Putnam
Utilities
Growth and
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes that lie ahead
will be even more breathtaking in their scope. What will not change is
the Trustees' dedication to serving the best interests of our
shareholders.
We are pleased to announce the appointment of Michael R. Yogg to your
fund's management team. Michael joined Putnam in 1997 from State Street
Research & Management and has 22 years of investment management
experience. Shortly after the close of the fiscal year, Erin J. Spatz
was also appointed to the team. She joined Putnam in 1996 from Pioneer
Funds and has 13 years of investment experience.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 20, 2000
REPORT FROM FUND MANAGEMENT
Jeanne L. Mockard
Michael R. Yogg
Krishna K. Memani
and the Credit Team
Staying the course paid off for Putnam Utilities Growth and Income Fund
during the fiscal year that ended October 31, 2000. Many other utility
funds succumbed to the temptation to increase their emphasis on
high-risk telecommunications stocks, which were among the big winners
in 1999. In contrast, remaining true to your fund's objective, we
maintained its emphasis on more conservative investments that appeared
to be undervalued. This commitment to style consistency meant that your
fund did not participate as fully as it could have in the big upswing in
telecom stocks early in the year, but we were extremely well positioned
for the return to reality which followed the March 10 peak in the
technology-heavy Nasdaq. From that through the end of October, tech and
telecom stocks provided negative returns, for the most part, while
electric utilities have been second only to pharmaceutical stocks as a
place to turn for solid returns with relatively low risk.
Total return for 12 months ended 10/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
-----------------------------------------------------------------------
9.04% 2.75% 8.19% 3.26% 8.12% 7.14% 8.49% 4.69%
-----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* FUND BENEFITED AS INVESTOR SENTIMENT SHIFTED TO LOWER RISK STOCKS
By the time the market peaked earlier this year, many high-tech stocks
had soared to such high valuations that many analysts didn't even
discuss price/earnings ratios. The enthusiasm was due to the robust
economy and many companies' eagerness to invest in innovative technology
to improve productivity. Corporate spending had reached a fever pitch as
the year 2000 and the threat of Y2K transition problems drew near, but
then subsided as the transition to the new millennium passed smoothly
into history. Meanwhile, concern began to spread that the Federal
Reserve Board's series of interest-rate hikes might slow the economy too
abruptly, triggering the major market turn in March. Sky-high valuations
on some technology and telecommunications stocks were no longer
supportable, and when the realization set in, investor interest spread
to lower-risk, value- oriented investments. By the end of October, some
telecom stocks were 30% to 60% below their highs for the year, while
some long-overlooked utility stocks had gained between 20% to 50% or
more.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electric utilities 45.6%
Natural gas utilities 24.2%
Regional Bells 9.5%
Telecommunications 8.5%
Combined utilities 3.1%
Footnote reads:
*Based on net assets as of 10/31/00. Holdings will vary over time.
Throughout the year, your fund emphasized electric utilities. As
recently as the beginning of the fiscal year, some of these stocks were
selling at just seven or eight times their earnings, which made them a
welcome haven for investors after the tech bubble burst. Individual
holdings that have benefited your fund the most include such long-term
holdings as Reliant Energy Corp., PPL Corp. (formerly Pennsylvania Power
and Light), FPL Group (the holding company for Florida Power & Light),
and Calpine, as well as Exelon, the newly named company resulting from
the merger of Unicom and PECO Energy.
Bargain prices were a major factor in making the electric utilities
sector attractive, but the growth prospects we saw for selected
companies are what made them rewarding investments. Dynamics within the
utilities industry are changing. Deregulation has meant that many
utilities have cash available to finance growth.
Companies are responding in different ways. Some are buying back their
own stock or paying down debt. Many are restructuring -- divesting some
assets, acquiring others, and forming new strategic alliances. Gas and
electric providers are merging and larger utilities 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.
* CURRENT EMPHASIS IS ON REGIONAL AND LOCAL UTILITIES
In selecting both electric and natural gas companies, we have generally
focused on local companies that have direct connections to consumers'
homes. Ultimately, we believe these companies may become acquisition
targets for larger companies anxious to broaden their distribution.
". . . great performance for 'growthy' utility funds comes with a price:
volatility. With this in mind, there are still funds out there that
still put their focus squarely on stability and traditional utilities.
Such funds usually. . . try to strike a balance between traditional,
income-oriented utilities and telecom names. Owners of these funds can
boast about another perk this year: improved performance."
