Putnam
Utilities
Growth and
Income
Fund
SEMIANNUAL REPORT
April 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* According to Lipper Analytical Services, Putnam Utilities Growth and
Income Fund's class A share total return for the three-year period ended
April 30, 1997 ranked 4 out of 66 utility funds, placing the fund in the
top 6% in this category.*
* "The numbers are awesome. Electric power is a $215 billion
industry. Natural gas is $90 billion. They're merging into one vast
energy-providing business. . . . And soon competitors of all stripes will
be able to vie for their customers."
-- Forbes, May 19, 1997
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
19 Financial statements
* Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. Their rankings vary over time
and do not reflect the effects of sales charges. For periods ended
4/30/97, class A shares ranked 18 out of 91 and 6 out of 23 funds for 1-
and 5-year performance, respectively; class B shares ranked 25 out of 91
for 1-year performance, and class M shares ranked 22 out of 91 for 1-year
performance. Class A, class B, and class M shares were not ranked over
longer periods. Past performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The importance of creative and innovative management is already becoming
increasingly clear as telecommunications and electric power companies continue
to adjust to recent legislation that is dramatically changing the
long-standing nature of each industry. In both instances, the effect of the
legislation is to reduce the level of governmental regulation.
Companies in both industries have had to adjust quickly to what has become an
extraordinarily competitive environment. Evaluation of management expertise
thus has become much more important than it was when these companies enjoyed
the protective cocoon of regulation. This means fund managers Sheldon Simon
and Christopher Ray are spending more time on the road these days, making
on-site visits to judge the quality of company managements.
In the following report, Sheldon and Chris discuss this and other issues that
affected your fund's performance during the semiannual period and take a look
at prospects for the remainder of fiscal 1997.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 18, 1997
Report from the Fund Managers
Sheldon N. Simon, lead manager
Christopher A. Ray
As the financial markets shifted gears from exuberance to uncertainty over the
six months ended April 30, 1997, Putnam Utilities Growth and Income Fund
provided a relatively safe haven, despite the sensitivity of utility
securities to changes in interest rates. Although rising rates did affect the
fund's performance during this semiannual period, we believe our
diversification and positioning strategies helped cushion the impact. During
the period, the fund's class A shares returned 5.42% at net asset value and
- -0.65% at public offering price; results for class B and class M shares, as
well as performance over longer periods, is shown beginning on page 9.
When your fund began its fiscal year in November 1996, most securities markets
were enjoying a favorable environment. Economic growth was moderate, and
interest rates and inflation were at relatively low levels. From January
through April l997, however, various reports suggested more robust economic
growth, and this, in turn, led to concerns about rising inflation and higher
interest rates. Finally, in March, the Federal Reserve Board, in what it
called a preemptive strike against inflation, raised short-term interest rates
by a quarter of a percentage point, sparking a new round of volatility in both
the equity and fixed-income markets.
* SEEKING OPPORTUNITY IN CHANGE
During the semiannual period, we maintained our strategy of investing in the
stocks of utility companies that we perceived as undervalued, and therefore
potential beneficiaries of deregulation. We believe that handling the
broad-based transition associated with deregulation requires special skills on
the part of company managements. Historically, investors in utilities have
evaluated securities primarily on the basis of price, yield, and overall
growth potential. Management expertise has not generally been a key factor.
As the utility industry becomes more competitive, however, the ability of a
company's management to steer a safe course through a sea change has become
one of the most important factors in our analytical process. In order to
assess a company's management potential, we meet with its top executives,
whenever possible, to discuss their strategies for moving forward in this
fast-changing environment.
While deregulation has created some short-term uncertainty for investors, we
believe it has also generated a host of new investment opportunities.
Sometimes, for example, the companies most affected by deregulation go through
stressful periods when their direction may be unclear, and the valuations of
their stocks may decline. If our analysis of such companies indicates that
they have solid economic fundamentals, strong management, and sound business
strategies for getting back on track, we may purchase their securities at
relatively low prices with the expectation that the securities will rise in
value as the companies become more profitable.
* AMONG GAS AND ELECTRIC COMPANIES, SMALL WAS BEAUTIFUL
In the gas and electric utilities sectors, the trend toward consolidation
continued during the period, with new energy companies being created as a
result. In the future, we believe more and more consumers will buy gas and
electricity, as well as other energy products, from these newly combined
companies.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electric utilities 32.3%
Gas utilities 26.3%
Telephone utilities 21.7%
Gas pipeline 4.3%
Oil and gas 1.8%
Footnote reads:
*Based on net assets as of 4/30/97. Holdings will vary over time.
