(logo)
Putnam
Balanced
Government
Fund
Annual
Report
November 30, 1993
(artwork)
For investors seeking as high a level of current income as is
consistent with preservation of capital
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Annual Report
7 Report of Independent Accountants
8 Portfolio of investments owned
10 Financial statements
22 Fund performance supplement
23 Your Trustees
A member
of the Putnam
Family of Funds
<PAGE>
How your
fund performed
For periods ended November 30, 1993
Total return* Lehman
Bros.
Mortgaged-
Backed Consumer
Class A Class B Securities Price
NAV POP NAV CDSC Index+ Index
Life-of-fund
(since
2/16/93) 2.44% -0.93% 1.95% -0.99% 3.56% 2.25%
Share data Class A Class B
NAV POP NAV
February 16, 1993 $5.00 $5.17 $5.00
November 30, 1993 $4.91 $5.07 $4.91
Distributions Investment Capital
period ended 11/30/93 Number income gainsTotal
Class A 9 $0.210372 -- $0.210372
Class B 9 $0.186754 -- $0.186754
Current returns** Class A Class B
at the end of the period NAV POP NAV
Current dividend rate 5.11% 4.95% 4.50%
Current 30-day yield 3.63 3.51 3.05
Total return at end of most recent calendar quarter
Periods ended December 31, 1993
Class A Class B
NAVPOP NAV CDSC
Life-of-fund
(since 2/16/93) 3.08% -0.31% 2.33%-0.69%
*Performance data represent past results. Investment return and
net asset value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The
fund began operations on February 16, 1993, offering Class A and
Class B shares. Performance for each share class will differ.
**Without the expense limitation currently in effect, current
yield would have been 3.52% at NAV and 3.40% at POP for Class A
shares, and 2.93% at NAV for Class B shares. Total return also
would have been lower.
+Lehman Brothers Mortgaged-Backed Securities Index returns are
measured from 2/28/93.
Terms you need to know
Total return is the change in value of an investment from the
beginning to the end of a period, assuming the reinvestment of
all distributions.
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 sales charge.
Public offering price (POP) is the price of a mutual fund share
plus the fund's 3.25% maximum sales charge levied at the time of
purchase.
Contingent deferred sales charge (CDSC) is a charge applied at
the time of the redemption of shares rather than the time of
purchase. It generally declines and eventually disappears over a
stated period.
Class A shares are those shares of your fund purchased with an
initial sales charge. Your fund's POP includes the maximum 3.25%
sales charge.
Class B shares are those shares of your fund purchased with no
initial sales charge. Within the first four years of purchase,
they are subject to a CDSC declining from 3% to 1%. After the
fourth year, the CDSC no longer applies.
Current dividend rate is calculated by annualizing the net
investment income paid to shareholders in the fund's most recent
distribution, then dividing by the NAV or POP on the last day of
the period.
Current 30-day yield, based only on the fund's net investment
income earnings, is calculated in accordance with Securities and
Exchange Commission guidelines.
Please see the fund performance supplement on page 22 for
additional information about performance comparisons.
<PAGE>
From the
Chairman
(photograph of George Putnam)
C Karsh, Ottawa
George Putnam
Chairman
of the Trustees
Dear Shareholder:
I am pleased to report that at the end of Putnam Balanced
Government Fund's first fiscal year, the fund provided
shareholders with a positive total return at net asset value and
a steady flow of income. Over this 9 1/2-month period, your fund
generated a 2.44% total return at net asset value for class A
shares, and a 1.95% total return for class B shares. The fund
also paid a total of nine distributions of income to shareholders
during the period.
Your fund is designed to provide an attractive level of monthly
income, consistent with preservation of capital. While the value
of fund shares is not guaranteed and will fluctuate, the fund
seeks to maintain a relatively stable share price over the long
term.
The fund allocates assets between two types of mortgage
securities -- those with fixed rates and those with adjustable
rates. And as Fund Manager Christopher Ray discusses in the
Report from Putnam Management that follows, this approach seeks
to reduce the impact of changes in the interest rate cycle.