-- "Utilities Investing Gets Growthy" Catherine Hickey, Morningstar
Analyst, August 10, 2000
For some of the same reasons, we put greater emphasis on regional
telephone companies, underweighting the long-distance players such as
AT&T. SBC Communications (formerly South western Bell) is a good example
of the positives we see going forward for regional telephone companies.
The Federal Communications Commission (FCC) recently granted SBC's
application to offer long-distance telephone service to their customers
in Texas. The company gained a 10% market share in the first month --
fulfilling SBC's goal for its first year. SBC is now formally requesting
permission to offer long-distance service to consumers in Kansas and
Oklahoma.
Regional providers already have direct access to millions of homes,
simplifying billing and marketing to customers tired of aggressive sales
campaigns from a variety of long distance providers. After years of
fierce competition, companies like AT&T and WorldCom have eked out all
the efficiencies they can, yet they are still faced with declining
market share, both from regionals and from Internet service providers.
In response, these giant international telecommunications companies are
concentrating on data transmission and spinning off their long-distance
voice business, with the expectation that the sum of the parts may prove
greater than the whole.
* FUND REMAINS CONSERVATIVELY POSITIONED WITHIN A CHANGING INDUSTRY
Notwithstanding the recent explosive growth in telecommunications, as an
asset class utilities are still conservative investments. They offer
higher yields than other equities, with more moderate growth potential
and prices that tend to be less volatile. The overall dividend yield on
Putnam Utilities Growth and Income Fund's stocks as of the end of
October was approximately 4%, versus approximately 1% for the broader
stock market, as represented by the Standard & Poor's 500 Composite.
Because we believe it's important for a conservative investment to
provide as positive an income as possible, the fund has also held
approximately 7% of assets in bonds issued by many of the same
utilities companies that are in the equity portfolio.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
SBC Communications, Inc.
Regional Bell
El Paso Energy Corp.
Natural gas utility
BellSouth Corp.
Regional Bell
Exelon Corp.
Electric utility
Enron Corp.
Natural gas utility
Duke Energy Corp.
Electric utility
Reliant Energy, Inc.
Electric utility
Williams Cos., Inc.
Natural gas utility
Verizon Communications
Regional Bell
Dynegy, Inc.
Natural gas utility
Footnote reads:
These holdings represent 27.2% of the fund's net assets as of 10/31/00.
Portfolio holdings will vary over time.
Well-managed utility companies are adapting their business strategies to
capitalize on new trends, but they have not turned into aggressive risk
takers. If it seems unusual for a utilities fund report to discuss
growth prospects, remember that this potential arises from changing
dynamics within the industry as a whole -- not changing characteristics
of the stocks themselves. Fiscal 2000 was a good year for your fund
because we stuck to our guns and stayed with our value- oriented
investment approach -- an approach we believe can make a positive
contribution to most investors' fund portfolios.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 10/31/00, there is no guarantee the fund
will continue to hold these securities in the future. The fund
concentrates its investments in one region or sector 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 10/31/00
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
------------------------------------------------------------------------------
1 year 9.04% 2.75% 8.19% 3.26% 8.12% 7.14% 8.49% 4.69%
------------------------------------------------------------------------------
5 years 100.74 89.28 93.19 91.19 93.18 93.18 96.12 89.20
Annual average 14.95 13.61 14.08 13.84 14.08 14.08 14.42 13.60
------------------------------------------------------------------------------
Life of fund 230.25 211.21 206.46 206.46 206.29 206.29 214.54 203.36
Annual average 12.76 12.09 11.91 11.91 11.91 11.91 12.21 11.80
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/00
Standard & Poor's Consumer
Utility Index price index
------------------------------------------------------------------------------
1 year 37.20% 3.45%
------------------------------------------------------------------------------
5 years 114.06 13.14
Annual average 16.44 2.50
------------------------------------------------------------------------------
Life of fund 267.80 29.97
Annual average 14.03 2.68
------------------------------------------------------------------------------
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, 5- and
10-year, if 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. Performance data reflects an expense
limitation previously in effect, without which returns would have been
lowers.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 11/19/90
Fund's class A Standard & Poor's Consumer price
Date shares at POP Utilities Index index
11/19/90 10,000 10,000 10,000
10/31/91 10,432 10,303 10,269
10/31/92 11,508 12,009 10,598
10/31/93 13,855 15,037 10,889
10/31/94 12,844 13,152 11,173
10/31/95 15,503 17,062 11,487
10/31/96 18,072 18,794 11,831
10/31/97 21,534 20,656 12,078
10/31/98 26,068 26,154 12,250
10/31/99 28,541 26,707 12,564
10/31/00 $31,121 $36,780 $12,997
Footnote reads:
Past performance is no assurance of future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class C
shares would have been valued at $30,646 and $30,629, respectively and
