Putnam
Balanced
Fund
ANNUAL REPORT
September 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
Dear Shareholder:
The rationale behind Putnam Balanced Fund's combination of fixed-income
and equity investments found a firm testing ground in fiscal 1996.
Ducking blows from bond market volatility with an equity defense left
your fund slightly shaken but for the most part unscathed. For the 12
months ended September 30, 1996, your fund's total return of 15.01% at
net asset value stems not only from the strength of an extended market
advance in equities but also from the foresight of Lead Fund Manager
David Santos, who oversees the equity portion of the portfolio, in
giving added emphasis to retail, technology, finance, and health-care
stocks.
* TECHNOLOGY HOLDINGS SOAR DESPITE MARKET JITTERS
Because the majority of stocks held in your fund's portfolio are those
of well-established companies, it has been less vulnerable to sudden
market swings than some other funds that invest in smaller companies.
This was especially true with regard to the fund's technology holdings;
while technology stocks were the darlings during the first half of the
fiscal year, developments later in the spring in semiconductor and
Internet-related industries brought benefits from many technology
investments to a halt.
Fortunately, your fund's technology holdings consisted primarily of
stocks of large-capitalization software companies, which were from a
generally more resilient subsector of the industry. Investments in
Microsoft Corporation and Computer Associates made solid contributions
to the fund's performance. Microsoft, for instance, recently launched
several competitive applications including a World Wide Web browser and
a financial software package. Rapid company growth, with operations in
48 countries and a reputation as the world's largest software provider,
has assisted Microsoft in establishing an international presence.
Computer Associates, another world leader in business software, employs
9,000 people in 130 offices in 36 countries and generated revenues of
$2.6 billion in its 1995 fiscal year. These impressive attributes, along
with the company's particularly in-demand software for network and
mainframe systems, were instrumental in bidding up its stock and
enhancing your fund's performance during the period.
* CONSUMER-RELATED INVESTMENTS NURTURE FUND PERFORMANCE
Despite lackluster performance by consumer-related stocks during the
first half of fiscal 1996, your fund's management team decided in favor
of an overweighting in this sector. Believing that prices would make a
recovery in the latter half of 1996, the team maintained a steady
position. As expected, investments in Federated Department Stores, TJX
Cos. and Sears, Roebuck, were rewarded by improved fund performance over
the spring and summer months.
Sears, one of your fund's more promising investments, broke the $1
billion profit barrier in 1995 despite the less-than-optimal consumer
environment. Recently divesting its insurance and real-estate
subsidiaries, the company turned its focus to its mall-based stores,
which helped it beat the industry growth average of 2.0% by nearly 21/2
times (as compiled in the Merrill Lynch Broadline Retailers Index).
Nike, another consumer-related stock, found booming performance with its
exceptional new-product flow and a resurgence in both U.S. and foreign
markets. Nike's athletic shoe and apparel businesses target both the
baby-boom and the twenty-something generations. This marketing strategy,
along with the company's high profile during the summer Olympic games,
has positioned Nike as one of your fund's most valuable holdings. While
this stock, along with others discussed in this report, was viewed
favorably at the end of the fiscal year, all portfolio holdings are
subject to review and adjustment in accordance with the fund's
investment strategy and may vary in the future.
* CORPORATE BONDS OUTPACE GOVERNMENT SECURITIES
One of the economic factors that helped bring about a downturn in the
bond market earlier this year was the continued vigor of the U.S.
economy. At the outset of 1996, investors anticipated a pronounced
slowdown in economic growth, and when that didn't occur, they became
wary that the Federal Reserve Board might raise interest rates to keep
inflation at bay. As it turned out, the Fed didn't raise rates;
nevertheless, while economic growth remained healthy and corporate
earnings slipped and then rebounded, the bond market continued to
struggle.
As we saw this scenario developing, Kenneth Taubes, manager of the
fixed-income side of your portfolio, sold a portion of the fund's U.S.
