Putnam
Utilities
Growth And
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Managing a portfolio of utility companies has become vastly more complex
than it was only a few years ago. Deregulation, mergers and acquisitions,
and technology have changed the landscape, both literally and
figuratively. One does not have to drive many miles on an interstate
highway before noticing the growing number of microwave towers. An
increasing number of the companies that deliver electricity to our homes
and businesses no longer generate it themselves. And chances are, you now
receive your communication services from large and still expanding
conglomerates rather than regional companies.
Following these monumental changes -- and understanding their investment
implications -- require a far broader range of expertise than they did
even half a decade ago. Jeanne L. Mockard and Christopher A. Ray, your
fund's managers, are able to perform this challenging task with the help
of Putnam's army of global equity research analysts, among the best in the
mutual fund industry. In the following report, they review performance for
the fiscal year's first half and offer their outlook for the second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 16, 1999
Report from the Fund Managers
Jeanne L. Mockard
Christopher A. Ray
For the first half of fiscal 1999, Putnam Utilities Growth and Income Fund
outperformed Standard & Poor's Utilities Index. However, as the broader
stock market averages set new highs, utility stocks as a group lagged,
reflecting their conservative nature. Consequently, while your fund
continues to provide attractive dividends, for the six months ended April
30, 1999, total return performance was moderate relative to other
semiannual periods.
Total return for 6 months ended 4/30/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------
4.72% -1.29% 4.36% -0.64% 4.46% 0.83%
- ----------------------------------------------------------
Past performance is no indication of future results.
Additional performance information begins on page 6.
* UNDERVALUED UTILITY STOCKS PRESENT OPPORTUNITIES
Perhaps the most significant statistic about your fund currently is its
average price/earnings ratio: 13, as of April 30, 1999, compared to 30 for
Standard & Poor's 500 Stock Index. This disparity suggests that utility
stocks are undervalued relative to the market as a whole and indicates the
potential for substantial appreciation over the long term.
Despite positive financial news and attractive prospects for many
utilities, demand for utility stocks has been low recently. Annual returns
on these stocks have been ranging between 11% and 15% over the past few
years, while stocks in other, higher-risk sectors have been averaging
returns of 20% or more. But many investors today have short memories. They
don't remember that the average overall return on equities since the
Depression has been around 9%. No one can be certain how long the current
boom will continue.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electric utilities 37.5%
Telephone
utilities 26.7%
Gas utilities 15.4%
Gas pipeline 4.4%
Combined
utilities 2.7%
Footnote reads:
*Based on net assets as of 4/30/99. Holdings will vary over time.
When professional investors realize that utility stocks have lagged the
market, we see an opportunity for significant price appreciation,
especially with the utilities industry undergoing a transformation.
Utilities will always be conservative investments because the services
these companies offer are essential to contemporary life. Economic
slowdowns occur when consumers postpone buying new cars or put off capital
improvements to their homes and this deferred spending affects corporate
earnings and stock prices in many industries. But people always need heat,
electricity, and telephone service, regardless of the direction of the
economy. What's more, consumer demand for many services is growing with
changes in technology and awakening demand from developing companies.
* SHIFTING DYNAMICS IN UTILITIES PROMPT NEW INVESTMENT STRATEGIES
Several years ago, all utility companies looked quite similar. Most of
them owned their generating plants, wires, or pipelines. Our goal then was
to diversify the fund's portfolio to emphasize companies that seemed most
likely to raise their dividends or to get more rate relief than the
competition.
In the past few years, many gas and electric utilities have begun
divesting some assets, acquiring others, forming strategic alliances, and
finding themselves with cash available to finance growth. Larger companies
are buying out smaller ones, crossing geographical boundaries, and even
going international, with an eye toward enlarging their customer base,
strengthening their service offerings, and competing more successfully.
Many utility companies are specializing in one aspect of their business
where they have particular expertise or other advantages.
Today our goal is to balance the fund's portfolio to benefit from the
utilities' different business strategies. Some of our favorite utility
stocks continue to be AT&T and SBC Communications -- companies actively
acquiring other businesses that should allow them to penetrate new
markets. These companies are pursuing a broader base of customers,
nationally and internationally, and seeking to offer a wider range of
communications services. For example, SBC's South American assets have
been wise investments for the company. Both AT&T and SBC were ahead of the
curve during the regrouping of the regional Bells, and both of these major
portfolio holdings are benefiting from burgeoning demand for more services
as a result of increases in data transmission and expanding use of
cellular phones.
