Putnam
Utilities
Growth and
Income
Fund
ANNUAL REPORT
October 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "A buyer of utility stocks today begins with one major advantage over other
investors: A number of these shares are bargains, which can't be said about
the stock market as a whole. The average utility stock sells for 11.8 times
1997 estimated earnings, almost a 50% discount to the S&P 500."
-- Fortune, September 29, 1997
* "Duke Energy could be a model for the future energy company. Its
just-completed merger with PanEnergy, a gas pipeline company, has created
a $12 billion-plus powerhouse."
-- Sheldon Simon, manager
Putnam Utilities Growth and Income Fund
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
22 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Recent stock market volatility has once again brought home a key reason why
utility stocks are a time-honored favorite of conservative investors. While
the Asian currency crisis has affected performance of stock markets around the
world, utility stocks have, for the most part, escaped unscathed.
Of course, utility stocks are subject to their own risks, which are akin to
those that influence the movement of fixed-income securities, as well as the
risks of investing in a single sector. Fortunately, your fund's broad
diversification and mix of securities have enabled it to manage these risks
successfully and deliver another year of solid performance.
In the following report, managers Sheldon Simon and Christopher Ray explain
the strategies they've used over the fiscal year just ended and discuss
prospects for fiscal 1998.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 17, 1997
Report from the Fund Managers
Sheldon N. Simon, lead manager
Christopher A. Ray
Despite the enormous volatility of certain world markets during the second
half of Putnam Utilities Growth and Income Fund's 1997 fiscal year, we are
pleased to report that your fund's record of strong competitive performance
remains intact. For the 12 months ended October 31, 1997, as well as the five
years ending on that date, the fund's results have placed it among the top
third of all utilities funds tracked by Lipper Analytical Services. The fund's
class A shares ranked 33 out of 96 and 7 out of 30 funds for 1- and 5-year
performance, respectively.*
During the fiscal year, your fund's class A shares provided a total return of
19.16% at net asset value and 12.30% at public offering price. For performance
over longer periods and results for other share classes, please turn to pages
9 and 10.
U.S. economic growth during fiscal 1997 has been exceptionally robust, raising
fears of inflation -- a situation typically accompanied by rising interest
rates. Since the performance of utility stocks tends to reflect bond
performance rather than that of the broad stock market, such concerns are an
important consideration for your fund. As this report was being prepared, the
U.S. economy appeared to be continuing its expansion, unaccompanied by
significant indicators of either inflation or higher interest rates. However,
the Asian currency and stock market collapse during the last quarter of the
fiscal year has not yet had its full impact on the U.S. economy. In other
words, we may not be out of the woods yet.
* ASSET ALLOCATION: STEADY AS SHE GOES
Because no singular, consistent theme drove market performance, overall asset
allocation remained relatively unchanged over much of the period. With more
than 20% of net assets in gas-related stocks, your fund remains overweighted
in the gas industry in terms of total utilities market capitalization. This
reflects our conviction that the gas industry will continue its ongoing
consolidation, with gas companies merging with each other and combining with
electric power companies as well.
*Lipper is an industry research firm whose rankings are based on total return
performance, vary over time, and do not reflect the effects of sales charges.
Performance of other share classes will vary. Past performance is not
indicative of future results.
Intended to dampen the effects of market volatility, your fund's bond asset
allocation tends to range from a low of 10% to a high of 25% of net assets.
Currently, it remains steady at slightly below 15% of net assets. However,
with your fund's primary risk factor, rising interest rates, being held at bay
for now, we do not expect to allocate further assets to bonds in the near
future.
The primary purpose of your fund's allocation to non-utility stocks (currently
about 10% of assets) is to drive performance, and in the past this category
has added significantly to fund returns. However, with many excellent
portfolio candidates now available among the various utility industries, we do
not anticipate increasing the non-utility position over the near term.
The fund has maintained a modest allocation to utility companies outside the
United States. During the first part of the year, the fund's light exposure in
foreign markets hurt performance, since foreign utilities, especially emerging
market utilities, had unusually strong performance. Recently this situation
changed dramatically as foreign markets, especially in Latin America and Asia,
corrected sharply. We are using this period of poor performance in selected
foreign markets to increase the fund's exposure on a highly selective basis.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electric utilities 37.5%
Gas utilities 22.0%
Telephone utilities 20.5%
REITs (Real Estate Investment Trusts) 2.6%
Combined utilities 2.5%
Oil and gas 2.2%
*Based on net assets as of 10/31/97. Holdings will vary over time.