Treasury holdings to protect the portfolio as interest rates crept
higher. At the same time, he increased the portfolio's corporate bond
holdings to position the fund to benefit as corporate earnings improved.
In the end this strategy proved beneficial, as the robust corporate bond
market helped the fund maintain its value in an uncertain market.
The Fund also capitalized on improving fundamentals in international
markets -- particularly Canada and Australia. At the outset of the
fiscal period, yields in these countries were considerably higher than
those in the United States. As yields declined, yield spreads relative
to U.S. Treasuries narrowed and the values of these international bonds
appreciated.
* POSITIVE OUTLOOK APPEARS LIKELY FOR FISCAL 1997
Since the end of 1994, Standard & Poor's 500(registered trademark) Index
has posted seven consecutive quarters of positive returns with only a
few scattered months of negative performance. Therefore, investors are
now justifiably concerned about a number of potentially troublesome
factors: high stock prices, peaking corporate-profit growth, and
interest-rate uncertainty. Nonetheless, growth-oriented investors, while
exercising increased caution, may have reasons to look forward to a
continued, yet potentially slowed, bull market.
Interest-rate trends are a key influence on the psychology of the
financial markets. Fund management believes that if the economy
moderates from its strong pace, rates will stabilize or decline without
the need for Fed action, potentially benefiting both bond and stock
prices. We also believe that a more moderate economy may crimp corporate
profit growth. However, in light of the surprising strength in earnings
growth over the past year and given management's view of a slower-paced
economy, it seems likely that your fund's focus on larger, growth-
oriented companies has the potential for rewarding results in fiscal
1997.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
November 20, 1996
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 9/30/96, there is no guarantee the fund will
continue to hold these securities in the future.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS*]
Pharmaceuticals 6.8%
Retail 6.2%
Computer Services
and software 5.8%
Business equipment
and services 4.9%
Consumer
nondurables 4.0%
Footnote reads:
*Based on net assets as of 9/30/96. Holdings will vary in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Balanced Fund is designed for investors seeking capital
growth and current income through a portfolio of core-growth stocks and
fixed-income securities.
This section provides, at a glance, information about your fund's
performance. 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.
TOTAL RETURN FOR PERIODS ENDED 9/30/96
Fund Standard Lehman Bros. Dow Jones
(inception date) (1/3/95) & Poor's Govt/Corp Industrial
NAV POP 500 Index Bond Index Average
- ------------------------------------------------------------------------
1 year 15.01% 8.44% 20.32% 4.50% 25.37%
- ----------------------------------------------------------------------
Life of fund 42.89 34.65 56.09 19.06 59.61
Annual average 22.76 18.65 28.98 10.49 30.64
- ------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions. POP assumes maximum 5.75% sales
charge. Performance data represent past results and an expense
limitation currently in effect. Without the expense limitation, the
fund's total return would have been lower. Investment returns and net
asset value will fluctuate so that an investor's shares, when sold, may
be worth more or less than their original cost. The short-term results
of a relatively new fund are not necessarily indicative of its long-term
prospects.
[GRAPHIC WORM CHART OMITTED:GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 1/3/95
Starting value (Insert ending Total)
$9,425 Fund's shares at POP $13,465
$10,000 S&P 500 $15,609
$10,000 Consumer Price Index $10,541
Lehman Bros. Gov't.Corp.
Bond Index $11,906
(plot points for 10-year total return mountain chart)
Date/year Fund at POP S&P 500 CPI Lehman Bros. Index
- --------- ----------- ------- ------- ------------------
1/3/95 9,425 10,000 10,000 $10,000
3/31/95 10,166 10,973 10,114 10,498
6/30/95 11,020 12,019 10,187 11,180
9/30/95 11,707 12,973 10,234 11,393
12/31/95 12,256 13,753 10,254 11,924
3/31/96 12,598 14,491 10,401 11,645
6/30/96 12,940 15,141 10,468 11,700
9/30/96 13,465 15,609 10,541 11,906
Footnote reads:
Past performance is not indicative of future results.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 9/30/96
- ------------------------------------------------------------------------
Distributions (number) 1
- ------------------------------------------------------------------------
Income $0.350
- -----------------------------------------------------------------------
Capital gains --
- ------------------------------------------------------------------------
Long-term --
- -----------------------------------------------------------------------
Short-term 0.646
- ------------------------------------------------------------------------
Total $0.996
- ------------------------------------------------------------------------
Share value: NAV POP
- ------------------------------------------------------------------------
9/30/95 $10.56 $11.20
- ------------------------------------------------------------------------
9/30/96 11.03 11.70
- ------------------------------------------------------------------------
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance.