"[Jeanne] Mockard has found increased opportunities among electric utilities.
She expects them to benefit as the effects of deregulation come into focus,
and merger-and-acquisition activity heats up."
- -- Morningstar analysis, 3/19/99
* INDUSTRY CHANGES REDEFINE SERVICE AREAS, LEAD TO INTERNATIONAL EXPANSION
Deregulation has prompted some utilities to acquire operations in diverse
parts of the country so they can eventually provide national service in
markets they control. Although it is not possible for electricity to be
generated on one coast and sold to consumers on the other, financial
markets are developing where a power company with a national presence sets
up a paper transaction rather than a physical transfer. Consumers in a few
states are already noticing new names on their electric bills. Growing
utility companies like Houston-based Enron, for example, are now supplying
power to institutional consumers in New England. Their goal is to be able
to offer service at lower prices because their volume of business will
help keep their costs lower. By opening up competition, lower costs should
eventually benefit consumers, but it will take time.
Some utility companies are finding growth prospects in developing
economies like China, Thailand, India, and Pakistan, as well as South
America and the Philippines. Over the next 10 years, as an increasingly
modern infrastructure is put into place throughout the world, demand for
the services we take for granted in the United States should expand even
more in these and other emerging markets. In some parts of the world,
larger power companies are choosing to partner with local utilities to
benefit from their expertise, offering in exchange financing and years of
experience in managing giant utilities. Many South American companies, in
particular, have vast natural resources waiting to be tapped.
One example is Edison International -- an electric utility based in Los
Angeles. The company, which we recently visited, is well managed and
strongly optimistic about the long-term outlook for its operations in
Mexico and South America. But management has been frustrated that these
prospects have not been reflected in the price performance of their stock.
The company's anticipated gains are so far in the future that investors
have been overlooking the stock, in search of more immediate rewards. In
order to address this issue, at the end of April Edison announced the
acquisition of a power plant in the United Kingdom, which should add to
the company's earnings this year.
"Currently your fund is more than 90% invested in utility stocks because
we believe they offer extreme value at present."
- -- Jeanne L. Mockard, manager,
Putnam Utilities Growth and Income Fund
Sempra Energy, a well-managed San Diego-based utility is pursuing a
strategy similar to Edison International's but is more focused on
acquiring domestic assets. As this report was being written, Sempra was
bidding for a company called KN Energy, which has a large pipeline. KN had
been experiencing difficulties and was cash poor, whereas Sempra's
finances are strong. We believe the acquisition will give Sempra a more
national scope and capacity, and should provide excellent opportunities
for future growth. While these holdings, along with others discussed in
this report, were viewed favorably at the end of the fiscal period, all
are subject to review and adjustment in accordance with the fund's
investment strategy and may vary in the future.
* FUND IS POISED TO TAKE FULL ADVANTAGE OF INDUSTRY CHANGES
If it seems unusual for a utilities fund report to talk about growth
potential, bear in mind that this potential arises from changing dynamics
within the utilities industry as a whole, not changing characteristics of
the stocks themselves. Utility stocks have remained conservative
investments offering much higher yields than many other equities. The
overall yield on your fund's equity portfolio as of the end of April was
just under 5%, compared with a yield in the vicinity of 1% for the broader
stock market, as represented by the Standard & Poor's Composite.
Well-managed utility companies have adapted their business strategies to
capitalize on new trends, but they have not turned into aggressive risk
takers.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
SBC Communications, Inc.
Telephone utilities
American Telephone & Telegraph Co.
Telephone utilities
Duke Energy Corp.
Electric utilities
Sprint Corp.
Telephone utilities
BellSouth Corp.
Telephone utilities
Ameritech Corp.
Telephone utilities
Bell Atlantic Corp.
Telephone utilities
Enron Corp.
Gas pipeline
GTE Corp.
Telephone utilities
Entergy Corp.
Electric utilities
Footnote reads:
These holdings represent 29.5% of the fund's net assets as of 4/30/99.
Portfolio holdings will vary over time.
In the past, the utilities markets were fairly static, albeit steady and
predictable compared to markets in other industries. Now the industry is
moving forward by leaps and bounds as a result of deregulation and new
technology. Currently your fund is more than 90% invested in utility
stocks because we believe they offer extreme value at present. The
remaining 10% is invested in high-quality bonds issued by utility
companies, a position that further enhances dividends. We are confident
that this concentration will benefit shareholders in the coming months.
