Putnam
Balanced
Fund
SEMIANNUAL REPORT
March 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
The following report contains a list of your fund's portfolio holdings and
complete financial statements for the six months ended 3/31/97. Additional
details, including fund strategy, performance, and managers' outlook, will
be provided in the annual report, which will cover the 12 months ended
9/30/97.
Portfolio of investments owned
March 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (64.6%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (0.9%)
- ------------------------------------------------------------------------------------------------------------
200 Boeing Co. $ 19,725
Banks (1.4%)
- ------------------------------------------------------------------------------------------------------------
200 Barnett Banks, Inc. 9,300
200 Citicorp 21,650
----------
30,950
Biotechnology (0.5%)
- ------------------------------------------------------------------------------------------------------------
200 Quintiles Transnational Corp. + 10,775
Business Equipment and Services (4.1%)
- ------------------------------------------------------------------------------------------------------------
300 Adaptec, Inc. + 10,725
300 APAC Teleservices, Inc. + 7,800
200 BMC Software, Inc. + 9,225
300 Cisco Systems, Inc. + 14,438
200 Compaq Computer Corp. + 15,325
500 EMC Corp. + 17,750
400 Gartner Group, Inc. Class A + 8,650
200 Paychex, Inc. 8,225
----------
92,138
Chemicals (1.4%)
- ------------------------------------------------------------------------------------------------------------
500 Monsanto Co. 19,125
300 Praxair, Inc. 13,463
----------
32,588
Computer Services and Software (5.1%)
- ------------------------------------------------------------------------------------------------------------
200 Citrix Systems, Inc. + 2,650
550 Computer Associates Intl., Inc. 21,381
400 Equifax, Inc. 10,900
300 HBO & Co. 14,250
400 Microsoft Corp. + 36,675
300 Parametric Technology Corp. + 13,538
400 PeopleSoft, Inc. + 16,000
----------
115,394
Conglomerates (2.6%)
- ------------------------------------------------------------------------------------------------------------
600 General Electric Co. 59,550
Consumer Non Durables (7.1%)
- ------------------------------------------------------------------------------------------------------------
300 Avon Products, Inc. 15,750
100 Clorox Co. 11,213
400 Gillette Co. 29,050
400 Nike, Inc. 24,800
400 Philip Morris Cos., Inc. 45,650
300 Procter & Gamble Co. 34,500
----------
160,963
Consumer Services (0.7%)
- ------------------------------------------------------------------------------------------------------------
300 Marriott International, Inc. 14,925
Education (0.3%)
- ------------------------------------------------------------------------------------------------------------
300 Apollo Group, Inc. Class A + 7,350
Electronics and Electrical Equipment (6.0%)
- ------------------------------------------------------------------------------------------------------------
300 Diebold, Inc. 11,288
300 Honeywell, Inc. 20,363
500 Intel Corp. 69,563
200 KLA Instruments Corp. + 7,300
200 Motorola, Inc. 12,075
300 Symbol Technologies, Inc. 14,475
----------
135,064
Energy-Related (1.8%)
- ------------------------------------------------------------------------------------------------------------
200 AES Corp. + 11,200
400 Baker Hughes, Inc. 15,350
200 Halliburton Co. 13,550
----------
40,100
Entertainment (1.3%)
- ------------------------------------------------------------------------------------------------------------
400 Disney (Walt) Productions, Inc. 29,200
Environmental Control (0.6%)
- ------------------------------------------------------------------------------------------------------------
400 USA Waste Services, Inc. + 14,200
Food and Beverages (5.5%)
- ------------------------------------------------------------------------------------------------------------
400 Campbell Soup Co. 18,550
1,100 Coca-Cola Co. 61,463
400 Coca-Cola Enterprises, Inc. 22,950
400 ConAgra, Inc. 21,700
----------
124,663
Health Care (3.8%)
- ------------------------------------------------------------------------------------------------------------
700 Abbott Laboratories 39,288
300 Cardinal Health, Inc. 16,313
1,000 HEALTHSOUTH Corp. 19,125
200 Oxford Health Plans, Inc. + 11,725
----------
86,451
Insurance and Finance (3.8%)
- ------------------------------------------------------------------------------------------------------------
200 American Express Co. 11,975
200 American International Group, Inc. 23,475
200 Franklin Resources, Inc. 10,200
425 MBNA Corp. 11,847
300 SunAmerica, Inc. 11,288
333 Travelers, Inc. 15,942
----------
84,727
Medical Supplies and Devices (1.1%)
- ------------------------------------------------------------------------------------------------------------
700 Omnicare, Inc. 16,450
300 U.S. Surgical Corp. 9,150
----------
25,600
Oil and Gas (0.5%)
