------------------------------------------------
Current return
- -------------------------------------------------------------------------------
End of period
- -------------------------------------------------------------------------------
Current dividend rate1 4.42 4.17 3.71 4.08 3.94
- -------------------------------------------------------------------------------
Current 30-day SEC yield2 3.89 3.66 3.06 3.31 3.19
- -------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV or
POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/95
(most recent calendar quarter)
CLASS A CLASS B CLASS M
(11/19/90) (4/27/92) (3/1/95)
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 20.93% 13.96% 20.01% 15.01% -- --
- -------------------------------------------------------------------------------
3 years 32.21 24.63 29.36 26.36 -- --
- -------------------------------------------------------------------------------
Annual average 9.75 7.61 8.96 8.11 -- --
- -------------------------------------------------------------------------------
Life-of-class 63.73 54.28 40.45 37.45 16.94% 12.86%
- -------------------------------------------------------------------------------
Annual average 10.65 9.31 10.41 9.72 -- --
- -------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance, and
will differ for each share class. They do not take into account any adjustment
for taxes payable on reinvested distributions. Investment returns and principal
value will fluctuate so that an investor's shares, when sold, may be worth more
or less than their original cost.
</TABLE>
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.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
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 and 3.50%
for class M shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of class B 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.
COMPARATIVE BENCHMARKS
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.
These indexes assume reinvestment of all distributions and do not take into
account brokerage commissions or other costs. The fund's portfolio contains
securities that do not match those in the indexes. It is not possible to invest
directly in an index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the relationship
between an investment's potential rewards and its accompanying risks. Given the
cautionary nature of such instructions, it may take most investors a while to
realize that risk has a positive side.
Every risk signals a potential reward. Selecting only those investments that
offer the greatest degree of security generally leads to only modest rewards.
Furthermore, even insured or guaranteed investments may be subject to changes
in their rates of return or, in some cases, in their principal values.
Experienced investors know that no investment is truly risk free and are
therefore willing to take on some measure of risk in order to increase their
potential gains.
The greater the risk, the greater the potential reward. Accepting an
appropriate level of investment risk can give you a better chance of outpacing
inflation over time and seeking to maximize your investment's return. How much
risk? Your financial advisor's feedback and your time horizon can make all the
difference in determining how much risk is compatible with your investment
goals and your peace of mind.
* A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds, this is
a measure of how sensitive a fund's holdings are to changes in general market
conditions. Remember, though, that securities that lose value quickly in market
declines may also show the strongest gains in more favorable environments.
INTEREST RATE RISK Since bond prices fall as interest rates rise, this type of
risk is a particular concern for fixed income investors. However, interest-rate
increases can also have a substantial negative effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your money
will begin to lose its purchasing power. Stock investments are generally
considered among the best ways of addressing inflation risk over the long term.
* FITTING YOUR FUND SELECTION TO YOUR RISK TOLERANCE
How do you find the right balance between investment risks and their potential
rewards? It's helpful to understand the types of risks that can apply to
different types of investments, and to look at your own portfolio with this
perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more connected with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully.Within each of Putnam's four investment
categories, you can select funds with differing levels of risk and reward
potential to customize your portfolio.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the security's
issuer will not be able to meet its payment, while prepayment risk involves the
premature payoff of a loan, with a resulting loss of interest income.
Professional management and in-depth research are invaluable in managing both
these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at their
perceived market values. Liquidity risk can affect the price of securities held
in the fund's portfolio and, thus, the fund's share prices.
This list covers only the most general types of risks; however, each investment
will also have its own specific risks. You will find a more detailed discussion
of these risk considerations in each fund's prospectus.