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 4/30/99, there is no guarantee the fund will
continue to hold these securities in the future. The fund concentrates its
investments in one region or industry and involves more risk than a fund
that invests more broadly.
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 4/30/99
Class A Class B Class M
(inception dates) (11/19/90) (4/27/92) (3/1/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
6 months 4.72% -1.29% 4.36% -0.64% 4.46% 0.83%
- ----------------------------------------------------------------------------
1 year 8.73 2.51 7.94 2.94 8.25 4.48
- ----------------------------------------------------------------------------
5 years 112.69 100.39 104.91 102.91 107.86 100.57
Annual average 16.29 14.91 15.43 15.20 15.76 14.94
- ----------------------------------------------------------------------------
Life of fund 189.70 173.00 171.97 171.97 178.18 168.29
Annual average 13.43 12.64 12.59 12.59 12.89 12.40
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/99
S&P Utility Consumer
Index price index
- ----------------------------------------------------------------------------
6 months 2.94% 1.47%
- ----------------------------------------------------------------------------
1 year 9.29 2.28
- ----------------------------------------------------------------------------
5 years 100.86 12.75
Annual average 14.97 2.43
- ----------------------------------------------------------------------------
Life of fund 240.83 35.01
Annual average 13.05 3.05
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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-year 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.
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 4/30/99
Class A Class B Class M
- ----------------------------------------------------------------------------
Distributions (number) 2 2 2
- ----------------------------------------------------------------------------
Income $0.230 $0.179 $0.195
- ----------------------------------------------------------------------------
Capital gains
Long-term 0.358 0.358 0.358
- ----------------------------------------------------------------------------
Short-term -- -- --
- ----------------------------------------------------------------------------
Total $0.588 $0.537 $0.553
- ----------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ----------------------------------------------------------------------------
10/31/98 $13.62 $14.45 $13.54 $13.60 $14.09
- ----------------------------------------------------------------------------
4/30/99 13.67 14.50 13.59 13.65 14.15
- ----------------------------------------------------------------------------
Current return (end of period)
- ----------------------------------------------------------------------------
Current dividend rate1 3.37% 3.17% 2.62% 2.84% 2.74%
- ----------------------------------------------------------------------------
Current 30-day SEC yield2 2.87 2.71 2.15 2.39 2.30
- ----------------------------------------------------------------------------
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 3/31/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (11/19/90) (4/27/92) (3/1/95)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------
6 months -0.48% -6.21% -0.86% -5.62% -0.73% -4.24%
- -----------------------------------------------------------------------
1 year -0.28 -6.01 -1.05 -5.75 -0.81 -4.26
- -----------------------------------------------------------------------
5 years 103.08 91.33 95.53 93.53 98.45 91.54
Annual average 15.22 13.86 14.35 14.12 14.69 13.88
- -----------------------------------------------------------------------
Life of fund 171.27 155.62 154.76 154.76 160.45 151.19
Annual average 12.68 11.88 11.84 11.84 12.13 11.65
- -----------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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. See first
page of performance section for method of calculation.
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 5.75% maximum 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 funds' class B 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 40 utility
stocks. Its performance figures reflect changes of market prices and
reinvestment of all regular cash dividends but are not adjusted for
