Putnam
Balanced
Fund
SEMIANNUAL REPORT
March 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
Dear Shareholder:
During the six months ended March 31, 1996, strong stock and bond
markets and continued economic growth provided a hospitable investment
environment for strong perform-ance from Putnam Balanced Fund.
At the start of the fund's second fiscal year, Fund Managers David
Santos and Kenneth Taubes initiated some strategic shifts that have
proved beneficial. Dave, who manages the fund's equity portion,
gradually increased the portfolio's exposure to medium-sized companies
and added growth companies in industries that tend to do well in the
later stages of recovery. On the fixed-income side, Ken increased U.S.
corporate bond holdings and, in selecting foreign bonds, sought
outperformance from international securities in comparison with the U.S.
market.
These strategies along with careful monitoring of economic and corporate
developments in regard to risk have helped support the fund's net asset
value under current market conditions. Given the degree of strength in
the markets, Putnam Balanced Fund is a vehicle that, because of its
fixed-income component, is likely to remain an attractive investment
going forward.
In accordance with our new policy for incubated fund reports, the
semiannual report that follows simply provides portfolio holdings and
financial statements. A detailed report from the fund managers will be
forthcoming with the annual report.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
May 15, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
March 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS (62.7%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (2.3%)
- --------------------------------------------------------------------------------------------------------------
300 Boeing Co. $25,988
200 Lockheed Martin Corp. 15,175
100 Textron, Inc. 8,000
----------
49,163
Apparel (0.2%)
- --------------------------------------------------------------------------------------------------------------
100 Gucci Group NV ADR (Netherlands) 4,800
Automotive (0.6%)
- --------------------------------------------------------------------------------------------------------------
200 General Motors Corp. Class H 12,650
Banks (1.8%)
- --------------------------------------------------------------------------------------------------------------
300 Citicorp 24,000
200 Chemical Bank Corp. 14,100
----------
38,100
Basic Industrial Products (1.8%)
- --------------------------------------------------------------------------------------------------------------
400 Case Corp. 20,350
400 Sundstrand Corp. 16,300
----------
36,650
Broadcasting (0.4%)
- --------------------------------------------------------------------------------------------------------------
350 Tele-Comm Liberty Media Group, Inc. Class A + 9,231
Building and Construction (0.7%)
- --------------------------------------------------------------------------------------------------------------
200 Fluor Corp. 13,650
Business Equipment and Services (4.0%)
- --------------------------------------------------------------------------------------------------------------
200 3Com Corp. + 7,975
300 Cisco Systems, Inc. + 13,913
200 First Data Corp. 14,100
300 General Motors Corp. Class E 17,100
100 HBO & Co. 9,425
100 Hewlett-Packard Co. 9,400
100 U.S. Robotics Corp. 12,925
----------
84,838
Chemicals (2.7%)
- --------------------------------------------------------------------------------------------------------------
300 du Pont (E.I.) de Nemours & Co. $24,900
100 Monsanto Co. 15,350
400 Praxair, Inc. 15,950
----------
56,200
Computer Services and Software (5.6%)
- --------------------------------------------------------------------------------------------------------------
200 Cabletron Systems, Inc. + 13,250
300 Computer Associates Intl., Inc. 21,488
100 IBM Corp. 11,113
400 Informix Corp. + 10,550
300 Microsoft Corp. + 30,938
300 Oracle Systems Corp. + 14,138
400 Parametric Technology Corp. + 15,650
----------
117,127
Consumer Non Durables (3.6%)
