Putnam
Balanced
Fund
SEMIANNUAL REPORT
March 31, 1998
[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 3/31/98. Additional
details, including fund strategy, performance, and managers' outlook, will
be provided in the annual report, which will cover the 12 months ended
9/30/98.
Portfolio of investments owned
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (71.4%) *
NUMBER OF SHARES VALUE
Biotechnology (0.9%)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
600 Quintiles Transnational Corp. + $ 28,913
Broadcasting (2.1%)
- ------------------------------------------------------------------------------------------------------------
1,200 CBS Corp. 40,725
800 Tele-Communications, Inc. Class A + 24,875
--------------
65,600
Building and Construction (0.6%)
- ------------------------------------------------------------------------------------------------------------
300 Masco Corp. 17,850
Business Equipment and Services (4.5%)
- ------------------------------------------------------------------------------------------------------------
300 BMC Software, Inc. + 25,144
600 Cendant Corp. + 23,775
650 Cisco Systems, Inc. + 44,444
700 EMC Corp. + 26,469
600 Herman Miller, Inc. 20,119
75 Sodexho Marriott Services, Inc. 1,992
--------------
141,943
Computer Services and Software (9.1%)
- ------------------------------------------------------------------------------------------------------------
700 Cadence Design Systems, Inc. + 24,238
525 Computer Associates Intl., Inc. 30,319
600 Compuware Corp. + 29,625
200 Dell Computer Corp. + 13,550
500 HBO & Co. 30,188
800 Microsoft Corp. + 71,600
800 Parametric Technology Corp. + 26,650
600 PeopleSoft, Inc. + 31,613
500 VERITAS Software Corp. + 29,563
--------------
287,346
Conglomerates (4.1%)
- ------------------------------------------------------------------------------------------------------------
1,500 General Electric Co. 129,281
Consumer Non Durables (2.9%)
- ------------------------------------------------------------------------------------------------------------
300 Clorox Co. 25,706
300 Colgate-Palmolive Co. 25,988
500 Procter & Gamble Co. 42,188
--------------
93,882
Consumer Services (2.6%)
- ------------------------------------------------------------------------------------------------------------
500 America Online, Inc. + 34,156
400 Interpublic Group Cos. Inc. 24,850
300 Marriott International, Inc. 11,156
300 Marriott International, Inc. Class A 10,744
--------------
80,906
Electronics and Electrical Equipment (0.7%)
- ------------------------------------------------------------------------------------------------------------
200 Linear Technology Corp. 13,800
200 SCI Systems, Inc. + 7,125
--------------
20,925
Energy-Related (1.6%)
- ------------------------------------------------------------------------------------------------------------
500 AES Corp. + 26,219
500 Halliburton Co. 25,094
--------------
51,313
Entertainment (1.0%)
- ------------------------------------------------------------------------------------------------------------
300 Disney (Walt) Productions, Inc. 32,025
Food and Beverages (2.8%)
- ------------------------------------------------------------------------------------------------------------
800 Coca-Cola Enterprises, Inc. 29,350
700 PepsiCo, Inc. 29,881
500 Sara Lee Corp. 30,813
--------------
90,044
Health Care (1.7%)
- ------------------------------------------------------------------------------------------------------------
300 Cardinal Health, Inc. 26,456
1,000 HEALTHSOUTH Corp. + 28,063
--------------
54,519
Insurance and Finance (7.5%)
- ------------------------------------------------------------------------------------------------------------
400 American Express Co. 36,725
300 American International Group, Inc. 37,781
200 Capital One Financial Corp. 15,775
400 Federal Home Loan Mortgage Corp. 18,975
500 Federal National Mortgage Association 31,625
200 Lehman Brothers Holding, Inc. 14,975
787 MBNA Corp. 28,184
600 Southtrust Corp. 25,125
499 Travelers, Inc. 29,940
--------------
239,105
Medical Supplies and Devices (2.0%)
- ------------------------------------------------------------------------------------------------------------
300 Centocor, Inc. + 13,388
600 Omnicare, Inc. 23,775
500 Tyco International Ltd. + 27,313
--------------
64,476
Oil and Gas (0.7%)
- ------------------------------------------------------------------------------------------------------------
300 Western Atlas, Inc. + 23,213
Paper and Forest Products (0.7%)