Mortgage refinancings, spurred on by lower interest rates, have
made mortgage-backed securities a very challenging investment
over the past year. The refinancing storm that hit the
mortgage-backed securities market beginning this past summer has
had a significant impact on mutual funds that invest in
mortgages. But as Chris reports, your fund has taken steps to
protect itself from the wave of refinancings.
The close of the fund's first fiscal year finds it well on its
way toward helping government fund investors meet their financial
goals. We look forward to continuing to serve you in the years
ahead.
Respectfully yours,
George Putnam
January 19, 1994
<PAGE>
Report from
Putnam Management
"The fund's simple, balanced approach is designed to provide an
attractive level of current income along with relative price
stability in a wide variety of interest rate environments."
Christopher Ray,
Portfolio Manager
For the period ended November 30, 1993, Putnam Balanced
Government Fund has provided current dividend rates of 5.11% for
class A shares and 4.50% for class B, both calculated on an
annualized basis at net asset value. These numbers represent a
very competitive level of income in today's low interest rate
environment.
A simple approach Mortgage-backed securities, which are composed
of home mortgages, pooled together, create a large and varied
source of income for investors. This fund seeks current income
and relative stability of principal by combining two
complementary types of mortgage securities: those with fixed
rates and those with adjustable rates. Fixed-rate securities
provide the potential for higher income and have prices that will
move up and down in value as interest rates change. On the other
hand, adjustable-rate securities have coupons that adjust with
changes in interest rates. Consequently, they typically offer
less stable income but tend to exhibit steadier values. By
combining fixed and adjustable mortgage securities, the fund
seeks a balance of monthly income and relative price stability in
any interest rate environment.
The fund's primary holdings are issued or guaranteed by the U.S.
government or one of its agencies. While government backing does
not insure your principal or yield, which will fluctuate, it does
mean that timely payments of interest and principal on the
underlying mortgages is assured.
Shareholders should take note that Standard & Poor's(R), an
independent rating agency, has awarded the fund its AAAf rating
- -- the highest available for mutual funds. The rating is a
current assessment of portfolio credit quality and does not
guarantee the fund's value or signify approval of the shares.
Meeting the prepayment challenge During the period, mortgage
prepayments continued to be a major concern in the
mortgage-backed securities market, especially during the late
summer. Putnam Management made some strategic moves during the
year to help reduce the fund's prepayment risk. The weightings of
U.S. Treasury bills, notes and bonds were increased, thus
reducing the mortgage weightings. We were also selective as to
the type of mortgages held in the fund's portfolio. We chose
specific mortgages that allowed us to analyze the sensitivity of
any particular pool of mortgages to prepayment. Mortgages that
were considered least likely to be refinanced were considered
attractive candidates for the portfolio. We also focused on
recently issued mortgages because they generally can be expected
to have limited refinancing incentives unless interest rates
decline substantially further.
In the adjustable rate mortgage-backed sector of the fund, we
increased the weightings of Government National Mortgage
Association (GNMA) adjustable-rate mortgages, which tend to
exhibit a much slower prepayment rate than Federal National
Mortgage Association (FNMA) or Federal Home Loan Mortgage
Corporation (FHLMC) adjustable-rate mortgages.
More recently, as rates have stabilized, Putnam Management has
implemented some defensive strategies within the fixed-rate
mortgage-backed sector of the portfolio. These moves have been
made in an attempt to protect the fund in the event that interest
rates rise. The fund has an increased exposure to 15-year
mortgages, which we believe have the potential to perform better
than 30-year mortgages in a rising rate environment.
(bar chart)
Portfolio breakdown (11/30/93)
- ------------------------------
Fixed rate mortgage-backed
securities ............................51%
Adjustable rate mortgage-backed
securities .....................38%
U.S. Treasury obligations ..........11%
Expense limitations As is customary with a new fund, Putnam is
currently absorbing a portion of the fund's operating expenses.
This expense limitation helps the fund pass more of its earnings
on to shareholders. Expense limitations are generally maintained
until the fund grows to a size where operating costs can be
contained effectively through efficiencies of scale.
In the absence of an expense limitation, the fund's yield and
total return would have been somewhat lower. The current expense
limitation is scheduled to remain in effect throughout the fund's
first full year of operation. After that time, your Trustees may
vote to maintain, adjust or remove the limitation, although they
may actually do so at any time.
