Putnam
Utilities
Growth and
Income
Fund
SEMIANNUAL REPORT
April 30, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "As convergence takes hold in the gas and electric industries, a
new energy sector is being created. We believe that carefully selected
utilities will tend to deliver strong performance and that the recent
trend toward underperformance may soon turn around."
-- Sheldon Simon, manager
Putnam Utilities Growth and Income Fund
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
19 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
We are entering an era of great change in the way we receive the energy to run
our homes and businesses. You may already have felt the effects of these
changes that ultimately will allow each of us to choose the company that
provides our electricity and gas. Deregulation of these industries is designed
to introduce free-market competition that, in turn, is supposed to help lower
our energy costs, improve service, or otherwise make our lives better.
Such epochal change, quite naturally, carries heavy implications for
investors. It is of intense interest to Putnam's investment management team,
which has been following events in this area closely from the beginning. We
have kept you abreast of developments in past reports and will continue to do
so in future.
In the following report, your fund's managers, Sheldon Simon and Christopher
Ray, report on performance during the first half of fiscal 1998 and discuss
prospects for the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 17, 1998
Report from the Fund Managers
Sheldon N. Simon, lead manager
Christopher A. Ray
Although the market environment was not especially favorable for utilities
stocks during the first half of Putnam Utilities Growth and Income Fund's 1998
fiscal year, anticipated changes in the utilities industry as a whole leave us
optimistic about the fund's performance potential over the second half of the
year. For the six months ended April 30, 1998, your fund's class A shares
returned 16.60% at net asset value and 9.91% at public offering price. For
performance over longer periods and results for other share classes, please
turn to pages 9 and 10.
While U.S. economic growth has maintained its energetic pace during the
period, interest rates have leveled off and remain comparatively low.
Utilities stocks are interest-rate sensitive and tend to track bond
performance rather than the performance of the broader equities market; thus,
as the rest of the market reached for record highs, your fund's utilities
holdings fell behind. In addition, an unusually warm winter season globally
has had an adverse effect on electric and gas companies' earnings. We view
these issues as transitory and remain fairly optimistic about the utilities
sector's ability to catch up with the market's strong performance as it has
done in the past.
* CONVERGENCE OF ELECTRIC POWER AND GAS SHAPES INDUSTRY'S FUTURE
Looking forward, we see the most important fundamental change in the utilities
industry to be the coming convergence of the public energy industry, made up
of electric power and natural gas. We envision a day in the not-too-distant
future when all customers of energy companies, including our shareholders,
will have a choice of where they buy gas and electric power. The deregulation
of public utilities, which has forced utilities companies into the beginning
stages of consolidation, is bringing that day closer. Smaller companies with
attractive assets are being acquired by larger companies with an eye toward
quickly enlarging their customer bases and strengthening their service
offerings. Through identifying and taking positions both in companies we
believe will be fundamental winners and in acquisition candidates, we have
been working to take advantage of these developments.
* PORTFOLIO ALLOCATIONS REFLECT CHANGING LANDSCAPE
As we positioned the portfolio to benefit from the convergence trend, several
small changes occurred in your fund's asset allocation. Holdings in the gas
industry, for example, have risen from about 22% to 25% of the portfolio. This
represents an overweighting relative to utilities market capitalization and
reflects our view that over time, smaller gas companies will be absorbed by
larger ones, and those in turn possibly being acquired by large electric
companies.
The electric industry constitutes the largest portion of the portfolio. The
fund's largest electric holding remains Duke Energy, the product of a 1997
merger of Duke Power, an electric utility, and PanEnergy, a natural gas
supplier. A prime example of convergence, Duke Energy has adopted an
aggressive strategy that we believe will serve it well as the industry begins
to shake out. While this holding, along with others discussed in this report,
was 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.
[GRAPHIC OMITTED: HORIZONTAL BAR CHART OF TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electric
utilities 37.0%
Gas utilities 25.7%
Telephone
utilities 23.7%
Retail 2.6%
Combined
utilities 1.6%
Footnote reads:
* Based on net assets as of 4/30/98. Holdings will vary over time.
Enron Corporation is another company that has positioned itself to serve
customers' energy needs nationwide, essentially creating a business that
didn't exist just a few years ago. We have initiated a new position in Enron
that currently represents about 2% of your fund's assets.