- ------------------------------------------------------------------------------------------------------------
200 Sonat, Inc. 10,900
Pharmaceuticals (8.2%)
- ------------------------------------------------------------------------------------------------------------
600 Bristol-Myers Squibb Co. 35,400
600 Johnson & Johnson 31,725
400 Lilly (Eli) & Co. 32,900
700 Merck & Co., Inc. 58,975
300 Warner-Lambert Co. 25,950
----------
184,950
Retail (6.0%)
- ------------------------------------------------------------------------------------------------------------
400 Consolidated Stores Corp. 14,100
300 Jones Apparel Group, Inc. 11,138
400 Nautica Enterprises, Inc. + 10,050
700 Revco D.S., Inc. + 28,350
300 Rite Aid Corp. 12,600
500 Sears, Roebuck & Co. 25,125
400 TJX Cos., Inc. (The) 17,100
400 Walgreen Co. 16,750
----------
135,213
Telecommunications (1.9%)
- ------------------------------------------------------------------------------------------------------------
200 Ascend Communications, Inc. + 8,150
300 Cascade Communications Corp. + 7,913
300 Cincinnati Bell, Inc. 16,950
300 Tellabs, Inc. 10,838
----------
43,851
----------
Total Common Stocks (cost $1,368,010) 1,459,277
U.S. Government Agency Mortgage Pass-Through Certificates (7.1%) VALUE
- ------------------------------------------------------------------------------------------------------------
$ 20,791 Federal National Mortgage Association 6s, Dwarf,
January 1, 2009 $ 19,544
10,000 Federal National Mortgage Association 5.94s,
December 12, 2005 9,188
Government National Mortgage Association
35,088 7 1/2s, January 15, 2024 34,639
79,952 7s, with various due dates from February 15, 2026
to January 15, 2027 76,255
20,960 6s, Midget, January 15, 2008 19,762
----------
159,388
U.S. Treasury Obligations (8.5%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
3,000 11 5/8s, November 15, 2004 3,825
13,000 10 3/4s, August 15, 2005 16,094
U.S. Treasury Notes
46,000 11 7/8s, November 15, 2003 58,039
5,000 6 7/8s, May 15, 2006 4,972
4,000 6 1/2s, October 15, 2006 3,876
16,000 6 1/4s, February 15, 2007 15,248
15,000 6 1/4s, February 28, 2002 14,684
10,000 6 1/4s, January 31, 2002 9,783
10,000 5 7/8s, January 31, 1999 9,906
56,000 5 5/8s, November 30, 1998 55,353
----------
191,780
----------
Total U.S. Government and Agency Obligations
(cost $362,694) $ 351,168
CORPORATE BONDS AND NOTES (11.1%) *
PRINCIPAL AMOUNT VALUE
Banks (0.8%)
- ------------------------------------------------------------------------------------------------------------
$ 5,000 Abbey National First Capital PLC sub. notes 7.35s, 2049
(United Kingdom) $ 4,873
5,000 Advanta National Bank sr. notes 7.02s, 2001 4,826
5,000 Bangkok Bank Public Co. 144A sub. notes 8 1/4s, 2016
(Thailand) 4,795
5,000 First National Bank of Omaha sub. notes 7.32s, 2010 4,676
----------
19,170
Broadcasting (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 News America Holdings, Inc. deb. 7.7s, 2025 4,555
Cable Television (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 5,534
Entertainment (0.4%)
- ------------------------------------------------------------------------------------------------------------
5,000 Time Warner Entertainment Co. deb. 7 1/4s, 2008 4,750
5,000 Time Warner Entertainment notes 8 7/8s, 2012 5,297
----------
10,047
Health Care (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 Tenet Healthcare Corp. sr. notes 8s, 2005 4,863
Insurance and Finance (3.3%)
- ------------------------------------------------------------------------------------------------------------
5,000 Bangkok Bank Public Co. 144A sub. notes 8 3/8s, 2027
(Hong Kong) 4,779
5,000 Conseco Inc. sr. notes 10 1/2s, 2004 5,742
5,000 Executive Risk Capital Trust 144A company guaranty
8.675s, 2027 4,859
5,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 4,879
5,000 Firstar Capital Trust I 144A bonds 8.32s, 2026 4,926
5,000 Ford Motor Credit Corp. notes 8.2s, 2002 5,188
5,000 Lehman Bros Holdings, Inc. med. term notes 6.4s, 1999 4,923
5,000 Markel Capital Trust I 144A company guaranty 8.71s, 2046 4,924
5,000 Peoples Bank- Bridgeport sub. notes 7.2s, 2006 4,798
5,000 Phoenix Home Life Mutual Insurance Co.
144A notes 6.95s, 2006 4,737
5,000 Rodamco N.V. notes 7 3/4s, 2015 (Netherlands) 4,983
5,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 4,745
5,000 Tig Capital Trust I 144A bonds 8.597s, 2027 4,927
5,000 Trenwick Capital Trust 144A bonds 8.82s, 2037 4,931
5,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 4,997
----------
74,338
Metals and Mining (0.7%)
- ------------------------------------------------------------------------------------------------------------
10,000 Noranda Inc. notes 7s, 2005 (Canada) 9,581
4,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 4,304
----------
13,885
Oil and Gas (0.7%)
- ------------------------------------------------------------------------------------------------------------
5,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 5,188
5,000 Husky Oil Ltd. deb. 7.55s, 2016 (Canada) 4,796
5,000 Petroliam Nasional Berhad 144A notes 7 1/8s, 2005