- ------------------------------------------------------------------------------------------------------------
500 Fort James Corp. 22,906
Pharmaceuticals (9.4%)
- ------------------------------------------------------------------------------------------------------------
400 Bristol-Myers Squibb Co. 41,725
300 Lilly (Eli) & Co. 17,888
600 Merck & Co., Inc. 77,025
700 Pfizer, Inc. 69,781
500 Schering-Plough Corp. 40,844
300 Warner-Lambert Co. 51,094
--------------
298,357
Publishing (0.7%)
- ------------------------------------------------------------------------------------------------------------
300 Gannett Co., Inc. 21,563
Retail (10.7%)
- ------------------------------------------------------------------------------------------------------------
600 Costco Companies, Inc. + 32,025
518 CVS Corp. 39,109
400 Dayton Hudson Corp. 35,200
500 Fred Meyer, Inc. + 23,094
300 Home Depot, Inc. (The) 20,231
400 Jones Apparel Group, Inc. + 22,025
300 Payless Shoesource, Inc. + 22,575
800 Rite Aid Corp. 27,400
400 Tiffany & Co. 19,475
700 TJX Cos., Inc. (The) 31,675
800 Wal-Mart Stores, Inc. 40,650
700 Walgreen Co. 24,631
--------------
338,090
Telecommunications (2.5%)
- ------------------------------------------------------------------------------------------------------------
400 Lucent Technologies, Inc. 51,150
400 Tellabs, Inc. + 26,850
--------------
78,000
Transportation (1.3%)
- ------------------------------------------------------------------------------------------------------------
100 AMR Corp. + 14,319
900 Southwest Airlines Co. 26,606
--------------
40,925
Utilities (1.3%)
- ------------------------------------------------------------------------------------------------------------
300 American Telephone & Telegraph Co. 19,688
500 SBC Communications, Inc. 21,813
--------------
41,501
--------------
Total Common Stocks (cost $1,562,025) $ 2,262,683
CORPORATE BONDS AND NOTES (10.8%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.2%)
- ------------------------------------------------------------------------------------------------------------
$ 5,000 Raytheon Co notes 6.45s, 2002 $ 5,042
Agriculture (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 Potash Corp. of Saskatchewan notes 7 1/8s,
2007 (Canada) 5,128
Banks (0.3%)
- ------------------------------------------------------------------------------------------------------------
5,000 Abbey National First Capital PLC sub. notes
7.35s, 2049 (United Kingdom) 5,244
5,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 5,235
--------------
10,479
Broadcasting (0.3%)
- ------------------------------------------------------------------------------------------------------------
5,000 News America Holdings, Inc. deb. 7.7s, 2025 5,235
4,000 Viacom, Inc. sr. notes 7 3/4s, 2005 4,195
--------------
9,430
Cable Television (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 6,028
Energy-Related (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 CalEnergy, Inc. sr. notes 7.63s, 2007 4,978
Entertainment (0.4%)
- ------------------------------------------------------------------------------------------------------------
5,000 Time Warner Entertainment Co. sr. notes 8 3/8s, 2033 5,735
5,000 Time Warner Entertainment Co. notes 8 7/8s, 2012 5,883
--------------
11,618
Health Care (0.3%)
- ------------------------------------------------------------------------------------------------------------
5,000 Manor Care, Inc. sr. notes 7 1/2s, 2006 4,935
5,000 Tenet Healthcare Corp. sr. notes 8s, 2005 5,125
--------------
10,060
Insurance and Finance (3.6%)
- ------------------------------------------------------------------------------------------------------------
5,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 4,592
5,000 American General Institute 144A company
guaranty 8 1/8s, 2046 5,520
3,000 Conseco, Inc. notes 6.4s, 2003 2,974
5,000 Den Danske Bank sub. notes 6.55s, 2003 (Denmark) 5,070
3,000 First Citizens Bank Capital Trust I 144A company
guaranty 8.05s, 2008 3,020
5,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 5,213
5,000 Firstar Capital Trust I company guaranty
Ser. B, 8.32s, 2026 5,417
5,000 Fleet Credit Card LLC sr. bank notes 7.02s, 2001 5,127
5,000 Hartford Life, Inc. deb. 7.65s, 2027 5,309
5,000 Lehman Bros Holdings, Inc. med. term notes
6.4s, 1999 5,023
5,000 Markel Capital Trust I company guaranty
Ser. B, 8.71s, 2046 5,387
2,000 North Fork Bancorporation, Inc. company
guaranty 8s, 2027 2,036
3,000 Orion Capital Corp. 144A company guaranty
7.701s, 2028 2,981
5,000 Peoples Bank- Bridgeport sub. notes 7.2s, 2006 5,076
5,000 Phoenix Home Life Mutual Insurance Co.