Lehman Brothers Government/Corporate Bond Index is an unmanaged list of
publicly issued U.S. Treasury obligations and corporate debt securities.
Lipper Balanced Fund Index is an unmanaged list of U.S. equity and
fixed-income securities.
Dow Jones Industrial Average is an unmanaged list of 30 common stocks
frequently used as a general measure of stock market performance.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*The above indexes assume reinvestment of all distributions and do not
take into account brokerage 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 of the indexes.
It is not possible to invest directly in an index.
Report of independent accountants
For the fiscal year ended September 30, 1996
To the Trustees and Shareholders of
Putnam Balanced Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Balanced Fund including the portfolio of investments owned, as of
September 30, 1996, the related statement of operations for the year
then ended, and the statement of changes in net assets and the financial
highlights for each of the periods indicated therein. 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 audits.
We conducted our audits 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 September 30, 1996, 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 audits provide 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 Fund as of September 30, 1996, the
results of its operations for the year then ended, and the changes in
its net assets and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 12, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
September 30, 1996
<S> <C> <C> <C>
COMMON STOCKS (62.9%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (1.6%)
- ---------------------------------------------------------------------------------------------------------------------
200 Boeing Co. $ 18,900
200 Textron, Inc. 17,000
----------
35,900
Banks (1.9%)
- ---------------------------------------------------------------------------------------------------------------------
300 BankAmerica Corp. 16,425
Citicorp 27,188
----------
43,613
Basic Industrial Products (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
200 Case Corp. 9,750
Building and Construction (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
300 Sherwin Williams Co. 13,913
Business Equipment and Services (4.9%)
- ---------------------------------------------------------------------------------------------------------------------
200 3Com Corp. + 12,013
100 Cabletron Systems, Inc. + 6,838
400 Cisco Systems, Inc. + 24,825
200 Compaq Computer Corp. + 12,825
200 Computer Sciences Corp. + 15,375
300 First Data Corp. 24,488
300 Omnicom Group, Inc. 14,025
----------
110,389
Chemicals (3.5%)
- ---------------------------------------------------------------------------------------------------------------------
300 du Pont (E.I.) de Nemours & Co., Ltd. 26,475
800 Monsanto Co. 29,200
100 Perkins-Elmer Corp 5,788
400 Praxair, Inc. 17,200
----------
78,663
Computer Services and Software (5.8%)
- ---------------------------------------------------------------------------------------------------------------------
550 Computer Associates Intl., Inc. 32,863
300 HBO & Co. 20,025
200 Microsoft Corp. + 26,376
300 Parametric Technology Corp. + 14,813
200 PeopleSoft, Inc. + 16,650
300 Sun Microsystems, Inc. + 18,638
----------
129,365
Conglomerates (1.1%)
- ---------------------------------------------------------------------------------------------------------------------
200 United Technologies Corp. 24,025
Consumer Non Durables (4.0%)
- ---------------------------------------------------------------------------------------------------------------------
200 Clorox Co. 19,175
400 Estee Lauder Cos. Class A 17,950
400 Gillette Co. 28,850
200 Nike, Inc. 24,300
----------
90,275
Consumer Services (2.1%)
- ---------------------------------------------------------------------------------------------------------------------
300 Marriott Intl, Inc. 16,538
600 Mirage Resorts, Inc. + 15,375
500 Service Corp. Intl 15,125
----------
47,038
Electronics and Electrical Equipment (3.2%)
- ---------------------------------------------------------------------------------------------------------------------
300 Honeywell, Inc. 18,938
400 Intel Corp. 38,175
300 Symbol Technologies, Inc. + 13,800
----------
70,913
Energy-Related (0.9%)
