Putnam
Utilities
Growth and
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-00
[SCALE LOGO OMITTED]
FROM THE CHAIRMAN
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
year 2000. In the following report, the fund's managers discuss
performance for the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
Utilities Growth and Income Fund that I will be signing. After more
than 30 years as Chairman of the Trustees and President of the Putnam
Funds, the time has come for me to step aside. As of July 1, 2000, John
Hill will become Chairman. John is currently an independent Trustee and
has served on the board for the past 14 years. In addition, my son,
George Putnam, III, will take on the role of President. I am confident
that the leadership of the funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 21, 2000
REPORT FROM THE FUND MANAGERS
Jeanne L. Mockard
Krishna K. Memani
and the Credit Team
Shortly before the midpoint of Putnam Utilities Growth and Income Fund's
fiscal year on April 30, 2000, a fundamental shift in market dynamics
took place. Stocks of companies that make money sprang back into vogue,
and utilities began to move back into favor with investors.
This shift may well represent the light at the end of the tunnel, for
your fund's performance for the semiannual period has been
disappointing. From the standpoint of relative price performance, 1999
was the worst year in 36 years for electric utilities. From November
through February, the market continued to favor a narrow band of
dot-coms and other high-tech stocks, some of which surged as much as
800%, even though they had never made a profit.
Meanwhile, stocks of many established utilities went almost unnoticed by
Wall Street, including many that are positioned for a key role as
service providers and innovators. But in March and April, what has been
called a virtual crash led to an abrupt swing toward more traditional
equities. Utilities stocks began to move counter to the high-tech
sector. While the future is not assured, we remain confident that
investor interest will continue to broaden and believe utilities stocks
will benefit as a result.
Total return for 6 months ended 4/30/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
--------------------------------------------------------------------------
-0.25% -6.00% -0.62% -5.20% -0.63% -1.55% -0.45% -3.95%
--------------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electric utilities 42.7%
Natural gas utilities 21.5%
Telecommunications 12.1%
Regional Bells 11.9%
Combined utilities 3.7%
Footnote reads:
*Based on net assets as of 4/30/00. Holdings will vary over time.
* TELEPHONE UTILITIES ARE CUTTING THE WIRES, CREATING GROWTH
One result of the lack of investor interest in utilities has been an
increase in the number of companies spinning off high-growth units whose
strength had been largely ignored when they were part of the mature
parent company. Among the earliest examples was Sprint (now merging with
MCI WorldCom), which spun off its wireless unit, Sprint PCS. In less
than a year and a half, Sprint PCS has pulled alongside its parent
company in terms of market capitalization.
More recently, AT&T spun off AT&T Wireless. With 12 million subscribers,
this company is the second largest wireless carrier in the country. The
initial public offering (IPO) of 350 million shares is believed to be
the largest IPO in history, and its breadth is likely to make it far
less volatile than most other new issues.
Other major telephone utilities are engaged in similar activities.
Verizon Wireless, the largest wireless carrier in the United States with
23 million subscribers, is the joint venture between Bell Atlantic and
Vodafone. And BellSouth recently announced plans to combine its U.S.
wireless operations with SBC Communications, which would give the newly
created company a 16 million customer base.
Sprint, SBC, AT&T, Bell Atlantic, and BellSouth have been among your
fund's largest holdings for some time, providing a combination of steady
growth and current income. We have also taken part in some of the more
attractive wireless offerings, including the recent AT&T Wireless IPO,
to enable your fund to participate in what we expect to be a huge new
growth area in this country.
"The utility industry is one of the best-positioned segments to take
advantage of the Internet to deliver information, power and
communications to the 'wired' customer base. A number of brokerage firms
believe that over $50 billion in value will be created as a result of
leveraging the Internet platform to deliver those services over the next
decade."
-- David H.M. Baker, CFA "DQE Makes Power Plays," worldlyinvestor.com,
April 27, 2000
Since the turn of the last century, the United States has led the world
in acceptance of new technologies, but wireless technology has been the
exception. As the computer age intensified worldwide demand for
high-speed technology, Europeans and other developing nations turned to
wireless technology rather than focusing on building their underground
network, which was far behind the infrastructure in the United States.
As a result, Europe now has an excellent cellular network. If U.S. usage
just draws even with Europe, the market will be huge. Add to this the
burgeoning market for wireless data transmission through pagers and
other hand-held communications systems, and the potential market is even
greater.
* DYNAMICS WITHIN GAS AND ELECTRIC INDUSTRIES CONTINUE TO SHIFT
Investing in gas and electric utilities probably will always be a
conservative investment strategy because these companies provide vital
services that are relatively resistant to economic crosscurrents.
However, dynamics within these industries are changing the way we invest
in utilities. In the past few years, a combination of deregulation and
technological innovation has created new opportunities for growth as
well as income from utilities stocks. Now, in addition to looking at
earnings based on demographic trends in different parts of the country,
we have to look carefully at the quality of management, cash flow, and
business diversification within each utility.