Report of independent accountants
For the Year Ended October 31, 1995
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, 1995 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
indicated 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
standards. Those standards require that we plan and perform the audit to obtain
reasonable 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, 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 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, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 12, 1995
<TABLE>
Portfolio of investments owned
October 31, 1995
<CAPTION>
COMMON STOCKS (84.4%)*
NUMBER OF SHARES VALUE
Alcoholic Beverages (0.1%)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
38,500 Brown Forman Corp. Class B $ 1,467,813
Banks (2.3%)
- -----------------------------------------------------------------------------------------
170,000 Bankers Trust New York Corp. 10,837,500
100,000 Fleet Financial Group, Inc. 3,875,000
34,800 Keycorp 1,174,500
150,000 National City Corp. 4,631,250
250,000 PNC Bank Corp. 6,562,500
--------------
27,080,750
Business Services (0.5%)
- -----------------------------------------------------------------------------------------
100,000 Dun & Bradstreet Corp. 5,975,000
Conglomerates (0.4%)
- -----------------------------------------------------------------------------------------
150,000 GenCorp, Inc. 1,575,000
30,000 General Signal Corp. 956,250
50,000 Ogden Corp. 1,137,500
--------------
3,668,750
Electric Utilities (39.9%)
- -----------------------------------------------------------------------------------------
360,000 Atlantic Energy, Inc. 6,975,000
200,000 Baltimore Gas & Electric Co. 5,350,000
210,000 Boston Edison Co. 5,748,750
21,600 CILCORP, Inc. 842,400
400,000 CMS Energy Corp. 11,050,000
100,000 CMS Energy Corp. Class G 1,850,000
350,000 Carolina Power & Light Co. 11,462,500
100,000 Central & South West Corp. 2,675,000
52,500 Central Costanera 144A ADR (Argentina) + 1,437,188
200,000 Central Maine Power Co. 2,775,000
80,000 Central Puerto 144A ADR (Argentina) 1,160,000
10,000 Chilectra S.A. 144A ADR (Chile) 412,500
400,000 China Light & Power Co. (Hong Kong) 2,131,623
400,000 Cinergy Corp. 11,350,000
110,000 Compania Boliviana Energia ADR (Bolvia) 3,203,750
100,000 Consolidated Edison Co. of New York, Inc. 3,037,500
50,000 DPL, Inc. 1,187,500
100,000 Detroit Edison Co. 3,375,000
337,700 Dominion Resources, Inc. 13,423,575
50,000 Duke Power Co. 2,237,500
340,120 East Midlands Electricity PLC (United Kingdom) 4,672,871
170,000 Eastern Utilities Assoc. 3,995,000
120,000 Empresa Nacional de Electricidad ADR (Spain) 6,030,000
COMMON STOCKS
NUMBER OF SHARES VALUE
Electric Utilities (continued)
- -----------------------------------------------------------------------------------------
68,500 Empresa Nacional de Electricidad ADR (Chile) $ 1,472,750
550,000 Entergy Corp. 15,675,000
250,000 FPL Group, Inc. 10,468,750
300,000 Florida Progress Corp. 9,937,500
350,000 General Public Utilities Corp. 10,937,500
111,700 Hawaiian Electric Industries, Inc. 4,356,300
600,000 Hong Kong Electric Holdings Ltd. (Hong Kong) 2,041,080
750,000 Huaneng Power International, Inc.ADR (China) + 12,468,750
532,800 IES Industries, Inc. 14,185,800
1,500,000 Iberdola S.A. (Spain) 11,310,549
150,000 Illinova Corp. 4,256,250
50,000 KU Energy Corp. 1,481,250
560,000 Kansas City Power & Light Co. 13,930,000
400,000 Long Island Lighting Co. 6,800,000
29,600 Mosenergo ADR (Russia) + 262,700