* NEW LIFE FOR FORMER TELEPHONE HEAVYWEIGHT
As a result of the confluence of the opportunities presented by the
Telecommunications Act of 1996 and AT&T's new management initiatives, its
unparalleled market franchise, and its exceptional market valuation, your fund
has taken a substantial position in this company for the first time in its
history. The factors behind your fund's investment in AT&T precisely reflect
its major investment criteria: imaginative new management, industry change,
and underperforming and consequently undervalued shares. Diligent research
indicates the potential for many positive changes in AT&T's fortunes in the
not-too-distant future. Accordingly, we have broken with tradition and
invested just under 4% of the fund's net assets in this telephone industry
heavyweight.
We also continue to have confidence in SBC Communications, our other major
telephone company holding and your fund's single largest investment. We fully
expect that both of these companies will make strong contributions to your
fund's return over time. While these holdings, along with others discussed
in this report, were viewed favorably at the end of the fiscal period, all
portfolio holdings are subject to review and adjustment in accordance with the
fund's investment strategy and may vary in the future.
* GAS AND ELECTRIC UTILITIES: PARTNERSHIPS WITH POWERFUL POTENTIAL
We remain convinced that the gas industry will undergo consolidation, with
larger gas companies absorbing the smaller ones and combining with electric
companies to offer consumers one-stop energy shopping. In terms of both gas
and electric utilities, we have tended to seek out smaller companies with
strong service areas, since these have the potential of being profitable
either on an operating basis or as merger candidates.
The June 1997 merger of Duke Power, an electric utility, and PanEnergy, a
natural gas supplier, to form Duke Energy Corp., your fund's second-largest
holding, is a prime example of the coming confluence of electric and gas
utility companies. Taking advantage of deregulation, Duke Energy adopted an
aggressive, globally geared market strategy rather than the more domestically
oriented defensive strategy of most similar mergers. The short-term benefits
of this strategy in terms of cost cutting are less obvious, but nevertheless,
we see an acceleration in earning power and growth rate as the new complex
creates unique opportunities in the energy markets.
TOP 10 HOLDINGS
SBC Communications, Inc.
Telephone utilities
Duke Energy Corp.
Electric utilities
American Telephone & Telegraph Co.
Telephone utilities
Sprint Corp.
Telephone utilities
Pacific Enterprises
Gas utilities
Bell Atlantic Corp.
Telephone utilities
K mart Corp.
Retail
BellSouth Corp.
Telephone utilities
Ameritech Corp.
Telephone utilities
New Century Energies, Inc.
Electric utilities
Footnote reads:
These holdings represent 25.1% of the fund's net assets as of 10/31/97.
* POSITIVE OUTLOOK COLORS FORECAST FOR FISCAL '98
We are particularly optimistic with respect to U.S. utilities over the course
of the next 12 to 18 months. All the positive indications we look for --
industry change, attractive valuations, a strong but stable economy, low
interest rates, and government deregulation -- have come together in a way we
believe will contribute to an exciting year for your fund.
Utilities are sensitive to changes in interest rates, however. Should rates
rise, as they did in 1994, we would have a less optimistic outlook. In that
event, though, the fund's conservative portfolio structure should contribute
to strong competitive performance.
While we remain cautious with respect to foreign bonds and equities, should
the recent difficulties in Latin America and Asia continue, you will likely
see an increase in the fund's overseas holdings as new opportunities arise out
of the current challenges. Overall, we are optimistic that the recent
underperformance of the utilities sector relative to other sectors may soon be
reversed.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 10/31/97, there is no guarantee the fund will continue to hold
these securities in the future. Funds investing in a single sector may be
subject to more volatility than funds investing in a diverse group of sectors.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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 10/31/97
Class A Class B Class M
(inception date) (11/19/90) (4/27/92) (3/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 19.16% 12.30% 18.28% 13.28% 18.62% 14.48%
- ------------------------------------------------------------------------------
5 years 87.13 76.44 80.19 78.19 82.76 76.35
Annual average 13.35 12.03 12.50 12.25 12.82 12.01
- ------------------------------------------------------------------------------
Life of fund 128.52 115.34 116.84 116.84 120.91 113.06
Annual average 12.63 11.67 11.78 11.78 12.08 11.50
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/97
S & P Consumer
Utilities Price Index
- ------------------------------------------------------------------------------
1 year 9.90% 2.08%
- ------------------------------------------------------------------------------
5 years 71.53 13.96
Annual average 11.40 2.65
- ------------------------------------------------------------------------------
Life of fund 107.33 20.78
Annual average 11.11 2.77
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect
the applicable contingent deferred sales charge (CDSC), which is 5% in the
first year, declines to 1% in the sixth year, and is eliminated
thereafter. Returns shown for class B and class M shares for periods prior
to their inception are derived from the historical performance of class A
shares, adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and, in the case of class B and class M
shares, the higher operating expenses applicable to such shares. All
returns assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 11/19/90.