Deregulation has meant that many gas and electric utilities have cash
available to finance growth. Some are buying back their own stock or
paying down debt. Many are restructuring -- divesting some assets,
acquiring others, and forming new strategic alliances. 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.
Today our goal is to balance your fund's portfolio to benefit from the
companies' different business strategies.
* FUND DIGS FOR HIDDEN VALUE
One of our primary strategies is to identify hidden values within
utilities companies -- businesses or assets that do not seem to be
adequately reflected in the stock's prices. For example, Montana Power
Company has a telecommunications unit, and both Edison International and
DQE (holding company for Duquesne Power Company) have fiber-optic rings
in the cities they service. In addition to providing power, these
underground networks position the companies that own them to provide
access to other carriers seeking access to wired internet users. Yet the
value of these assets does not appear to be recognized in the price of
the companies' stock.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Enron Corp.
Natural gas utilities
BellSouth Corp.
Regional Bells
SBC Communications, Inc.
Regional Bells
Bell Atlantic Corp.
Regional Bells
Williams Cos., Inc.
Natural gas utilities
Sprint Corp.
Telecommunications
AT&T Corp.
Telecommunications
Duke Energy Corp.
Electric utilities
GTE Corp.
Regional Bells
El Paso Energy Corp.
Natural gas utilities
Footnote reads:
These holdings represent 25.9% of the fund's net assets as of 4/30/00.
Portfolio holdings will vary over time.
Companies like Duke Energy, Texas Utilities, Reliant Energy, and DQE
have been working on fuel cell technology and are active in other
fast-growing segments of the power industry. If management continues to
believe that the market is not giving them credit for these innovations,
some of them may become spin-offs or sale candidates, paralleling trends
in the telephone industry.
Continued acquisition activity is another by-product of the utility
industry's underperformance. Prime targets are companies with strong
cash flows and balance sheets, many of which are selling at less than
ten times next year's earnings estimates.
* UTILITIES STOCKS PROVIDE PROSPECTS FOR INCOME AS WELL AS GROWTH
This fund is committed to seeking capital appreciation and a steady
growth of income, primarily from utilities companies. The pursuit of
appreciation traditionally exposes investors to price volatility, while
the search for income is usually conducted in calmer waters. In the
past, utilities stocks offered higher dividends than stocks in other
sectors in order to compensate investors for their relatively slow,
steady growth potential. These basic facts have not changed, but the
equation has become more complex, adding a stronger growth component to
ensure a rising stream of earnings to make future dividend increases
possible.
As we move into the second half of the fiscal year, 90% of your fund's
portfolio is invested in utilities stocks, with about 7% of assets in
high-quality bonds issued by utilities companies. Most of the stocks
were selected because they combine growth, income and a lower level of
volatility than the broad market. A few were included to allow the fund
to participate in some of the new developments in the utilities
industry. If the groundswell of interest in undervalued stocks and the
demand for high-quality, established companies continues throughout the
balance of the fiscal year, as we believe they will, this fund's
shareholders should continue to benefit.
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 4/30/00, 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 4/30/00
Class A Class B Class C Class M
(inception dates) (11/19/90) (4/27/92) (7/26/99) (3/1/95)
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months -0.25% -6.00% -0.62% -5.20% -0.63% -1.55% -0.45% -3.95%
----------------------------------------------------------------------------------------
1 year 4.29 -1.68 3.51 -1.21 3.52 2.58 3.75 0.08
----------------------------------------------------------------------------------------
5 years 109.01 97.00 101.33 99.33 101.23 101.23 104.20 97.03
Annual average 15.89 14.52 15.02 14.79 15.01 15.01 15.35 14.53
----------------------------------------------------------------------------------------
Life of fund 202.12 184.70 181.51 181.51 181.49 181.49 188.61 178.35
Annual average 12.41 11.71 11.57 11.57 11.57 11.57 11.87 11.44
----------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/00
Standard & Poor's Consumer
Utility Index price index
-------------------------------------------------------------------------
6 months 8.65% 1.84%
-------------------------------------------------------------------------
1 year 7.76 3.01
-------------------------------------------------------------------------
5 years 99.39 12.71
Annual average 14.80 2.42
-------------------------------------------------------------------------
Life of fund 191.27 27.95
Annual average 12.02 2.65
-------------------------------------------------------------------------
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-, 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. For
class C shares, returns for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect
both the CDSC currently applicable to class C shares, which is 1% for
the first year and is eliminated thereafter, and the higher operating
expenses applicable to class C 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.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/00
Class A Class B Class C Class M
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 2 2 2 2
-----------------------------------------------------------------------------------
Income $0.230 $0.174 $0.200 $0.195