350,000 New England Electric Systems Inc. 13,650,000
500,000 Northeast Utilities 12,375,000
230,000 Oklahoma Gas & Electric Co. 9,200,000
640,000 P P & L Resources, Inc. 14,400,000
350,000 Peco Energy Co. 10,237,500
800,000 Pinnacle West Capital Corp. 22,000,000
440,000 Portland General Corp. 11,935,000
350,000 Potomac Electric Power Co. 8,750,000
485,500 Public Service Co. of Colorado 16,567,688
530,000 Public Service Enterprise Group Inc. 15,568,750
150,000 Rochester Gas & Electric Corp. 3,525,000
400,000 SCE Corp. 6,800,000
80,000 San Diego Gas & Electric Co. 1,860,000
475,000 Scana Corp. 12,053,125
600,000 Scottish Power PLC (United Kingdom) 3,310,614
421,500 Shandong Huaneng Power ADS (China) 3,372,000
220,000 Sierra Pacific Resources 5,142,500
50,000 Southern Co. 1,193,750
250,000 Southwestern Public Service Co. 8,218,750
360,000 TNP Enterprises, Inc. 6,525,000
446,400 Texas Utilities Electric Co. 16,405,200
350,000 Unicom Corporation 11,462,500
200,000 United Illuminating Co. 7,600,000
200,000 Utilicorp United, Inc. 5,775,000
370,000 WPL Holdings, Inc. 11,285,000
160,000 Washington Water Power Co. 2,760,000
--------------
467,939,213
Gas Utilities (15.6%)
- -----------------------------------------------------------------------------------------
100,000 Atlanta Gas Light Co. 3,862,500
200,000 Atmos Energy Corp. 3,650,000
400,000 Columbia Gas System, Inc. + 15,400,000
120,000 Consolidated Natural Gas Co. 4,560,000
200,000 Delmarva Power & Light Co. 4,400,000
53,600 El Paso Natural Gas Co. 1,447,200
150,000 Enron Corp. 5,156,250
70,000 Equitable Resources, Inc. 2,047,500
300,000 K N Energy, Inc. 7,687,500
627,800 MCN Corp. 13,654,650
COMMON STOCKS
NUMBER OF SHARES VALUE
Gas Utilities (continued)
- -----------------------------------------------------------------------------------------
200,000 NICOR Inc. $ 5,375,000
51,400 NUI Corp. 841,675
200,000 National Fuel Gas Co. 5,950,000
57,600 New Jersey Resources Corp. 1,440,000
180,000 Northwest Natural Gas Co. 5,760,000
100,000 Oneok, Inc. 2,437,500
800,000 Pacific Enterprises 19,800,000
250,000 Pacific Gas & Electric Co. 7,343,750
621,400 Panhandle Eastern Corp. 15,690,350
104,500 Pennsylvania Enterprises, Inc. 3,631,375
150,000 Peoples Energy Corp. 4,312,500
80,000 Piedmont Natural Gas Co., Inc. 1,760,000
460,000 Questar Corp. 13,857,500
500,000 Transportadora de Gas del Sur ADR (Argentina) 5,125,000
525,600 UGI Corp. 11,037,600
24,900 WICOR, Inc. 737,663
30,000 Washington Energy Co. 551,250
354,800 Westcoast Energy, Inc. 5,233,300
250,000 Williams Cos., Inc. 9,656,250
--------------
182,406,313
Insurance (1.0%)
- -----------------------------------------------------------------------------------------
70,000 Aetna Life & Casualty Co. 4,926,250
200,000 American General Corp. 6,575,000
--------------
11,501,250
Metals and Mining (0.2%)
- -----------------------------------------------------------------------------------------
100,000 Freeport-McMoRan Copper & Gold Co., Inc. Class A 2,287,500
Oil and Gas (1.9%)
- -----------------------------------------------------------------------------------------
310,000 Coastal Corp. 10,036,250
40,000 Exxon Corp. 3,055,000
314,000 NGC Corporation 2,826,000
100,000 Pennzoil Co. 3,775,000
124,400 Petro-Canada 1st installment (Canada) + 590,900
103,100 Union Pacific Resources Group Inc. + 2,345,525
--------------
22,628,675
Pharmaceuticals (1.1%)
- -----------------------------------------------------------------------------------------
67,100 Bristol-Myers Squibb Co. 5,116,375
150,000 Upjohn Co. 7,612,500