- --------------------------------------------------------------------------------------------------------------
212 Kimberly-Clark Corp. 15,794
200 Nike, Inc. 16,250
300 Philip Morris Cos., Inc. 26,325
200 Procter & Gamble Co. 16,950
----------
75,319
Consumer Services (2.4%)
- --------------------------------------------------------------------------------------------------------------
200 Gannett Co., Inc. 13,450
200 Marriott International, Inc. 9,500
300 McDonald's Corp. 14,400
300 Mirage Resorts, Inc. + 13,163
----------
50,513
Electronics and Electrical Equipment (1.4%)
- --------------------------------------------------------------------------------------------------------------
400 Honeywell, Inc. 22,100
200 Linear Technology Corp. 8,350
----------
30,450
Entertainment (0.9%)
- --------------------------------------------------------------------------------------------------------------
304 Disney (Walt) Productions, Inc. 19,418
Food and Beverages (3.0%)
- --------------------------------------------------------------------------------------------------------------
200 Campbell Soup Co. 12,175
200 Hershey Foods Corp. 14,900
300 Nabisco Holdings Corp. Class A 9,825
400 PepsiCo, Inc. 25,300
----------
62,200
Health Care (1.6%)
- --------------------------------------------------------------------------------------------------------------
200 Amgen, Inc. + 11,625
300 Boston Scientific Corp. + 13,800
100 Oxford Health Plans Inc. + 8,775
----------
34,200
Insurance and Finance (7.8%)
- --------------------------------------------------------------------------------------------------------------
150 American International Group, Inc. $14,044
200 AON Corp. 10,350
300 Bank of Boston Corp. 14,888
300 BankAmerica Corp. 23,250
100 CIGNA Corp. 11,425
500 Federal National Mortgage Association 15,938
200 Franklin Resources, Inc. 11,400
450 MBNA Corp. 13,330
100 MGIC Investment Corp. 5,450
100 Morgan (J.P.) & Co., Inc. 8,300
200 NationsBank Corp. 16,025
300 Travelers, Inc. 19,800
----------
164,200
Medical Supplies and Devices (1.2%)
- --------------------------------------------------------------------------------------------------------------
300 Baxter International, Inc. 13,575
200 Medtronic, Inc. 11,925
----------
25,500
Metals and Mining (0.4%)
- --------------------------------------------------------------------------------------------------------------
300 Freeport-McMoRan Copper & Gold Co., Inc. Class A 9,225
Oil and Gas (4.4%)
- --------------------------------------------------------------------------------------------------------------
200 British Petroleum PLC ADR (United Kingdom) 21,250
300 Enron Corp. 11,063
400 Halliburton Co. 22,750
200 Mobil Corp. 23,175
400 Total Corp. ADR (France) 13,600
----------
91,838
Patient Care (0.6%)
- --------------------------------------------------------------------------------------------------------------
200 United Healthcare Corp. + 12,300
Pharmaceuticals (4.9%)
- --------------------------------------------------------------------------------------------------------------
200 Johnson & Johnson 18,450
300 Lilly (Eli) & Co. 19,500
200 Pfizer, Inc. 13,400
535 Pharmacia & Upjohn, Inc. 21,330
400 Smithkline Beecham PLC ADR (United Kingdom) 20,600
100 Warner-Lambert Co. 10,325
----------
103,605
Photography (0.7%)
- --------------------------------------------------------------------------------------------------------------
200 Eastman Kodak Co. 14,200
Retail (5.2%)
- --------------------------------------------------------------------------------------------------------------
100 Dayton Hudson Corporation $8,488
400 Federated Department Stores Inc. + 12,900
200 Home Depot, Inc. 9,575
400 Officemax, Inc. + 9,700
500 Safeway, Inc. + 14,250
500 Sears, Roebuck & Co. 24,375
450 Staples, Inc. + 9,169
300 TJX Cos., Inc. (The) 7,538
400 Walgreen Co. 13,050
----------
109,045
Telecommunications (1.6%)
- --------------------------------------------------------------------------------------------------------------
800 MCI Communications Corp. 24,200
200 Tellabs, Inc. + 9,675
----------
33,875
Transportation (0.8%)
- --------------------------------------------------------------------------------------------------------------