commissions or other costs. Because the fund is a managed portfolio
investing in common stocks and fixed-income securities, the securities it
owns will 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.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
amounts listed in the Statement of Operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
April 30, 1999 (Unaudited)
COMMON STOCKS (88.4%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Building and Construction (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
430,000 Willbros Group, Inc. (NON) $ 2,741,250
Business Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Convergys Corp. 9,312,500
Cellular Communications (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 PT Indosat ADR (Indonesia) 5,662,500
12,000 Tele Celular Sul Participacoes S.A. (Brazil) 237,750
40,000 Tele Centro Oeste Celular Participacoes ADR (Brazil) 145,000
2,400 Tele Leste Celular Participacoes S.A. (Brazil) 86,100
6,000 Tele Nordeste Celular Participacoes S.A. ADR (Brazil) 132,000
2,400 Tele Norte Celular Participacoes S.A. ADR (Brazil) 73,500
24,000 Tele Sudeste Celular Participacoes S.A. ADR (Brazil) 685,500
6,000 Telemig Celular Participacoes S.A. ADR (Brazil) 160,875
48,000 Telesp Celular Participacoes S.A. ADR (Brazil) 1,200,000
--------------
8,383,225
Combined Utilities (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
673,000 NiSource Inc. 18,675,750
550,000 Reliant Energy, Inc. 15,571,875
--------------
34,247,625
Conglomerates (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
155,800 Ogden Corp. 4,021,588
Electric Utilities (32.3%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Ameren Corp. 5,803,125
250,000 Baltimore Gas & Electric Co. 7,031,250
275,000 Carolina Power & Light Co. 11,085,938
100,000 Centrais Electricas Bras S. A. (Brazil) 2,039,711
100,000 Centrais Geradoras do Sul do Brasil SA (Brazil) 86,643
25,000 Chilectra S.A. 144A ADR (Chile) 546,875
430,000 Cinergy Corp. 12,819,375
212,700 CMS Energy Corp. Class G 4,453,406
122,377 Companhia Energetica de Minas Gerais ADR (Brazil) 2,891,157
313,500 Companhia Paranaense de Energia-Copel ADR (Brazil) 2,566,781
276,300 Conectiv, Inc. 6,613,931
300,000 Consolidated Edison, Inc. 13,631,250
420,000 Dominion Resources, Inc. 17,272,500
650,000 DPL, Inc. 11,618,750
1,043,741 Duke Energy Corp. 58,449,496
650,000 Edison International 15,925,000
50,000 EDP-Electricidade de Portugal, S.A. ADR (Portugal) 1,850,000
2,249 Eletropaulo Metropolitana (Brazil) 23,009
17,000 Eletropaulo Metropolitana S.A. (Brazil) 664,350
17,000 Empresa Bandeirante de Energia S.A. (Brazil) (NON) 114,458
17,000 Empresa Paulista de Transmissao de Energia
Electrica S.A. (Brazil) 91,035
730,000 Entergy Corp. 22,812,500
250,000 Florida Progress Corp. 9,625,000
345,000 FPL Group, Inc. 19,449,375
150,000 GPU, Inc. 5,718,750
100,000 Hawaiian Electric Industries, Inc. 3,556,250
620,000 Iberdola S.A. (Spain) 8,691,470
705,000 Korea Electric Power Corp. (South Korea) 20,295,455
10,000 Light Participacoes, S.A. (Brazil) (NON) 25,271
400,000 New Century Energies, Inc. 14,000,000
130,000 New England Electric Systems Inc. 6,435,000
965,200 Northeast Utilities Co. (NON) 15,443,200
460,000 OGE Energy Corp. 10,896,250
500,000 P P & L Resources, Inc. 13,968,750
600,000 PacifiCorp 10,012,500
390,000 Peco Energy Co. 18,500,625
226,600 Pinnacle West Capital Corp. 8,794,913
442,600 Potomac Electric Power Co. 12,946,050
275,800 Puget Sound Energy, Inc. 6,808,813
400,000 Scana Corp. 9,400,000
661,200 Scottish Power PLC (United Kingdom) 5,457,657
500,000 Sierra Pacific Resources 17,812,500
124,100 Southern Co. 3,358,456
200,000 Teco Energy, Inc. 4,262,500
422,000 Texas Utilities Co. 16,774,500
500,000 TNP Enterprises, Inc. 15,625,000
500,000 Unicom Corp. 19,406,250
300,000 Union Electrica Fenosa S.A. (Spain) 3,996,066
100,000 UniSource Energy Corp. (NON) 1,081,250
175,000 United Illuminating Co. 6,890,625
225,000 Utilicorp United, Inc. 5,498,438
700,000 Wisconsin Energy Corp. 18,812,500
--------------
511,933,954
Energy-Related (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
260,200 Calpine Corp. 11,091,025
17,000 Empresa Metropolitana de Aguas Energia S.A. (Brazil) 42,960
600,000 Energy East Corp. 15,862,500
--------------
26,996,485
Gas Pipelines (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