Plot points read:
Class A Shares S&P Utilities Consumer Price
at POP Index Index
11/19/90 9425 10000 10000
10/31/91 10432 10877 10269
10/31/92 11508 12088 10598
10/31/93 13855 15148 10889
10/31/94 12844 13291 11173
10/31/95 15503 17183 11487
10/31/96 18073 18867 11831
10/31/97 21534 20733 12078
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $21,684 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$22,091 ($21,306 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 10/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 4 4 4
- ------------------------------------------------------------------------------
Income $0.407 $0.319 $0.352
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.501612 0.501612 0.501612
- ------------------------------------------------------------------------------
Short-term 0.311388 0.311388 0.311388
- ------------------------------------------------------------------------------
Total $1.220 $1.132 $1.165
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
10/31/96 $11.63 $12.34 $11.57 $11.61 $12.03
- ------------------------------------------------------------------------------
10/31/97 12.49 13.25 12.42 12.47 12.92
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 3.68% 3.47% 2.96% 3.34% 3.22%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 3.41 3.21 2.66 2.92 2.81
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (11/19/90) (4/27/92) (3/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 22.85% 15.77% 21.95% 16.95% 22.41% 18.11%
- ------------------------------------------------------------------------------
5 years 84.53 73.95 77.97 75.97 80.21 73.98
Annual average 13.04 11.71 12.22 11.97 12.50 11.71
- ------------------------------------------------------------------------------
Life of fund 128.52 115.34 117.19 117.19 121.09 113.23
Annual average 12.80 11.83 11.97 11.97 12.26 11.67
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. 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. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
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 Utilities Index is an unmanaged list of common stocks
issued by utility companies. Index assumes reinvestment of all
distributions and does not take into account brokerage commissions or
other costs. The fund's portfolio contains securities that do not match
those in the index. 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.
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at http://www.putnaminv.com -- often!
Report of independent accountants
For the fiscal year ended October 31, 1997
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, 1997, and the related statement of operations for the
year then ended and the statements 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, 1997, 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, 1997, the results of
its operations for the year then ended and 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 9, 1997
Portfolio of investments owned
October 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (82.2%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Banks (0.1%)
- ------------------------------------------------------------------------------------------------------------
39,000 FirstMerit Corp. $ 994,500
Building and Construction (0.6%)
- ------------------------------------------------------------------------------------------------------------
430,000 Willbros Group, Inc. + 8,385,000
Cellular Communications (0.7%)
- ------------------------------------------------------------------------------------------------------------
100,000 360 Communications Co. + 2,112,500
300,000 PT Indosat ADR (Indonesia) 7,106,250
--------------
9,218,750
Chemicals (0.1%)
- ------------------------------------------------------------------------------------------------------------
34,000 Crompton & Knowles Corp. 858,500
25,500 Hanna (M.A.) Co. 656,625
--------------
1,515,125
Conglomerates (0.1%)
- ------------------------------------------------------------------------------------------------------------
50,000 Ogden Corp. 1,262,500
Electric Utilities (28.7%)
- ------------------------------------------------------------------------------------------------------------
300,000 Allegheny Energy, Inc. 8,475,000
275,000 Carolina Power & Light Co. 9,831,250