- ---------------------------------------------------------------------------------------------------------------------
500 Thermo Electron Corp. + 20,250
Environmental Control (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
400 USA Waste Services, Inc. + 12,600
Food and Beverages (3.0%)
- ---------------------------------------------------------------------------------------------------------------------
900 Coca-Cola Co. 45,788
500 Coca-Cola Enterprises, Inc. 22,625
----------
68,413
Health Care (2.3%)
- ---------------------------------------------------------------------------------------------------------------------
500 Abbott Laboratories 24,625
200 Cardinal Health, Inc. 16,525
300 Healthsouth Rehabilitation Corp. + 11,513
----------
52,663
Insurance and Finance (1.7%)
- ---------------------------------------------------------------------------------------------------------------------
200 Franklin Resources, Inc. 13,275
350 MBNA Corp. 12,163
250 Travelers, Inc. 12,281
----------
37,719
Medical Supplies and Devices (3.4%)
- ---------------------------------------------------------------------------------------------------------------------
400 Becton Dickinson & Co. 17,700
300 Guidant Corp. 16,575
400 Medtronic, Inc. 25,650
400 U.S. Surgical Corp. 17,000
----------
76,925
Oil and Gas (2.2%)
- ---------------------------------------------------------------------------------------------------------------------
400 Enron Corp. 16,300
300 Halliburton Co. 15,488
200 Schlumberger Ltd. 16,900
----------
48,688
Pharmaceuticals (6.8%)
- ---------------------------------------------------------------------------------------------------------------------
800 Johnson & Johnson 41,000
200 Lilly (Eli) & Co. 12,900
400 Merck & Co., Inc. 28,150
400 Pfizer, Inc. 31,650
135 Pharmacia & Upjohn, Inc. 5,569
500 Warner-Lambert Co. 33,000
----------
152,269
Photography (1.0%)
- ---------------------------------------------------------------------------------------------------------------------
300 Eastman Kodak Co. 23,550
Publishing (3.0%)
- ---------------------------------------------------------------------------------------------------------------------
400 Belo (A.H.) Corp. 13,800
400 Gannett Co., Inc. 28,150
300 Harcourt General, Inc. 16,575
100 Tribune Co. 7,800
----------
66,325
Retail (6.0%)
- ---------------------------------------------------------------------------------------------------------------------
400 Federated Department Stores Inc. + 13,400
500 Home Depot, Inc. (The) 28,438
100 Jones Apparel Group, Inc. + 6,375
300 Nine West Group, Inc. + 16,275
350 Officemax, Inc. + 4,900
300 Safeway, Inc. + 12,788
500 Sears, Roebuck & Co. 22,375
400 TJX Cos., Inc. (The) 14,350
400 Walgreen Co. 14,800
----------
133,701
Telecommunications (2.9%)
- ---------------------------------------------------------------------------------------------------------------------
500 360 Communications Co. + 11,750
100 Cascade Communications Corp. + 8,150
100 Jacor Communications Inc. + 3,450
1,100 MCI Communications Corp. 28,188
200 Tellabs, Inc. + 14,125
----------
65,663
----------
Total Common Stocks (cost $1,210,110) 1,412,610
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (18.9%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (6.2%)
- ---------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association
$29,957 6 1/2s, Dwarf, June 1, 2011 29,040
21,807 6s, Dwarf, January 1, 2009 20,682
10,000 5.94s, December 12, 2005 9,314
Government National Mortgage Association
35,340 7 1/2s, January 15, 2024 34,898
24,942 7s, February 15, 2026 24,006
21,593 6s, Midget, January 15, 2008 20,615
----------
138,555
U.S. Treasury Obligations (12.7%)
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
46,000 11 7/8s, November 15, 2003 59,505
3,000 11 5/8s, November 15, 2004 3,917
10,000 10 3/4s, August 15, 2005 12,656
41,000 8 1/8s, August 15, 2019 45,849
U.S. Treasury Notes
58,000 7 7/8s, November 15, 2004 62,332
25,000 7 1/2s, May 15, 2002 26,176
20,000 6 3/8s, August 15, 2002 19,862
20,000 6 1/4s, April 30, 2001 19,841
35,000 6 1/4s, June 30, 1998 35,098
----------
285,236
----------
Total U.S. Government and Agency Obligations (cost $426,962) 423,791
CORPORATE BONDS AND NOTES (8.7%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
$5,000 Northrop-Grumman Corp. notes 7s, 2006 4,840
Automotive (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 Daimler-Benz med. term notes 7 3/8s, 2006 5,044