450,000 Coastal Corp. 17,212,500
630,000 Dynegy, Inc. 10,946,250
430,000 Enron Corp. 32,357,500
208,700 Williams Cos., Inc. 9,861,075
--------------
70,377,325
Gas Utilities (15.2%)
- --------------------------------------------------------------------------------------------------------------------------
380,000 AGL Resources, Inc. 6,911,250
483,600 Atmos Energy Corp. 12,210,900
220,000 Cascade Natural Gas Corp. 3,478,750
200,000 Central Hudson Gas & Electric 7,425,000
409,950 Columbia Gas System, Inc. 19,703,222
150,000 Connecticut Energy Corp. 5,606,250
400,000 Eastern Enterprises 14,375,000
589,600 Energen Corp. 10,170,600
100,100 Equitable Resources, Inc. 2,652,650
93,333 Indiana Energy, Inc. 1,994,993
525,000 K N Energy, Inc. 10,828,125
146,300 Laclede Gas Co. 2,953,431
350,000 National Fuel Gas Co. 15,312,500
300,000 MCN Corp. 5,981,250
70,000 New Jersey Resources Corp. 2,581,250
300,000 NICOR Inc. 10,912,500
504,000 Northwest Natural Gas Co. 11,371,500
230,000 NUI Corp. 4,988,125
330,000 ONEOK, Inc. 9,219,375
200,000 Peoples Energy Corp. 7,475,000
200,000 Piedmont Natural Gas Co., Inc. 6,375,000
70,000 Providence Energy Corp. 1,395,625
200,000 Public Service Co. of North Carolina, Inc. 5,662,500
200,000 Questar Corp. 3,637,500
1,053,040 Sempra Energy 21,850,580
200,000 Sonat, Inc. 7,150,000
80,000 South Jersey Industries, Inc. 1,920,000
100,000 Southwest Gas Corp. 2,856,250
200,000 Transportadora de Gas del Sur ADR (Argentina) 1,912,500
200,000 Washington Gas Light Co. 4,712,500
200,000 Westcoast Energy, Inc. 3,837,500
313,400 WICOR, Inc. 7,404,075
200,000 Yankee Energy System, Inc. 5,537,500
--------------
240,403,201
Oil and Gas (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
422,600 El Paso Energy Corp. 15,530,550
380,000 KeySpan Energy 10,165,000
--------------
25,695,550
REITs (Real Estate Investment Trust) (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
312,178 Equity Office Properties Trust 8,604,406
194,000 Equity Residential Properties Trust 8,972,500
--------------
17,576,906
Telecommunications (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
74,000 ALLTEL Corp. 4,990,375
100,000 Cable & Wireless PLC ADR (United Kingdom) 4,200,000
295,900 Hellenic Telecommunication Organization SA GDR
(Greece) 3,532,306
18,000 Royal PTT Nederland N.V. ADR (Netherlands) 771,750
--------------
13,494,431
Telephone Services (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 British Telecommunications PLC ADR (United Kingdom) 15,097,500
120,000 Embratel Participacoes S.A. ADR (Brazil) 1,950,000
14,700 Sonera Group GDR 144A (Finland) (NON) 1,161,300
24,000 Tele Centro Sul Participacoes S.A. (Brazil) 1,275,000
120,000 Tele Norte Leste Participacoes S.A. ADR (Brazil) 2,032,500
120,000 Telesp Participacoes S.A. ADR (Brazil) 3,000,000
--------------
24,516,300
Telephone Utilities (25.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,200,000 American Telephone & Telegraph Co. 60,600,000
670,000 Ameritech Corp. 45,853,125
770,120 Bell Atlantic Corp. 44,378,165
1,050,000 BellSouth Corp. 46,987,500
500,000 Cincinnati Bell, Inc. 11,312,500
400,000 GTE Corp. 26,775,000
100,000 Philippine Long Distance Telephone Co. ADR (Philippines) 3,225,000
80,000 Portugal Telecom S.A. ADR (Portugal) 3,375,000
200,000 PT Telekomunikasi Indonesia ADR (Indonesia) 1,750,000
1,400,000 SBC Communications, Inc. 78,400,000
500,000 Sprint Corp. 51,281,250
120,000 Telebras Co. ADR (Brazil) 9,375
100,000 Telecom Argentina S.A. ADR (Argentina) 3,450,000
128,470 Telecom Corp. of New Zealand Ltd. ADR (New Zealand) 5,291,358
555,555 Telecom Italia SpA (Italy) 5,918,916
20,000 Telefonica de Argentina S.A. ADR (Argentina) 747,500
250,000 Telefonica del Peru S.A. ADR (Peru) 3,765,625
300,000 U S West, Inc. 15,693,750
--------------
408,814,064
Water Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 American Water Works, Inc. 2,843,750
--------------
Total Common Stocks (cost $991,575,541) $1,401,358,154
CORPORATE BONDS AND NOTES (8.7%) (a)
PRINCIPAL AMOUNT VALUE
Combined Utilities (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
$3,000,000 Australian Gas & Light Co.144A sr. notes 6 3/8s,
2003 (Australia) $ 3,002,550
4,000,000 PG&E Gas Transmission Northwest sr. notes 7.1s, 2005 4,155,400
1,500,000 Public Service Electric & Gas Co. 1st mortgage 6 1/2s, 2000 1,514,760
--------------