Outlook Putnam Management does not believe that the high levels
of refinancings that occurred in the summer will have an ongoing
effect on the market. Barring further significant declines in
interest rates, the current refinancing surge should gradually
abate. Putnam is keeping a close eye on the economy and its
effect on interest rates. In the meantime, we remain confident
that the fund is well-positioned to continue to meet its
investment objectives in the next fiscal year and beyond.<PAGE>
(bar chart)
Cumulative total return on a $10,000 investment since 2/16/93
Putnam Balanced Government Fund
______ Class A shares at NAV
- ------ Class B shares at POP
****** Lehman Brothers Mortgage-backed Securities Index
++++++ Lehman Brothers Adjustable rate Mortgage-backed
Securities Index
date/ Lehman ARM Lehman MBS fund at fund at
year Index Index NAV POP
2/16/93 10000 10000 10000 9675
2/28/93 10044 10000 10000 9671
3/31/93 10089 10061 10030 9700
4/30/93 10149 10113 10101 9769
5/31/93 10174 10170 10109 9776
6/30/93 10281 10248 10172 9838
7/31/93 10328 10289 10200 9865
8/31/93 10389 10337 10247 9910
9/30/93 10390 10346 10254 9917
10/31/93 10394 10376 10263 9926
11/30/93 10366 10356 10244 9907
Past performance is no assurance of future results. Performance
of class B shares will vary from performance of class A shares
due to differences in sales charges and 12b-1 fees.
<PAGE>
Putnam
Balanced
Government
Fund
Annual
Report
For the period ended November 30, 1993
Report of Independent Accountants
To the Trustees and Shareholders of
Putnam Balanced Government Fund
We have audited the accompanying statement of assets and
liabilities of Putnam Balanced Government Fund, including the
portfolio of investments owned, as of November 30, 1993, and the
related statement of operations, the statement of changes in net
assets and the "Financial Highlights" for the period February 16,
1993 (commencement of operations) to November 30, 1993. These
financial statements and "Financial Highlights" are the
responsibility of the Fund's Management. Our responsibility is to
express an opinion on these financial statements and "Financial
Highlights" based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and "Financial Highlights" are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of November 30, 1993 by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements and "Financial
Highlights" referred to above present fairly, in all material
respects, the financial position of Putnam Balanced Government
Fund as of November 30, 1993, the results of its operations, the
changes in its net assets and the "Financial Highlights" for the
period February 16, 1993 (commencement of operations) to November
30, 1993, in conformity with generally accepted accounting
principles.
Coopers & Lybrand
Boston, Massachusetts
January 13, 1994
<PAGE>
Portfolio of
investments owned
November 30, 1993
U.S. Government and Agency Obligations (115.8%)(a)
Principal Amount Value
Federal Home Loan Mortgage Corp.
$2,900,000 6 1/2s, TBA, December 15, 2023(b) $2,955,281
1,941,305 6 1/2s, March 1, 2005 1,997,118
630,335 5 1/2s, February 1, 1999 637,032
Federal Home Loan Mortgage
Corp. Adjustable Rate
Mortgage (ARMS)
2,580,878 5.797s, November 1, 2018 2,697,824
944,114 5.629s, January 1, 2018 945,294
1,104,366 5 3/8s, December 1, 2017 1,135,081
4,867,638 5 1/8s, April 1, 2017 4,998,456
Federal National Mortgage Association
2,786,732 9s, September 1, 2021 2,959,161
2,083,884 9s, March 25, 2000 2,148,354
2,827,997 8 1/2s, August 1, 2023 2,964,978
2,450,000 8.4s, December 25, 2019 2,517,375
2,081,703 8s, May 1, 2013 2,194,896
1,766,873 7 3/4s, October 1, 2002 1,835,339
3,864,995 6 1/2s, February 1, 2014 4,017,177
3,352,593 6 1/2s, March 1, 2001(c) 3,447,932
879,871 6s, February 1, 2002 895,269
Federal National Mortgage Association ARMS