Banks (1.1%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 ABN Ambro Bank N.V. sub. notes 7.55s, 2006 5,094
5,000 Advanta National Bank sr. notes 7.02s, 2001 4,952
5,000 Bangkok Bank Public Co. 144A sub. notes 8 1/4s, 2016 (Thailand) 4,887
5,000 First National Bank of Omaha sub. notes 7.32s, 2010 4,753
5,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 5,143
----------
24,829
Broadcasting (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
7,000 News America Holdings, Inc. sr. notes 12s, 2001 7,498
5,000 News America Holdings, Inc. deb. 7.7s, 2025 4,674
5,000 Viacom, Inc. sr. notes 7 3/4s, 2005 4,830
----------
17,002
Cable Television (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 5,450
Entertainment (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 Time Warner Entertainment Co. deb. 7 1/4s, 2008 4,742
5,000 Time Warner Inc. notes 8 7/8s, 2012 5,318
----------
10,060
Food Chains (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 Kroger Co. sr. notes 8.15s, 2006 5,081
Insurance and Finance (0.7%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 Conseco Inc. sr. notes 10 1/2s, 2004 5,774
5,000 Ford Motor Credit Corp. notes 8.2s, 2002 5,254
5,000 Rodamco NV notes 7 3/4s, 2015 (Netherlands) 4,995
----------
16,023
Metals and Mining (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
10,000 Noranda Inc. notes 7s, 2005 (Canada) 9,628
4,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 4,309
----------
13,937
Oil and Gas (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 Gulf Canada Resources Ltd. sr. notes 8.35s, 2006 (Canada) 4,944
7,000 Parker & Parsley Petro Co. sr. notes 8 7/8s, 2005 7,635
5,000 Petroliam Nasional Berhad 144A notes 7 1/8s, 2005 (Malaysia) 4,940
----------
17,519
Real Estate (0.7%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 4,651
5,000 Meditrust med. term notes 7.3s, 2006 (R) 4,774
5,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 (R) 4,966
----------
14,391
Retail (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 Federated Department Stores sr. notes 8 1/2s, 2003 5,137
Telecommunications (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 360 Communications Co. sr. notes 7 1/2s, 2006 4,860
7,000 Telekom Malaysia Berhad (New) 144A deb. 7 7/8s, 2025 (Malaysia) 6,975
----------
11,835
Tobacco (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 RJR Nabisco, Inc. notes 8 3/4s, 2005 4,907
5,000 Sampoerna International Finance Co. 144A company guaranty
8 3/8s, 2006 (Indonesia) 5,071
----------
9,978
Transportation (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
5,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 4,676
Utilities (1.3%)
- ---------------------------------------------------------------------------------------------------------------------
10,000 Citizens Utilities Co. bonds 7.68s, 2034 10,729
5,000 Connecticut Yankee mtge. Ser. A, 12s, 2000 5,136
5,000 El Paso Electric Company 1st mtge. Ser. B, 7 3/4s, 2001 4,949
3,102 Midland Cogeneration Ventures deb. 10.33s, 2002 3,258
5,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 5,171
----------
29,243
----------
Total Corporate Bonds and Notes (cost $195,987) $ 195,045
FOREIGN GOVERNMENT BONDS AND NOTES (2.4%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
AUD 20,000 Australia (Government of) bonds Ser. 400, 7s, 2000 $ 15,747
CAD 23,000 Canada (Government of) deb. Ser. A-76, 9s, 2025 19,387
USD 10,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 9,149
ZAR 23,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 4,357
USD 5,000 United Mexican States bonds 11 1/2s, 2026 4,960
----------
Total Foreign Government Bonds and Notes (cost $52,573) $ 53,600
COLLATERALIZED MORTGAGE OBLIGATIONS (1.9%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
$5,815 Chase Mortgage Finance Corp. Ser. 93-3, Class B13, 7.466s, October 30, 2024 $ 3,529
5,801 Housing Securities Inc. Ser. 93-F, Class F9M2, 7s, September 25, 2023 5,269
4,857 Prudential Home Mortgage Securities Ser. 93-31, Class B2, 6s, August 25, 2000 3,808
7,049 Prudential Home Mortgage Securities 144A Ser. 95-C, Class B1, 7.668s, October 28, 2001 7,021
23,941 Ryland Mortgage Securities Corp. Ser. 94-7C, Class B1, 7.359s, August 25, 2025 22,596
----------
Total Collateralized Mortgage Obligations (cost $42,548) $ 42,223
BRADY BONDS (0.5%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
$8,000 Argentina (Republic of) bonds 5 1/4s, 2023 $ 4,670