(Malaysia) 4,896
----------
14,880
Real Estate (0.7%)
- ------------------------------------------------------------------------------------------------------------
5,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 4,600
5,000 Meditrust Corp. med. term notes 7.3s, 2006 (R) 4,801
5,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 (R) 5,013
----------
14,414
Retail (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 Federated Department Stores, Inc. sr. notes 8 1/2s, 2003 5,164
Telecommunications (0.3%)
- ------------------------------------------------------------------------------------------------------------
7,000 Telekom Malaysia Berhad (New) 144A deb. 7 7/8s, 2025
(Malaysia) 6,879
Tobacco (0.4%)
- ------------------------------------------------------------------------------------------------------------
5,000 RJR Nabisco, Inc. notes 8 3/4s, 2005 4,937
5,000 Sampoerna International Finance Co. 144A company
guaranty 8 3/8s, 2006 (Indonesia) 4,987
----------
9,924
Transportation (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 4,629
Utilities (2.8%)
- ------------------------------------------------------------------------------------------------------------
5,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 4,742
5,000 California Energy Corp. disc. notes stepped-coupon
10 1/4s, (10 1/4s, 1/15/97), 2005 ++ 5,438
10,000 Citizens Utilities Co. bonds 7.68s, 2034 10,573
5,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 4,984
5,000 Enersis S.A. notes 7.4s, 2016 (Chile) 4,675
5,000 Enersis S.A. notes 6.6s, 2026 (Chile) 4,772
5,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 4,823
2,945 Midland Cogeneration Ventures (L.P.) deb. 10.33s, 2002 3,122
4,293 Northeast Utilities System notes Ser. B, 8.38s, 2005 4,106
5,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 5,235
5,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 4,852
5,000 US West Capital Funding, Inc. company guaranty 6.95s, 2037 4,879
----------
62,201
----------
Total Corporate Bonds and Notes
(cost $254,945) $ 250,483
FOREIGN GOVERNMENT BONDS AND NOTES (2.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
CAD 5,000 Canada (Government of) deb. Ser. A55, 8s, 2023 $ 3,905
CAD 7,000 Canada (Government of) bonds Ser. WD27, 4s, 1999 4,973
USD 10,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 9,049
USD 6,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan FRN 2020 + ## +++ 3,368
ZAR 15,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 2,946
GBP 5,000 United Kingdom Treasury bonds 7s, 2002 8,074
GBP 15,000 United Kingdom Treasury bonds 7 1/2s, 2006 24,354
----------
Total Foreign Government Bonds and Notes
(cost $57,807) $ 56,669
COLLATERALIZED MORTGAGE OBLIGATIONS (1.9%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 5,788 Chase Mortgage Finance Corp. Ser. 93-3, Class B13,
7.4622s, 2024 $ 3,511
5,762 Housing Securities Inc. Ser. 93-F, Class F9M2, 7s, 2023 5,409
4,858 Prudential Home Mortgage Securities Ser. 93-31, Class B2,
6s, 2000 3,775
6,423 Prudential Home Mortgage Securities 144A Ser. 95-C,
Class 1B1, 7.5643s, 2001 6,351
23,701 Ryland Mortgage Securities Corp. Ser. 94-7C, Class B1,
7.3586s, 2025 22,849
----------
Total Collateralized Mortgage Obligations
(cost $41,625) $ 41,895
ASSET-BACKED SECURITIES (0.4%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$10,000 Railcar Leasing L.L.C. Ser. 1, Class A1, 6 3/4s, 2006 $ 9,788
----------
Total Asset-Backed Securities (cost $9,930) $ 9,788
BRADY BONDS (0.3%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 2,940 Argentina (Republic of) deb 6.75s, 2005 $ 2,628
4,000 Brazil (Republic of) FRB 6.875s, 2024 3,200
----------
Total Brady Bonds (cost $5,924) $ 5,828
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,100,935) *** $2,175,108
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,257,635.
*** The aggregate identified cost on a tax basis is $2,090,126,
resulting in gross unrealized appreciation and depreciation of $180,504
and $95,522, respectively, or net unrealized appreciation of $84,982.
+ Non-income-producing security.
## When-issued securities. (Note 1). The coupon rate will be LIBOR
plus 13/16.
++ The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin receiving
interest income at this rate.
+++ A portion of the income will be received in additional securities.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates shown at March 31, 1997, which are
subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Forward Currency Contracts to Buy at March 31, 1997
(aggregate face value: $62,498)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $15,695 $15,605 6/18/97 $ 90
Canadian Dollar 1,815 1,846 6/18/97 (31)
Deutschemarks 45,296 45,047 6/18/97 249
- -------------------------------------------------------------------------------------------
$308
- -------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at March 31, 1997
(aggregate face value: $73,306)
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- -------------------------------------------------------------------------------------------