1,828,182 5.359s, October 1, 2021 1,879,028
971,097 5.333s, April 4, 2018 999,623
1,322,761 5.072s, January 1, 2023 1,359,964
5,440,000 Federal National Mortgage Association
Dwarfs Pass Through Certificate TBA,
6s, January 1, 2009(b) 5,361,800
1,700,000 Federal National Mortgage Association
Pass Through Certificate TBA, 8s,
December 1, 2023(b) 1,796,688
Government National Mortgage Association
1,196,089 9 1/2s, with various due dates to
November 15, 2022 1,286,917
5,849,230 9s, with various due dates to
July 15, 2021 6,234,663
1,816,352 8 1/4s, with various due dates to
July 15, 2008 1,910,575
8,030,891 8s, with various due dates to
September 15, 2023 8,406,476
6,000,000 7s, TBA, January 15, 2024(b) 6,052,500
4,000,000 5s, TBA, December 15, 2023(b) 4,062,500
<PAGE>
Government National Mortgage
Association ARMS
2,895,394 6s, March 1, 2023 3,009,400
2,937,000 6s, TBA, June 1, 2023(b) 3,039,795
3,852,442 6s, June 20, 2023 4,002,928
2,500,000 5 1/2s, TBA, January 15, 2023(b) 2,562,500
6,913,899 5 1/2s, May 20, 2023 7,106,192
2,000,000 5 1/2s, TBA, December 15, 2023(b) 2,047,500
2,995,446 5s, October 20, 2023 3,045,994
2,000,000 Government National Mortgage
Association Midget
8 1/2s, TBA, December 15, 2008(b) 2,123,125
1,622,778 8 1/2s, with various due dates to
June 15, 2007 1,724,803
1,421,000 8s, with various due dates to
June 15, 2002 1,505,878
6,240,000 U.S. Treasury Notes 8 3/4s,
October 15, 1997 7,076,550
5,445,000 U.S. Treasury Notes 8 1/4s,
July 15, 1998 6,144,342
5,000,000 U.S. Treasury Notes 8s, July 15, 1994 5,137,500
6,800,000 U.S. Treasury Notes 6 7/8s,
February 15, 1994 6,848,875
Total U.S. Government and Agency Obligations
(cost $133,857,900) $133,072,683
Short-Term Investments (14.9%)(a)
Principal Amount Value
$11,000,000 Federal National Mortgage
Association 3.04s,
December 14, 1993 $10,987,924
6,158,000 Interest in $475,912,000
joint repurchase agreement
dated November 30, 1993 with
J.P. Morgan Securities, due
December 1, 1993 with respect
to various U.S. Treasury
obligations -- maturity value of
$6,158,547 for an effective
yield of 3.2% 6,158,000
Total Short-Term Investments
(cost $17,145,924) $17,145,924
Total Investments
(cost $151,003,824)(d) $150,218,607
<PAGE>
(a) Percentages indicated are based on net assets of $114,934,860,
which correspond to a net asset value per share for Class A and
Class B shareholders of $4.91 and $4.91, respectively.
(b) TBAs are mortgage-backed securities traded under delayed
delivery commitments settling after November 30, 1993. Although the
unit price for the trades has been established, the principal value
has not been finalized. However, the amount of the commitments will
not fluctuate more than 2.0% from the principal amount. Income on
the securities will not be earned until settlement date. The cost
of TBA purchases at November 30, 1993 is $30,091,769.
TBA Sale Commitments at November 30, 1993
(proceeds receivable $4,194,375)
Principal Delivery Coupon Market
Agency Amount Month Rate Value
GNMA $4,000,000 Jan. 8% $4,186,250
(c) This security, valued at $3,447,932 or 3.0% of the Fund's net
assets has been purchased on a "forward commitment" basis -- that
is, the Fund has agreed to take delivery of and make payment for
such security beyond the settlement time of five business days
after the trade date and subsequent to the date of this report.
The Fund monitors assets daily to maintain a current value at
least equal to the amount of its forward commitment. The purchase
price and interest rate of such security are fixed at the trade
date, although the Fund does not earn any interest on such
security until settlement date.
(d) The aggregate identified cost for federal income tax purposes
is $151,047,486, resulting in gross unrealized appreciation and
depreciation of $40,555 and $869,434, respectively, or net
unrealized depreciation of $828,879.