8,672,710
Electric Utilities (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Arizona Public Service Co. notes 6 1/4s, 2005 3,017,820
2,800,000 CMS Energy Corp. pass-through certificates 7s, 2005 2,730,728
4,000,000 Commonwealth Edison Co. 1st mtge. Ser. 83, 8s, 2008 4,419,160
3,650,000 Connecticut Light & Power Co. 1st mtge. Ser. C, 7 3/4s, 2002 3,774,721
1,500,000 Connecticut Light & Power Co. 1st mtge. Ser. D, 7 7/8s, 2024 1,516,665
4,000,000 Consolidated Edison, Inc. deb. 6.45s, 2007 4,072,240
3,480,000 Duquesne Light Co. deb. 8.7s, 2016 3,782,064
4,000,000 Hydro Quebec local government guaranty Ser. HY, 8.4s,
2022 (Canada) 4,771,960
4,000,000 Kansas Gas & Electric deb. 8.29s, 2016 4,141,880
445,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 503,900
5,000,000 Ohio Edison Co. 1st mtge. 8 1/4s, 2002 5,284,050
2,907,000 Otter Tail Power Co. 1st mtge. 7 1/4s, 2002 3,014,559
5,000,000 Public Service Co. of Colorado coll. trust 6 3/8s, 2005 5,071,900
3,000,000 Public Service Co. of New Mexico sr. notes Ser. A, 7.1s, 2005 3,006,450
1,720,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 1,814,772
3,500,000 Sierra Pacific Power Co. med. term notes Ser. C, 6.82s, 2006 3,587,745
3,350,000 Southern California Edison Co. notes 6 1/2s, 2001 3,404,636
2,725,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 2,763,041
4,000,000 Teco Energy, Inc. notes 5.54s, 2001 3,958,000
5,000,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 5,293,600
3,400,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 3,477,078
4,500,000 Utilicorp United, Inc. sr. notes 8.2s, 2007 4,975,875
4,000,000 Western Resources, Inc. sr. notes 6 7/8s, 2004 4,094,800
--------------
82,477,644
Energy-Related (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 CalEnergy, Inc. sr. notes 7.63s, 2007 2,104,920
1,200,000 Calpine Corp. sr. notes 7 3/4s, 2009 1,211,400
640,000 KN Capital Trust III company guaranty 7.63s, 2028 621,824
3,000,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 3,196,770
--------------
7,134,914
Gas Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 Southwest Gas Corp. deb. 7 1/2s, 2006 3,780,350
Oil and Gas (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,600,000 Coastal Corp. deb. 6 1/2s, 2008 4,581,830
3,500,000 Columbia Gas System, Inc. notes Ser. E, 7.32s, 2010 3,605,105
2,500,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 2,278,125
--------------
10,465,060
Telephone Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Century Telephone Enterprises, Inc. deb. Ser. G, 6 7/8s,
2028 3,877,280
4,350,000 LCI International, Inc. sr. notes 7 1/4s, 2007 4,471,844
--------------
8,349,124
Telephone Utilities (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Bell Atlantic Corp. deb. 7 7/8s, 2029 5,672,950
3,000,000 Sprint Capital Corp. company guaranty 6.9s, 2019 2,983,950
4,000,000 WorldCom, Inc. notes 7 3/4s, 2007 4,324,560
1,800,000 U S West, Inc. notes 5 5/8s, 2008 1,713,906
--------------
14,695,366
Water Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Pennsylvania American Water Co. 144A mtge. 7.8s, 2026 2,607,125
--------------
Total Corporate Bonds and Notes (cost $136,234,511) $ 138,182,293
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (0.2%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Treasury Obligations (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
$ 350,000 U.S. Treasury Bonds 5 1/4s, November 15, 2028 $ 327,633
U.S. Treasury Notes
315,000 6 1/4s, June 30, 2002 324,252
2,370,000 4 3/4s, November 15, 2008 2,263,706
605,000 4 1/4s, November 15, 2003 581,084
--------------
Total U.S. Government and Agency Obligations
(cost $3,557,116) $ 3,496,675
PREFERRED STOCKS (0.2%) (a) (cost $2,500,000)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,500 Centaur Funding Corp 144A $9.08 pfd. (9.08%)
(Cayman Islands) $ 2,725,050
SHORT-TERM INVESTMENTS (2.3%) (a) (cost $37,142,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 37,142,000 Interest in $600,000,000 joint repurchase agreement
dated April 30,1999 with Salomon, Smith Barney Inc.,
due May 3, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $37,157,073 for an
effective yield of 4.87% $ 37,142,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,171,009,168) (b) $1,582,904,172
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,584,931,114.