no contingent deferred sales charges would apply; a $10,000 investment
in the fund's class M shares would have been valued at $31,454 ($30,336
at public offering price). See first page of performance section for
performance calculation method.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/00
Class A Class B Class C Class M
------------------------------------------------------------------------------
Distributions
(number) 4 4 4 4
------------------------------------------------------------------------------
Income $0.373 $0.266 $0.307 $0.306
------------------------------------------------------------------------------
Capital gains
Long-term 0.905 0.905 0.905 0.905
------------------------------------------------------------------------------
Short-term 0.027 0.027 0.027 0.027
------------------------------------------------------------------------------
Total $1.305 $1.198 $1.239 $1.238
------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
------------------------------------------------------------------------------
10/31/99 $14.06 $14.92 $13.98 $14.04 $14.03 $14.54
------------------------------------------------------------------------------
10/31/00 13.86 14.71 13.78 13.79 13.83 14.33
------------------------------------------------------------------------------
Current return (end of period)
------------------------------------------------------------------------------
Current
dividend
rate1 3.32% 3.13% 2.61% 2.81% 2.86% 2.76%
------------------------------------------------------------------------------
Current
30-day SEC
yield2 2.48 2.33 1.75 1.74 1.97 1.91
------------------------------------------------------------------------------
1 Most recent distribution, annualized and divided by NAV or POP at end
of period.
2 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 9/30/00 (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
------------------------------------------------------------------------------
1 year 14.11% 7.54% 13.17% 8.17% 13.24% 12.24% 13.46% 9.51%
------------------------------------------------------------------------------
5 years 104.04 92.34 96.53 94.53 96.44 96.44 99.49 92.60
Annual average 15.33 13.98 14.47 14.23 14.46 14.46 14.81 14.01
------------------------------------------------------------------------------
Life of fund 234.07 214.80 210.25 210.25 210.29 210.29 218.41 207.09
Annual average 13.01 12.33 12.17 12.17 12.17 12.17 12.46 12.05
------------------------------------------------------------------------------
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.
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, preceded by the Report of independent
accountants, 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
Putnam Utilities Growth and Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam
Utilities Growth and Income Fund (the "fund") at October 31, 2000, and
the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of investments owned at
October 31, 2000 by correspondence with the custodian, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 5, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
October 31, 2000
COMMON STOCKS (88.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Cable Television (0.2%)
-------------------------------------------------------------------------------------------------------------------
106,600 Adelphia Communications Corp. Class A (NON) $ 3,537,788
Combined Utilities (3.1%)
-------------------------------------------------------------------------------------------------------------------
101,600 American Water Works, Inc. 2,476,500
632,900 Constellation Energy Group 26,384,019
731,100 Korea Electric Power Corp. (South Korea) 16,346,778
--------------
45,207,297
Electric Utilities (40.9%)
-------------------------------------------------------------------------------------------------------------------
152,400 Ameren Corp. 6,057,900
222,700 Calpine Corp. (NON) 17,579,381
123,200 CH Energy Group, Inc. 4,851,000
594,100 Cinergy Corp. 18,194,313
352,100 CMS Energy Corp. 9,506,700
650,750 Companhia Paranaense de Energia-Copel ADR (Brazil) 5,897,422
198,100 Conectiv, Inc. 3,553,419
304,900 Consolidated Edison, Inc. 10,728,669
516,700 CP&L, Inc. 20,829,469
323,300 Dominion Resources, Inc. 19,256,556
597,800 DPL, Inc. 16,962,575
201,200 DQE, Inc. 7,029,425
431,300 Duke Energy Corp. 37,280,494
67,400 E.On AG (Germany) 3,421,578
937,900 Edison International 22,392,363
308,000 El Paso Electric Co. 3,692,920
89,949 Eletropaulo Metropolitana S.A. (Brazil) 5,044,336
134,800 Empresa Nacional de Electricidad S.A. (Spain) 2,193,466
616,800 Energy East Corp. 12,451,650
605,400 Entergy Corp. 23,194,388
717,687 Exelon Corp. 43,150,931
254,100 Florida Progress Corp. 13,514,944
390,800 FPL Group, Inc. 25,792,800
272,200 GPU, Inc. 8,999,613
642,900 Iberdrola SA (Spain) 7,851,400
205,300 IPALCO Enterprises, Inc. 4,606,419
184,800 LG&E Energy Corp. 4,539,150
187,500 Montana Power Co. 5,296,875
513,300 Niagara Mohawk Holdings, Inc. (NON) 8,212,800
684,000 NiSource, Inc. 17,057,250
330,900 Northeast Utilities Co. 6,742,088
203,500 OGE Energy Corp. 4,184,469
350,900 PG&E Corp. 9,452,369
230,400 Pinnacle West Capital Corp. 10,008,000
254,900 Potomac Electric Power Co. 5,830,838
406,500 PPL Corp. 16,742,719
431,200 Public Service Company of New Mexico 11,884,950
280,400 Puget Sound Energy, Inc. 6,887,325
860,200 Reliant Energy, Inc. 35,537,013
406,500 SCANA Corp. 10,772,250
2,114,780 Scottish Power PLC (United Kingdom) 15,888,480
24,000,000 Shandong International Power Development Co.,
Ltd. (China) 3,754,327
7,774,500 Shandong International Power Development Co.,