--------------
12,728,875
Publishing (0.3%)
- -----------------------------------------------------------------------------------------
50,000 McGraw-Hill, Inc. 4,093,750
REIT'S (2.7%)
- -----------------------------------------------------------------------------------------
160,600 Avalon Properties, Inc. 3,131,700
38,600 Duke Realty Investments, Inc. 1,182,125
COMMON STOCKS
NUMBER OF SHARES VALUE
REIT'S (continued)
- -----------------------------------------------------------------------------------------
279,000 Equity Residential Properties Trust $ 7,812,000
100,000 Glimcher Realty Trust 1,800,000
100,000 LTC Properties, Inc. 1,450,000
84,600 Macerich Co. 1,702,575
100,000 Nationwide Health Properties, Inc. 4,112,500
60,000 Oasis Residential, Inc. 1,305,000
100,000 Paragon Group, Inc. 1,725,000
100,000 Simon Property Group, Inc. 2,325,000
135,000 South West Property Trust, Inc. 1,636,875
100,000 Storage Equities, Inc. 1,837,500
100,000 Storage Trust Realty 1,962,500
--------------
31,982,775
Retail (0.8%)
- -----------------------------------------------------------------------------------------
850,000 K mart Corp. 6,906,250
80,000 Melville Corporation 2,560,000
10,000 Penney (J.C.) Co., Inc. 421,250
--------------
9,887,500
Telephone Utilities (15.9%)
- -----------------------------------------------------------------------------------------
200,000 Airtouch Communications + 5,700,000
230,000 Ameritech Corp. New 12,420,000
300,000 Bell Atlantic Corp. 19,087,500
80,000 BellSouth Corp. 6,120,000
100,000 Empresas Telex-Chile SA ADS (Chile) 900,000
170,000 Frontier Corp. 4,590,000
500,000 GTE Corp. 20,625,000
1,700,000 MCI Communications Corp. 42,393,750
300,000 NYNEX Corp. 14,100,000
341,100 SBC Communications, Inc. 19,058,963
925,000 Sprint Corp. 35,612,500
117,700 US West, Inc. 5,605,463
--------------
186,213,176
Tobacco (0.5%)
- -----------------------------------------------------------------------------------------
45,000 American Brands, Inc. 1,929,375
50,000 Philip Morris Cos., Inc. 4,225,000
--------------
6,154,375
Transportation (0.6%)
- -----------------------------------------------------------------------------------------
200,000 Consolidated Freightways, Inc. 4,650,000
35,000 Union Pacific Corp. 2,288,125
--------------
6,938,125
Water Utilities (0.6%)
- -----------------------------------------------------------------------------------------
458,333 Welsh Water PLC (United Kingdom) 5,456,422
100,000 Yorkshire Water PLC (United Kingdom) 972,315
495,000 Welsh Water PLC Pfd. (United Kingdom) 813,899
--------------
7,242,636
--------------
Total Common Stocks (cost $901,310,325) $ 990,196,476
CORPORATE BONDS AND NOTES (10.8%)
PRINCIPAL AMOUNT VALUE
Electric Utilities (8.9%)
- -----------------------------------------------------------------------------------------
$ 4,000,000 Allegheny Generating Co. deb. 6 7/8s, 2023 $ 3,840,440
2,425,000 Arkansas Electric Corp. bonds 7.33s, 2008 2,514,422
3,500,000 BVPS II Funding Corp. notes 8.33s, 2007 3,459,155
7,000,000 Chugach Electric Co. 1st mtge. Ser. A, 9.14s, 2022 7,980,000
3,432,000 Citizens Utilities Co. bonds 7.68s, 2034 3,931,493
4,000,000 Consumers Power Co. 1st mtge. 8 3/4s, 1998 4,188,920
4,000,000 Delmarva Power & Light Co. med. term. notes 5.69s, 1998 3,956,280
5,000,000 Iberdrola S.A. notes 7 1/2s, 2002 (Spain) 5,262,500
4,992,500 Indiana-Michigan Power Co. deb. 9.82s, 2022 6,314,015
7,000,000 Kansas City Power & Light Co. med. term. notes 5 3/4s, 1998 6,943,090
4,000,000 Kansas Gas & Electric deb. 8.29s, 2016 4,235,440