-----------------------------------------------------------------------------------
Capital gains
Long-term 0.845 0.845 0.845 0.845
-----------------------------------------------------------------------------------
Short-term -- -- -- --
-----------------------------------------------------------------------------------
Total $1.075 $1.019 $1.045 $1.040
-----------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
-----------------------------------------------------------------------------------
10/31/99 $14.06 $14.92 $13.98 $14.04 $14.03 $14.54
-----------------------------------------------------------------------------------
4/30/00 12.90 13.69 12.83 12.86 12.88 13.35
-----------------------------------------------------------------------------------
Current return (end of period)
-----------------------------------------------------------------------------------
Current dividend rate1 3.57% 3.36% 2.68% 3.11% 3.04% 2.94%
-----------------------------------------------------------------------------------
Current 30-day
SEC yield2 2.82 2.66 2.08 2.09 2.33 2.25
-----------------------------------------------------------------------------------
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.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 3/31/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (11/19/90) (4/27/92) (7/26/99) (3/1/95)
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months 1.84% -4.02% 1.33% -3.35% 1.37% 0.44% 1.49% -2.05%
----------------------------------------------------------------------------------------
1 year 9.91 3.60 9.04 4.07 9.00 8.01 9.35 5.55
----------------------------------------------------------------------------------------
5 years 111.22 99.01 103.48 101.48 103.20 103.20 106.59 99.37
Annual average 16.13 14.76 15.27 15.04 15.24 15.24 15.62 14.80
----------------------------------------------------------------------------------------
Life of fund 198.14 180.95 177.78 177.78 177.77 177.77 184.80 174.67
Annual average 12.38 11.67 11.53 11.53 11.53 11.53 11.83 11.40
----------------------------------------------------------------------------------------
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 performance calculation method.
</TABLE>
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 C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
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 or C shares and assumes redemption at the
end of the period. Your fund's 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. The CDSC for class C shares is 1% for one
year after purchase.
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 are determined. All investment and noninvestment 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 sources 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-end funds, a
separate table is provided for each share class.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
April 30, 2000 (Unaudited)
COMMON STOCKS (91.0%) (a)
NUMBER OF SHARES VALUE
<S> <C>
Cable Television (0.4%)
-------------------------------------------------------------------------------------------------------------------
102,800 Adelphia Communications Corp. Class A (NON) $ 5,095,025
Combined Utilities (3.7%)
-------------------------------------------------------------------------------------------------------------------
98,000 American Water Works, Inc. 2,223,375
610,300 Constellation Energy Group 20,178,044
620,000 Iberdola S.A. (Spain) (NON) 7,952,989
705,000 Korea Electric Power Corp. (South Korea) 20,651,194
----------------
51,005,602
Communications Equipment (0.5%)
-------------------------------------------------------------------------------------------------------------------
126,900 Tellabs, Inc. (NON) 6,955,706
Electric Utilities (38.0%)
-------------------------------------------------------------------------------------------------------------------
147,000 Ameren Corp. 5,393,063
107,400 Calpine Corp. (NON) 9,827,100
498,300 Carolina Power & Light Co. 18,219,094
196,000 CH Energy Group, Inc. 6,455,750
25,000 Chilectra S.A. 144A ADR (Chile) 439,063
572,900 Cinergy Corp. 15,325,075
146,700 CMS Energy Corp. 2,787,300
122,377 Companhia Energetica de Minas Gerais ADR (Brazil) 1,820,358
313,500 Companhia Paranaense de Energia-Copel ADR (Brazil) 2,312,063
350,100 Conectiv, Inc. 6,214,275
294,000 Consolidated Edison, Inc. 10,345,125
311,800 Dominion Resources, Inc. 14,031,000
576,500 DPL, Inc. 13,403,625
194,000 DQE, Inc. 7,420,500
521,100 Duke Energy Corp. 29,963,250
904,400 Edison International 17,240,125
297,000 El Paso Electric Co. 3,285,563
19,249 Eletropaulo Metropolitana S.A. (Brazil) 1,108,496
17,000 Empresa Bandeirante de Energia S.A. (Brazil) (NON) 125,194
17,000 Empresa Metropolitana de Aguas Energia S.A. (Brazil) 38,782
17,000 Empresa Paulista de Transmissao de Energia Electrica S.A. (Brazil) 160,022
130,000 Endesa S.A. (Spain) 2,819,846
594,800 Energy East Corp. 12,416,450
888,700 Entergy Corp. 22,606,306
245,000 Florida Progress Corp. 12,005,000
338,200 FPL Group, Inc. 15,282,413
339,100 GPU, Inc. 9,515,994
98,000 Hawaiian Electric Industries, Inc. 3,626,000
198,000 IPALCO Enterprises, Inc. 4,046,625
178,200 LG&E Energy Corp. 4,154,288
10,000 Light Participacoes, S.A. (Brazil) 24,363
180,800 Montana Power Co. 7,966,500
392,000 New Century Energies, Inc. 12,789,000
495,000 Niagara Mohawk Holdings Inc. 6,868,125
659,600 NiSource, Inc. 12,202,600
319,100 Northeast Utilities Co. 6,860,650
450,800 OGE Energy Corp. 8,931,475
935,500 PG&E Corp. 24,264,531
263,400 Peco Energy Co. 10,980,488
222,200 Pinnacle West Capital Corp. 7,804,775
496,000 Potomac Electric Power Co. 11,625,000
392,000 PPL Corp. 9,359,000
415,800 Public Service Company of New Mexico 7,484,400
270,400 Puget Sound Energy, Inc. 6,422,000
829,500 Reliant Energy, Inc. 22,085,438
392,000 Scana Corp. 10,143,000