The fund's bond allocation has declined slightly and is now about 13% of net
assets. This portion of the portfolio exists to help us manage the effects of
market volatility and in turbulent times has risen to as high as 50% of
assets. In the present market environment, characterized by stable interest
rates and steady economic growth, your fund's primary risk factor -- rising
interest rates -- is being held at bay.
The fund also maintains a position in nonutility stocks, currently 7% of
assets, in order to boost overall performance. Our largest nonutility
position, K mart Corporation, has been important to your fund's returns in
1998. Although we haven't taken profits yet, given this investment's
contribution to the fund we may redirect the proceeds from the sale of this
stock elsewhere as we have done in the past with large nonutility positions.
In addition, the fund continues to hold some foreign utilities. These show
continuing signs of rewarding growth combined with relative stability,
particularly in Europe. While we maintain our search for value abroad, we are
particularly careful about mitigating country and currency risk, seeking
stocks that we believe will generate reliable returns for U.S. dollar-based
investors.
* MANAGEMENT VISION KEY TO ENERGY COMPANIES' EVOLUTION
We're presently seeing the beginning of a trend in which smaller gas companies
will be acquired by larger ones, with the resulting entity becoming a
candidate for acquisition by electric utilities. This could lead to the
formation of energy companies with national and global strategic potential.
These energy companies will be better positioned to thrive than companies
whose managements do not recognize and adapt to the new deregulated
environment or that have a difficult mix of assets. Some of these companies
are going to revisit the problem they had 10 years ago of how to pay for
expensive plants -- usually nuclear -- whose operating costs are far above
what today's market rate for energy will support. We will seek out managements
that we believe possess the vision and the ability to execute a successful
strategy and will avoid investing in companies that are less well managed.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Duke Energy Corp.
Electric utilities
American Telephone & Telegraph Co.
Telephone utilities
SBC Communications, Inc.
Telephone utilities
Sprint Corp.
Telephone utilities
BellSouth Corp.
Telephone utilities
K mart Corp.
Retail
Pacific Enterprises
Gas utilities
Enron Corp.
Gas utilities
Bell Atlantic Corp.
Telephone utilities
Ameritech Corp.
Telephone utilities
These holdings represent 27.0% of the fund's net assets as of 4/30/98.
Portfolio holdings will vary over time.
* TELEPHONE STOCKS BENEFIT FROM INCREASED DEMAND
High demand for basic telephone services, including second lines, and an
explosion of data services through phone lines have helped telephone stocks do
well over the semiannual period. We continue to believe that two of your
fund's major investments, AT&T and SBC Communications (each at around 4% of
assets), have enormous potential to make significant contributions to fund
returns over the coming fiscal year. We maintain our view that the turnaround
of AT&T, which was a big gainer in 1997 but has lagged somewhat in 1998, is on
track and that the company will demonstrate significant earnings power by
2001. SBC Communications continues to experience high levels of growth in its
service territories of California and the Southwest, especially with its
cellular service offering. The merger with Pacific Telesis is going well and
the recently announced merger with Ameritech bodes well for the future of this
telecommunications powerhouse.
* FISCAL 1998: YEAR OF TRANSITION
We continue to think that growth will continue as long as the interest-rate
environment remains benign. Valuation spreads between utilities and the
overall market remain wide, making utilities seem cheap by comparison --
another reason for staying close to the utilities sector. Should the market
enter a more difficult phase, we expect utilities stocks to suffer less than
others, as they offer more downside protection. Overall, we believe that in
the current environment, we need to remain close to our utility roots.
Fortunately, it appears these roots have a great deal to offer.
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 4/30/98, there is no guarantee the fund will continue to hold
these securities in the future.