7,000 Poland (Government of) FRN 6.438s, 2024 6,668
----------
Total Brady Bonds (cost $11,216) $ 11,338
SHORT-TERM INVESTMENTS (4.0%)* (cost $90,014)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
$90,000 Interest in $374,793,000 joint repurchase agreement September 30, 1996
with Morgan Stanley & Co. Inc. October 1, 1996 with respect to various
U.S. Treasury obligations -- maturity value of $90,014 for an effective
yield of 5.625%. $ 90,014
- ---------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,029,410)*** $ 2,228,621
- ---------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,245,544.
*** The aggregate identified cost on a tax basis is
$2,029,415, resulting in gross unrealized appreciation and
depreciation of $240,990 and $41,784, respectively,
or net unrealized appreciation of $199,206.
+ Non-income-producing security.
(R) Real Estate Investment Trust.
144A after the name of a security represents those securities 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.
The rate shown on Floating Rate Notes (FRN) is the current interest rate shown at
September 30, 1996, which is subject to change based on the terms
of the security.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at September 30, 1996
<S> <C> <C> <C> <C>
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation/
- ---------------------------------------------------------------------------------------------------------------------
Canadian Dollars $516 $515 12/18/96 $1
- ---------------------------------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at September 30, 1996
<S> <C> <C> <C> <C>
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation/
- ---------------------------------------------------------------------------------------------------------------------
Australian Dollars $11,159 $11,171 12/18/96 $12
- ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1996
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $2,029,410) (Note 1) $2,228,621
- ---------------------------------------------------------------------------------------------------------
Cash 1,101
- ---------------------------------------------------------------------------------------------------------
Dividends and interest receivable 14,596
- ---------------------------------------------------------------------------------------------------------
Receivable for securities sold 70,906
- ---------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 13
- ---------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 5,596
- ---------------------------------------------------------------------------------------------------------
Total assets 2,320,833
Liabilities
- ---------------------------------------------------------------------------------------------------------
Payable for securities purchased 62,948
- ---------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,988
- ---------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 486
- ---------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 10
- ---------------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 6,425
- ---------------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 119
- ---------------------------------------------------------------------------------------------------------
Other accrued expenses 3,313
- ---------------------------------------------------------------------------------------------------------
Total liabilities 75,289
- ---------------------------------------------------------------------------------------------------------
Net assets $2,245,544
Represented by
- ---------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 1,754,802
- ---------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 42,733
- ---------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions (Note 1) 248,785
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in foreign currencies 199,224
- ---------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $2,245,544
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------------
Net asset value per share ($2,245,544 divided by 203,635 shares) $11.03
- ---------------------------------------------------------------------------------------------------------
Offering Price (100/94.25 of $11.03)* $11.70
- ---------------------------------------------------------------------------------------------------------
* 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.