2,039,280 Scottish Power PLC (United Kingdom) 16,275,820
7,500,000 Shandong International Power Development Co. Ltd. (China) 760,688
552,200 Sierra Pacific Resources 8,352,025
121,700 Southern Co. 3,034,894
364,300 Teco Energy, Inc. 7,969,063
692,600 Texas Utilities Co. 23,331,963
490,000 Unicom Corp. 19,477,500
300,000 Union Electrica Fenosa S.A. (Spain) 5,746,421
98,000 UniSource Energy Corp. 1,592,500
171,600 United Illuminating Co. 7,893,600
220,600 Utilicorp United, Inc. 4,246,550
65,000 Veba (Vereinigte Elektrizitaets Bergwerks) AG (Germany) 3,211,623
448,500 Wisconsin Energy Corp. 9,586,688
----------------
529,678,425
Natural Gas Utilities (20.8%)
-------------------------------------------------------------------------------------------------------------------
372,400 AGL Resources, Inc. 6,517,000
127,600 Atmos Energy Corp. 2,025,650
215,600 Cascade Natural Gas Corp. 3,476,550
50,900 Coastal Corp. 2,554,544
328,300 Columbia Gas System, Inc. 20,600,825
320,700 Dynegy, Inc. 20,985,806
576,600 El Paso Energy Corp. 24,505,500
578,000 Energen Corp. 10,584,625
647,500 Enron Corp. 45,122,656
196,100 Equitable Resources, Inc. 9,094,138
373,400 KeySpan Corp. 10,968,625
132,800 Kinder Morgan, Inc. 4,025,500
143,500 Laclede Gas Co. 2,816,188
147,000 MCN Corp. 3,665,813
205,500 National Fuel Gas Co. 9,748,406
68,600 New Jersey Resources Corp. 2,761,150
294,000 NICOR Inc. 9,959,250
494,800 Northwest Natural Gas Co. 10,885,600
225,700 NUI Corp. 6,037,475
100,000 ONEOK, Inc. 2,525,000
196,000 Peoples Energy Corp. 6,088,250
196,000 Piedmont Natural Gas Co., Inc. 5,537,000
68,600 Providence Energy Corp. 2,735,425
196,000 Questar Corp. 3,687,250
814,300 Sempra Energy 15,115,444
26,900 South Jersey Industries, Inc. 719,575
98,000 Southwest Gas Corp. 1,868,125
198,000 Transportadora de Gas del Sur ADR (Argentina) 1,608,750
91,500 Vectren Corp. 1,841,438
196,000 Washington Gas Light Co. 5,022,500
1,032,300 Williams Cos., Inc. 38,517,694
----------------
291,601,752
Power Producers (--%)
-------------------------------------------------------------------------------------------------------------------
100,000 Centrais Geradoras do Sul do Brasil S.A. (Brazil) (NON) 90,255
Regional Bells (11.8%)
-------------------------------------------------------------------------------------------------------------------
668,400 Bell Atlantic Corp. 39,602,700
907,600 BellSouth Corp. 44,188,775
393,000 GTE Corp. 26,625,750
959,500 SBC Communications, Inc. 42,038,094
161,600 U S West, Inc. 11,503,900
----------------
163,959,219
Technology Services (1.6%)
-------------------------------------------------------------------------------------------------------------------
491,000 Convergys Corp. (NON) 21,604,000
Telecommunications (11.3%)
-------------------------------------------------------------------------------------------------------------------
49,500 Allegiance Telecom, Inc. (NON) 3,502,125
169,900 ALLTEL Corp. 11,319,588
670,800 AT&T Corp. 31,317,975
389,300 AT&T Wireless Group (NON) 12,384,606
25,000 France Telecom S.A. (France) 3,868,221
111,100 Global Crossing Ltd. (NON) 3,499,650
293,000 Hellenic Telecommunication Organization SA GDR (Greece) 3,424,438
70,300 ICG Communications, Inc. (NON) 2,091,425
83,200 Nextel Communications, Inc. Class A (NON) 9,105,200
58,800 Sonera Group Oyj (Finland) 3,234,032
624,700 Sprint Corp. 38,419,050
124,700 Sprint Corp. (PCS Group) (NON) 6,858,500
12,000 Tele Celular Sul Participacoes S.A. (Brazil) 463,500
39,400 Tele Centro Oeste Celular Participacoes ADR (Brazil) 453,100
24,000 Tele Centro Sul Participacoes S.A. (Brazil) 1,530,000
2,400 Tele Leste Celular Participacoes S.A. (Brazil) 98,400
5,900 Tele Nordeste Celular Participacoes S.A. ADR (Brazil) 306,800
2,400 Tele Norte Celular Participacoes S.A. ADR (Brazil) 109,650
24,000 Tele Sudeste Celular Participacoes S.A. ADR (Brazil) 1,026,000
100,000 Telecom Argentina S.A. ADR (Argentina) 2,793,750
20,000 Telefonica de Argentina S.A. ADR (Argentina) 702,500
250,000 Telefonica del Peru S.A. ADR (Peru) 3,781,250
6,000 Telemig Celular Participacoes S.A. ADR (Brazil) 351,000
48,000 Telesp Celular Participacoes S.A. ADR (Brazil) 2,118,000
120,000 Telesp-Telecomunicacoes de Sao Paulo S.A. (Brazil) 3,030,000
1,290,000 Vodafone AirTouch Plc (United Kingdom) 5,896,126
44,500 VoiceStream Wireless Corp. (NON) 4,405,500
15,700 Williams Communications Group, Inc. (NON) 580,900
----------------
156,671,286
Telephone (2.9%)
-------------------------------------------------------------------------------------------------------------------
243,500 Broadwing, Inc. 6,894,094
178,200 Cable & Wireless Plc ADR (United Kingdom) 8,798,625
670 Nippon Telegraph and Telephone Corp. (Japan) 8,297,597
100,000 Philippine Long Distance Telephone Co. ADR (Philippines) 1,843,750
400,000 Portugal Telecom S.A. ADR (Portugal) 4,550,000
300,000 PT Indosat ADR (Indonesia) 3,993,750
215,500 PT Telekomunikasi Indonesia ADR (Indonesia) 1,858,688
127,100 Telecom Corp. of New Zealand Ltd. ADR (New Zealand) 4,313,456
120,000 Telecomunicacoes Brasileiras S.A. (Brazil) 3,322
----------------
40,553,282
----------------
Total Common Stocks (cost $1,035,488,474) $ 1,267,214,552
CORPORATE BONDS AND NOTES (7.0%) (a)
PRINCIPAL AMOUNT VALUE
Electric Utilities (4.7%)
-------------------------------------------------------------------------------------------------------------------
$3,000,000 Arizona Public Service Co. notes 6 1/4s, 2005 $ 2,764,830
3,000,000 Australian Gas & Light Co.144A sr. notes 6 3/8s, 2003
(Australia) 2,861,460
1,200,000 Calpine Corp. sr. notes 7 3/4s, 2009 1,122,000
3,000,000 CILCORP, Inc. sr. notes 8.7s, 2009 2,975,713
2,800,000 CMS Energy Corp. pass-through certificates 7s, 2005 2,539,544
1,500,000 Connecticut Light & Power Co. 1st mtge. Ser. D, 7 7/8s, 2024 1,498,170
4,000,000 Consolidated Edison, Inc. deb. 6.45s, 2007 3,670,240