At just over 25% of assets, gas company stocks accounted for the fund's largest
sector weighting. We emphasized the stocks of smaller companies that
were benefiting from increased gas usage and improved profitability, and whose
stocks were attractively priced. In addition to these positive attributes, we
believe that many of the smaller companies in which we invested are attractive
takeover prospects by electric utilities. When gas companies are acquired by
electric companies, gas company shareholders tend to benefit from higher share
prices.
Similarly, in seeking out attractive investments among electric utilities, we
focused on smaller companies that we believe have the potential to increase
their level of business even as competition intensifies. We also targeted
companies that are potential takeover candidates by larger companies that are
using acquisitions to expand.
* AN INCREASED ALLOCATION IN TELEPHONE STOCKS
The Telecommunications Act of l996 ushered in a period of turbulence for the
telephone industry. During the past six months, however, the effect of this
legislation on established companies appeared to be less dramatic than had
been expected. In our opinion, the fundamentals of the telephone industry are
robust, and we increased the fund's investments in this area accordingly.
Because the increased use of computers, facsimile machines, and other
communications tools has boosted demand for more telephone lines and services
in homes and businesses, our long-term outlook for the sector is definitely in
the direction of continued growth.
Several months ago, for example, we invested in Pacific Telesis and SBC
Communications. When these two companies merged recently, the resulting
company, SBC Communications, became your fund's largest holding. We believe
SBC is one of the most attractive companies in the telephone sector. Its
valuation is relatively low, and we think the increased demand for telephone
services in its two service territories, the Southwest and the West Coast, its
large wireless telephone operations, and the company's strict cost-control
program should result in an earnings growth rate that is above the industry
average.
TOP 10 HOLDINGS*
SBC Communications, Inc.
Telephone utility
Sprint Corp.
Telephone utility
MCI Communications Corp.
Telephone utility
K mart Corp.
Major retailer
BellSouth Corp.
Telephone utility
PanEnergy Corp.
Gas pipeline
Pacific Enterprises
Gas utility
Columbia Gas System, Inc.
Gas utility
Ameritech Corp.
Telephone utility
Questar Corp.
Gas utility
Footnote reads:
These holdings represent 24.1% of the fund's assets as of 4/30/97.
Portfolio holdings will vary over time.
* NONUTILITY HOLDINGS REDUCED, BOND ALLOCATION RELATIVELY UNCHANGED
Because we believe utility companies are poised to outperform other market
sectors over the next year or so, we reduced the portfolio's nonutility
holdings to just over 10% of net assets. We sold most of the fund's shares in
Bankers Trust, its largest position at the beginning of the period, and used
the profits to invest in utility companies that, in our opinion, were
undervalued.
Our strategy for investing in fixed-income securities was consistent with the
approach we adopted nearly a year ago. Because of interest-rate fluctuations,
we kept the portfolio's bond allocation to a relatively low 14.9% of net
assets. In the United States we continued to emphasize those companies that
would benefit from the regulatory efforts to deal with stranded investments.
Eventually, we expect these companies to issue securities that will be
secured by state-mandated charges levied on consumers for electicity usage.
The proceeds from the sale of these bonds will be used to pay down debt and to
recapitalize their companies. We have focused our search for these investments
on electric companies in states, such as California and Pennsylvania, that
have been aggressive in promoting their issuance.
The foreign bond component of the portfolio was relatively stable throughout
the period. We continued to hold bonds issued by a variety of utilities in
several markets, focusing exclusively on Yankee bonds issued in the United
States by foreign corporations, in the belief that these dollar-denominated
securities should enhance the fund's performance.
* A POSITIVE OUTLOOK
While uncertainty about the direction of interest rates and the continuing
effects of deregulation may generate some short-term volatility for utilities,
our long-term outlook remains positive. Valuations and dividend yields on
utility investments are extremely attractive, and as companies continue to
control costs and operate more efficiently, investors should be rewarded
accordingly. Going forward, we will maintain our focus on total return. This
approach has served the fund well through up and down markets in the past, and
we believe it will continue to do so in the future.