650,000 Central & South West Corp. 14,015,625
25,000 Chilectra S.A. 144A ADR (Chile) 637,500
81,600 CILCORP, Inc. 3,335,400
300,000 Cinergy Corp. 9,900,000
182,700 CMS Energy Corp. Class G 4,042,238
100,000 Companhia Energetica de Minas Gerais ADR (Brazil) 3,950,000
313,500 Companhia Paranaense de Energia-Copel ADR (Brazil) 3,762,000
300,000 Consolidated Edison Co. of New York, Inc. 10,275,000
280,000 Delmarva Power & Light Co. 5,547,500
150,000 Dominion Resources, Inc. 5,578,125
100,000 DPL, Inc. 2,481,250
1,043,741 Duke Energy Corp. 50,360,503
100,000 Edison International 2,562,500
50,000 EDP-Electricidade de Portugal, S.A. ADR (Portugal)+ 1,746,875
100,000 Enova Corp. 2,431,250
250,000 Florida Progress Corp. 8,140,625
180,000 FPL Group, Inc. 9,303,750
150,000 GPU, Inc. 5,428,125
100,000 Hawaiian Electric Industries, Inc. 3,781,250
10,000 Light Participacoes, S.A. (Brazil) 2,557,823
200,000 Manila Electric Co. Class B 618,911
100,000 MidAmerican Energy Holdings Co. 1,787,500
200,000 National Grid Group PLC (United Kingdom) 941,294
485,500 New Century Energies, Inc. 20,269,625
250,000 New England Electric Systems, Inc. 9,796,875
300,000 New York State Electric & Gas Corp. 8,006,250
336,500 NIPSCO Industries, Inc. 14,784,969
1,065,200 Northeast Utilities 12,249,800
230,000 OGE Energy Corp. 11,140,625
100,000 PacifiCorp 2,168,750
126,600 Pinnacle West Capital Corp. 4,407,263
442,600 Potomac Electric Power Co. 9,930,838
275,800 Puget Sound Energy, Inc. 7,343,175
400,000 Scana Corp. 10,100,000
661,200 Scottish Power PLC (United Kingdom) 4,939,200
500,000 Sierra Pacific Resources 15,218,750
200,000 Teco Energy, Inc. 4,775,000
272,000 Texas Utilities Electric Co. 9,758,000
500,000 TNP Enterprises, Inc. 12,687,500
100,000 Tuscon Electric Power Co. + 1,656,250
150,000 Union Electric Co. 5,653,125
300,000 Union Electrica Fenosa S.A. (Spain) 2,858,122
175,000 United Illuminating Co. 6,825,000
150,000 Utilicorp United, Inc. 4,734,375
18,000 Viag AG (Germany) 8,353,043
160,000 Washington Water Power Co. 3,190,000
700,000 Wisconsin Energy Corp. 17,718,750
--------------
380,056,579
Electrical Equipment (0.5%)
- ------------------------------------------------------------------------------------------------------------
262,500 Vishay Intertechnology, Inc. 6,283,594
Electronics (0.1%)
- ------------------------------------------------------------------------------------------------------------
12,000 Pittway Corp. Class A 747,750
Food and Beverages (0.1%)
- ------------------------------------------------------------------------------------------------------------
60,000 Whitman Corp. 1,575,000
Gas Pipelines (1.2%)
- ------------------------------------------------------------------------------------------------------------
260,000 Coastal Corp. 15,632,500
Gas Utilities (20.8%)
- ------------------------------------------------------------------------------------------------------------
380,000 AGL Resources, Inc. 6,887,500
483,600 Atmos Energy Corp. 12,210,900
236,000 Bay State Gas Co. 6,770,250
220,000 Cascade Natural Gas Corp. 3,671,250
100,000 Central Hudson Gas & Electric 3,543,750
273,300 Columbia Gas System, Inc. 19,745,925
150,000 Connecticut Energy Corp. 3,628,125
400,000 Eastern Enterprises 15,675,000
211,300 El Paso Natural Gas Co. 12,664,794
294,800 Energen Corp. 10,668,075
100,100 Equitable Resources, Inc. 3,184,431
70,000 Indiana Energy, Inc. 1,999,375
350,000 K N Energy, Inc. 15,225,000
146,300 Laclede Gas Co. 3,648,356
300,000 MCN Corp. 10,387,500
350,000 National Fuel Gas Co. 15,443,750
70,000 New Jersey Resources Corp. 2,266,250
300,000 NICOR, Inc. 11,568,750
40,955 North Carolina Natural Gas Corp. 1,333,597
504,000 Northwest Natural Gas Co. 12,411,000
230,000 NUI Corp. 5,189,375
330,000 Oneok, Inc. 11,323,125
800,000 Pacific Enterprises 26,150,000
200,000 Peoples Energy Corp. 7,150,000
200,000 Piedmont Natural Gas Co., Inc. 5,600,000
70,000 Providence Energy Corp. 1,303,750
200,000 Public Service Co. of North Carolina, Inc. 4,037,500
100,000 Questar Corp. 3,862,500
200,000 Sonat, Inc. 9,187,500
80,000 South Jersey Industries, Inc. 2,010,000
200,000 Southwest Gas Corp. 3,762,500
200,000 Transportadora de Gas del Sur ADR (Argentina) 1,887,500
200,000 Washington Gas Light Co. 5,137,500
250,000 Westcoast Energy, Inc. 5,125,000