2,535,000 DPL, Inc. 144A sr. notes 8 1/4s, 2007 2,532,719
3,020,000 Edison Mission Energy 144A sr. notes 7.73s, 2009 2,870,510
4,000,000 Hydro Quebec local government guaranty Ser. HY, 8.4s, 2022
(Canada) 4,282,240
4,000,000 Kansas Gas & Electric deb. 8.29s, 2016 3,120,000
3,000,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 2,861,010
2,876,000 Otter Tail Power Co. 1st mtge. 7 1/4s, 2002 2,868,724
4,000,000 PG&E Gas Transmission Northwest sr. notes 7.1s, 2005 3,866,120
5,000,000 Public Service Co. of Colorado coll. trust 6 3/8s, 2005 4,650,450
3,500,000 Sierra Pacific Power Co. med. term notes Ser. C, 6.82s, 2006 3,381,665
2,725,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 2,507,273
1,350,000 Teco Energy, Inc. notes 5.54s, 2001 1,312,605
5,000,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 4,719,800
3,400,000 TXU Electrical Capital company guaranty 8.175s, 2037 3,079,924
4,500,000 Utilicorp United, Inc. sr. notes 8.2s, 2007 4,434,705
4,000,000 Western Resources, Inc. sr. notes 6 7/8s, 2004 3,157,240
----------------
67,076,942
Natural Gas Utilities (0.7%)
-------------------------------------------------------------------------------------------------------------------
3,060,000 Coastal Corp. deb. 6 1/2s, 2008 2,767,158
3,500,000 Columbia Gas System, Inc. notes Ser. E, 7.32s, 2010 3,254,195
3,500,000 Southwest Gas Corp. deb. 7 1/2s, 2006 3,412,640
----------------
9,433,993
Oil & Gas (0.2%)
-------------------------------------------------------------------------------------------------------------------
640,000 KN Capital Trust III company guaranty 7.63s, 2028 493,568
2,500,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 2,197,125
----------------
2,690,693
Power Producers (0.2%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 CalEnergy, Inc. sr. notes 7.63s, 2007 1,917,860
445,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 478,504
----------------
2,396,364
Regional Bells (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,800,000 U S West, Inc. notes 5 5/8s, 2008 1,541,070
Telecommunications (0.8%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Bell Atlantic Corp. deb. 7 7/8s, 2029 5,009,600
4,000,000 Century Telephone Enterprises, Inc. deb. Ser. G, 6 7/8s, 2028 3,321,880
3,000,000 Sprint Capital Corp. company guaranty 6.9s, 2019 2,688,480
----------------
11,019,960
Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,400,398 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 1,383,313
Water Utilities (0.2%)
-------------------------------------------------------------------------------------------------------------------
2,500,000 Pennsylvania American Water Co. 144A mtge. 7.8s, 2026 2,319,850
----------------
Total Corporate Bonds and Notes (cost $106,502,782) $ 97,862,185
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (1.2%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Treasury Obligations (1.2%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
$5,795,000 6 1/8s, August 15, 2029 $ 5,809,249
1,560,000 5 1/4s, November 15, 2028 1,367,683
U.S. Treasury Notes
3,585,000 6s, August 15, 2009 3,502,079
6,135,000 5 7/8s, November 15, 2004 5,972,975
----------------
Total U.S. Government and Agency Obligations
(cost $16,171,260) $ 16,651,986
PREFERRED STOCKS (0.2%) (a) (cost $2,500,000)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
2,500 Centaur Funding Corp 144A 9.08% pfd. (Cayman Islands) $ 2,579,825
SHORT-TERM INVESTMENTS (0.5%) (a) (cost $6,525,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$6,525,000 Interest in $434,310,000 joint repurchase agreement dated
April 28, 2000 with Salomon, Smith Barney Inc. due
May 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $6,528,105 for an effective
yield of 5.71% $ 6,525,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,167,187,516) (b) $ 1,390,833,548
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,392,592,798.
(b) The aggregate identified cost on a tax basis is $1,167,225,917,
resulting in gross unrealized appreciation and depreciation of
$304,670,746 and $81,063,115, respectively, or net unrealized
appreciation of $223,607,631.
(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
Depositary Receipts or Global Depositary Receipts, respectively,
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, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,167,187,516) (Note 1) $1,390,833,548
-------------------------------------------------------------------------------------------
Cash 2,845,244
-------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 6,965,777
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,204,236
-------------------------------------------------------------------------------------------
Receivable for securities sold 11,427,562
-------------------------------------------------------------------------------------------
Total assets 1,413,276,367
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 14,882,332
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,682,731
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,124,970
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 248,465
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 69,398
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,471
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 500,315
-------------------------------------------------------------------------------------------
Other accrued expenses 173,887
-------------------------------------------------------------------------------------------
Total liabilities 20,683,569
-------------------------------------------------------------------------------------------
Net assets $1,392,592,798
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,024,729,708
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,921,336)
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 148,143,212