British Pounds $31,845 $31,362 6/18/97 $(483)
Deutschemarks 22,173 21,819 6/18/97 (354)
Japanese Yen 20,128 20,125 6/18/97 (3)
- -------------------------------------------------------------------------------------------
$(840)
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,100,935) (Note 1) $ 2,175,108
- ---------------------------------------------------------------------------------------------------
Cash 52,531
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 13,212
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 103,813
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 378
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 504
- ---------------------------------------------------------------------------------------------------
Receivable from Manager (Note 2) 7,078
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 5,419
- ---------------------------------------------------------------------------------------------------
Total assets 2,358,043
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 81,391
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 172
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 832
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 10
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 6,425
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 910
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 295
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 10,373
- ---------------------------------------------------------------------------------------------------
Total liabilities 100,408
- ---------------------------------------------------------------------------------------------------
Net assets $2,257,635
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,043,210
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 14,004
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment and
foreign currency transactions (Note 1) 126,780
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies. 73,641
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,257,635
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($2,257,635 divided by
232,542 shares)* $9.71
- ---------------------------------------------------------------------------------------------------
Offering Price (100/94.25 of $9.71) $10.30
- ---------------------------------------------------------------------------------------------------
* 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 31,1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $ 25,412
- --------------------------------------------------------------------------------------------------
Dividends 7,951
- --------------------------------------------------------------------------------------------------
Total investment income 33,363
Expenses:
Compensation of Manager (Note 2) 7,530
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,177
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,827
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 20
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 177
- --------------------------------------------------------------------------------------------------
Reports to shareholders 4,406
- --------------------------------------------------------------------------------------------------
Registration fees 92
- --------------------------------------------------------------------------------------------------
Auditing 3,972
- --------------------------------------------------------------------------------------------------
Legal 2,696
- --------------------------------------------------------------------------------------------------
Other 8
- --------------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (14,608)
- --------------------------------------------------------------------------------------------------
Total expenses 8,297
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,005)
- --------------------------------------------------------------------------------------------------
Net expenses 6,292
- --------------------------------------------------------------------------------------------------
Net investment income 27,071
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 134,497
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 1,523
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (545)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (125,038)
- --------------------------------------------------------------------------------------------------
Net gain on investments 10,437
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 37,508
- --------------------------------------------------------------------------------------------------
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
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 27,071 $ 56,769
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 136,020 272,666