156,700 WICOR, Inc. 6,757,688
200,000 Yankee Energy System, Inc. 4,750,000
--------------
276,167,516
Household Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
27,500 First Brands Corp. 701,250
Metals and Mining (0.3%)
- ------------------------------------------------------------------------------------------------------------
100,000 RWE AG (Germany) 4,336,232
Oil and Gas (1.9%)
- ------------------------------------------------------------------------------------------------------------
380,000 KeySpan Energy Corp. 11,803,750
30,000 Mitchell Energy & Development Corp. Class B 750,000
630,000 NGC Corporation 11,970,000
--------------
24,523,750
Pharmaceuticals and Biotechnology (1.0%)
- ------------------------------------------------------------------------------------------------------------
18,025 Block Drug, Inc. Class A 838,163
400,000 Pharmacia & Upjohn, Inc. 12,700,000
--------------
13,538,163
Photography (0.1%)
- ------------------------------------------------------------------------------------------------------------
25,000 Polaroid Corp. 1,123,438
REITs (Real Estate Investment Trust) (2.6%)
- ------------------------------------------------------------------------------------------------------------
160,600 Avalon Properties, Inc. 4,717,625
219,422 Beacon Properties Corp. 9,243,152
194,000 Equity Residential Properties Trust 9,797,000
100,000 LTC Properties, Inc. 2,025,000
84,600 Macerich Co. 2,241,900
300,000 Nationwide Health Properties, Inc. 6,768,750
--------------
34,793,427
Retail (2.0%)
- ------------------------------------------------------------------------------------------------------------
57,750 Family Dollar Stores, Inc. 1,357,125
1,900,000 K mart Corp. + 25,056,250
--------------
26,413,375
Telecommunications (0.2%)
- ------------------------------------------------------------------------------------------------------------
100,000 Cable & Wireless PLC ADR (United Kingdom) 2,450,000
Telephone Utilities (20.2%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 American Telephone & Telegraph Co. 48,937,500
335,000 Ameritech Corp. 21,775,000
322,560 Bell Atlantic Corp. 25,764,480
525,000 BellSouth Corp. 24,839,063
250,000 Cincinnati Bell, Inc. 6,750,000
200,000 Deutsche Telekom AG ADR (Germany) 3,887,500
69,450 France Telecom S.A. ADR (France) + 2,630,419
200,000 GTE Corp. 8,487,500
100,000 Philippine Long Distance Telephone Co. ADR
(Philippines) 2,425,000
116,670 Portugal Telecom S.A. ADR 4,812,638
200,000 PT Telekomunikasi Indonesia ADR (Indonesia) 3,887,500
950,000 SBC Communications, Inc. 60,443,745
550,000 Sprint Corp. 28,600,000
100,000 Telecom Argentina S.A. ADR (Argentina) 2,531,250
555,555 Telecom Italia S.P.A. (Italy) 3,478,072
20,000 Telefonica de Argentina S.A. ADR (Argentina) 562,500
300,000 Telefonica del Peru S.A. ADR (Peru) 5,925,000
300,000 US West, Inc. 11,943,750
--------------
267,680,917
Textiles (--%)
- ------------------------------------------------------------------------------------------------------------
12,000 Springs Industries, Inc. Class A 556,500
Tobacco (0.2%)
- ------------------------------------------------------------------------------------------------------------
63,000 Dimon, Inc. 1,634,063
22,000 Universal Corp. 845,625
--------------
2,479,688
Water Utilities (0.6%)
- ------------------------------------------------------------------------------------------------------------
100,000 American Water Works, Inc. 2,262,500
800,000 Yorkshire Water PLC (United Kingdom) 6,223,928
--------------
8,486,428
--------------
Total Common Stocks (cost $883,109,745) 1,088,921,982
CORPORATE BONDS AND NOTES (13.5%) *
PRINCIPAL AMOUNT VALUE
Combined Utilities (2.5%)
- ------------------------------------------------------------------------------------------------------------
$3,000,000 Australian Gas & Light Co. 144A sr. notes 6 3/8s, 2003
(Australia) $ 2,985,570
4,000,000 Kansas Gas & Electric deb. 8.29s, 2016 4,181,480
3,835,000 Oklahoma Gas & Electric Co. sr. notes 6.65s, 2027 3,972,140
4,000,000 Pacific Gas & Electric Co. sr. notes 7.1s, 2005 4,166,920
4,000,000 Public Service Electric & Gas mtge. note 9 1/4s, 2021 4,922,520
7,985,000 South Carolina Electric & Gas Co. 1st mtge. 7 5/8s,
2025 8,661,649
4,000,000 Western Resources, Inc. 1st mortgage 6 7/8s, 2004 4,049,240