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 4/30/98
Class A Class B Class M
(inception date) (11/19/90) (4/27/92) (3/1/95)
NAV POP NAV CDSC NAV POP
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6 months 16.60% 9.91% 16.20% 11.20% 16.34% 12.28%
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1 year 31.79 24.18 30.71 25.71 31.14 26.52
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5 years 96.77 85.41 89.42 87.42 92.28 85.64
Annual average 14.50 13.14 13.63 13.39 13.97 13.17
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Life of fund 166.44 151.08 151.96 151.96 157.00 147.86
Annual average 14.08 13.17 13.23 13.23 13.53 12.98
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/98
Standard & Poor's Consumer
Utilities Index Price Index
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6 months 19.29% 0.56%
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1 year 35.79 1.44
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5 years 82.27 12.85
Annual average 12.76 2.45
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Life of fund 151.94 21.72
Annual average 13.12 2.66
- ------------------------------------------------------------------------------
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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/98
Class A Class B Class M
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Distributions (number) 2 2 2
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Income $0.230 $0.183 $0.197
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Capital gains
- ------------------------------------------------------------------------------
Long-term 0.684 0.684 0.684
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Short-term 0.228 0.228 0.228
- ------------------------------------------------------------------------------
Total $1.142 $1.095 $1.109
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Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
10/31/97 $12.49 $13.25 $12.42 $12.47 $12.92
- ------------------------------------------------------------------------------
4/30/98 13.35 14.16 13.27 13.33 13.81
- ------------------------------------------------------------------------------
Current return (end of period)
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Current dividend rate1 3.45% 3.25% 2.74% 2.85% 2.75%
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Current 30-day SEC yield2 2.90 2.73 2.14 2.34 2.26
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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 3/31/98
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 19.04% 12.21% 18.55% 13.55% 18.77% 14.64%
- ------------------------------------------------------------------------------
1 year 36.25 28.40 35.26 30.26 35.55 30.85
- ------------------------------------------------------------------------------
5 years 100.29 88.76 92.78 90.78 95.69 88.77
Annual average 14.90 13.55 14.03 13.79 14.37 13.55
- ------------------------------------------------------------------------------
Life of class 172.03 156.34 157.46 157.46 162.59 153.25
Annual 14.56 13.64 13.71 13.71 14.02 13.46
- ------------------------------------------------------------------------------
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. It 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, 1998 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (85.9%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Building and Construction (0.5%)
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430,000 Willbros Group, Inc. (NON) $ 7,148,750
Cellular Communications (0.2%)
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100,000 360 Communications Co. (NON) 3,056,250
Chemicals (--%)
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25,500 Hanna (M.A.) Co. 584,906
Conglomerates (0.3%)
- -------------------------------------------------------------------------------------------------------------
155,800 Ogden Corp. 4,790,850
Electric Utilities (29.5%)
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150,000 Ameren Corp. 5,943,750
275,000 Carolina Power & Light Co. 11,842,188
100,000 Centrais Electricas Brasileiras S. A. (Brazil) 4,110,547
25,000 Chilectra S.A. 144A ADR (Chile) 687,500
81,600 CILCORP, Inc. 3,901,500
350,000 Cinergy Corp. 12,206,250
212,700 CMS Energy Corp. Class G 5,543,494
100,000 Companhia Energetica de Minas Gerais ADR (Brazil) 4,775,000
313,500 Companhia Paranaense de Energia-Copel ADR (Brazil) 4,467,375
276,300 Conectiv, Inc. 5,785,031
300,000 Consolidated Edison, Inc. 13,575,000
150,000 Dominion Resources, Inc. 5,934,375
150,000 DPL, Inc. 2,728,125
1,043,741 Duke Energy Corp. 60,406,510
100,000 Edison International 2,981,250
50,000 EDP-Electricidade de Portugal, S.A. ADR (Portugal) (NON) 2,600,000
100,000 Enova Corp. 2,675,000
250,000 Florida Progress Corp. 10,156,250
150,000 GPU, Inc. 5,943,750