4,000,000 Kentucky Utilities Co. 1st mtge. Ser. R, 7.55s, 2025 4,097,500
5,000,000 Midwest Power Systems mtge. 8 1/8s, 2023 5,314,050
3,500,000 Montana Power Co. 1st mtge. 7.7s, 1999 3,605,805
2,000,000 Nova Scotia Power Corp. deb. 9.4s, 2021 (Canada) 2,450,760
3,000,000 Pacificorp secd. med. term. notes 9.15s, 2011 3,602,490
4,000,000 Pacific Gas & Electric Co. sr. notes 7.1s, 2005 4,091,880
3,500,000 Public Service Co. of Colorado med. term. notes 9.08s, 1999 3,796,310
4,650,000 San Diego Gas & Electric Co. Ser. JJ, 1st mtge. 9 5/8s, 2020 5,534,430
5,000,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 5,140,900
10,000,000 Toledo Edison med. term. notes 1st mtge. Ser. A, 7.82s, 2003 9,579,000
4,000,000 Utilicorp United sr. notes 8.2s, 2007 4,360,720
--------------
104,199,600
Gas Utilities (1.6%)
- -----------------------------------------------------------------------------------------
3,000,000 Australian Gas & Light Co. 144A sr. notes
6 3/8s, 2003 (Australia) 2,928,900
4,000,000 Michigan Consolidated Gas 1st mtge. 8 1/4s, 2014 4,508,000
3,500,000 ONEOK Inc. deb. 9.7s, 2019 4,041,695
4,000,000 Southern Union Gas sr. notes 7.6s, 2024 4,033,840
3,000,000 Washington National Gas Co. 1st mtge. 8.4s, 2022 3,452,610
--------------
18,965,045
Oil and Gas (0.3%)
- -----------------------------------------------------------------------------------------
4,000,000 Petroliam Nasional Berhad 144A notes 6 7/8s,
2003 (Malaysia) 4,044,800
--------------
Total Corporate Bonds and Notes (cost $121,421,991) $ 127,209,445
PREFERRED STOCKS (1.0%) (cost $12,932,376)*
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------
458,000 Public Service Co. of New Hampshire 1st mtge. $2.65 pfd .$11,564,500
CONVERTIBLE BONDS AND NOTES (0.9%)*
PRINCIPAL AMOUNT VALUE
$ 2,900,000 Mitsubishi Bank Ltd. International Finance (Bermuda)
cv. trust guaranteed notes 3s, 2002 $ 3,008,750
4,082,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 3,408,470
4,000,000 Telekom Malaysia Berhad 144A cv. deb.4s,
2004 (Malaysia) 3,640,000
------------
Total Convertible Bonds and Notes (cost $9,676,278) $ 10,057,220
CONVERTIBLE PREFERRED STOCKS (0.8%)*
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------
72,300 Unisys Corp. Ser. A, $3.75 cv. pfd. $ 1,988,250
145,000 Philippine Long Distance Telephone Co. Ser. III $7.00 cv.
pfd. (Philippines) 7,685,000
--------------
Total Convertible Preferred Stocks (cost $9,895,428) $ 9,673,250
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (0.3%) (cost $3,680,492)*
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------
$ 3,050,000 U.S. Treasury Bonds 8 1/8s, August 15, 2019 $ 3,671,435
SHORT-TERM INVESTMENTS (1.4%) (cost $16,227,637)*
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------
$16,225,000 Interest in $515,000,000 joint repurchase agreement
dated October 31, 1995 with Morgan (J.P) & Co., Inc.
due November 1, 1995 with respect to various U.S.
Treasury obligations-maturity value of $16,227,637
for an effective yield of 5.85% $ 16,227,637
- -----------------------------------------------------------------------------------------
Total Investments (cost $1,075,144,527)*** $1,168,599,963
- -----------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,173,647,889.
+ Non-income-producing security.
*** The aggregate identified cost on a tax cost basis is $1,075,320,711
resulting in gross unrealized appreciation and depreciation of $128,414,110 and
$35,134,858, respectively, or net unrealized appreciation of $93,279,252.