<PAGE>
<TABLE>
<CAPTION>
Statement of
assets and liabilities
November 30, 1993
<S> <C> <C>
Assets
Investments in securities, at value (identified cost
$151,003,824) (Note 1) $150,218,607
Cash 695
Interest and other receivables 1,206,762
Receivable for securities sold 7,662,075
Receivable for shares of the Fund sold 453,521
Unamortized organizational expenses (Note 1) 42,025
Total assets 159,583,685
Liabilities
Payable for securities purchased 39,650,823
Distribution payable to shareholders 442,112
Payable for shares of the Fund repurchased 47,196
Payable for compensation of Manager (Note 3) 127,069
Payable for compensation of Trustees (Note 3) 118
Payable for investor servicing and custodian
fees (Note 3) 44,573
Payable for administrative services (Note 3) 1,056
Payable for distribution fees (Note 3) 46,210
Payable for organizational costs (Note 1) 49,893
TBA sale commitments at value (proceeds
receivable $4,194,375) 4,186,250
Other accrued expenses 53,525
Total liabilities 44,648,825
Net assets 114,934,860
<PAGE>
Represented by
Paid-in capital (Note 5) 116,446,716
Undistributed net investment income 32,896
Accumulated net realized loss on investment transactions (767,660)
Net unrealized depreciation of investments and TBA sale
commitments (777,092)
Total -- Representing net assets applicable to capital
shares outstanding 114,934,860
Computation of net asset value and offering price
Net asset value and redemption price of Class A shares
($93,742,061 divided by 19,088,010 shares) $4.91
-----
Offering price per share (100/96.75 of $4.91)* $5.07
Net asset value and offering price of Class B shares
($21,192,799 divided by 4,316,853 shares)** $4.91
*On single retail sales of less than $100,000. On sales of $100,000 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of
operations
For the period February 16, 1993
(commencement of operations) to November 30, 1993
<S> <C> <C>
Interest income $2,843,558
Expenses:
Compensation of Manager (Note 3) $261,949
Investor servicing and custodian fees (Note 3) 100,904
Compensation of Trustees (Note 3) 2,794
Reports to shareholders 22,291
Auditing 28,009
Legal 9,744
Postage 3,466
Administrative services (Note 3) 3,935
Amortization of organization expenses (Note 1) 7,868
Distribution fees -- class A (Note 3) 89,291
Distribution fees -- class B (Note 3) 69,385
Registration fees 36,603
Other 1,353
Fees waived by the Manager (Note 3) (134,880)
Total expenses 502,712
Net investment income 2,340,846
Net realized loss on investments (Notes 1 and 4) (767,660)
Net unrealized depreciation of investments and TBA sale
commitments during the period (777,092)
Net loss on investment transactions (1,544,752)
Net increase in net assets resulting from operations $796,094
/TABLE
<PAGE>
Statement of
changes in net assets
For the period
February 16, 1993
(commencement
of operations) to
November 30
-----------------
1993
Increase in net assets
Operations:
Net investment income $2,340,846
Net realized loss on investments (767,660)
Net unrealized depreciation of investments (777,092)
Net increase in net assets resulting from operations 796,094
Distributions to shareholders from:
Net investment income
Class A (1,914,742)
Class B (393,310)
Increase from capital share transactions (Note 5) 116,346,716
Total increase in net assets 114,834,758
Net assets
Beginning of period 100,102
End of period (including undistributed net investment
income of $32,896) $114,934,860
<PAGE>
<TABLE>
<CAPTION>
Financial
highlights
(For a share outstanding throughout the period)
For the period For the period
February 16, 1993 February 16, 1993
(commencement (commencement
of operations) to of operations) to
November 30 November 30
----------------- -----------------
1993 1993
----------------- -----------------
Class B Class A
<S> <C> <C>
Net Asset Value, Beginning of Period $5.00 $5.00
Investment operations
Net Investment Income .18(a)(b) .21(a)(b)
Net Realized and Unrealized Loss on
Investments (.08) (.09)
Total from Investment Activities .10(b) .12(b)
Less Distributions from:
Net Investment Income (.19) (.21)
Total Distributions (.19) (.21)
Net Asset Value, End of Period $4.91 $4.91
Total Investment Return at net asset
value (%)(c) 2.47(d) 3.09(d)
Net Assets, End of Period (in thousands) $4,317 $19,088
Ratio of Expenses to Average Net Assets (%) 1.33(b)(d) .85(b)(d)
Ratio of Net Investment Income to Average
Net Assets (%) 3.97(b)(d) 4.47(b)(d)
Portfolio Turnover (%) 309.80(e) 309.80(e)
(a) Per share net investment income for the period ended November 30, 1993 has been
determined on the basis of the weighted average number of shares outstanding during the
period.