100,000 Hawaiian Electric Industries, Inc. 4,050,000
620,000 Iberdola S.A. (Spain) (NON) 9,963,926
705,000 Korea Electric Power Corp. (South Korea) 9,611,189
10,000 Light Participacoes, S.A. (Brazil) (NON) 2,448,837
100,000 MidAmerican Energy Holdings Co. 2,112,500
400,000 New Century Energies, Inc. 19,000,000
250,000 New England Electric Systems Inc. 10,875,000
300,000 New York State Electric & Gas Corp. 12,525,000
673,000 NIPSCO Industries, Inc. 18,044,813
965,200 Northeast Utilities 13,633,450
230,000 OGE Energy Corp. 12,635,625
100,000 PacifiCorp 2,325,000
126,600 Pinnacle West Capital Corp. 5,602,050
442,600 Potomac Electric Power Co. 10,843,700
275,800 Puget Sound Energy, Inc. 7,256,988
400,000 Scana Corp. 11,950,000
661,200 Scottish Power PLC (United Kingdom) 6,077,631
500,000 Sierra Pacific Resources 17,500,000
124,100 Southern Co. 3,288,650
200,000 Teco Energy, Inc. 5,325,000
372,000 Texas Utilities Electric Co. 14,880,000
500,000 TNP Enterprises, Inc. 16,125,000
300,000 Union Electrica Fenosa S.A. (Spain) 3,876,682
100,000 UniSource Energy Corp. (NON) 1,768,750
175,000 United Illuminating Co. 8,596,875
150,000 Utilicorp United, Inc. 5,643,750
26,000 Viag AG (Germany) 13,162,907
117,600 Washington Water Power Co. 2,704,800
700,000 Wisconsin Energy Corp. 21,350,000
--------------
439,441,018
Electrical Equipment (0.5%)
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382,500 Vishay Intertechnology, Inc. (NON) 7,004,531
Electronics (0.1%)
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12,000 Pittway Corp. Class A 897,000
Food and Beverages (0.1%)
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60,000 Whitman Corp. 1,173,750
Gas Pipelines (1.4%)
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300,000 Coastal Corp. 21,431,250
Gas Utilities (24.1%)
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380,000 AGL Resources, Inc. 7,908,750
483,600 Atmos Energy Corp. 14,235,975
236,000 Bay State Gas Co. 8,953,250
220,000 Cascade Natural Gas Corp. 3,533,750
100,000 Central Hudson Gas & Electric 4,031,250
273,300 Columbia Gas System, Inc. (NON) 22,205,625
150,000 Connecticut Energy Corp. 4,350,000
400,000 Eastern Enterprises 16,950,000
422,600 El Paso Natural Gas Co. 15,609,788
589,600 Energen Corp. 13,155,450
625,000 Enron Corp. 30,742,188
100,100 Equitable Resources, Inc. 3,253,250
70,000 Indiana Energy, Inc. 2,205,000
350,000 K N Energy, Inc. 20,540,625
380,000 KeySpan Energy Corp. 12,967,500
146,300 Laclede Gas Co. 3,620,925
300,000 MCN Corp. 11,325,000
350,000 National Fuel Gas Co. 16,100,000
70,000 New Jersey Resources Corp. 2,642,500
300,000 NICOR Inc. 12,281,250
151,432 North Carolina Natural Gas Corp. 3,719,549
504,000 Northwest Natural Gas Co. 13,608,000
230,000 NUI Corp. 5,893,750
330,000 ONEOK, Inc. 13,365,000
800,000 Pacific Enterprises 31,150,000
200,000 Peoples Energy Corp. 7,250,000
200,000 Piedmont Natural Gas Co., Inc. 6,812,500
70,000 Providence Energy Corp. 1,448,125
200,000 Public Service Co. of North Carolina, Inc. 4,100,000
100,000 Questar Corp. 4,337,500
200,000 Sonat, Inc. 8,875,000
80,000 South Jersey Industries, Inc. 2,195,000
200,000 Southwest Gas Corp. 4,612,500
200,000 Transportadora de Gas del Sur ADR (Argentina) 2,312,500
200,000 Washington Gas Light Co. 5,437,500
200,000 Westcoast Energy, Inc. 4,700,000
156,700 WICOR, Inc. 7,511,806
200,000 Yankee Energy System, Inc. 4,737,500
--------------
358,678,306
Household Products (--%)
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27,500 First Brands Corp. 737,344
Oil and Gas (0.7%)
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30,000 Mitchell Energy & Development Corp. Class B 757,500
630,000 NGC Corporation 9,292,500
--------------
10,050,000
Pharmaceuticals and Biotechnology (1.2%)
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18,565 Block Drug, Inc. Class A 782,051
400,000 Pharmacia & Upjohn, Inc. 16,825,000
--------------
17,607,051
REIT's (Real Estate Investment Trust) (1.2%)
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312,178 Equity Office Properties Trust 8,877,562
194,000 Equity Residential Properties Trust 9,530,250
--------------
18,407,812
Retail (2.6%)
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57,750 Family Dollar Stores, Inc. 1,963,500
1,900,000 K mart Corp. 33,131,250
133,400 Toys R Us (NON) 3,676,838
--------------
38,771,588
Telecommunications (0.5%)
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100,000 Cable & Wireless PLC ADR (United Kingdom) 3,512,500
300,000 PT Indosat ADR (Indonesia) 4,237,500
--------------
7,750,000
Telephone Utilities (22.7%)
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1,000,000 American Telephone & Telegraph Co. 60,062,500
670,000 Ameritech Corp. 28,516,875
322,560 Bell Atlantic Corp. 30,179,520
525,000 BellSouth Corp. 33,698,438
500,000 Cincinnati Bell, Inc. 19,125,000
400,000 GTE Corp. 23,375,000
100,000 Philippine Long Distance Telephone Co.