ADR or ADS after the name of a foreign holding stands for American
Depository Receipts or American Depository Shares respectively,
representing 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1995
- ------------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (identified cost $1,075,144,527 (Note 1) $ 1,168,599,963
- ------------------------------------------------------------------------------------------------------
Cash 267,151
- ------------------------------------------------------------------------------------------------------
Interest, dividends and other receivables 5,918,017
- ------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,908,125
- ------------------------------------------------------------------------------------------------------
Receivable for securities sold 7,377,459
- ------------------------------------------------------------------------------------------------------
Total assets 1,184,070,715
Liabilities
- ------------------------------------------------------------------------------------------------------
Payable for securities purchased 6,198,192
- ------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,292,114
- ------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,833,128
- ------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,218
- ------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 677
- ------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 618,959
- ------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 374,807
- ------------------------------------------------------------------------------------------------------
Other accrued expenses 102,731
- ------------------------------------------------------------------------------------------------------
Total liabilities 10,422,826
- ------------------------------------------------------------------------------------------------------
Net assets 1,173,647,889
Represented by
- ------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) 1,081,869,016
- ------------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments (Note 1) (1,676,563)
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 93,455,436
- ------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $ 1,173,647,889
Computation of net asset value and offering price
- ------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($593,226,182 divided by 57,035,257 shares) $10.40
- ------------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $10.40)* $11.03
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($ 578,504,770 divided by 55,865,486 shares)+ $10.36
- ------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($ 1,916,937 divided by 184,763 shares) $10.38
- ------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $10.38)* $10.76
* 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1995
Investment Income
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Dividends (net of foreign tax of $477,178) $ 44,876,721
- -----------------------------------------------------------------------------------------------------------
Interest 15,339,966
- -----------------------------------------------------------------------------------------------------------
Total investment income 60,216,687
Expenses:
- -----------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,896,797
- -----------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,773,354
- -----------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 40,195
- -----------------------------------------------------------------------------------------------------------
Reports to shareholders 188,293
- -----------------------------------------------------------------------------------------------------------
Auditing 41,194
- -----------------------------------------------------------------------------------------------------------
Legal 25,406
- -----------------------------------------------------------------------------------------------------------
Postage 235,827
- -----------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,373,066
- -----------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 5,225,659
- -----------------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 4,186
- -----------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 27,152
- -----------------------------------------------------------------------------------------------------------
Registration fees 8,624
- -----------------------------------------------------------------------------------------------------------
Other 49,437
- -----------------------------------------------------------------------------------------------------------
Total expenses 15,889,190
- -----------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (301,896)
- -----------------------------------------------------------------------------------------------------------
Net expenses 15,587,294
- -----------------------------------------------------------------------------------------------------------
Net investment income 44,629,393
- -----------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions (Notes 1 and 3) 6,380,409
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments during the year 149,260,976
- -----------------------------------------------------------------------------------------------------------
Net gain on investment transactions 155,641,385
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $200,270,778
- -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
October 31, 1995
Year ended October 31
--------------------------------
1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income $ 44,629,393 $ 51,073,325
- -------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 6,380,409 (8,817,934)
- -------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 149,260,976 (138,565,058)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 200,270,778 (96,309,667)
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
- -------------------------------------------------------------------------------------------------------------------------
From net investment income:
Class A (26,485,617) (28,496,427)
- -------------------------------------------------------------------------------------------------------------------------
Class B (21,510,258) (21,635,196)
- -------------------------------------------------------------------------------------------------------------------------
Class M (23,624) --
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments:
Class A (823,988) (18,587,199)
- -------------------------------------------------------------------------------------------------------------------------
Class B (763,062) (15,941,065)
- -------------------------------------------------------------------------------------------------------------------------
Decrease from capital share transaction (Note 4) (20,073,516) (12,251,877)
- -------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 130,590,713 (193,221,431)
- -------------------------------------------------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------------------------------------------------