The accompanying notes are an intergal part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30, 1996
<S> <C>
Investment Income
- ---------------------------------------------------------------------------------------------------------------------------------
Interest income $49,716
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $68) 18,465
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment income 68,181
Expenses:
- ---------------------------------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 13,557
- ---------------------------------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 10,098
- ---------------------------------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,638
- ---------------------------------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 40
- ---------------------------------------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 554
- ---------------------------------------------------------------------------------------------------------------------------------
Auditing 11,751
- ---------------------------------------------------------------------------------------------------------------------------------
Legal 3,531
- ---------------------------------------------------------------------------------------------------------------------------------
Other 3,593
- ---------------------------------------------------------------------------------------------------------------------------------
Fees waived and expenses reimbursed by Manager (Note 2) (29,606)
- ---------------------------------------------------------------------------------------------------------------------------------
Total expenses 15,156
- ---------------------------------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (3,744)
- ---------------------------------------------------------------------------------------------------------------------------------
Net expenses 11,412
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 56,769
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 272,945
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized loss on forward currency transactions (279)
- ---------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in foreign currencies during the year 1,717
- ---------------------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (39,257)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gain on investments 235,126
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $291,895
- ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an intergal part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
January 3,1995
(commencement of
Year ended operations) to
September 30 September 30
1996 1995
------------ ----------------
<S> <C> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income $56,769 $42,989
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 272,666 99,878
- ------------------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and liabilities in foreign currencies (37,540) 236,764
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 291,895 379,631
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (64,485) --
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (119,022) --
- ------------------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 186,093 1,551,432
- ------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 294,481 1,931,063
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Beginning of year 1,951,063 20,000
- ------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of
$42,733 and $47,833 respectively) $2,245,544 $1,951,063
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an intergal part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
January 3, 1995
Year (commencement
ended of operations)
September 30 to September 30
-----------------------------------
1996 1995
-----------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.56 $8.50
- ---------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------
Net investment income (a) .29 .23
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1.18 1.83
- ---------------------------------------------------------------------------------------------------
Total from investment operations 1.47 2.06
- ---------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------
From net investment income (.35) --
- ---------------------------------------------------------------------------------------------------
From net realized gain on investments (.65) --
- ---------------------------------------------------------------------------------------------------
Total distributions (1.00) --
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $11.03 $10.56
- ---------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 15.01 24.24*
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,246 $1,951
- ---------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(a)(c) .73 .54*
- ---------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(a) 2.72 2.44*
- ---------------------------------------------------------------------------------------------------
Portfolio turnover (%) 170.75 95.15*
- ---------------------------------------------------------------------------------------------------
Average commission rate paid (d) $.0544
- ---------------------------------------------------------------------------------------------------
* Not annualized.
(a) Reflects an expense limitation during the period (Note 2). As a result of such limitation, expenses
of the fund for the periods ended September 30, 1996 and 1995 reflect a reduction of $0.15 and $0.23
per share, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales
charges.
(c) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements
(Note 2).
(d) Average commission rate paid is presented for fiscal periods beginning on or after September 1, 1995.