144A notes 6.95s, 2006 5,110
5,000 Provident Companies, Inc. bonds 7.405s, 2038 4,962
5,000 Salomon, Inc. sr. notes 7.3s, 2002 5,158
5,000 Southern Investments Service Co. sr. notes
6.8s, 2006 (United Kingdom) 5,099
5,000 Sparbanken Sverige AB (Swedbank) 144A sub.
notes 7 1/2s, 2006 (Sweden) 5,155
5,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 5,098
5,000 Tig Capital Trust I 144A bonds 8.597s, 2027 5,223
5,000 Trenwick Capital Trust I company guaranty
8.82s, 2037 5,291
5,000 Trenwick Group, Inc. 144A sr. notes 6.7s, 2003 4,984
5,000 Webster Capital Trust I 144A bonds 9.36s, 2027 5,511
--------------
114,336
Medical Supplies and Devices (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 Beckman Coulter Inc., 144A company guaranty 7.1s, 2003 5,010
Metals and Mining (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 3,810
Oil and Gas (0.7%)
- ------------------------------------------------------------------------------------------------------------
3,000 Express Pipeline Ltd. 144A sub. notes Ser. B, 7.39s,
2019 (Canada) 2,955
5,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 5,415
5,000 Pioneer Natural Resources Co. bonds 7.2s, 2028 4,915
2,000 Sonat, Inc. notes 6 5/8s, 2008 1,987
10,000 Transamerican Energy Ser. B, sr. disc. notes stepped-
coupon zero %, (13s, 6/15/99), 2002 ++ 8,400
--------------
23,672
Real Estate (0.8%)
- ------------------------------------------------------------------------------------------------------------
5,000 Chelsea GCA Realty, Inc. notes 7 1/4s, 2007 5,080
5,000 Executive Risk Capital Trust company guaranty
Ser. B, 8.675s, 2027 5,474
5,000 First Industrial Realty Trust, Inc. notes 7s, 2006 (R) 4,998
5,000 Health Care Property Investors, Inc. sr. notes
6 1/2s, 2006 (R) 4,846
5,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 (R) 5,235
--------------
25,633
Retail (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 Federated Department Stores sr. notes 8 1/2s, 2003 5,457
Telecommunications (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 Colt Telecommunications Group PLC sr. notes 8 7/8s,
2007 (United Kingdom) 2,936
5,000 LCI International, Inc. sr. notes 7 1/4s, 2007 5,011
--------------
7,947
Tobacco (0.3%)
- ------------------------------------------------------------------------------------------------------------
5,000 Philip Morris Companies Inc. notes 6.8s, 2003 5,074
5,000 Sampoerna International Finance Co. 144A company
guaranty 8 3/8s, 2006 (Indonesia) 3,600
--------------
8,674
Transportation (0.6%)
- ------------------------------------------------------------------------------------------------------------
5,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 4,987
5,000 Continental Airlines, Inc. pass-through certificates
Ser. 981C, 6.541s, 2009 4,903
5,000 CSX Corp. deb. 7.95s, 2027 5,593
5,000 Norfolk Southern Corp. bonds 7.05s, 2037 5,266
--------------
20,749
Utilities (2.0%)
- ------------------------------------------------------------------------------------------------------------
5,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 5,092
5,000 California Energy Corp. disc. notes 10 1/4s, 2005 5,368
10,000 Citizens Utilities Co. bonds 7.68s, 2034 11,261
5,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 5,094
5,000 Enersis S.A. notes 6.6s, 2026 (Chile) 4,893
5,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s,
2006 (Israel) 5,125
2,704 Midland Cogeneration Ventures LP deb. 10.33s, 2002 2,921
4,293 Northeast Utilities System notes Ser. B, 8.38s, 2005 4,371
5,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 5,291
5,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 5,080
5,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 5,139
5,000 US West Capital Funding, Inc. company guaranty
6.95s, 2037 5,213
--------------
64,848