Beginning of year 1,043,057,176 1,236,278,607
- -------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $0 and $0, respectively) $1,173,647,889 $1,043,057,176
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
Financial highlights
(For a share outstanding throughout the period)
<CAPTION>
March 1, 1995
(commencement of
operations ) to
October 31 Year ended October 31
--------------------------------------------------------------------------------
1995 1995 1994 1993 1992
-------------------------------------------------------------------------------
Class M Class B Class B
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.14 $9.02 $10.52 $9.22 $8.87
- -------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------
Net investment income .31 .36 .39 .42 .26
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.26 1.39 (1.22) 1.34 .36
- -------------------------------------------------------------------------------------------------------------------------
Total from investment activities 1.57 1.75 (.83) 1.76 .62
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
- -------------------------------------------------------------------------------------------------------------------------
From net investment income (.33) (.39) (.38) (.43) (.27)
- -------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- (.03) --
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (.02) (.29) -- --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.33) (.41) (.67) (.46) (.27)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.38 $10.36 $9.02 $10.52 $9.22
- -------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%) (c) 17.50(b) 19.92 (8.04) 19.54 7.06(b)
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,917 $578,505 $501,438 $551,794 $103,075
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d) 1.13(b) 1.87 1.83 1.86 .94(b)
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.36(b) 3.77 4.10 3.98 2.45(b)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 67.60 67.60 112.32 123.57 21.16
- -------------------------------------------------------------------------------------------------------------------------
Financial highlights (continued)
(For a share outstanding throughout the period)
<CAPTION>
November 19, 1990
(commencement of
Year ended October 31 operations) to
October 31
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.06 $10.56 $9.24 $8.91 $8.50
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income .43 .46 .51 .52 .52(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.38 (1.22) 1.33 .37 .36
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment activities 1.81 (.76) 1.84 .89 .88
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income (.46) (.45) (.51) (.56) (.47)
- -----------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.01) (.29) (.01) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.74) (.52) (.56) (.47)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.40 $9.06 $10.56 $9.24 $8.91
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%) (c) 20.71 (7.30) 20.40 10.31 10.70(b)
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $593,226 $541,619 $684,484 $419,098 $158,918
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d) 1.12 1.08 1.12 1.32 1.22(a)(b)
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.53 4.84 4.97 5.60 5.63(a)(b)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 67.60 112.32 123.57 21.16 111.19(b)
- -----------------------------------------------------------------------------------------------------------------------------
(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 per share. See Note 2.
(b) Not annualized.
(c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(d) The ratio of expenses to average net assets for the year ended October 31, 1995 includes amounts paid through
brokerage service and expenses offset arrangements. Prior period ratios exclude these amounts. See Note 2.
</TABLE>
Notes to financial statements
October 31, 1995
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
securities issued by public utility companies.
The fund offers class A, class B and class M shares. The fund commenced its
public offering of Class M shares on March 1, 1995. Class A shares are sold
with a maximum front-end sales charge of 5.75%. Class B shares do not pay a
front-end sales 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. Class M shares are sold with a
maximum front-end sales charge of 3.50% and pay an ongoing distribution fee
that is lower than class B shares and higher than class A shares. 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). Each class votes as a class only with respect
to its own distribution plan or other matters on which a class vote is required
by law or determined by the Trustees. Shares of each class would receive their
pro-rata share of the net assets of the fund, if the fund were liquidated. In
addition, the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
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 on the principal market on which such securities are
traded, 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 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 investments are stated at fair value following procedures approved by the
Trustees. 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 basis 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 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 its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. 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, except that certain dividends from foreign
securities are recorded as soon thereafter as the fund is informed of the ex-
dividend date.
E) 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.
F) 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 October 31, 1995, the Fund had a capital loss
carryover of approximately $1,500,000 available to offset future net capital
gain, if any, which will expire on October 2, 2002.
G) Distributions to shareholders Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times the fund may pay
distributions at a level rate even though, as a result of market conditions or
investment decisions, the fund may not achieve projected investment results for
a given period.
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 losses
on wash sales transactions, market discount and non-taxable dividends.
Reclassifications are made to the fund's capital accounts to reflect income and
gains available for distribution (or available capital loss carryovers) under
income tax regulations.
For the year ended October 31, 1995, the fund reclassified $3,390,106 to
decrease distributions in excess of net investment income and $1,700,452 to
decrease paid-in-capital, with a decrease to accumulated net realized gains of
$1,689,654. The calculation of net investment income per share in the financial
highlights excludes these adjustments.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average weekly net assets of the fund.