200 Burlington Northern Santa Fe Corp. 16,425
Utilities (2.1%)
- --------------------------------------------------------------------------------------------------------------
400 GTE Corp. 17,550
500 SBC Communications, Inc. 26,310
----------
43,860
Total Common Stocks (cost $1,080,665) $1,318,582
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (22.6%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association
$35,000 7s, TBA, April 16, 2026 $34,103
30,000 6 1/2s, Dwarfs, TBA, April 16, 2011 29,344
23,271 pass-through certificates 6s, January 1, 2009 22,290
10,000 5.94s, December 12, 2005 9,475
Government National Mortgage Association Midgets,
35,566 pass-through certificates, 7 1/2s, January 15, 2024 35,489
23,444 pass-through certificates, 6s, January 15, 2008 22,557
U.S. Treasury Bonds
46,000 11 7/8s, November 15, 2003 61,173
18,000 11 5/8s, November 15, 2004 24,165
10,000 10 3/4s, August 15, 2005 13,000
61,000 8 1/8s, August 15, 2019 69,711
63,000 7 7/8s, November 15, 2004 69,113
8,000 7 3/4s, February 15, 2001 8,549
35,000 7 1/4s, August 15, 2004 36,925
14,000 6 1/4s, February 15, 2003 13,958
2,000 6 1/4s, May 31, 2000 2,013
25,000 4 3/4s, August 31, 1998 24,383
----------
Total U.S. Government and Agency Obligations (cost $474,500)) $476,248
CORPORATE BONDS AND NOTES (5.7%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
$5,000 360 Communications Co. sr. notes 7 1/2s, 2006 $4,894
5,000 Bangkok Bank Public Co. 144A sub. notes 8 1/4s, 2016 4,959
5,000 BHP Finance (USA), Inc. company guaranty 6.42s, 2026 4,916
5,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 4,757
5,000 CCP Insurance, Inc. sr. notes 10 1/2s, 2004 5,694
10,000 Citizens Utilities Co. bonds 7.68s, 2034 10,908
5,000 First National Bank of Omaha 7.32s, 2010 4,850
5,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 (R) 4,717
5,000 Italy (Republic of) global deb. 6 7/8s, 2023 4,487
5,000 Meditrust Corp. med. term notes 7.3s, 2006 (R) 4,881
3,322 Midland Cogeneration Ventures deb. 10.33s, 2002 3,530
7,000 News America Holdings, Inc. sr. notes 12s, 2001 7,691
10,000 Noranda Inc. notes 7s, 2005 (Canada) 9,827
5,000 Northrop Grumman Corp. 144A notes 7s, 2006 4,919
7,000 Parker & Parsley Petroleum Co. sr. notes 8 7/8s, 2005 7,558
5,000 Petroliam Nasional Berhad 144A notes, 7 1/8s, 2005 (Malaysia) 5,025
4,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 4,325
5,000 Rodamco NV notes 7 3/4s, 2015 (Netherlands) 5,199
7,000 Telekom Malaysia Berhad 144A deb. 7.87s, 2025 (Malaysia) 7,111
5,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 5,160
5,000 Time Warner Inc. deb. 9 1/8s, 2013 5,405
----------
Total Corporate Bonds and Notes (cost $121,619) $120,813
FOREIGN GOVERNMENT BONDS AND NOTES (4.6%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
AUD 19,000 Australia (Government of) notes 8 3/4s, 2001 $14,959
CAD 43,000 Canada (Government of) deb. 7 1/2s, 2001 32,276
DEM 15,000 Germany (Republic of) bonds 6 7/8s, 2005 10,462
USD 8,000 Quebec (Province of) deb. 8 5/8s, 2005 (Canada) 8,788
DEM 25,000 Treuhandanstalt (Germany Republic of) bonds
7 1/8s, 2003 17,936
GBP 8,000 United Kingdom Treasury bonds 10s, 2001 13,351
Total Foreign Government Bonds and Notes (cost $98,066) ----------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.0%) * $97,772
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
$5,954 Chase Mortgage Finance Corp. Ser. 93-3, Class B1,
7.461s, 2024
5,845 Housing Securities, Inc. Ser. 93-F, Class F9M2, 7s, 2023 5,412
Prudential Home Mortgage Securities
7,636 144A Ser. 95-C, Class B1, 7.8158s, 2001 7,646
4,879 Ser. 93-31, Class B2, 6s, 2000 3,354
----------
Total Collateralized Mortgage Obligations (cost $20,683) $20,092
- --------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,795,533) *** $2,033,507
- --------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,103,036.
*** The aggregate identified cost on a tax basis is $1,795,533, resulting in gross appreciation and
depreciation of $269,708 and $31,734, respectively, or net unrealized appreciation of $237,974.
+ Non-income-producing security.