ADR (Philippines) 2,700,000
80,000 Portugal Telecom S.A. ADR (NON) 4,300,000
200,000 PT Telekomunikasi Indonesia ADR (Indonesia) (NON) 1,600,000
1,400,000 SBC Communications, Inc. 58,012,500
550,000 Sprint Corp. 37,571,875
50,000 Telebras Co. ADR (Brazil) 6,090,625
100,000 Telecom Argentina S.A. ADR (Argentina) 3,600,000
48,470 Telecom Corp. of New Zealand Ltd. (New Zealand) 1,042,105
80,000 Telecom Corp. of New Zealand Ltd. ADR
(New Zealand) 3,065,000
555,555 Telecom Italia S.P.A. (Italy) 4,156,447
20,000 Telefonica de Argentina S.A. ADR (Argentina) 771,250
250,000 Telefonica del Peru S.A. ADR (Peru) 5,531,250
300,000 US West, Inc. 15,825,000
--------------
339,223,385
Textiles (--%)
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12,000 Springs Industries, Inc. Class A 660,750
Tobacco (0.1%)
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63,000 Dimon Inc. 921,375
22,000 Universal Corp. 823,625
--------------
1,745,000
Water Utilities (0.2%)
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100,000 American Water Works, Inc. 2,993,750
--------------
Total Common Stocks (cost $895,131,932) $1,282,153,291
CORPORATE BONDS AND NOTES (13.0%) (a)
PRINCIPAL AMOUNT VALUE
Combined Utilities (1.6%)
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$ 3,000,000 Australian Gas & Light Co. 144A sr. notes
6 3/8s, 2003 (Australia) $ 3,006,750
4,000,000 Kansas Gas & Electric deb. 8.29s, 2016 4,237,560
4,000,000 Pacific Gas & Electric Co. sr. notes 7.1s, 2005 4,172,760
7,985,000 South Carolina Electric & Gas Co. 1st mtge.
7 5/8s, 2025 8,657,656
4,000,000 Western Resources, Inc. sr. notes 6 7/8s, 2004 4,061,280
--------------
24,136,006
Electric Utilities (7.5%)
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4,000,000 Allegheny Generating Co. deb. 6 7/8s, 2023 3,831,120
3,000,000 Arizona Public Service Co. notes 6 1/4s, 2005 2,928,720
2,240,000 Arkansas Electric Corp. bonds 7.33s, 2008 2,321,155
4,000,000 Chugach Electric Co. 1st mtge. Ser. A, 9.14s, 2022 4,681,280
2,800,000 CMS Energy Corp. pass through certificates 7s, 2005 2,685,284
4,000,000 Commonwealth Edison Co. 1st mtge. Ser. 83, 8s, 2008 4,427,720
1,500,000 Connecticut Light & Power Co. 1st mtge. Ser. D,
7 7/8s, 2024 1,528,005
2,000,000 Connecticut Light & Power Co. 1st mtge. Ser. A,
5 1/2s, 1999 1,980,780
4,000,000 Consolidated Edison, Inc. deb. 6.45s, 2007 4,020,640
3,500,000 Duquesne Light Co. deb. 8.7s, 2016 3,829,840
2,500,000 Edison Mission Energy 144A company guaranty
7.33s, 2008 2,616,875
4,000,000 Hydro Quebec Government guaranty Ser. HY
8.4s, 2022 (Canada) 4,749,440
5,000,000 Iberdrola S.A. notes 7 1/2s, 2002 5,221,700
4,990,701 Indiana-Michigan Power Co. deb. 9.82s, 2022 6,359,501
3,997,392 Indiana-Michigan Power Co. deb. Ser. E, 9.81s, 2022 5,128,614
3,000,000 Israel Electric Corp., Ltd. 144A sr. notes
7 1/4s, 2006 (Israel) 3,070,590
4,000,000 Kentucky Utilities Co. 1st mtge. Ser. R, 7.55s, 2025 4,217,920
5,000,000 Midwest Power Systems mtge. 8 1/8s, 2023 5,262,050
5,000,000 Ohio Edison Co. 1st mtge. 8 1/4s, 2002 5,308,750
2,938,000 Otter Tail Power Co. 1st mtge. 7 1/4s, 2002 3,062,189
5,000,000 Public Service Co. of Colorado coll. trust 6 3/8s, 2005 5,034,050
2,925,000 Puget Sound Energy, Inc. med. term sr. notes
A, 7.02s, 2027 2,966,798
1,720,000 Salton Sea Funding Corp. company guaranty