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 4/30/97, 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 4/30/97
Class A Class B Class M
(inception date) (11/19/90) (4/27/92) (3/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 5.42% -0.65% 5.14% 0.30% 5.24% 1.56%
- ------------------------------------------------------------------------------
1 year 13.66 7.14 12.88 7.88 13.24 9.26
- ------------------------------------------------------------------------------
5 years 76.80 66.70 71.50 69.50 -- --
Annual average 12.07 10.76 11.39 11.13 -- --
- ------------------------------------------------------------------------------
Life of class 102.17 90.51 71.50 70.50 43.58 38.58
Annual average 11.53 10.51 11.37 11.24 18.14 16.23
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/97
S & P Consumer
Utilities Index Price Index
- ------------------------------------------------------------------------------
6 months -3.45% 1.20%
- ------------------------------------------------------------------------------
1 year 1.65 2.50
- ------------------------------------------------------------------------------
5 years 63.07 14.84
Annual average 10.28 2.81
- ------------------------------------------------------------------------------
Life of class A 82.14 19.73
Annual average 9.80 2.83
- ------------------------------------------------------------------------------
Life of class B 63.07 14.84
Annual average 10.28 2.80
- ------------------------------------------------------------------------------
Life of class M 28.53 6.16
Annual average 12.27 2.79
- ------------------------------------------------------------------------------
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 the
applicable sales charge, with the maximum being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 2 2 2
- ------------------------------------------------------------------------------
Income $0.230 $0.187 $0.200
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.258388 0.258388 0.258388
- ------------------------------------------------------------------------------
Short-term 0.501612 0.501612 0.501612
- ------------------------------------------------------------------------------
Total $0.990 $0.947 $0.960
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
10/31/96 $11.63 $12.34 $11.57 $11.61 $12.03
- ------------------------------------------------------------------------------
4/30/97 11.26 11.95 11.21 11.25 11.66
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 4.09% 3.85% 3.35% 3.63% 3.50%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 3.56 3.35 2.82 3.09 2.98
- ------------------------------------------------------------------------------
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.
TOTAL RETURN FOR PERIODS ENDED 3/31/97
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 7.33% 1.15% 6.88% 1.96% 7.25% 3.48%
- ------------------------------------------------------------------------------
1 year 12.45 5.99 11.58 6.58 12.14 8.19
- ------------------------------------------------------------------------------
5 years 80.05 69.65 -- -- -- --
Annual average 12.48 11.15 -- -- -- --
- ------------------------------------------------------------------------------
Life of fund 99.66 88.14 69.35 67.35 41.92 36.98
Annual average 11.46 10.43 11.28 11.01 18.24 16.25
- ------------------------------------------------------------------------------
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.
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 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.
Portfolio of investments owned
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (83.3%) *
NUMBER OF SHARES VALUE
Automotive Parts (--%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
26,355 Mark IV Industries, Inc. $ 612,754
Banks (0.4%)
- ------------------------------------------------------------------------------------------------------------
50,000 Bankers Trust New York Corp. [UPSIDE DOWN DELTA] 4,068,750
19,500 FirstMerit Corp. 833,625
--------------
4,902,375
Building Products (--%)
- ------------------------------------------------------------------------------------------------------------
30,000 Texas Industries, Inc. 690,000
Building and Construction (0.4%)
- ------------------------------------------------------------------------------------------------------------
440,000 Willbros Group, Inc. + 4,455,000
Chemicals (0.8%)
- ------------------------------------------------------------------------------------------------------------
34,000 Crompton & Knowles Corp. + 739,500
25,500 Hanna (M.A.) Co. 532,313
25,000 Olin Corp. 1,028,125
90,000 Rohm & Haas Co. 7,492,500
--------------
9,792,438
Computer Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
156,250 NCR Corp. + 4,531,250
Conglomerates (0.1%)
- ------------------------------------------------------------------------------------------------------------
50,000 Ogden Corp. 1,050,000
Electric Utilities (22.8%)
- ------------------------------------------------------------------------------------------------------------
225,000 Carolina Power & Light Co. 7,650,000
650,000 Central & South West Corp. 13,081,250
10,000 Chilectra S.A. 144A ADR (Chile) 617,500
81,600 CILCORP, Inc. 3,151,800
300,000 Cinergy Corp. 9,975,000
200,000 Consolidated Edison Co. of New York, Inc. 5,550,000
280,000 Delmarva Power & Light Co. 4,900,000