(b) Reflects a voluntary expense limitation in effect during the period (see Note 3). As a
result of such limitation, expenses of the Fund for the period reflect a reduction of
$0.01 per share for Class A and $0.01 per share for Class B.
(c) Total investment return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(d) Annualized.
(e) Not annualized.
/TABLE
<PAGE>
Notes to
financial statements
November 30, 1993
Note 1 Significant accounting policies
The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
The Fund seeks high current income, consistent with preservation of
capital, through investments primarily in U.S. government
securities.
The Fund offers both Class A and Class B shares. Class A shares are
sold with a maximum front-end sales charge of 3.25%. Class B shares
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 four years of purchase. Expenses of the Fund are borne
pro-rata by the holders of both classes of shares, except that each
class bears expenses unique to that class (including the
distribution fees applicable to such class), and 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 policies are in conformity with generally
accepted accounting principles.
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, or, if no sales are reported --
as in the case of some securities traded over-the-counter -- the
last reported bid price, except that certain U.S. government
obligations are stated at the mean between the bid and asked
prices. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates
market value, and other investments are stated at fair value
following procedures approved by the Trustees.
B) TBA purchase commitments The Fund may enter into "TBA"(to be
announced) purchase commitments to purchase securities for a fixed
unit price at a future date beyond customary settlement time.
Although the unit price has been established, the principal value
has not been finalized. However, the amount of the commitment will
not fluctuate more than 2.0% from the principal amount. The Fund
holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase
price, or the Fund enters into offsetting contracts for the forward
sale of other securities it owns. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if
the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline
in the value of the Fund's other assets.
Unsettled TBA purchase commitments are valued at the current market
value of the underlying securities, generally according to the
procedures described under "Security valuation" above.
Although the Fund will generally enter into TBA purchase
commitments with the intention of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has
entered into, the Fund may dispose of a commitment prior to
settlement if the Fund Manager deems it appropriate to do so.
TBA sale commitments The Fund may enter into TBA sale commitments
to hedge its portfolio positions or to sell mortgage-backed
securities it owns under delayed delivery arrangements. Proceeds of
TBA sale commitments are not received until the contractual
settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market
value of the underlying securities, generally according to the
proceeds described under "Security valuation" above. The contract
is "marked-to-market" daily and the change in market value is
recorded by the Fund as an unrealized gain or loss. If the TBA sale
commitment is closed through the acquisition of an offsetting
purchase commitment, the Fund realizes a gain or loss on the
commitment without regard to any unrealized gain or loss on the
underlying security. If the Fund delivers securities under the
commitment, the Fund realizes a gain or loss from the sale of the
securities based upon the unit price established at the date the
commitment was entered into.
C) 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 managed by Putnam
Investment Management, Inc. (Putnam Management), the Fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc., and
certain other accounts. These balances may be invested in one or
more repurchase agreements and/or short-term money market
instruments.
D) 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. The Fund's Manager 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.
E) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the
accrual basis.
F) Federal taxes It is the policy of the Fund to distribute all of
its 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.
Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and
excise tax on income and capital gains.
At November 30, 1993, the Fund had a capital loss carryover of
approximately $297,544, which will expire November 30, 2001. In
order to provide more level daily distributions, the Fund may at
times pay taxable distributions from net realized short-term gains
that could have been retained by the Fund and offset by the capital
loss carryover. In such circumstances, the Fund would lose the
benefit of the carryover.
G) Distributions to shareholders Income dividends are recorded
daily by the Fund and are distributed monthly. Capital gains
distributions, if any, are only recorded on the ex-dividend date
and paid no less frequently than annually.