Ser. E, 8.3s, 2011 1,873,544
3,500,000 Sierra Pacific Power Co. med. term notes Ser. C,
6.82s, 2006 3,606,890
3,000,000 Southern Investments Service Co. sr. notes
6.8s, 2006 (United Kingdom) 3,055,950
5,000,000 System Energy Resources, Inc. deb. 7.38s, 2000 5,043,700
5,000,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 5,073,150
3,400,000 Texas Utilities Electric Capital Trust V company
guaranty 8.175s, 2037 3,488,672
4,500,000 Utilicorp United sr. notes 8.2s, 2007 4,930,200
--------------
112,305,127
Energy-Related (0.1%)
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2,000,000 CalEnergy, Inc. sr. notes 7.63s, 2007 1,989,320
Gas Utilities (1.6%)
- -------------------------------------------------------------------------------------------------------------
3,500,000 Columbia Gas System, Inc. notes Ser. E, 7.32s, 2010 3,598,385
2,750,000 K N Energy, Inc. sr. notes 6.45s, 2003 2,751,293
2,500,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 2,482,175
3,500,000 ONEOK Inc. deb. 9.7s, 2019 3,809,190
3,835,000 Oklahoma Gas & Electric Co. sr. notes 6.65s, 2027 4,000,634
3,000,000 Sonat, Inc. notes 6 5/8s, 2008 2,978,130
3,500,000 Southwest Gas Corp. deb. 7 1/2s, 2006 3,745,490
--------------
23,365,297
Oil and Gas (0.3%)
- -------------------------------------------------------------------------------------------------------------
4,000,000 Transcontinental Gas Pipeline Corp. deb. 7 1/4s, 2026 4,144,040
Telephone Services (0.5%)
- -------------------------------------------------------------------------------------------------------------
4,000,000 Century Telephone Enterprises, Inc. deb. Ser. G,
6 7/8s, 2028 3,994,280
3,350,000 LCI International, Inc. sr. notes 7 1/4s, 2007 3,360,787
--------------
7,355,067
Telephone Utilities (1.0%)
- -------------------------------------------------------------------------------------------------------------
5,000,000 Bell Atlantic Corp. deb. 7 7/8s, 2029 5,794,148
5,000,000 Bell South Telecommunication deb. 6 3/4s, 2033 4,891,000
3,350,000 WorldCom, Inc. notes 7 3/4s, 2007 3,613,143
--------------
14,298,291
Water Utility (0.2%)
- -------------------------------------------------------------------------------------------------------------
2,500,000 Pennsylvania American Water Co. 144A mtge.
7.8s, 2026 2,694,125
Wireless Communications (0.2%)
- -------------------------------------------------------------------------------------------------------------
3,000,000 AirTouch Communications, Inc. notes 6.65s, 2008 3,026,250
--------------
Total Corporate Bonds and Notes
(cost $186,414,057) $ 193,313,523
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (0.3%) (a) (cost $4,381,552)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$4,255,000 U.S. Treasury Bonds 6 1/8s, November 15, 2027 $ 4,353,376
SHORT-TERM INVESTMENTS (0.3%) (a) (cost $4,489,688)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$4,489,000 Interest in $550,000,000 joint repurchase agreement
dated April 30, 1998 with Goldman, Sachs & Co.
due May 1, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $4,489,688 for an
effective yield of 5.52% $ 4,489,688
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,090,417,229) (b) $1,484,309,878
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,492,028,887.