(R) Real Estate Investment Trust, (REIT).
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.
ADR after the name of a foreign holding stands for American Depository Receipts, representing ownership
of foreign securities on deposit with a domestic custodian bank.
TBA after the name of a security represents
to be announced securities (See Note 1 to Financial Statements).
<CAPTION>
- --------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at March 31, 1996
(aggregate face value $85,644)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- --------------------------------------------------------------------------------------------
Australian Dollars $15,602 $15,522 6/12/95 $(80)
British Pounds 15,233 15,320 6/12/96 87
Canadian Dollar 32,984 32,655 6/12/96 (329)
Deutschemarks 21,736 22,147 6/12/96 411
- --------------------------------------------------------------------------------------------
$ 89
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1996 (Unaudited)
<S> <C>
Assets
- --------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,795,533) (Note 1) $2,033,507
- --------------------------------------------------------------------------------
Cash 160,178
- --------------------------------------------------------------------------------
Dividends, interest and other receivables 12,563
- --------------------------------------------------------------------------------
Receivable for shares of the fund sold 475
- --------------------------------------------------------------------------------
Receivable for securities sold 64,384
- --------------------------------------------------------------------------------
Receivable for open forward currency contracts 498
- --------------------------------------------------------------------------------
Receivable for closed forward currency contracts 236
- --------------------------------------------------------------------------------
Receivable from Manager (Note 2) 8,194
- --------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 5,892
- --------------------------------------------------------------------------------
Total assets 2,285,927
Liabilities
- --------------------------------------------------------------------------------
Payable for securities purchased 159,253
- --------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 5,095
- --------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 80
- --------------------------------------------------------------------------------
Payable for administrative services (Note 2) 10
- --------------------------------------------------------------------------------
Payable for organizational expenses (Note 1) 6,425
- --------------------------------------------------------------------------------
Payable for open forward currency contracts 409
- --------------------------------------------------------------------------------
Other accrued expenses 11,619
- --------------------------------------------------------------------------------
Total liabilities 182,891
- --------------------------------------------------------------------------------
Net assets $2,103,036
Represented by
- --------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $1,757,252
- --------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 9,998
- --------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 97,723
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 238,063
- --------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,103,036
Computation of net asset value and offering price
- --------------------------------------------------------------------------------
Net asset value and redemption price per share
($2,103,036 divided by 203,696 shares) $10.32
- --------------------------------------------------------------------------------
Offering price per share (100/94.25 of $10.32)* $10.95
- --------------------------------------------------------------------------------
* 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 integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 1996 (Unaudited)
<S> <C>
Investment Income:
- --------------------------------------------------------------------------------
Interest $22,453
- --------------------------------------------------------------------------------
Dividends (net of foreign tax of $29) 9,287
- --------------------------------------------------------------------------------
Total investment income 31,740
Expenses:
- --------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,606
- --------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 14,157
- --------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 785
- --------------------------------------------------------------------------------
Administrative services (Note 2) 20
- --------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 533
- --------------------------------------------------------------------------------
Reports to shareholders 93
- --------------------------------------------------------------------------------
Registration fees 687
- --------------------------------------------------------------------------------
Auditing 8,158
- --------------------------------------------------------------------------------
Legal 1,235
- --------------------------------------------------------------------------------
Postage 5
- --------------------------------------------------------------------------------
Other 11
- --------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (24,504)
- --------------------------------------------------------------------------------
Total expenses 7,786
- --------------------------------------------------------------------------------
Expense reduction (Note 2) (2,697)
- --------------------------------------------------------------------------------
Net expenses 5,089
- --------------------------------------------------------------------------------
Net investment income 26,651
- --------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 120,584
- --------------------------------------------------------------------------------
Net realized gain on forward currency contracts and
foreign currency translation (Notes 1 and 3) 317
- --------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and
foreign currency translation 1,792
- --------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (493)
- --------------------------------------------------------------------------------
Net gain on investments 122,200
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $148,851
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
1996* 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------
Net investment income $26,651 $42,989
- ------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 120,901 99,878
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 1,299 236,764
- ------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 148,851 379,631