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (125,583) (37,540)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 37,508 291,895
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (55,800) (64,485)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (258,025) (119,022)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 288,408 186,093
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 12,091 294,481
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 2,245,544 1,951,063
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $14,004 and $42,733, respectively) $2,257,635 $2,245,544
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- -------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Year ended Jan. 3, 1995+
operating performance (Unaudited) Sept. 30 to Sept. 30
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $11.03 $10.56 $8.50
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .12 .29 .23
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .10 1.18 1.83
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .22 1.47 2.06
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.27) (.35) --
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.27) (.65) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.54) (1.00) --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.71 $11.03 $10.56
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) 1.65* 15.01 24.24*
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,258 $2,246 $1,951
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a)(c) .36* .73 .54*
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(a) 1.17* 2.72 2.44*
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 78.15* 170.75 95.15*
- -------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0503 $.0544
- -------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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, 1995 ,1996 and March 31,1997 reflect a reduction
of $0.23, $0.15, and $0.06 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 on security trades is presented for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
Notes to financial statements
March 31, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Balanced Fund (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.
Securities purchased or sold on a when-issued or delayed delivery basis may be
settled a month or more after the trade date; interest income is accrued based
on the terms of the security. Losses may arise due to changes in the market
value of the underlying securities or if the counterparty does not perform
under the contract.
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 nor for excise tax
on income and capital gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. 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.
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% of any excess
thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through May 31, 1997, to the extent that
expenses of the fund (exclusive of brokerage, interest, taxes, deferred
organizational and extraordinary expense, 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 six months ended March 31, 1997, fund expenses were reduced by $2,005
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 has 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 an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. 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 payment by the fund to
Putnam Mutual Funds Corp. at an annual rate of up to 0.35% of the fund's
average net assets. Currently, no payments are being made under the plan.
Note 3
Purchase and sales of securities
During the six months ended March 31, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $1,368,882 and $1,271,040, respectively. Purchases and sales of
U.S. government obligations aggregated $405,016 and $474,209, 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 March 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Putnam Investment Management, Inc. owned 224,379 shares
of the fund (96.5% of shares outstanding) valued at $2,178,720. Transactions
in capital shares were as follows:
Six months ended
March 31, 1997
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 52 $ 550
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 31,411 312,858
- ------------------------------------------------------------
31,463 313,408
Shares
repurchased (2,556) (25,000)
- ------------------------------------------------------------
Net increase 28,907 $288,408
- ------------------------------------------------------------
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
- ------------------------------------------------------------
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
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
Brett C. Browchuk
Vice President
Gary N. Cobson
Vice President
William J. Curtin
Vice President
John J. Morgan, Jr.
Vice President
David J. 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 the
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.
32904/318 5/97