Ltd. 144A (China) 1,216,167
572,600 Sierra Pacific Resources 9,841,563
126,200 Southern Co. 3,707,125
377,800 Teco Energy, Inc. 10,531,175
517,800 TXU Corp. 19,190,963
97,700 UIL Holdings Corp. 4,573,581
311,100 Union Electrica Fenosa SA (Spain) 5,745,091
101,600 UniSource Energy Corp. 1,517,650
228,800 Utilicorp United, Inc. 6,077,500
465,100 Wisconsin Energy Corp. 8,749,694
304,730 XCEL Energy, Inc. 7,789,661
--------------
605,765,204
Natural Gas Utilities (23.3%)
-------------------------------------------------------------------------------------------------------------------
386,200 AGL Resources, Inc. 7,868,825
132,300 Atmos Energy Corp. 3,059,438
223,600 Cascade Natural Gas Corp. 4,122,625
52,800 Coastal Corp. 3,983,100
340,400 Columbia Gas System, Inc. 24,487,525
665,200 Dynegy, Inc. 30,807,075
765,100 El Paso Energy Corp. 47,962,206
599,400 Energen Corp. 17,157,825
464,100 Enron Corp. 38,085,206
203,400 Equitable Resources, Inc. 11,797,200
387,200 KeySpan Corp. 13,624,600
137,700 Kinder Morgan, Inc. 5,310,056
148,800 Laclede Gas Co. 3,255,000
152,400 MCN Corp. 3,752,850
213,100 National Fuel Gas Co. 11,427,488
71,100 New Jersey Resources Corp. 2,839,556
304,900 NICOR, Inc. 10,766,781
513,100 Northwest Natural Gas Co. 12,025,781
234,100 NUI Corp. 7,300,994
103,700 ONEOK, Inc. 4,109,113
203,300 Peoples Energy Corp. 6,988,438
203,300 Piedmont Natural Gas Co., Inc. 6,200,650
203,300 Questar Corp. 5,501,806
844,400 Sempra Energy 17,468,525
27,900 South Jersey Industries, Inc. 812,588
101,600 Southwest Gas Corp. 2,120,900
205,300 Transportadora de Gas del Sur ADR (Argentina) 1,732,219
94,900 Vectren Corp. 2,194,563
203,300 WGL Holdings, Inc. 5,184,150
805,000 Williams Cos., Inc. 33,659,063
-------------
345,606,146
Power Producers (0.4%)
-------------------------------------------------------------------------------------------------------------------
210,333 Southern Energy, Inc. (NON) 5,731,574
Regional Bells (9.2%)
-------------------------------------------------------------------------------------------------------------------
941,200 BellSouth Corp. 45,471,725
1,036,500 SBC Communications, Inc. 59,793,094
540,100 Verizon Communications 31,224,531
-------------
136,489,350
Technology Services (1.5%)
-------------------------------------------------------------------------------------------------------------------
509,200 Convergys Corp. (NON) 22,182,025
Telecommunications (8.0%)
-------------------------------------------------------------------------------------------------------------------
114,600 Allegiance Telecom, Inc. (NON) 3,602,738
176,200 ALLTEL Corp. 11,353,888
570,500 AT&T Corp. (SEG) 13,228,469
403,700 AT&T Wireless Group (NON) 10,067,269
24,900 Brasil Telecom Participacoes SA ADR (Brazil) 1,349,269
112,000 Focal Communications Corp. (NON) 1,624,000
115,200 Global Crossing Ltd. (NON) 2,721,600
172,600 Nextel Communications, Inc. Class A (NON) 6,634,313
670 Nippon Telegraph and Telephone Corp. (Japan) 6,093,698
289,800 Qwest Communications International, Inc. (NON) 14,091,525
647,800 Sprint Corp. 16,518,900
129,300 Sprint Corp. (PCS Group) (NON) 4,929,563
12,400 Tele Celular Sul Participacoes S.A. (Brazil) 312,325
40,900 Tele Centro Oeste Celular Participacoes ADR (Brazil) 414,113
2,500 Tele Leste Celular Participacoes S.A. (Brazil) 96,406
6,100 Tele Nordeste Celular Participacoes S.A. ADR (Brazil) 251,625
2,500 Tele Norte Celular Participacoes S.A. ADR (Brazil) 86,563
103,700 Telecom Argentina S.A. ADR (Argentina) 1,782,344
6,200 Telemig Celular Participacoes S.A. ADR (Brazil) 325,500
29,500 TyCom, Ltd. (Bermuda) (NON) 988,250
2,791,159 Vodafone Group PLC (United Kingdom) 11,619,682
46,100 VoiceStream Wireless Corp. (NON) 6,062,150
109,500 XO Communications, Inc. (NON) 3,693,914
--------------
117,848,104
Telephone (1.6%)
-------------------------------------------------------------------------------------------------------------------
289,300 BCE, Inc. (Canada) 7,829,181
130,000 Broadwing, Inc. (NON) 3,672,500
184,800 Cable & Wireless PLC ADR (United Kingdom) 7,957,950
103,700 Philippine Long Distance Telephone Co. ADR (Philippines) 1,607,350
311,100 PT Indosat ADR (Indonesia) 2,197,144
223,500 PT Telekomunikasi Indonesia ADR (Indonesia) 1,173,375
--------------
24,437,500
--------------
Total Common Stocks (cost $994,905,045) $1,306,804,988
<CAPTION>
CORPORATE BONDS AND NOTES (7.2%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Electric Utilities (4.7%)
-------------------------------------------------------------------------------------------------------------------
$ 2,370,000 AmerenEnergy Generating Co. 144A sr. notes
7 3/4s, 2005 $ 2,359,074
3,000,000 Arizona Public Service Co. notes 6 1/4s, 2005 2,873,760
1,200,000 Calpine Corp. sr. notes 7 3/4s, 2009 1,122,000
3,000,000 CILCORP, Inc. sr. notes 8.7s, 2009 3,120,284
2,800,000 CMS Energy Corp. pass-through certificates 7s, 2005 2,485,056
1,500,000 Connecticut Light & Power Co. 1st mtge. Ser. D, 7 7/8s, 2024 1,505,565
4,000,000 Consolidated Edison, Inc. deb. 6.45s, 2007 3,816,200
2,390,000 Dominion Resources, Inc. sr. notes 8 1/8s, 2010 2,464,233
2,535,000 DPL, Inc. sr. notes 8 1/4s, 2007 2,489,624
2,420,000 Duke Energy Field Services LLC notes 7 7/8s, 2010 2,466,440
4,000,000 Hydro Quebec local gov't guaranty Ser. HY, 8.4s,
2022 (Canada) 4,365,320
4,000,000 Kansas Gas & Electric deb. 8.29s, 2016 3,113,560
3,000,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 2,997,750
2,876,000 Otter Tail Power Co. 1st mtge. 7 1/4s, 2002 2,882,759
4,000,000 PG&E Gas Transmission Northwest sr. notes 7.1s, 2005 3,904,480
5,000,000 Public Service Co. of Colorado coll. trust 6 3/8s, 2005 4,815,450