Such fee is based on the following annual rates: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of the
next $500 million, and, 0.50% of any amount over $1.5 billion, subject to
reduction in any year, under current law, to the extent that expenses
(exclusive of brokerage, interest, taxes and distribution fees) 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 excess 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 transactions.
The fund reimburses Putnam Management 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 $2,540, and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
During the year ended October 31, 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.
For the year ended October 31, 1995, fund expenses were reduced by $301,896
under expense offset arrangements with PFTC and brokerage service arrangments.
Investor servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested a portion of assets
utilized in connection with the offset arrangments in an income-producing asset
if it had not entered into such arrangements.
Custodial functions for the fund are being provided by Putnam Fiduciary Trust
Company (PFTC), a wholly-owned subsidiary of Putnam Investments. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
The fund has adopted distribution plans (the "Plans") with respect to its class
A, class B and class M shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Plans 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
Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an
annual rate up to 0.35%, 1.00% and 1.00% of the average net assets attributable
to class A, class B and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the
average net assets attributable to class A, class B and class M shares
respectively.
For the year ended October 31, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $228,221 and $3,745 from the sale of
class A and class M shares, respectively. There were $1,245,265 in contingent
deferred sales charges from redemptions of class B shares. A deferred sales
charge of up to 1% is assessed on certain redemptions of class A shares. For
the year ended October 31, 1995, Putnam Mutual Funds Corp., acting as
underwriter received $3,615 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended October 31, 1995, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $667,631,954 and $677,276,912, respectively. Purchases and sales of
U.S. government obligations aggregated $48,012,523 and $47,179,266,
respectively. In determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
Note 4
Capital shares
At October 31, 1995, there was an unlimited number of shares of beneficial
interest authorized divided into three classes, class A, class B and class M
capital stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year ended October 31
1995 1994
- ---------------------------------------------------------------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 15,018,174 $ 143,352,344 13,601,088 $ 129,166,605
- ---------------------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,368,270 22,164,731 4,152,123 39,384,659
- ---------------------------------------------------------------------------------
17,386,444 165,517,075 17,753,211 168,551,264
- ---------------------------------------------------------------------------------
Shares repurchased (20,133,278) (190,733,474) (22,805,796) (214,474,268)
- ---------------------------------------------------------------------------------
Net decrease (2,746,834) $ (25,216,399) (5,052,585) $ (45,923,004)
- ---------------------------------------------------------------------------------
<CAPTION>
Year ended October 31
1995 1994
- ---------------------------------------------------------------------------------
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 12,359,206 $ 116,862,599 17,161,346 $ 164,989,889
- ---------------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,022,574 18,869,451 3,428,176 32,433,804
- ---------------------------------------------------------------------------------
14,381,780 135,732,050 20,589,522 197,423,693
- ---------------------------------------------------------------------------------
Shares repurchased (14,089,785) (132,406,110) (17,486,953) (163,752,566)
- ---------------------------------------------------------------------------------
Net increase 291,995 $ 3,325,940 3,102,569 $ 33,671,127
- ---------------------------------------------------------------------------------
<CAPTION>
March 1, 1995
(commencement of
operations) to
October 31, 1995
- ---------------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 205,946 $2,029,745
- ---------------------------------------------------------------------------------
Shares issued in connection
with reinvestment of distributions 1,071 10,956
- ---------------------------------------------------------------------------------
207,017 2,040,701
- ---------------------------------------------------------------------------------
Shares repurchased (22,254) (223,758)
- ---------------------------------------------------------------------------------
Net increase 184,763 $1,816,943
- ---------------------------------------------------------------------------------
</TABLE>
Federal tax information
(Unaudited)
The fund has designated 99.49% of distributions from net investment income as
qualifying for the dividends received deduction for corporations.
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
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Sheldon N. Simon
Vice President and Fund Manager
Christopher A. Ray
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Senior Vice President and Treasuer
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
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 Putnam's 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.
[Logo:PUTNAM INVESTMENTS]
The Putnam Funds
One Post Office Square
Boston Massachusetts, 02109
- ------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ------------
21691-840/884/869 12/95