100,000 DPL, Inc. 2,362,500
600,000 Edison International 12,600,000
150,000 Empresa Nacional de Electricidad ADR (Spain) 10,481,250
100,000 Energy Group PLC ADR (United Kingdom) + 3,137,500
100,000 Enova Corp. 2,212,500
250,000 Florida Progress Corp. 7,687,500
230,000 FPL Group, Inc. 10,263,750
200,000 GPU, Inc. 6,450,000
600,000 Hong Kong Electric Holdings Ltd. (Hong Kong) + 2,122,386
450,000 Long Island Lighting Co. 10,293,750
100,000 MidAmerican Energy Holdings Co. 1,675,000
200,000 National Grid Group PLC (United Kingdom) 725,302
250,000 New England Electric Systems Inc. 8,531,250
200,000 New York State Electric & Gas Corp. 4,200,000
286,500 NIPSCO Industries, Inc. 11,316,750
1,065,200 Northeast Utilities 8,787,900
230,000 OGE Energy Corp. 9,545,000
150,000 Ohio Edison Co. 3,000,000
126,600 Pinnacle West Capital Corp. 3,608,100
100,000 Portland General Corp. 3,650,000
442,600 Potomac Electric Power Co. 9,958,500
135,000 PowerGen PLC ADR (United Kingdom) 5,771,250
485,500 Public Service Co. of Colorado 18,813,125
275,800 Puget Sound Energy, Inc. 6,757,100
400,000 Scana Corp. 9,650,000
661,200 Scottish Power PLC (United Kingdom) 4,001,779
500,000 Sierra Pacific Resources 14,187,500
500,000 TNP Enterprises, Inc. 10,500,000
450,000 Tuscon Electric Power Co. + 6,412,500
175,000 United Illuminating Co. 4,331,250
150,000 Utilicorp United, Inc. 3,900,000
13,000 Viag AG (Germany) 5,788,804
160,000 Washington Water Power Co. 2,860,000
400,000 Wisconsin Energy Corp. 10,000,000
--------------
280,507,796
Electrical Equipment (0.5%)
- ------------------------------------------------------------------------------------------------------------
250,000 Vishay Intertechnology, Inc. + 6,031,250
Electronics (--%)
- ------------------------------------------------------------------------------------------------------------
12,000 Pittway Corp. Class A 639,000
Food and Beverages (0.2%)
- ------------------------------------------------------------------------------------------------------------
20,000 Flowers Industries, Inc. 487,500
60,000 Whitman Corporation 1,387,500
--------------
1,875,000
Gas Pipelines (4.3%)
- ------------------------------------------------------------------------------------------------------------
260,000 Coastal Corp. 12,350,000
568,500 PanEnergy Corp. 25,156,125
360,000 Tejas Gas Corp. + 14,940,000
--------------
52,446,125
Gas Utilities (25.1%)
- ------------------------------------------------------------------------------------------------------------
380,000 AGL Resources, Inc. 7,315,000
213,600 Atmos Energy Corp. 4,832,700
236,000 Bay State Gas Co. 6,018,000
280,000 Brooklyn Union Gas Co. 7,665,000
182,700 CMS Energy Corp. Class G 3,311,438
220,000 Cascade Natural Gas Corp. 3,602,500
375,000 Columbia Gas System, Inc. 23,203,125
150,000 Connecticut Energy Corp. 3,262,500
150,000 Consolidated Natural Gas Co. 7,556,250
400,000 Eastern Enterprises 13,550,000
261,300 El Paso Natural Gas Co. 15,188,063
294,800 Energen Corp. 9,323,050
150,000 Enron Corp. 5,643,750
35,100 Equitable Resources, Inc. 1,039,838
70,000 Indiana Energy, Inc. 1,697,500
350,000 K N Energy, Inc. 13,037,500
146,300 Laclede Gas Co. 3,255,175
500,000 MCN Corp. 14,312,500
350,000 National Fuel Gas Co. 14,568,750
100,000 New Jersey Resources Corp. 2,887,500
300,000 NICOR Inc. 10,162,500
40,955 North Carolina Natural Gas Corp. 1,213,292
504,000 Northwest Natural Gas Co. 12,222,000
230,000 NUI Corp. 4,513,750
330,000 ONEOK, INC. 9,817,500
800,000 Pacific Enterprises 24,500,000
274,900 Peoples Energy Corp. 9,277,875
200,000 Piedmont Natural Gas Co., Inc. 4,700,000
70,000 Providence Energy Corp. 1,251,250
200,000 Public Service Co. of North Carolina, Inc. 3,475,000
500,000 Questar Corp. 19,000,000
80,000 South Jersey Industries, Inc. 1,700,000
136,884 Southern Union Co. + 3,268,106
200,000 Southwest Gas Corp. 3,325,000
200,000 Transportadora de Gas del Sur ADR (Argentina) 2,500,000
350,000 UGI Corp. 7,962,500
270,000 United Cities Gas Co. 5,805,000
200,000 Washington Gas Light Co. 4,600,000
490,000 Westcoast Energy, Inc. 8,391,250
156,700 WICOR, Inc. 5,504,088
200,000 Yankee Energy System, Inc. 4,250,000
--------------
308,709,250
Household Products (--%)
- ------------------------------------------------------------------------------------------------------------
27,500 First Brands Corp. 697,813
Oil and Gas (1.2%)
- ------------------------------------------------------------------------------------------------------------
30,000 Mitchell Energy & Development Corp. Class B 573,750
580,000 NGC Corporation 10,222,500
219,500 Western Gas Resources, Inc. 3,374,813
--------------
14,171,063
Paper and Forest Products (--%)
- ------------------------------------------------------------------------------------------------------------
50,000 Unisource Worldwide, Inc. + 737,500
Pharmaceuticals and Biotechnology (0.5%)
- ------------------------------------------------------------------------------------------------------------
18,025 Block Drug, Inc. Class A 757,050
200,000 Pharmacia & Upjohn, Inc. 5,925,000
--------------
6,682,050
Photography (0.1%)
- ------------------------------------------------------------------------------------------------------------
25,000 Polaroid Corp. 1,212,500
REIT's (Real Estate Investment Trust) (2.8%)
- ------------------------------------------------------------------------------------------------------------