3,500,000 Sierra Pacific Power Co. med. term notes Ser. C, 6.82s, 2006 3,336,025
2,725,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 2,517,328
1,350,000 Teco Energy, Inc. notes 5.54s, 2001 1,326,933
5,000,000 TXU Corp. secd. lease fac. bonds 7.46s, 2015 4,733,900
3,400,000 TXU Electrical Capital company guaranty 8.175s, 2037 3,233,434
4,500,000 Utilicorp United, Inc. sr. notes 8.2s, 2007 4,595,760
4,000,000 Western Resources, Inc. sr. notes 6 7/8s, 2004 3,579,840
--------------
70,104,775
Natural Gas Utilities (0.9%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 Australian Gas & Light Co.144A sr. notes 6 3/8s,
2003 (Australia) 2,921,160
3,060,000 Coastal Corp. deb. 6 1/2s, 2008 2,874,289
3,500,000 Columbia Gas System, Inc. notes Ser. E, 7.32s, 2010 3,288,810
640,000 KN Capital Trust III company guaranty 7.63s, 2028 537,768
3,500,000 Southwest Gas Corp. deb. 7 1/2s, 2006 3,536,540
--------------
13,158,567
Oil & Gas (0.2%)
-------------------------------------------------------------------------------------------------------------------
2,500,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 2,382,900
Power Producers (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 CalEnergy, Inc. sr. notes 7.63s, 2007 1,986,000
3,020,000 Edison Mission Energy 144A notes 7.73s, 2009 2,913,122
445,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 481,535
1,347,474 Salton Sea Funding Corp. company guaranty Ser. E,
8.3s, 2011 1,344,200
--------------
6,724,857
Regional Bells (0.3%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Bell Atlantic Corp. deb. 7 7/8s, 2029 5,092,900
Telecommunications (0.5%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Century Telephone Enterprises, Inc. deb. Ser. G, 6 7/8s, 2028 3,197,880
3,000,000 Sprint Capital Corp. company guaranty 6.9s, 2019 2,540,190
1,800,000 U.S. West, Inc. notes 5 5/8s, 2008 1,578,168
--------------
7,316,238
Water Utilities (0.2%)
-------------------------------------------------------------------------------------------------------------------
2,500,000 Pennsylvania American Water Co. 144A mtge. 7.8s, 2026 2,508,275
--------------
Total Corporate Bonds and Notes (cost $113,627,948) $ 107,288,512
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (0.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
U.S. Treasury Obligations (0.7%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
$ 5,795,000 6 1/8s, August 15, 2029 $ 6,001,418
780,000 5 1/4s, November 15, 2028 708,217
U.S. Treasury Notes
995,000 6s, August 15, 2009 1,004,950
2,110,000 5 7/8s, November 15, 2004 2,111,983
--------------
Total U.S. Government and Agency Obligations
(cost 9,081,642) $ 9,826,568
<CAPTION>
PREFERRED STOCKS (0.2%) (a) (cost 2,500,000)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
2,500 Centaur Funding Corp 144A 9.08 pfd. (Cayman Islands) $ 2,595,725
<CAPTION>
SHORT-TERM INVESTMENTS (3.6%) (a) (cost 53,694,000)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 53,694,000 Interest in 949,877,000 joint repurchase agreement
dated October 31, 2000 with Merrill Lynch due
November 1, 2000 with respect to various U.S.
Government obligations -- maturity value of
53,703,844 for an effective yield of 6.60% $ 53,694,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,173,808,635) (b) $1,480,209,793
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,481,902,933.
(b) The aggregate identified cost on a tax basis is $1,174,494,604,
resulting in gross unrealized appreciation and depreciation of
$388,319,848 and $82,604,659, respectively, or net unrealized
appreciation of $305,715,189.
(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.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at October
31, 2000.
ADR after the name of a foreign holding stands for American
Depositary Receipts representing ownership of foreign securities on
deposit with a domestic custodian bank.
------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 2000
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
------------------------------------------------------------------------------
S&P 500 Index
(Long) $9,361,300 $9,015,253 Dec-00 $346,047
U.S. Treasury 10
yr. (Short) 8,358,358 8,315,210 Dec-00 (43,148)
------------------------------------------------------------------------------
$302,899
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,173,808,635) (Note 1) $1,480,209,793
-------------------------------------------------------------------------------------------
Cash 74,242
-------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 6,593,363
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,774,488
-------------------------------------------------------------------------------------------
Receivable for variation margin 207,953
-------------------------------------------------------------------------------------------
Total assets 1,488,859,839
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 2,362,843
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,372,536
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,246,974
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 258,564
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 94,390
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,679
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 527,771
-------------------------------------------------------------------------------------------
Other accrued expenses 88,149
-------------------------------------------------------------------------------------------
Total liabilities 6,956,906
-------------------------------------------------------------------------------------------