H) Unamortized organization expenses Expenses incurred by the Fund
in connection with its organization aggregated $49,893. These
expenses are being amortized on a straight-line basis over a
five-year period.
Note 2 Initial capitalization and offering of shares
The Fund was established as a Massachusetts business trust under
the laws of Massachusetts on January 18, 1993.
During the period January 18, 1993 to February 15, 1993, the Fund
had no operations other than those related to organizational
matters, including the initial capital contribution of $99,000 for
Class A and $1,000 for Class B and the issuance of 19,800 Class A
shares and 200 Class B shares to Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments, Inc. on January 19,
1993.
<PAGE>
During the period January 19, 1993 to February 15, 1993, invested
initial capital resulted in interest income of $102. There were no
additional transactions until regular investment operations
commenced on February 16, 1993.
Note 3 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 for the quarter. Such fee is based on the
following annual rates: 0.60% of the first $1 billion of average
net assets, 0.50% of the next $500 million, and 0.45% of any amount
over $1.5 billion, subject to reduction in any year to the extent
that expenses (exclusive of distribution fees, brokerage, interest
and taxes) of the Fund exceed 2.5% of the first $30 million of
average net assets, 2% of the next $70 million, and 1.5% of any
excess over $100 million and by the amount of certain brokerage
commissions and fees (less expenses) received by affiliates of the
Manager on the Fund's portfolio transactions.
Through the sixtieth day after the commencement of operations, the
Manager has voluntarily absorbed all Fund expenses. Subsequent to
that date, the Manager voluntarily agreed to reduce its
compensation through February 16, 1994, to the extent that expenses
of the Fund exceed 0.80% of the Fund's average net assets. The
Fund's expenses subject to this limitation are exclusive of
brokerage, interest, taxes, insurance, amortization of deferred
organization expenses and extraordinary expenses, if any, and
expenses incurred under the Fund's distribution plan described
below. This limitation was accomplished by a reduction of the
compensation payable under the management contract to the Manager.
As a result of the voluntary limitation, expenses for the period
ended November 30, 1993 were reduced by $134,880.
The Fund also reimburses the Manager 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. For the period ended November 30, 1993, the Fund paid
$3,935 for these services.
Trustees of the Fund receive an annual Trustee's fee of $540 and an
additional fee for each Trustees' meeting attended. Trustees who
are not interested persons of the Manager and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings.
Custodial functions for the Fund are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are currently provided by Putnam
Investor Services, a division of PFTC. Fees paid for these investor
servicing and custodial functions for the period ended November 30,
1993 amounted to $100,904.
Investor servicing and custodian fees reported in the Statement of
operations for the period ended November 30, 1993 have been reduced
by credits allowed by PFTC.
The Fund has adopted a distribution plan with respect to its class
A shares (the "class A Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of class A Plan 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 class A shares. The Trustees have
approved payment by the Fund to Putnam Mutual Funds Corp. at an
annual rate of 0.25% of the Fund's average net assets attributable
to class A shares. For the period ended November 30, 1993, the Fund
paid $89,291 in distribution fees for class A shares.
The Fund has adopted a separate distribution plan with respect to
its class B shares (the "class B Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the class
B Plan is to compensate Putnam Mutual Funds Corp. for services
provided and expenses incurred by it in distributing class B
shares. The class B Plan provides for payments by the Fund to
Putnam Mutual Funds Corp., at an annual rate of 0.85% of the Fund's
average net asset value of class B shares. For the period ended
November 30, 1993, the Fund paid Putnam Financial Services, Inc.
distribution fees of $69,385 for class B shares.
During the period ended November 30, 1993, Putnam Mutual Funds
Corp., acting as underwriter, received net commissions of $395,746
from the sale of class A shares of the Fund.
A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares purchased as part of an investment of
$1 million or more. For the period ended November 30, 1993, Putnam
Mutual Funds Corp., acting as underwriter, received $14,162 on such
redemptions.
Putnam Mutual Funds Corp. also receives the proceeds of contingent
deferred sales charges levied on class B share redemptions within
four years of purchase. The charge is based on declining rates,
which begin at 3% of the net asset value of the redeemed shares.
For the period ended November 30, 1993, Putnam Mutual Funds Corp.
received contingent deferred sales charges of $19,361 from such
redemptions.