160,600 Avalon Properties, Inc. 4,235,825
383,884 Beacon Properties Corp. 11,852,419
194,000 Equity Residential Properties Trust 8,487,500
100,000 LTC Properties, Inc. 1,675,000
84,600 Macerich Co. 2,199,600
300,000 Nationwide Health Properties, Inc. 6,000,000
--------------
34,450,344
Retail (2.2%)
- ------------------------------------------------------------------------------------------------------------
38,500 Family Dollar Stores, Inc. 1,005,813
1,900,000 K mart Corp. + 25,887,500
--------------
26,893,313
Telephone Utilities (21.1%)
- ------------------------------------------------------------------------------------------------------------
100,000 American Telephone & Telegraph Co. 3,350,000
335,000 Ameritech Corp. 20,476,875
100,000 Bell Atlantic Corp. 6,775,000
575,000 BellSouth Corp. 25,587,500
100,000 Cable & Wireless PLC ADR (United Kingdom) 2,312,500
422,000 Deutsche Telekom AG ADR (Germany) + 9,073,000
400,000 GTE Corp. 18,350,000
700,000 MCI Communications Corp. 26,687,500
320,000 NYNEX Corp. 16,560,000
40,000 Portugal Telecom S.A. ADR (Portugal) 1,480,000
30,000 Royal PTT Nederland N.V. ADR (Netherlands) + 1,076,250
1,391,616 SBC Communications, Inc. 77,234,688
650,000 Sprint Corp. 28,518,750
50,000 Telecom Argentina S.A. ADR (Argentina) + 2,500,000
1,000,000 Telecom Italia S.P.A. (Italy) 2,634,524
20,000 Telefonica de Argentina S.A. ADR (Argentina) 665,000
250,000 Telefonica del Peru S.A. ADR (Peru) 6,000,000
300,000 US West, Inc. 10,537,500
--------------
259,819,087
Textiles (--%)
- ------------------------------------------------------------------------------------------------------------
12,000 Springs Industries, Inc. Class A 561,000
Tobacco (0.2%)
- ------------------------------------------------------------------------------------------------------------
63,000 Dimon Inc. 1,244,250
22,000 Universal Corp. 616,000
--------------
1,860,250
Water Utilities (0.2%)
- ------------------------------------------------------------------------------------------------------------
100,000 American Water Works, Inc. 2,125,000
--------------
Total Common Stocks (cost $884,549,010) $1,025,452,158
CORPORATE BONDS AND NOTES (14.9%) *
PRINCIPAL AMOUNT VALUE
Combined Utilities (2.6%)
- ------------------------------------------------------------------------------------------------------------
$ 3,000,000 Australian Gas & Light Co. 144A sr. notes
6 3/8s, 2003 (Australia) $ 2,859,720
4,000,000 Kansas Gas & Electric deb. 8.29s, 2016 3,887,080
4,000,000 Pacific Gas & Electric Co. sr. notes 7.1s, 2005 3,956,680
4,000,000 Public Service Electric & Gas mtge. note 9 1/4s, 2021 4,523,640
7,240,000 San Diego Gas & Electric Co. 1st mtge. Ser. JJ, 9 5/8s, 2020 7,998,390
7,985,000 South Carolina Electric & Gas Co. 1st mtge. 7 5/8s, 2025 8,243,874
--------------
31,469,384
Electric Utilities (9.5%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Allegheny Generating Co. deb. 6 7/8s, 2023 3,503,440
2,331,000 Arkansas Electric Corp. bonds 7.33s, 2008 2,330,860
3,500,000 Chilgener S.A. notes 6 1/2s, 2006 (Chile) 3,271,205
4,000,000 Chugach Electric Co. 1st mtge. Ser. A, 9.14s, 2022 4,410,240
3,432,000 Citizens Utilities Co. bonds 7.68s, 2034 3,699,010
4,000,000 Commonwealth Edison Co. 1st mtge. Ser. 83, 8s, 2008 4,119,320
2,000,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 5 1/2s, 1999 1,963,340
1,500,000 Connecticut Light & Power Co. 1st mtge. Ser. D, 7 7/8s, 2024 1,512,720
5,250,000 Consumers Energy Co. mtge. 8 3/4s, 1998 5,348,595
3,500,000 Duquesne Light Co. deb. 8.7s, 2016 3,746,890
2,500,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 2,462,875
5,000,000 Empresa Nacional de Electricidad bonds 7 7/8s, 2027 (Chile) 4,905,400
4,000,000 Hydro Quebec (Government of) guaranty 8.4s, 2022 (Canada) 4,209,040
5,000,000 Iberdrola S.A. notes 7 1/2s, 2002 (Spain) 5,104,350
4,991,473 Indiana-Michigan Power Co. deb. 9.82s, 2022 5,853,251
3,997,392 Indiana-Michigan Power Co. deb. Ser. E, 9.81s, 2022 4,738,748
3,000,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 2,935,680
7,000,000 Kansas City Power & Light Co. med. term notes 5 3/4s, 1998 6,967,520
4,000,000 Kentucky Utilities Co. 1st mtge. Ser. R, 7.55s, 2025 3,411,250
5,000,000 Midwest Power Systems mtge. 8 1/8s, 2023 4,868,050
5,000,000 Ohio Edison Co. 1st mtge. 8 1/4s, 2002 5,178,900
2,969,000 Otter Tail Power Co. 1st mtge. 7 1/4s, 2002 2,983,192
5,000,000 Public Service Co. of Colorado coll. trust 6 3/8s, 2005 4,741,750
1,720,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 1,760,506
3,500,000 Sierra Pacific Power Co. med. term notes Ser. C, 6.82s, 2006 3,386,460
5,000,000 System Energy Resources, Inc. deb. 7.38s, 2000 4,931,850
1,300,000 Thermochemical Funding 144A sr. notes 10 1/8s 2014 1,350,375
5,000,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 4,963,600
3,400,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 3,357,330
4,500,000 Utilicorp United sr. notes 8.2s, 2007 4,678,695
--------------
116,694,442
Financial Services (0.2%)
- ------------------------------------------------------------------------------------------------------------
3,000,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 2,888,040
Gas Utilities (1.2%)
- ------------------------------------------------------------------------------------------------------------
3,500,000 Columbia Gas System, Inc. notes Ser. E, 7.32s, 2010 3,409,455