Net assets $1,481,902,933
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,012,884,523
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 38,790
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 162,279,380
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 306,700,240
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,481,902,933
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,128,437,213 divided by 81,441,312 shares) $13.86
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.86)* $14.71
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($335,411,474 divided by 24,345,486 shares)** $13.78
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($4,733,915 divided by 343,269 shares)** $13.79
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($13,320,331 divided by 963,236 shares) $13.83
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.83)* $14.33
-------------------------------------------------------------------------------------------
* 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
Year ended October 31, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $378,117) $ 43,817,450
-------------------------------------------------------------------------------------------
Interest income 10,155,562
-------------------------------------------------------------------------------------------
Total investment income 53,973,012
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 8,866,419
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,483,296
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 40,278
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 17,149
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,585,261
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,817,320
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 21,317
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 94,550
-------------------------------------------------------------------------------------------
Other 471,708
-------------------------------------------------------------------------------------------
Total expenses 17,397,298
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (297,819)
-------------------------------------------------------------------------------------------
Net expenses 17,099,479
-------------------------------------------------------------------------------------------
Net investment income 36,873,533
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 169,031,687
-------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 8,609
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (599,889)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities
in foreign currencies during the year (3,817)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (92,860,273)
-------------------------------------------------------------------------------------------
Net gain on investments 75,576,317
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $112,449,850
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended October 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 36,873,533 $ 39,572,519
--------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 168,440,407 100,076,533
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (92,864,090) (1,483,956)
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 112,449,850 138,165,096
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (29,492,591) (26,121,521)
--------------------------------------------------------------------------------------------------
Class B (6,989,964) (13,132,573)
--------------------------------------------------------------------------------------------------
Class C (59,392) (2,658)
--------------------------------------------------------------------------------------------------
Class M (289,593) (321,778)
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (66,792,665) (26,541,014)
--------------------------------------------------------------------------------------------------
Class B (35,245,843) (22,155,372)
--------------------------------------------------------------------------------------------------
Class C (50,661) --
--------------------------------------------------------------------------------------------------
Class M (894,468) (451,441)
--------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (72,478,562) (13,624,081)
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (99,843,889) 35,814,658
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 1,581,746,822 1,545,932,164
--------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income and distributions in excess of net investment
income of $38,791 and $21,228, respectively) $1,481,902,933 $1,581,746,822
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.06 $13.62 $12.49 $11.63 $10.40
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .36(c) .39(c) .37(c) .41 .44
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .75 .87 2.14 1.67 1.25
-----------------------------------------------------------------------------------------------------
Total from
investment operations 1.11 1.26 2.51 2.08 1.69
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.38) (.39) (.38) (.41) (.44)
-----------------------------------------------------------------------------------------------------
From net realized gain
on investments (.93) (.43) (1.00) (.81) (.02)
-----------------------------------------------------------------------------------------------------
Total distributions (1.31) (.82) (1.38) (1.22) (.46)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.86 $14.06 $13.62 $12.49 $11.63