--------------
32,939,519
Electric Utilities (8.8%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Allegheny Generating Co. deb. 6 7/8s, 2023 3,910,000
2,240,000 Arkansas Electric Corp. bonds 7.33s, 2008 2,357,757
3,500,000 Chilgener S.A. notes 6 1/2s, 2006 (Chile) 3,473,960
4,000,000 Chugach Electric Co. 1st mtge. Ser. A, 9.14s, 2022 4,751,080
3,432,000 Citizens Utilities Co. bonds 7.68s, 2034 3,876,581
4,000,000 Commonwealth Edison Co. 1st mtge. Ser. 83, 8s, 2008 4,385,280
1,500,000 Connecticut Light & Power Co. 1st mtge. Ser. D,
7 7/8s, 2024 1,543,425
2,000,000 Connecticut Light & Power Co. 1st mtge. Ser. A,
5 1/2s, 1999 1,974,080
3,500,000 Duquesne Light Co. deb. 8.7s, 2016 3,959,935
2,500,000 Edison Mission Energy 144A company guaranty
7.33s, 2008 2,599,525
5,000,000 Empresa Nacional de Electricidad bonds 7 7/8s, 2027
(Chile) 5,417,000
4,000,000 Hydro Quebec Government guaranty 8.4s, 2022
(Canada) 4,592,000
5,000,000 Iberdrola S.A. notes 7 1/2s, 2002 5,264,350
4,991,096 Indiana-Michigan Power Co. deb. 9.82s, 2022 6,293,075
3,997,392 Indiana-Michigan Power Co. deb. Ser. E, 9.81s, 2022 5,122,659
3,000,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006
(Israel) 3,113,550
3,240,000 Kansas City Power & Light Co. med. term notes
5 3/4s, 1998 3,238,574
4,000,000 Kentucky Utilities Co. 1st mtge. Ser. R, 7.55s, 2025 4,135,000
5,000,000 Midwest Power Systems mtge. 8 1/8s, 2023 5,278,900
5,000,000 Ohio Edison Co. 1st mtge. 8 1/4s, 2002 5,318,650
2,969,000 Otter Tail Power Co. 1st mtge. 7 1/4s, 2002 3,088,354
5,000,000 Public Service Co. of Colorado coll. trust 6 3/8s, 2005 5,014,650
1,720,000 Salton Sea Funding Corp. company guaranty Ser. E,
8.3s, 2011 1,871,463
3,500,000 Sierra Pacific Power Co. med. term notes Ser. C,
6.82s, 2006 3,578,295
3,000,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 3,013,650
5,000,000 System Energy Resources, Inc. deb. 7.38s, 2000 5,041,050
5,000,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 5,249,050
3,400,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 3,625,522
4,500,000 Utilicorp United sr. notes 8.2s, 2007 4,948,335
--------------
116,035,750
Energy-Related (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 Calenergy, Inc. sr. notes 7.63s, 2007 2,007,200
Gas Utilities (1.2%)
- ------------------------------------------------------------------------------------------------------------
3,500,000 Columbia Gas System, Inc. notes Ser. E, 7.32s, 2010 3,665,865
3,500,000 ONEOK Inc. deb. 9.7s, 2019 3,855,530
5,000,000 Southern Union Gas sr. notes 7.6s, 2024 5,094,400
3,500,000 Southwest Gas Corp. deb. 7 1/2s, 2006 3,721,165
--------------
16,336,960
Oil and Gas (0.3%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Transcontinental Gas Pipeline Corp. deb. 7 1/4s, 2026 4,050,000
Telephone Utilities (0.3%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 Bell South Telecommunication deb. 6 3/4s, 2033 4,814,750
Water Utility (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,500,000 Pennsylvania American Water Co. 144A mtge. 7.8s,
2026 2,687,500
--------------
Total Corporate Bonds and Notes
(cost $166,627,508) $ 178,871,679
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (0.9%) *
PRINCIPAL AMOUNT VALUE
U.S. Treasury Obligations (0.9%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
$ 3,210,000 6 1/4s, June 30, 2002 $ 3,271,183
2,415,000 6 1/8s, August 15, 2007 2,467,454
6,910,000 6s, July 31, 2002 6,975,852
--------------
Total U.S. Government and Agency Obligations
(cost $12,495,486) $ 12,714,489
SHORT-TERM INVESTMENTS (2.9%) *(cost $37,843,938)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 37,838,000 Interest in $37,838,000 joint repurchase agreement dated
October 31, 1997 with Morgan (J.P.) & Co., Inc. due November 3, 1997
with respect to various U.S. Treasury obligations --
maturity value of $37,855,815 or an effective yield
of 5.65% $ 37,843,938
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,100,076,677) *** 1,318,352,088
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,324,669,464.
*** The aggregate identified cost on a tax basis is $1,100,247,132, resulting in gross unrealized
appreciation and depreciation of $239,542,646 and $21,437,690, respectively, or net unrealized
appreciation of $218,104,956.
+ Non-income-producing security.