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 223,641,214
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,392,592,798
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,055,590,472 divided by 81,824,331 shares) $12.90
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $12.90)* $13.69
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($322,975,036 divided by 25,178,488 shares)** $12.83
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($1,946,184 divided by 151,356 shares)** $12.86
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($12,081,106 divided by 938,173 shares) $12.88
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $12.88)* $13.35
-------------------------------------------------------------------------------------------
* 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, 2000 (Unaudited)
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $174,777) $ 23,532,983
-------------------------------------------------------------------------------------------
Interest income 4,896,798
-------------------------------------------------------------------------------------------
Total investment income 28,429,781
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,456,169
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 823,538
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 20,340
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,682
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,232,327
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,199,420
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 5,608
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 47,175
-------------------------------------------------------------------------------------------
Reports to shareholders 34,126
-------------------------------------------------------------------------------------------
Auditing 25,160
-------------------------------------------------------------------------------------------
Legal 5,740
-------------------------------------------------------------------------------------------
Postage 62,506
-------------------------------------------------------------------------------------------
Other 227,995
-------------------------------------------------------------------------------------------
Total expenses 9,148,786
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (166,365)
-------------------------------------------------------------------------------------------
Net expenses 8,982,421
-------------------------------------------------------------------------------------------
Net investment income 19,447,360
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 144,659,527
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (7,815)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities
in foreign currencies during the period (4,818)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (175,918,298)
-------------------------------------------------------------------------------------------
Net loss on investments (31,271,404)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (11,824,044)
-------------------------------------------------------------------------------------------
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
2000* 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 19,447,360 $ 39,572,519
--------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 144,651,712 100,076,533
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (175,923,116) (1,483,956)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (11,824,044) 138,165,096
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (17,216,696) (26,121,521)
--------------------------------------------------------------------------------------------------
Class B (5,927,473) (13,132,573)
--------------------------------------------------------------------------------------------------
Class C (17,383) (2,658)
--------------------------------------------------------------------------------------------------
Class M (185,916) (321,778)
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (60,522,505) (26,541,014)
--------------------------------------------------------------------------------------------------
Class B (31,938,939) (22,155,372)
--------------------------------------------------------------------------------------------------
Class C (45,970) --
--------------------------------------------------------------------------------------------------
Class M (810,484) (451,441)
--------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (60,664,614) (13,624,081)
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (189,154,024) 35,814,658
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 1,581,746,822 1,545,932,164
--------------------------------------------------------------------------------------------------
End of period (including distributions
in excess of net investment income
of $3,921,336 and $21,228, respectively) $1,392,592,798 $1,581,746,822
--------------------------------------------------------------------------------------------------
* 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
-------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.06 $13.62 $12.49 $11.63 $10.40 $9.06
-------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------
Net investment income .19(c) .39(c) .37(c) .41 .44 .43
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.27) .87 2.14 1.67 1.25 1.38
-------------------------------------------------------------------------------------------------------------
Total from
investment operations (.08) 1.26 2.51 2.08 1.69 1.81
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.39) (.38) (.41) (.44) (.46)
-------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.85) (.43) (1.00) (.81) (.02) (.01)
-------------------------------------------------------------------------------------------------------------