(b) The aggregate identified cost on a tax basis is $1,090,587,684, resulting in gross unrealized
appreciation and depreciation of $412,034,775 and $18,312,581, respectively, or net unrealized
appreciation of $393,722,194.
(NON) 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
April 30, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,090,417,229) (Note 1) $ 1,484,309,878
- ---------------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 8,332,578
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,791,856
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 5,586,373
- ---------------------------------------------------------------------------------------------------
Total assets 1,500,020,685
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 14,555
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 2,996,443
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,436,061
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,245,568
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 163,233
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 46,239
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,612
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 788,981
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 299,106
- ---------------------------------------------------------------------------------------------------
Total liabilities 7,991,798
- ---------------------------------------------------------------------------------------------------
Net assets $ 1,492,028,887
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 1,075,979,224
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (4,177,827)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 26,335,646
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 393,891,844
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 1,492,028,887
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($721,068,368 divided by 54,032,318 shares) $13.35
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.35)* $14.16
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($759,997,660 divided by 57,273,097 shares)** $13.27
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($10,962,859 divided by 822,424 shares) $13.33
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.33)* $13.81
- ---------------------------------------------------------------------------------------------------
* 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, 1998 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $214,943) $ 21,335,437
- --------------------------------------------------------------------------------------------------
Interest 7,629,772
- --------------------------------------------------------------------------------------------------
Total investment income 28,965,209
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,475,613
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,115,547
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 39,151
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,663
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 885,790
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,627,686
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 45,334
- --------------------------------------------------------------------------------------------------
Reports to shareholders 45,981
- --------------------------------------------------------------------------------------------------
Registration fees 199,689
- --------------------------------------------------------------------------------------------------
Auditing 21,882
- --------------------------------------------------------------------------------------------------
Legal 6,542
- --------------------------------------------------------------------------------------------------
Postage 5,872
- --------------------------------------------------------------------------------------------------
Other 63,155
- --------------------------------------------------------------------------------------------------
Total expenses 10,541,905
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (99,779)
- --------------------------------------------------------------------------------------------------
Net expenses 10,442,126
- --------------------------------------------------------------------------------------------------
Net investment income 18,523,083
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 22,276,272
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (2,823)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 657
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 175,617,238
- --------------------------------------------------------------------------------------------------
Net gain on investments 197,891,344
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $216,414,427
- --------------------------------------------------------------------------------------------------
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
1998* 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------------
Net investment income $ 18,523,083 $ 38,697,964
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 22,273,449 108,764,010
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 175,617,895 70,567,140
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 216,414,427 218,029,114
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (12,314,154) (21,360,424)
- ---------------------------------------------------------------------------------------------------------------------
Class B (10,208,369) (17,213,285)
- ---------------------------------------------------------------------------------------------------------------------
Class M (178,387) (229,303)
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (48,244,961) (41,964,105)
- ---------------------------------------------------------------------------------------------------------------------
Class B (49,333,817) (42,814,695)
- ---------------------------------------------------------------------------------------------------------------------
Class M (914,500) (403,980)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 72,139,184 (9,538,238)
- ---------------------------------------------------------------------------------------------------------------------
Total increase in net assets 167,359,423 84,505,084
Net assets
- ---------------------------------------------------------------------------------------------------------------------
Beginning of period 1,324,669,464 1,240,164,380
- ---------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $4,177,827 and
$--, respectively) $1,492,028,887 $1,324,669,464
- ---------------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.49 $11.63 $10.40 $9.06 $10.56 $9.24
- ------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------
Net investment income .19(d) .41 .44 .43 .46 .51
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.81 1.67 1.25 1.38 (1.22) 1.33
- ------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.00 2.08 1.69 1.81 (.76) 1.84
- ------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.41) (.44) (.46) (.45) (.51)
- ------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.91) (.81) (.02) (.01) (.29) (.01)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (1.14) (1.22) (.46) (.47) (.74) (.52)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.35 $12.49 $11.63 $10.40 $9.06 $10.56