144A after the name of a security represents those exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American Depository Receipts, representing
ownership of foreign securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,100,076,677) (Note 1) $1,318,352,088
- ---------------------------------------------------------------------------------------------------
Cash 56,882
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 7,793,885
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,595,853
- ---------------------------------------------------------------------------------------------------
Total assets 1,328,798,708
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,075,714
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,052,736
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 145,145
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 31,723
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,690
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 709,376
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 112,860
- ---------------------------------------------------------------------------------------------------
Total liabilities 4,129,244
- ---------------------------------------------------------------------------------------------------
Net assets $1,324,669,464
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,003,840,040
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 102,555,475
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 218,273,949
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,324,669,464
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($653,204,576 divided by 52,317,127 shares) $12.49
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $12.49)* $13.25
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($659,594,035 divided by 53,098,599 shares)** $12.42
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($11,870,853 divided by 951,798 shares) $12.47
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $12.47)* $12.92
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 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, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $264,315) $ 41,335,427
- --------------------------------------------------------------------------------------------------
Interest income 15,205,323
- --------------------------------------------------------------------------------------------------
Total investment income 56,540,750
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 8,013,799
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,956,141
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 51,754
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 20,617
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,566,553
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,401,741
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 55,883
- --------------------------------------------------------------------------------------------------
Registration fees 175
- --------------------------------------------------------------------------------------------------
Auditing 86,024
- --------------------------------------------------------------------------------------------------
Legal 17,328
- --------------------------------------------------------------------------------------------------
Other 8,475
- --------------------------------------------------------------------------------------------------
Total expenses 18,178,490
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (335,704)
- --------------------------------------------------------------------------------------------------
Net expenses 17,842,786
- --------------------------------------------------------------------------------------------------
Net investment income 38,697,964
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 108,767,049
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (3,039)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (2,424)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 70,569,564
- --------------------------------------------------------------------------------------------------
Net gain on investments 179,331,150
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $218,029,114
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
--------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- --------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------
Net investment income $ 38,697,964 $ 43,826,866
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 108,764,010 82,879,865
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 70,567,140 54,251,373
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 218,029,114 180,958,104
- --------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------
From net investment income
Class A (21,360,424) (23,901,842)
- --------------------------------------------------------------------------------------------------------
Class B (17,213,285) (19,535,724)
- --------------------------------------------------------------------------------------------------------
Class M (229,303) (121,291)
- --------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (41,964,105) (1,273,262)
- --------------------------------------------------------------------------------------------------------
Class B (42,814,695) (1,040,677)
- --------------------------------------------------------------------------------------------------------
Class M (403,980) (6,461)
- --------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (9,538,238) (68,562,356)
- --------------------------------------------------------------------------------------------------------
Total increase in net assets 84,505,084 66,516,491
Net assets
- --------------------------------------------------------------------------------------------------------
Beginning of year 1,240,164,380 1,173,647,889
- --------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $-- and $3,930,
respectively) $1,324,669,464 $1,240,164,380
- --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.63 $10.40 $9.06 $10.56 $9.24
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .41 .44 .43 .46 .51
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.67 1.25 1.38 (1.22) 1.33
- ---------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.08 1.69 1.81 (.76) 1.84
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net
investment income (.41) (.44) (.46) (.45) (.51)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.81) (.02) (.01) (.29) (.01)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.22) (.46) (.47) (.74) (.52)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.49 $11.63 $10.40 $9.06 $10.56
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 19.16 16.57 20.71 (7.30) 20.40
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $653,205 $618,417 $593,226 $541,619 $684,484
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.05 1.11 1.12 1.08 1.12
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.41 3.97 4.53 4.84 4.97
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 53.63 64.53 67.60 112.32 123.57
- ---------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0458 $.0488
- ---------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter,
include amounts paid through expense offset and brokerage service arrangements. Prior period ratios
exclude these amounts. (Note 2)
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- -------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.57 $10.36 $9.02 $10.52 $9.22
- -------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------
Net investment income .32 .36 .36 .39 .42
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.66 1.23 1.39 (1.22) 1.34
- -------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.98 1.59 1.75 (.83) 1.76
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------
From net
investment income (.32) (.36) (.39) (.38) (.43)
- -------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- (.03)
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.81) (.02) (.02) (.29) --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (1.13) (.38) (.41) (.67) (.46)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.42 $11.57 $10.36 $9.02 $10.52
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 18.28 15.57 19.92 (8.04) 19.54
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $659,594 $615,309 $578,505 $501,438 $551,794
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.80 1.86 1.87 1.83 1.86
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.66 3.22 3.77 4.10 3.98
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 53.63 64.53 67.60 112.32 123.57
- -------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0458 $.0488
- -------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter,
include amounts paid through expense offset and brokerage service arrangements. Prior period ratios
exclude these amounts. (Note 2)
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------
For the period
Per-share March 1, 1995+
operating performance Year ended October 31 to October 31
- ------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $11.61 $10.38 $9.14
- ------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------
Net investment income .36 .38(d) .31
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.67 1.26 1.26
- ------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.03 1.64 1.57
- ------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------
From net
investment income (.36) (.39) (.33)
- ------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- --
- ------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.81) (.02) --
- ------------------------------------------------------------------------------------------------------------
Total distributions (1.17) (.41) (.33)
- ------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.47 $11.61 $10.38
- ------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 18.62 16.12 17.50*
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $11,871 $6,438 $1,917
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.55 1.63 1.13*
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.89 3.37 2.36*
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 53.63 64.53 67.60
- ------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0458 $.0488
- ------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter,
include amounts paid through expense offset and brokerage service arrangements. Prior period ratios
exclude these amounts. (Note 2)
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
Notes to financial statements
October 31, 1997
Note 1
Significant accounting policies
Putnam Utilities Growth and Income Fund (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. Class A shares are sold
with a maximum front-end sales charge of 5.75%. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A 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 each class 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
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
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. 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. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon 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 gains and losses are included with the
net realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net 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 appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
F) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the year ended October 31, 1997, the fund
had no borrowings against the line of credit.
G) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held and for
excise tax on income and capital gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income 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 temporary and permanent differences 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, 1997, the fund
reclassified $108,978 to increase undistributed net investment income and
$75,745 to increase paid-in-capital, with a decrease to accumulated net
realized gain on investments of $184,723. The calculation of net investment
income per share in the financial highlights table excludes these adjustments.
Note 2
Management fees, administrative services, and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.70% of the first $500 million of
average net assets, 0.60% of the next $500 million, 0.55% of the next $500
million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455%
of the next $5 billion. 0.44% of the next $5 billion and 0.43% thereafter.
Prior to February 20, 1997, any amount over $1.5 billion was based on 0.50%.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended October 31, 1997, fund expenses were reduced by $335,704
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the funds receive an annual Trustees fee of which $1,490 has been
allocated to the fund and an additional fee for each Trustee's 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.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 currently limit payment by the fund to 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $168,239 and $7,629 from the sale of
class A and class M shares, respectively and $888,166 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, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $1,388 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended October 31, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $653,166,922 and $780,553,070, respectively. Purchases and sales of
U.S. government obligations aggregated $18,272,985 and $7,711,431,
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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
October 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 18,486,173 $218,360,453
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,830,321 55,066,695
- ------------------------------------------------------------
23,316,494 273,427,148
Shares
repurchased (24,185,008) (285,048,126)
- ------------------------------------------------------------
Net decrease (868,514) $(11,620,978)
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 16,125,423 $178,578,287
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,855,388 20,413,519
- ------------------------------------------------------------
17,980,811 198,991,806
Shares
repurchased (21,830,427) (241,787,581)
- ------------------------------------------------------------
Net decrease (3,849,616) $(42,795,775)
- ------------------------------------------------------------
Year ended
October 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 10,001,400 $117,738,403
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,676,816 53,007,890
- ------------------------------------------------------------
14,678,216 170,746,293
Shares
repurchased (14,740,560) (173,462,984)
- ------------------------------------------------------------
Net decrease (62,344) $(2,716,691)
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 13,138,831 $145,085,592
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,588,809 17,415,455
- ------------------------------------------------------------
14,727,640 162,501,047
Shares
repurchased (17,432,183) (192,345,546)
- ------------------------------------------------------------
Net decrease (2,704,543) $(29,844,499)
- ------------------------------------------------------------
Year ended
October 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 656,690 $7,920,678
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 50,877 582,756
- ------------------------------------------------------------
707,567 8,503,434
Shares
repurchased (310,433) (3,704,003)
- ------------------------------------------------------------
Net increase 397,134 $4,799,431
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 735,351 $8,172,430
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,643 117,240
- ------------------------------------------------------------
745,994 8,289,670
Shares
repurchased (376,093) (4,211,752)
- ------------------------------------------------------------
Net increase 369,901 $4,077,918
- ------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, the fund hereby
designates $125,790,771 (or if different, the amount necessary to offset net
capital gain earned by the fund) as capital gain dividends for its taxable
year ended October 31, 1997.
The fund has designated 51.84% of the distributions from net investment income
as qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund *
International New Opportunities Fund
Investors Fund
New Opportunities Fund +
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Total Return Fund
High Yield Trust +
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact Putnam
for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
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,
including charges and expenses. Please read it carefully before you
invest or send money.
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
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
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. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
36858-041/220/906 12/97