Total distributions (1.08) (.82) (1.38) (1.22) (.46) (.47)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.90 $14.06 $13.62 $12.49 $11.63 $10.40
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.25)* 9.49 21.06 19.16 16.57 20.71
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,055,590 $1,000,789 $825,884 $653,205 $618,417 $593,226
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .52* 1.00 1.05 1.05 1.11 1.12
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.46* 2.80 2.87 3.41 3.97 4.53
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.75* 17.58 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) Includes amounts paid through expense offset and brokerage service
arrangements (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
-------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.98 $13.54 $12.42 $11.57 $10.36 $9.02
-------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------
Net investment income .14(c) .28(c) .28(c) .32 .36 .36
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.27) .87 2.12 1.66 1.23 1.39
-------------------------------------------------------------------------------------------------------------
Total from
investment operations (.13) 1.15 2.40 1.98 1.59 1.75
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.17) (.28) (.28) (.32) (.36) (.39)
-------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.85) (.43) (1.00) (.81) (.02) (.02)
-------------------------------------------------------------------------------------------------------------
Total distributions (1.02) (.71) (1.28) (1.13) (.38) (.41)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.83 $13.98 $13.54 $12.42 $11.57 $10.36
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.62)* 8.69 20.19 18.28 15.57 19.92
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $322,975 $566,426 $706,220 $659,594 $615,309 $578,505
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .89* 1.75 1.80 1.80 1.86 1.87
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.08* 2.06 2.13 2.66 3.22 3.77
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.75* 17.58 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) Includes amounts paid through expense offset and brokerage service
arrangements (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>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
-------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 July 26, 1999+
operating performance (Unaudited) to October 31
-------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------
Net asset value,
beginning of period $14.04 $14.34
-------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------
Net investment income .14(c) .07
-------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.27) (.26)
-------------------------------------------------------------------
Total from
investment operations (.13) (.19)
-------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------
From net
investment income (.20) (.11)
-------------------------------------------------------------------
From net realized gain
on investments (.85) --
-------------------------------------------------------------------
Total distributions (1.05) (.11)
-------------------------------------------------------------------
Net asset value,
end of period $12.86 $14.04
-------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.63)* (1.33)*
-------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,946 $486
-------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .89* .47*
-------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.11* .53*
-------------------------------------------------------------------
Portfolio turnover (%) 18.75* 17.58
-------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (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>
<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
-----------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.03 $13.60 $12.47 $11.61 $10.38 $9.14
-----------------------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------------------
Net investment income .16(c) .32(c) .32(c) .36 .38(c) .31
-----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.27) .86 2.13 1.67 1.26 1.26
-----------------------------------------------------------------------------------------------------------------
Total from
investment operations (.11) 1.18 2.45 2.03 1.64 1.57
-----------------------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.32) (.32) (.36) (.39) (.33)
-----------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.85) (.43) (1.00) (.81) (.02) --
-----------------------------------------------------------------------------------------------------------------
Total distributions (1.04) (.75) (1.32) (1.17) (.41) (.33)
-----------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.88 $14.03 $13.60 $12.47 $11.61 $10.38
-----------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.45)* 8.87 20.54 18.62 16.12 17.50*
-----------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $12,081 $14,045 $13,828 $11,871 $6,438 $1,917
-----------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .77* 1.50 1.55 1.55 1.63 1.13*
-----------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.21* 2.30 2.40 2.89 3.37 2.36*
-----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.75* 17.58 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) Includes amounts paid through expense offset and brokerage service
arrangements (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, 2000 (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, class C 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 C shares are subject to the same fees and expenses as
class B shares, except that class C shares have a one-year 1.00%
contingent deferred sales charge and do not convert to class A shares.