(b) The aggregate identified cost on a tax basis is $1,171,021,569, resulting in gross unrealized appreciation and
depreciation of $449,528,919 and $37,646,316, respectively, or net unrealized appreciation of $411,882,603.
(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 or GDR after the name of a foreign holding stands for American Depository Receipts or Global 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, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,171,009,168) (Note 1) $1,582,904,172
- -----------------------------------------------------------------------------------------------
Cash 41
- -----------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 7,646,995
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,690,260
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 3,039,766
- -----------------------------------------------------------------------------------------------
Total assets 1,595,281,234
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 3,320,313
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,748,963
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,319,075
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 155,034
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,793
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 737,685
- -----------------------------------------------------------------------------------------------
Other accrued expenses 63,257
- -----------------------------------------------------------------------------------------------
Total liabilities 10,350,120
- -----------------------------------------------------------------------------------------------
Net assets $1,584,931,114
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,132,916,137
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,673,731)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 43,792,719
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 411,895,989
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,584,931,114
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($902,143,102 divided by 65,980,080 shares) $13.67
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.67)* $14.50
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($669,043,574 divided by 49,218,450 shares)** $13.59
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($13,744,438 divided by 1,007,008 shares) $13.65
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.65)* $14.15
- -----------------------------------------------------------------------------------------------
* 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, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $64,253) $24,248,489
- -----------------------------------------------------------------------------------------------
Interest income 6,308,321
- -----------------------------------------------------------------------------------------------
Total investment income 30,556,810
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,786,180
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 896,710
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 17,060
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,817
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,077,718
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,454,913
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 52,312
- -----------------------------------------------------------------------------------------------
Reports to shareholders 16,717
- -----------------------------------------------------------------------------------------------
Auditing 11,249
- -----------------------------------------------------------------------------------------------
Legal 6,399
- -----------------------------------------------------------------------------------------------
Postage 74,564
- -----------------------------------------------------------------------------------------------
Other 66,661
- -----------------------------------------------------------------------------------------------
Total expenses 10,469,300
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (69,875)
- -----------------------------------------------------------------------------------------------
Net expenses 10,399,425
- -----------------------------------------------------------------------------------------------
Net investment income 20,157,385
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 39,173,887
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (2,544)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (115,105)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 10,962,808
- -----------------------------------------------------------------------------------------------
Net gain on investments 50,019,046
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $70,176,431
- -----------------------------------------------------------------------------------------------
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
1999* 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 20,157,385 $ 36,665,344
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 39,171,343 50,516,746
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 10,847,703 182,774,337
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 70,176,431 269,956,427
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (14,590,008) (21,043,615)
- ---------------------------------------------------------------------------------------------------------------
Class B (9,169,367) (15,336,819)
- ---------------------------------------------------------------------------------------------------------------
Class M (200,771) (311,479)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (22,102,838) (52,646,523)
- ---------------------------------------------------------------------------------------------------------------
Class B (18,450,563) (53,835,060)
- ---------------------------------------------------------------------------------------------------------------
Class M (375,951) (997,941)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 33,712,017 95,477,710
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 38,998,950 221,262,700
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 1,545,932,164 1,324,669,464
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed net
investment income of $3,673,731 and
$129,030, respectively) $1,584,931,114 $1,545,932,164
- ---------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.62 $12.49 $11.63 $10.40 $9.06 $10.56
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .20(c) .37(c) .41 .44 .43 .46
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .44 2.14 1.67 1.25 1.38 (1.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .64 2.51 2.08 1.69 1.81 (.76)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.38) (.41) (.44) (.46) (.45)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) (1.00) (.81) (.02) (.01) (.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.59) (1.38) (1.22) (.46) (.47) (.74)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.67 $13.62 $12.49 $11.63 $10.40 $9.06
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.72* 21.06 19.16 16.57 20.71 (7.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $902,143 $825,884 $653,205 $618,417 $593,226 $541,619
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .49* 1.05 1.05 1.11 1.12 1.08
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.45* 2.87 3.41 3.97 4.53 4.84
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.05* 23.64 53.63 64.53 67.60 112.32
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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) 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.54 $12.42 $11.57 $10.36 $9.02 $10.52