Note 4 Purchases and sales of securities
Purchases and sales of U.S. government obligations other than
short-term investments aggregated $299,816,092 and $169,384,906,
respectively. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified
cost basis.<PAGE>
<TABLE>
<CAPTION>
Note 5 Capital shares
At November 30, 1993, there was an unlimited number of shares of beneficial interest
authorized. Transactions in capital shares were as follows:
February 16, 1993
(commencement of operations) to
November 30
-------------------------------
1993
-------------------------------
Class A Shares Amount
<S> <C> <C>
Shares sold 24,648,597 $122,632,845
Shares issued in connection with
reinvestment of distributions 250,068 1,242,772
24,898,665 123,875,617
Shares repurchased (5,830,455) (29,012,179)
Net increase 19,068,210 $94,863,438
February 16, 1993
(commencement of operations) to
November 30
-------------------------------
1993
-------------------------------
Class B Shares Amount
Shares sold 4,838,741 $24,072,683
Shares issued in connection with
reinvestment of distributions 46,116 229,077
4,884,857 24,301,760
Shares repurchased (568,204) (2,818,482)
Net increase 4,316,653 $21,483,278
/TABLE
<PAGE>
Fund performance supplement
Putnam Balanced Government Fund is a portfolio managed to seek as
high a level of current income as is consistent with preservation
of capital by investing primarily in a portfolio of adjustable rate
and fixed rate mortgage-backed securities that are issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities.
The Lehman Brothers Mortgage-Backed Securities Index reflects
performance of 15- and 30-year fixed rate securities backed by
mortgage pools of the Government National Mortgage Association
(GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and Federal
National Mortgage Association (FNMA). The Lehman Brothers
Adjustable Rate Mortgage-Backed Securities Index reflects
performance of adjustable rate mortgage pools. Both indexes reflect
changes in market price and reinvestment of all interest payments
but do not take into account brokerage commissions or other costs.
Securities in the fund do not match those in the indexes and may
pose different risks.
The Consumer Price Index is a commonly used measure of inflation;
it does not represent an investment return.
The fund performance supplement has been prepared by Putnam
Management to provide additional information about the fund and the
indexes used for performance comparisons. The information is not
part of the portfolio of investments owned or the financial
statements.
<PAGE>
Your
Trustees
George Putnam
Chairman
Chairman and President,
The Putnam Funds
William F. Pounds
Vice Chairman
The Putnam Funds,
Professor of Management,
Alfred P. Sloan
School of Management,
Massachusetts Institute of
Technology
Hans H. Estin
Vice Chairman,
North American
Management Corporation
John A. Hill
Principal and
Managing Director,
First Reserve Corp.
Elizabeth T. Kennan
President
Mount Holyoke College
Lawrence J. Lasser
President and
Chief Executive Officer,
Putnam Investments, Inc.
Robert E. Patterson
Executive Vice President,
Cabot Partners
Limited Partnership
Donald S. Perkins
Director of various
corporations
George Putnam, III
President, New Generation
Research, Inc.
<PAGE>
A.J.C. Smith
Chairman of the Board
and Chief Executive Officer,
Marsh & McLennan
Companies, Inc.
W. Nicholas Thorndike
Director of various
corporations
<PAGE>
Putnam
Balanced
Government
Fund
Fund information
Investment manager
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
Marketing services
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
Independent Accountants
Coopers & Lybrand
(DALBAR logo)
Putnam Investor Services has received the DALBAR award each year
since the award's 1990 inception. In more than 10,000 tests of 38
shareholder service components, Putnam outperformed the industry
standard in every category.
76/77-10021<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
John R. Verani
Vice President
Gary N. Coburn
Vice President
Christopher A. Ray
Vice President
and Fund Manager
William N. Shiebler
Vice President
John D. Hughes
Vice President
and Treasurer
Paul O'Neil
Vice President
Beverly Marcus
Clerk and
Assistant Treasurer
This report is for the information of shareholders of Putnam
Balanced Government 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.
<PAGE>
- ---------------
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
- ---------------
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS:
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) Headers (e.g, the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed differently
in this filing.
(5) Bullet points and similar graphic signals are omitted.
(6) Page numbering is different.