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 9.04 9.49 21.06 19.16 16.57
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,128,437 $1,000,789 $825,884 $653,205 $618,417
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.01 1.00 1.05 1.05 1.11
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.78 2.80 2.87 3.41 3.97
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.42 17.58 23.64 53.63 64.53
-----------------------------------------------------------------------------------------------------
+ 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
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.98 $13.54 $12.42 $11.57 $10.36
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .26(c) .28(c) .28(c) .32 .36
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .74 .87 2.12 1.66 1.23
-----------------------------------------------------------------------------------------------------
Total from
investment operations 1.00 1.15 2.40 1.98 1.59
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.27) (.28) (.28) (.32) (.36)
-----------------------------------------------------------------------------------------------------
From net realized gain
on investments (.93) (.43) (1.00) (.81) (.02)
-----------------------------------------------------------------------------------------------------
Total distributions (1.20) (.71) (1.28) (1.13) (.38)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.78 $13.98 $13.54 $12.42 $11.57
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 8.19 8.69 20.19 18.28 15.57
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $335,411 $566,426 $706,220 $659,594 $615,309
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.76 1.75 1.80 1.80 1.86
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.06 2.06 2.13 2.66 3.22
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.42 17.58 23.64 53.63 64.53
-----------------------------------------------------------------------------------------------------
+ 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 C
--------------------------------------------------------------
For the period
Per-share Year ended July 26, 1999+
operating performance October 31 to October 31
--------------------------------------------------------------
2000 1999
--------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $14.04 $14.34
--------------------------------------------------------------
Investment operations
--------------------------------------------------------------
Net investment income (c) .25 .07
--------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .74 (.26)
--------------------------------------------------------------
Total from
investment operations .99 (.19)
--------------------------------------------------------------
Less distributions:
--------------------------------------------------------------
From net
investment income (.31) (.11)
--------------------------------------------------------------
From net realized gain
on investments (.93) --
--------------------------------------------------------------
Total distributions (1.24) (.11)
--------------------------------------------------------------
Net asset value,
end of period $13.79 $14.04
--------------------------------------------------------------
Ratios and supplemental data
--------------------------------------------------------------
Total return at
net asset value (%)(a) 8.12 (1.33)*
--------------------------------------------------------------
Net assets, end of period
(in thousands) $4,734 $486
--------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.76 .47*
--------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.94 .53*
--------------------------------------------------------------
Portfolio turnover (%) 29.42 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>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.03 $13.60 $12.47 $11.61 $10.38
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .29(c) .32(c) .32(c) .36 .38(c)
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .75 .86 2.13 1.67 1.26
-----------------------------------------------------------------------------------------------------
Total from
investment operations 1.04 1.18 2.45 2.03 1.64
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.31) (.32) (.32) (.36) (.39)
-----------------------------------------------------------------------------------------------------
From net realized gain
on investments (.93) (.43) (1.00) (.81) (.02)
-----------------------------------------------------------------------------------------------------
Total distributions (1.24) (.75) (1.32) (1.17) (.41)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.83 $14.03 $13.60 $12.47 $11.61
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 8.49 8.87 20.54 18.62 16.12
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,320 $14,045 $13,828 $11,871 $6,438
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.51 1.50 1.55 1.55 1.63
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.28 2.30 2.40 2.89 3.37
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.42 17.58 23.64 53.63 64.53
-----------------------------------------------------------------------------------------------------
+ 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
October 31, 2000
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 that 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 sale 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. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. 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. Non-cash dividends, if any, are recorded at the fair
market value of the securities received.