</TABLE>
Notes to financial statements
September 30, 1996
Note 1
Significant accounting policies
The fund is one of a series of Putnam Investment Funds (the "Trust")
which is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
objective of the fund is to seek capital growth and current income.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported--as in the
case of some securities traded over-the-counter --the last reported bid
price. Market quotations are not considered to be readily available for
long term corporate bonds and notes; such investments are stated at fair
market value on the basis of valuations furnished by a pricing service,
approved by the Trustees, which determines valuations for normal,
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and various
relationships between securities that are generally recognized by
institutional traders. 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
market value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such fluctuations are included with the net realized
and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign
currencies and the difference between the amount of investment income
and foreign withholding taxes recorded on the fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized
gains and losses on foreign currency transactions arise from changes in
the value of open forward currency contracts and assets and liabilities
other than investments at the period end, resulting from changes in the
exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked to market" daily and
the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G) 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 on securities held and 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 annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
These differences include treatment of organizational expenses, paydowns
gains and losses on mortgage backed securities, market discount,
realized gains and losses on forward foreign currency contracts and
currency gains and losses on foreign bonds. 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 September 30, 1996, the fund
reclassified $2,616 to increase undistributed net investment income and
$1,913 to decrease paid-in-capital, with a decrease to accumulated net
realized gain on investments of $703. The calculation of net investment
income per share in the financial highlights table excludes these
adjustments.
I) Expenses of the trust Expenses directly charged or attributable to
any fund will be paid from the assets of that fund. Generally, expenses
of the trust will be allocated among and charged to the assets of each
fund on a basis that the Trustees deem fair and equitable, which may be
based on the relative assets of each fund or the nature of the services
performed and relative applicability to each fund.
J) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $6,425. These expenses are being amortized
on projected net asset levels over a five-year period. The fund will
reimburse Putnam Management for the payment of these expenses.
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: 0.65% of the
first $500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of the $5 billion, 0.425%
of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next
$5 billion, and 0.38% thereafter subject, under current law, to
reduction in any year by the amount of certain brokerage commissions and
fees (less expenses) received by affiliates of Putnam Management on the
fund's portfolio transactions.
Putnam Management has agreed to limit its compensation (and, to the
extent necessary, bear expenses) through May 31, 1997, to the extent
that expenses of the fund (exclusive of brokerage, interest, taxes,
deferred organizational and extraordinary expenses and credits from
Putnam Fiduciary Trust Company ("PFTC"), a wholly-owned subsidiary of
Putnam Investments, Inc., and payments under the Trust's distribution
plan) would exceed an annual rate of 0.70% of the fund's average net
assets.
The fund reimburses Putnam Management 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 wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended September 30, 1996, fund expenses were reduced by
$3,744 under expense offset arrangements with PFTC. 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.
Trustees of the fund receive an annual Trustees fee of $100 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940, although the fund is not
currently making any payments pursuant to the plan. The purpose of the
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 shares of the fund. The Trustees
have approved payment by the fund to Putnam Mutual Funds Corp. at an
annual rate of up to 0.35% of the average net assets. Currently, no
payments are being made under the plan.
For the year ended September 30, 1996, Putnam Mutual Funds Corp., acting
as underwriter received no net commissions from the sale of shares of
the fund.
Note 3
Purchase and sales of securities
During the year ended September 30, 1996, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $2,377,216 and $2,238,554, respectively.
Purchases and sales of U.S. government obligations aggregated $1,104,939
and $1,211,260, respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At September 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Putnam Investment Management, Inc. owned
194,315 shares of the fund (95.4% of shares outstanding) valued at
$2,143,294. Transactions in capital shares were as follows:
Year ended September 30
- ----------------------------------------------------------------
1996
- ----------------------------------------------------------------
Shares Amount
- ----------------------------------------------------------------
Shares sold 1,591 $16,290
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,629 183,507
- ----------------------------------------------------------------
20,220 199,797
Shares
repurchased (1,321) (13,704)
- ----------------------------------------------------------------
Net increase 18,899 $186,093
- ----------------------------------------------------------------
For the period
January 3, 1995
(commencement of
operations) to
September 30
- ----------------------------------------------------------------
1995
- ----------------------------------------------------------------
Shares Amount
- ----------------------------------------------------------------
Shares sold 183,163 $1,559,513
- ----------------------------------------------------------------
Shares
repurchased (780) (8,081)
- ----------------------------------------------------------------
Net increase 182,383 $1,551,432
- ----------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 9.37% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
William J. Curtin
Vice President
David Santos
Vice President and Fund Manager
Kenneth J. Taubes
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Balanced
Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information, or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
28359-318 11/96