3,500,000 ONEOK Inc. deb. 9.7s, 2019 3,832,395
4,000,000 Southern Union Gas sr. notes 7.6s, 2024 3,861,600
3,500,000 Southwest Gas Corp. deb. 7 1/2s, 2006 3,518,760
--------------
14,622,210
Oil and Gas (0.6%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Petroliam Nasional Berhad 144A notes 6 7/8s, 2003 (Malaysia) 3,944,760
4,000,000 Transcontinental Gas Pipeline Corp. deb. 7 1/4s, 2026 3,690,000
--------------
7,634,760
Telephone Utilities (0.6%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 Bell South Telecommunication deb. 6 3/4s, 2033 4,393,450
3,500,000 GTE Northwest, Inc. deb. 7 7/8s, 2026 3,373,125
--------------
7,766,575
Water Utility (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,500,000 Pennsylvania American Water Co. 144A mtge. 7.8s, 2026 2,478,125
--------------
Total Corporate Bonds and Notes (cost $186,746,130) $ 183,553,536
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (0.2%) * (cost $2,395,509)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$2,445,000 U.S. Treasury Notes 6 1/4s, October 31, 2001 $ 2,415,190
SHORT-TERM INVESTMENTS (1.1%) * (cost $13,460,014)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$6,458,000 Interest in $473,073,000 joint repurchase agreement
dated April 30, 1997, with Merrill Lynch due
May 1,1997 with respect to various U.S. Treasury
obligations -- maturity value of $6,458,969
for an effective yield of 5.4% $ 6,458,969
7,000,000 Interest in $750,000,000 joint repurchase agreement
dated April 30, 1997 with Goldman, Sachs & Co. due
May 1, 1997 with respect to various U.S. Treasury
obligations -- maturity value of $7,001,045
for an effective yield of 5.375% 7,001,045
--------------
$ 13,460,014
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,087,150,663) *** 1,224,880,898
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,230,958,237.
+ Non-income-producing security.
*** The aggregate identified cost on a tax basis is $1,086,805,284
resulting in gross unrealized appreciation and depreciation of
$170,667,355 and $32,591,741, respectively, or net unrealized
appreciation of $138,075,614.
[UPSIDE DOWN DELTA] This entity provides sub-custodian services to the fund.
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.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30,1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,087,150,663) (Note 1) $1,224,880,898
- ---------------------------------------------------------------------------------------------------
Cash 809
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 7,373,630
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,173,793
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 11,632,485
- ---------------------------------------------------------------------------------------------------
Total assets 1,245,061,615
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 6,759,700
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,289,126
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,924,486
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 275,400
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 26,357
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,824
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 627,511
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 198,974
- ---------------------------------------------------------------------------------------------------
Total liabilities 14,103,378
- ---------------------------------------------------------------------------------------------------
Net assets $1,230,958,237
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,041,324,636
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,040,879)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 54,946,191
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 137,728,289
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,230,958,237
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($604,273,066 divided by 53,656,590 shares) $11.26
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $11.26)* $11.95
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($619,551,167 divided by 55,284,806 shares)** $11.21
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($7,134,004 divided by 633,868 shares) $11.25
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $11.25)* $11.66
- ---------------------------------------------------------------------------------------------------
* 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
Six months ended April 30,1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $101,282) $20,643,758
- --------------------------------------------------------------------------------------------------
Interest 7,648,609
- --------------------------------------------------------------------------------------------------
Total investment income 28,292,367
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,938,980
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,031,622
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 35,127
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,488
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 772,471
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,131,549
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 24,421
- --------------------------------------------------------------------------------------------------