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .15(c) .28(c) .32 .36 .36 .39
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .44 2.12 1.66 1.23 1.39 (1.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .59 2.40 1.98 1.59 1.75 (.83)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.28) (.32) (.36) (.39) (.38)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) (1.00) (.81) (.02) (.02) (.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.54) (1.28) (1.13) (.38) (.41) (.67)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.59 $13.54 $12.42 $11.57 $10.36 $9.02
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.36* 20.19 18.28 15.57 19.92 (8.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $669,044 $706,220 $659,594 $615,309 $578,505 $501,438
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .87* 1.80 1.80 1.86 1.87 1.83
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.07* 2.13 2.66 3.22 3.77 4.10
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.05* 23.64 53.63 64.53 67.60 112.32
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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) 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 March 1, 1995+
operating performance (Unaudited) Year ended October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.60 $12.47 $11.61 $10.38 $9.14
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .16 .32(c) .36 .38(c) .31
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .44 2.13 1.67 1.26 1.26
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .60 2.45 2.03 1.64 1.57
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.32) (.36) (.39) (.33)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) (1.00) (.81) (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.55) (1.32) (1.17) (.41) (.33)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.65 $13.60 $12.47 $11.61 $10.38
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.46* 20.54 18.62 16.12 17.50*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,744 $13,828 $11,871 $6,438 $1,917
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .74 * 1.55 1.55 1.63 1.13*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.20* 2.40 2.89 3.37 2.36*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.05* 23.64 53.63 64.53 67.60
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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) 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, 1999 (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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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, and 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 realized 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, 1999, 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 fees, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of
the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion and
0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a 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, 1999, fund expenses were reduced by
$69,875 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 $1,440
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 have approved 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, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $182,767 and $8,003 from the
sale of class A and class M shares, respectively and $361,903 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, 1999, Putnam Mutual
Funds Corp., acting as underwriter received $23,494 on class A
redemptions.
Note 3
Purchase and sales of securities
During the six months ended April 30, 1999, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $111,160,409 and $120,970,940,
respectively. Purchases and sales of U.S. government obligations
aggregated $10,799,904 and $17,479,830, 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, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 10,053,836 $137,152,158
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,341,043 31,922,715
- -----------------------------------------------------------------------------
12,394,879 169,074,873
Shares
repurchased (7,057,263) (96,055,397)
- -----------------------------------------------------------------------------
Net increase 5,337,616 $ 73,019,476
- -----------------------------------------------------------------------------
Year ended October 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 19,343,232 $ 254,107,737
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,120,728 65,168,272
- -----------------------------------------------------------------------------
24,463,960 319,276,009
Shares
repurchased (16,138,623) (211,228,211)
- -----------------------------------------------------------------------------
Net increase 8,325,337 $ 108,047,798
- -----------------------------------------------------------------------------
Six months ended April 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,897,341 $ 107,163,814
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,805,015 24,528,637
- -----------------------------------------------------------------------------
9,702,356 131,692,451
Shares
repurchased (12,632,798) (170,868,729)
- -----------------------------------------------------------------------------
Net decrease (2,930,442) $ (39,176,278)
- -----------------------------------------------------------------------------
Year ended October 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 19,076,366 $ 249,631,486
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,857,276 61,421,181
- -----------------------------------------------------------------------------
23,933,642 31,052,667
Shares
repurchased (24,883,349) (324,526,051)
- -----------------------------------------------------------------------------
Net decrease (949,707) $ (13,473,384)
- -----------------------------------------------------------------------------
Six months ended April 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 321,600 $ 4,395,041
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 37,007 504,642
- -----------------------------------------------------------------------------
358,607 4,899,683
Shares
repurchased (368,602) (5,030,864)
- -----------------------------------------------------------------------------
Net decrease (9,995) $ (131,181)
- -----------------------------------------------------------------------------
Year ended October 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,054,905 $ 13,939,652
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 97,401 1,236,300
- -----------------------------------------------------------------------------
1,152,306 15,175,952
Shares
repurchased (1,087,101) (14,272,656)
- -----------------------------------------------------------------------------
Net increase 65,205 $ 903,296
- -----------------------------------------------------------------------------
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities 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
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
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
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund + [DBL. DAGGER]
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
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
ASSET ALLOCATION 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 not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
Anthony I. Kreisel
Vice President
Jeanne L. Mockard
Vice President and Fund Manager
Christopher A. Ray
Vice President and Fund Manager
Richard A. Monaghan
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' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com.
SA026-52518 6/99