- ------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.60* 19.16 16.57 20.71 (7.30) 20.40
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $721,068 $653,205 $618,417 $593,226 $541,619 $684,484
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .53* 1.05 1.11 1.12 1.08 1.12
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.46* 3.41 3.97 4.53 4.84 4.97
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.07* 53.63 64.53 67.60 112.32 123.57
- ------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0471 $.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
- ----------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.42 $11.57 $10.36 $9.02 $10.52 $9.22
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .14 .32 .36 .36 .39 .42
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.80 1.66 1.23 1.39 (1.22) 1.34
- ----------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.94 1.98 1.59 1.75 (.83) 1.76
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.32) (.36) (.39) (.38) (.43)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- -- (.03)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.91) (.81) (.02) (.02) (.29) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (1.09) (1.13) (.38) (.41) (.67) (.46)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.27 $12.42 $11.57 $10.36 $9.02 $10.52
- ----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.20* 18.28 15.57 19.92 (8.04) 19.54
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $759,998 $659,594 $615,309 $578,505 $501,438 $551,794
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .91* 1.80 1.86 1.87 1.83 1.86
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.08* 2.66 3.22 3.77 4.10 3.98
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.07* 53.63 64.53 67.60 112.32 123.57
- ----------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0471 $.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
- ----------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Year ended March 1, 1995+
operating performance (Unaudited) October 31 to October 31
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $12.47 $11.61 $10.38 $9.14
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .16 .36 .38(d) .31
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.81 1.67 1.26 1.26
- ----------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.97 2.03 1.64 1.57
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.36) (.39) (.33)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.91) (.81) (.02) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (1.11) (1.17) (.41) (.33)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.33 $12.47 $11.61 $10.38
- ----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.34* 18.62 16.12 17.50*
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $10,963 $11,871 $6,438 $1,917
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .78* 1.55 1.63 1.13*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.23* 2.89 3.37 2.36*
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.07* 53.63 64.53 67.60
- ----------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0471 $.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
April 30, 1998 (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 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 six months ended April 30, 1998, 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 nor for
excise tax on income and capital gains.
H) 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 fee, administrative
services and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average net assets of the fund. 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.
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.
As part of the subcustodian contract between the subcustodian bank and Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc., the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At April 30, 1998, the payable to the subcustodian bank represents the amount
due for cash advance for the settlement of a security purchased.
Custodial functions for the fund's assets are provided by PFTC Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended April 30, 1998, fund expenses were reduced by $99,779
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.
Each Trustee of the fund receives an annual Trustee fee, of which $1,430 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 six months ended April 30, 1998 Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $135,192 and $5,131 from the sale of
class A and class M shares, respectively and $310,281 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, 1998, Putnam Mutual Funds Corp., acting as underwriter
received $457 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended April 30, 1998 purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $155,144,438 and $153,741,311, respectively. Purchases and sales of
U.S. government obligations aggregated $4,381,552 and $4,353,376,
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, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
April 30, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 6,667,303 $ 87,122,860
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,297,805 54,404,315
- ------------------------------------------------------------
10,965,108 141,527,175
Shares
repurchased (9,249,917) (120,530,905)
- ------------------------------------------------------------
Net increase 1,715,191 $ 20,996,270
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
Six months ended
April 30, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 9,599,452 $124,941,212
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,225,184 53,188,011
- ------------------------------------------------------------
13,824,636 178,129,223
Shares
repurchased (9,650,138) (125,345,135)
- ------------------------------------------------------------
Net increase 4,174,498 $ 52,784,088
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
Six months ended
April 30, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 372,549 $ 4,921,744
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 82,260 1,038,237
- ------------------------------------------------------------
454,809 5,959,981
Shares
repurchased (584,183) (7,601,155)
- ------------------------------------------------------------
Net decrease (129,374) $ (1,641,174)
- ------------------------------------------------------------
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
- ------------------------------------------------------------
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 [DBL. DAGGER]
OTC & Emerging Growth Fund
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
Global Growth and Income Fund
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
Strategic Income Fund *
High Quality Bond Fund +
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
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
LIFESTAGE SM 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 Putnam Diversified Income Trust II
+Formerly Putnam Federal Income Trust
[DBL. DAGGER]Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
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
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
- --------------------
SA026-42878 -- 840/884/869 6/98