Reports to shareholders 55,200
- --------------------------------------------------------------------------------------------------
Registration fees 8,627
- --------------------------------------------------------------------------------------------------
Auditing 22,893
- --------------------------------------------------------------------------------------------------
Legal 8,786
- --------------------------------------------------------------------------------------------------
Other 50,505
- --------------------------------------------------------------------------------------------------
Total expenses 9,090,669
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (180,081)
- --------------------------------------------------------------------------------------------------
Net expenses 8,910,588
- --------------------------------------------------------------------------------------------------
Net investment income 19,381,779
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 55,331,597
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (2,908)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (2,908)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (9,975,612)
- --------------------------------------------------------------------------------------------------
Net gain on investments 45,350,169
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $64,731,948
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 19,381,779 $ 43,826,866
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 55,328,689 82,879,865
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies (9,978,520) 54,251,373
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 64,731,948 180,958,104
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (12,198,187) (23,901,842)
- ----------------------------------------------------------------------------------------------------------------------
Class B (10,112,023) (19,535,724)
- ----------------------------------------------------------------------------------------------------------------------
Class M (108,518) (121,291)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (39,184,764) (1,273,262)
- ----------------------------------------------------------------------------------------------------------------------
Class B (39,979,477) (1,040,677)
- ----------------------------------------------------------------------------------------------------------------------
Class M (377,225) (6,461)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 28,022,103 (68,562,356)
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (9,206,143) 66,516,491
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 1,240,164,380 1,173,647,889
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $3,040,879 and $3,930,
respectively) $1,230,958,237 $1,240,164,380
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
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
- --------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.63 $10.40 $9.06 $10.56 $9.24 $8.91
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income .20 .44 .43 .46 .51 .52
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .42 1.25 1.38 (1.22) 1.33 .37
- --------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .62 1.69 1.81 (.76) 1.84 .89
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.44) (.46) (.45) (.51) (.56)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.76) (.02) (.01) (.29) (.01) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (.99) (.46) (.47) (.74) (.52) (.56)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.26 $11.63 $10.40 $9.06 $10.56 $9.24
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.42 * 16.57 20.71 (7.30) 20.40 10.31
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $604,273 $618,417 $593,226 $541,619 $684,484 $419,098
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .53 * 1.11 1.12 1.08 1.12 1.32
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.71 * 3.97 4.53 4.84 4.97 5.60
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.49 * 64.53 67.60 112.32 123.57 21.16
- --------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0466 $.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 Brokerage service and expense offset 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 April 27, 1992+
operating performance (Unaudited) Year ended October 31 October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.57 $10.36 $9.02 $10.52 $9.22 $8.87
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .16 .36 .36 .39 .42 .26
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .43 1.23 1.39 (1.22) 1.34 .36
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .59 1.59 1.75 (.83) 1.76 .62
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.36) (.39) (.38) (.43) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- (.03) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.76) (.02) (.02) (.29) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.95) (.38) (.41) (.67) (.46) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.21 $11.57 $10.36 $9.02 $10.52 $9.22
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.14 * 15.57 19.92 (8.04) 19.54 7.06 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $619,551 $615,309 $578,505 $501,438 $551,794 $103,075