--------------
Total Corporate Bonds and Notes (cost $334,453) $ 342,899
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (10.2%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (5.2%)
- ------------------------------------------------------------------------------------------------------------
$10,000 Federal National Mortgage Association 5.94s,
December 12, 2005 $ 9,961
Government National Mortgage Association
pass-through certificates
52,689 7 1/2s, with due dates from January 15, 2024
to March 15, 2027 54,136
22,056 7 1/8s, August 20, 2023 22,635
59,340 7s, January 15, 2027 59,933
18,041 6s, Midget, January 15, 2008 17,821
--------------
164,486
U.S. Treasury Obligations (5.0%)
- ------------------------------------------------------------------------------------------------------------
27,000 U.S. Treasury Bonds 6 1/8s, November 15, 2027 27,688
U.S. Treasury Notes
5,000 7 7/8s, November 15, 2004 5,586
30,000 6 1/4s, June 30, 2002 30,638
25,000 6 1/8s, August 15, 2007 25,712
20,000 5 5/8s, December 31, 1999 20,009
5,000 5 5/8s, November 30, 1999 5,002
10,000 5 5/8s, October 31, 1999 10,002
30,000 5 1/2s, January 31, 2003 29,808
5,000 5 1/2s, February 28, 2000 4,991
--------------
159,436
--------------
Total U.S. Government and Agency Obligations
(cost $323,335) $ 323,922
FOREIGN GOVERNMENT BONDS AND NOTES (1.9%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
AUD 15,000 Australia (Government of) bonds 8 3/4s, 2008 $ 12,188
USD 4,000 Banco Nacional de Comercio Exterior
bank guaranteed 8s, 2003 (Mexico) 3,940
USD 4,000 Russia (Government of) deb. principle
loans FRB 6.719s, 2020 +++ 2,545
ZAR 82,000 South Africa (Republic of) bonds Ser. 153,
13s, 2010 16,097
UKS 14,000 United Kingdom Treasury bonds 7 1/4s, 2007 25,710
--------------
Total Foreign Government Bonds and Notes
(cost $60,233) $ 60,480
COLLATERALIZED MORTGAGE OBLIGATIONS (1.3%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$5,568 Chase Mortgage Finance Corp. Ser. 93-3, Class B13,
7.461s, 2024 $ 4,610
5,685 Housing Securities Inc. Ser. 93-F, Class F9M2, 7s, 2023 5,624
4,858 Prudential Home Mortgage Securities Ser. 93-31,
Class B2, 6s, 2000 4,038
5,176 Prudential Home Mortgage Securities 144A Ser. 95-C,
Class B1, 7.815s, 2001 5,168
23,189 Ryland Mortgage Securities Corp. Ser. 94-7C, Class B1,
7.358s, 2025 22,990
--------------
Total Collateralized Mortgage Obligations
(cost $57,145) $ 42,430
BRADY BONDS (0.3%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$5,000 Argentina (Republic of) Ser. L-GP, stepped-coupon
5 3/4s, (6s, 3/31/99) 2023 ++ $ 3,832
5,000 Peru (Government of) 144A Ser. PDI, 4s, 2017 3,432
4,000 Philippines (Government of) Ser. B, 6 1/2s, 2017 3,520
--------------
Total Brady Bonds (cost $10,845) $ 10,784
MUNICIPAL BONDS AND NOTES (0.2%) * (cost $5,000)
PRINCIPAL AMOUNT RATING** VALUE
- ------------------------------------------------------------------------------------------------------------
$ 5,000 NJ Econ. Dev. Auth. Municipal Bond Investors
Assurance Corporation Rev. Bonds, Ser. A,
7.425s, 2/15/29 Aaa $ 5,482
SHORT-TERM INVESTMENTS (4.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
TRL 760,000,000 Turkey Treasury bills zero %, July 29, 1998 $ 2,267
TRL 590,000,000 Turkey Treasury bills zero %, June 4, 1998 2,053
TRL 4,400,000,000 Turkey Treasury bills zero %, June 17, 1998 1,528
$137,000 Interest in $223,360,000 joint repurchase
agreement dated March 31, 1998 with SBC
Warburg due April 1, 1998 with respect to
various U.S. Treasury obligations -- maturity
value of $137,023 for an effective yield of 5.92% $ 137,023
--------------
Total Short-Term Investments (cost $142,871) $ 142,871
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,495,907) *** $ 3,191,551
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $3,168,280.