Class M shares are sold with a maximum front-end sales charge of 3.50%
and pay an ongoing distribution fee that is higher than class A shares
but lower than class B and class C 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 sales price on its principal exchange, 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. Other investments, including
restricted securities, are stated at fair value following procedures
approved by the Trustees. Market quotations are not considered to be
readily available for certain debt obligations; such investments are
stated at fair value on the basis of valuations furnished by a pricing
service or dealers, approved by the Trustees, which determine valuations
for normal institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
variable relationships between securities that 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). Gains or losses on securities sold are determined
on the identified cost basis. 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.
Discounts on original issue discount bonds are accreted according to the
yield-to-maturity basis.
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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
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, 2000, 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. Capital gains distributions, if
any, are recorded on the ex-dividend date and paid at least annually.
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.
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, 2000, fund expenses were reduced by
$166,365 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 $1,797
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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
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 a 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, class C 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%, 1.00% and 1.00% of the average net assets attributable to class
A, class B, class C and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%
and 0.75% of the average net assets attributable to class A, class B,
class C and class M shares, respectively.
For the six months ended April 30, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $81,904 and $2,112
from the sale of class A and class M shares, respectively, and received
$459,530 and $50 in contingent deferred sales charges from redemptions
of class B and class C shares, respectively. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the
six months ended April 30, 2000, Putnam Mutual Funds Corp., acting as
underwriter received $408,740 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2000, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $255,092,841 and
$416,562,861, respectively. Purchases and sales of U.S. government
obligations aggregated $15,629,325 and $5,733,078, respectively.
Note 4
Capital shares
At April 30, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 17,036,151 $217,181,615
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,551,769 69,015,103
---------------------------------------------------------------------------
22,587,920 286,196,718
Shares
repurchased (11,947,601) (152,259,617)
---------------------------------------------------------------------------
Net increase 10,640,319 $133,937,101
---------------------------------------------------------------------------
Year ended October 30, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 21,070,668 $292,763,822
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,273,972 44,985,658
---------------------------------------------------------------------------
24,344,640 337,749,480
Shares
repurchased (13,803,092) (190,502,654)
---------------------------------------------------------------------------
Net increase 10,541,548 $147,246,826
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 3,795,269 $ 48,386,206
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,734,280 33,811,785
---------------------------------------------------------------------------
6,529,549 82,197,991
Shares
repurchased (21,869,213) (277,450,251)
---------------------------------------------------------------------------
Net decrease (15,339,664) $(195,252,260)
---------------------------------------------------------------------------
Year ended October 30, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 12,150,847 $ 166,621,532
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,277,330 31,123,451
---------------------------------------------------------------------------
14,428,177 197,744,983
Shares
repurchased (26,058,917) (358,881,466)
---------------------------------------------------------------------------
Net decrease (11,630,740) $(161,136,483)
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 117,813 $1,500,170
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,250 52,772
---------------------------------------------------------------------------
122,063 1,552,942
Shares
repurchased (5,361) (66,755)
---------------------------------------------------------------------------
Net increase 116,702 $1,486,187
---------------------------------------------------------------------------
Period from July 26, 1999
(commencement of operations)
through October 31,1999
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 35,541 $495,931
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 156 2,144
---------------------------------------------------------------------------
35,697 498,075
Shares
repurchased (1,043) (14,414)
---------------------------------------------------------------------------
Net increase 34,654 $483,661
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 128,355 $1,644,436
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 72,696 902,863
---------------------------------------------------------------------------
201,051 2,547,299
Shares
repurchased (263,670) (3,382,941)
---------------------------------------------------------------------------
Net decrease (62,619) $ (835,642)
---------------------------------------------------------------------------
Year ended October 30, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 471,019 $6,492,394
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 48,716 668,557
---------------------------------------------------------------------------
519,735 7,160,951
Shares
repurchased (535,946) (7,379,036)
---------------------------------------------------------------------------
Net decrease (16,211) $ (218,085)
---------------------------------------------------------------------------
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
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
Stephen Oristaglio
Vice President
Thomas V. Reilly
Vice President
Deborah F. Kuenstner
Vice President
Jeanne L. Mockard
Vice President and Fund Manager
Krishna Memani
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
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 61442 840/884/869 6/00