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .92 * 1.86 1.87 1.83 1.86 .94 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.33 * 3.22 3.77 4.10 3.98 2.45 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.49 * 64.53 67.60 112.32 123.57 21.16
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0466 $.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 Brokerage service and expense offset 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Year ended March 1, 1995+
operating performance (Unaudited) 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 .18 .38 (d) .31
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .42 1.26 1.26
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .60 1.64 1.57
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.39) (.33)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.76) (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.96) (.41) (.33)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.25 $11.61 $10.38
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.24 * 16.12 17.50 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,134 $6,438 $1,917
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .78 * 1.63 1.13 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.46 * 3.37 2.36 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.49 * 64.53 67.60
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0466 $0.0488
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 Brokerage service and expense offset 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
April 30, 1997 (Unaudited)
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 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 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.
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. 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.
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% of any excess
thereafter. Prior to February 20, 1997 any amount over $1.5 billion was based
on a rate of 0.50%.
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.
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 six months ended April 30, 1997, fund expenses were reduced by
$180,081 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 fund receive an annual Trustees fee of $2,400 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 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 certain Putnam funds until distribution in accordance with the 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 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 six months ended April 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $101,691 and $5,100 from the sale of
class A and class M shares, respectively and $472,584 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 six
months ended April 30, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $78 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended April 30, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $362,256,364 and $414,726,955, respectively. Purchases and sales of
U.S. government obligations aggregated $2,395,336 and $1,856,498,
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 April 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 9,939,762 $ 114,551,529
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,030,971 45,348,545
- ------------------------------------------------------------
13,970,733 159,900,074
Shares
repurchased (13,499,784) (155,995,038)
- ------------------------------------------------------------
Net increase 470,949 $ 3,905,036
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 5,368,118 $ 61,560,575
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,979,569 44,566,790
- ------------------------------------------------------------
9,347,687 106,127,365
Shares
repurchased (7,223,824) (82,853,265)
- ------------------------------------------------------------
Net increase 2,123,863 $ 23,274,100
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 235,744 $ 2,714,283
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 39,795 447,721
- ------------------------------------------------------------
275,539 3,162,004
Shares
repurchased (196,335) (2,319,037)
- ------------------------------------------------------------
Net increase 79,204 $ 842,967
- ------------------------------------------------------------
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
- ------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources 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 Trust
Income 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-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
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
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ 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.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured up to certain
limits by federal/state agencies. Savings accounts may also be insured
up to certain limits. Please call your financial advisor or Putnam at
1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains
more complete information, 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
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. 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
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
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 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
- --------------------
33882 840/884/869 6/97