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 year ended
October 31, 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 from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain 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. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, unrealized gains and losses on certain futures contracts,
realized gains and losses on passive foreign investment companies,
non-taxable dividends, market discount and book accretion/amortization
adjustments. Reclassifications are made to the fund's capital accounts
to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year
ended October 31, 2000, the fund reclassified $18,025 to increase
undistributed net investment income and $31,237 to decrease
paid-in-capital, with an increase to accumulated net realized gains of
$13,212. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
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 year ended October 31, 2000, fund expenses were reduced by
$297,819 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 $1,605
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 Retail Management, Inc., 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 Retail Management, Inc. 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 to 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 year ended October 31, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $193,754 and $5,039
from the sale of class A and class M shares, respectively, and received
$727,910 and $1,536 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 year ended October 31, 2000, Putnam Retail Management,
Inc., acting as underwriter received $1,060 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended October 31, 2000, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $400,439,129 and
$620,554,112, respectively. Purchases and sales of U.S. government
obligations aggregated $15,629,325 and $12,038,042, respectively.
Note 4
Capital shares
At October 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended October 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 23,322,900 $ 300,919,408
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,766,393 85,136,762
---------------------------------------------------------------------------
30,089,293 386,056,170
---------------------------------------------------------------------------
Shares
repurchased (19,831,993) (256,794,536)
---------------------------------------------------------------------------
Net increase 10,257,300 $ 129,261,634
---------------------------------------------------------------------------
Year ended October 31, 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
---------------------------------------------------------------------------
Year ended October 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 7,916,549 $ 103,156,743
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,018,158 37,562,687
---------------------------------------------------------------------------
10,934,707 140,719,430
Shares
repurchased (27,107,373) (346,014,823)
---------------------------------------------------------------------------
Net decrease (16,172,666) $(205,295,393)
---------------------------------------------------------------------------
Year ended October 31, 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)
---------------------------------------------------------------------------
Year ended October 31, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 338,429 $4,446,808
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,118 90,761
---------------------------------------------------------------------------
345,547 4,537,569
Shares
repurchased (36,932) (490,811)
---------------------------------------------------------------------------
Net increase 308,615 $4,046,758
---------------------------------------------------------------------------
For the period 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
---------------------------------------------------------------------------
Year ended October 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 300,891 $ 3,956,798
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 85,111 1,067,387
---------------------------------------------------------------------------
386,002 5,024,185
---------------------------------------------------------------------------
Shares
repurchased (423,558) (5,515,746)
---------------------------------------------------------------------------
Net decrease (37,556) $ (491,561)
---------------------------------------------------------------------------
Year ended October 31, 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)
---------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $169,453,503 as capital gain, for its taxable
year ended October 31, 2000.
The fund has designated 98.13% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar year 2000.
WELCOME TO WWW.PUTNAMINVESTMENTS.COM
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
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The site can be accessed through any of the major online services
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New features will be added to the site regularly. So be sure to bookmark us at
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FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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, III
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
Michael R. Yogg
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
and Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN026-66573 840/884/869 12/00