- ------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------
From net investment income (64,486) --
- ------------------------------------------------------------------------------------------------
From net realized gain on investments (119,022) --
- ------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 186,630 1,551,432
- ------------------------------------------------------------------------------------------------
Total increase in net assets 151,973 1,931,063
- ------------------------------------------------------------------------------------------------
Net assets
- ------------------------------------------------------------------------------------------------
Beginning of period 1,951,063 20,000
- ------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $9,998 and $47,833 respectively) $2,103,036 $1,951,063
- ------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------
For the period
Six January 31, 1995
months (commencement
ended of operations)
March 31 to September 30
1996* 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.56 $8.50
- ------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------
Net investment income .17(a) .23(a)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .59 1.83
- ------------------------------------------------------------------------------------------------
Total from investment operations .76 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 $10.32 $10.56
- ------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (b) 7.61(c) 24.24(c)
- ------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,103 $1,951
- ------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(d) .37(a)(c) .54(a)(c)
- ------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 1.33(a)(c) 2.44(a)(c)
- ------------------------------------------------------------------------------------------------
Portfolio turnover (%) 81.03(c) 95.15(c)
- ------------------------------------------------------------------------------------------------
Average commission rate paid (e) $.0562(c) --
- ------------------------------------------------------------------------------------------------
* Unaudited
(a) Reflects an expense limitation during the period (See Note 2). As a result of such limitation,
expenses of the fund for the periods ended March 31, 1996 and September 30, 1995 reflect a reduction
of $0.16 and $0.23 per share, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Not annualized.
(d) The ratio of expenses to average net assets for the period ended September 30, 1995 and thereafter
includes amounts paid through expense offset arrangements (See Note 2).
(e) Average commission rate paid is presented for fiscal periods beginning January 3, 1995 in conformance
with requirements issued by the SEC.
</TABLE>
Notes to financial statements
March 31, 1996 (Unaudited)
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 by
investing in a combination of equity and fixed-income securities.
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. 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 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.
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 102% of 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
102% of 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
and dividend income is recorded on 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) 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 commitments will not fluctuate
more than 2.0% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. 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.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles.
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
for the quarter. 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 next $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.
Through November 30, 1996, Putnam Management has voluntarily agreed to
limit expenses to an annual rate of 0.70% of the fund's average net
assets. The fund's expenses subject to this limitation are exclusive of
brokerage, interest, taxes, deferred organizational expenses,
extraordinary expenses and credits from Putnam Fiduciary Trust Company
("PFTC"), a wholly-owned subsidiary of Putnam Investments, Inc., if any.
The fund also 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.
Trustees of the fund receive an annual Trustee's fee of $100 and an
additional fee for each Trustees' 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 the fund or in other Putnam funds until distribution
in accordance with the Plan.
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 six months ended March 31, 1996, the fund expenses were reduced
by $2,697 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 the assets utilized
in connection with the expense offset arrangement in an income producing
asset if it had not agreed to enter into such arrangements.
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 Plan
provides for payments by the fund to Putnam Mutual Funds Corp. at an
annual rate of up to 0.35% of the average net assets.
During the six months ended March 31, 1996, Putnam Mutual Funds Corp.,
acting as the underwriter, received no net commissions from the sale of
shares of the fund.
Note 3
Purchases and sales of securities
During the six months March 31, 1996, purchases and sales of investment
securities other than short-term investments aggregated $1,561,632 and
$1,521,342 respectively. There were no purchases or sales of U.S.
government obligations. 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 March 31, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1996
- ----------------------------------------------------
Shares Amount
- ----------------------------------------------------
Shares sold 1,002 $10,200
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,630 183,507
- ----------------------------------------------------
19,632 193,707
Shares repurchased (672) (7,077)
- ----------------------------------------------------
Net increase 18,960 $186,630
- ----------------------------------------------------
For the period
January 3, 1995
(commencement of
operations) to
September 30, 1995
- ----------------------------------------------------
Shares Amount
- ----------------------------------------------------
Shares sold 183,163 $1,559,513
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ----------------------------------------------------
183,163 1,559,513
Shares repurchased (780) (8,081)
- ----------------------------------------------------
Net increase 182,383 $1,551,432
- ----------------------------------------------------
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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
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
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.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
24522-318 5/96