** The Moody's rating indicated is believed to be the most recent
ratings available at March 31, 1998 for the securities listed. Ratings
are generally ascribed to securities at the time of issuance. While the
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings do not necessarily represent what
the agencies would ascribe to these securities at March 31, 1998.
Securities rated by Putnam are indicated by "/P" and are not publicly
rated.
*** The aggregate identified cost on a tax basis is $2,495,913,
resulting in gross unrealized appreciation and depreciation of $704,467
and $8,829, respectively, or net unrealized appreciation of $695,638.
+ Non-income-producing security.
[DBL. DAGGERS] The interest rate and date shown parenthetically represent
the new interest rate to be paid and the date the fund will
begin receiving interest at this rate.
[2DBL. DAGGERS] 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 rate shown on Floating Rate Bonds (FRB) are the current
interest rates shown at March 31, 1998, which are subject to change
based on the terms of the security.
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at March 31, 1998 (Unaudited)
(aggregate face value $89,622)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $12,335 $12,369 6/17/98 $ 34
British Pounds 25,636 25,208 6/17/98 (428)
Deutschemarks 39,687 40,421 6/17/98 734
New Zealand Dollar 3,286 3,435 6/17/98 149
South African Rand 8,105 8,189 6/17/98 84
- -----------------------------------------------------------------------------------------
$573
- -----------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at March 31, 1998 (Unaudited)
(aggregate face value $46,358)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -----------------------------------------------------------------------------------------
Deutschemarks $37,643 $38,315 6/17/98 $(672)
Mexican Peso 1,585 1,521 5/11/98 64
Mexican Peso 1,272 1,308 5/12/98 (36)
Philippines Peso 1,964 1,987 4/27/98 (23)
South Korean Won 3,563 3,227 3/11/99 336
- -----------------------------------------------------------------------------------------
$(331)
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,495,907) (Note 1) $3,191,551
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 15,804
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 2,193
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,402
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 27
- ---------------------------------------------------------------------------------------------------
Receivable from Manager (Note 2) 4,561
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 5,402
- ---------------------------------------------------------------------------------------------------
Total assets 3,220,940
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,797
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 21,090
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 3,531
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,523
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 6,425
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 1,160
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 5,068
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 12,063
- ---------------------------------------------------------------------------------------------------
Total liabilities 52,660
- ---------------------------------------------------------------------------------------------------
Net assets $3,168,280
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,367,938
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 14,142
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 90,437
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 695,763
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,168,280
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($3,168,280 divided by 263,215 shares) $12.04
- ---------------------------------------------------------------------------------------------------
Offering price (100/94.25 of $12.04)* $12.77
- ---------------------------------------------------------------------------------------------------
* 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, 1998 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $27,992
- --------------------------------------------------------------------------------------------------
Dividends 7,213
- --------------------------------------------------------------------------------------------------
Total investment income 35,205
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 9,288
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,805
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,211
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 13
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 4
- --------------------------------------------------------------------------------------------------
Reports to shareholders 4,199
- --------------------------------------------------------------------------------------------------
Registration fees 104
- --------------------------------------------------------------------------------------------------
Auditing 6,125
- --------------------------------------------------------------------------------------------------
Legal 2,704
- --------------------------------------------------------------------------------------------------
Postage 22
- --------------------------------------------------------------------------------------------------
Other 10
- --------------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (16,478)
- --------------------------------------------------------------------------------------------------
Total expenses 10,007
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,847)
- --------------------------------------------------------------------------------------------------
Net expenses 7,160
- --------------------------------------------------------------------------------------------------
Net investment income 28,045
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 113,696
- --------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 63
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (8,736)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 2,282
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments,
written options and TBA sales commitments during the period 235,375
- --------------------------------------------------------------------------------------------------
Net gain on investments 342,680
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $370,725
- --------------------------------------------------------------------------------------------------
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
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 28,045 $ 56,290
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 105,023 232,611
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 237,657 258,882
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 370,725 547,783
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (59,126) (55,800)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (235,797) (258,025)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 323,775 289,201
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 399,577 523,159
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 2,768,703 2,245,544
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $14,142 and $45,223, respectively) $3,168,280 $2,768,703
- ----------------------------------------------------------------------------------------------------------------------
* 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 Jan. 3, 1995+
operating performance (Unaudited) Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $11.90 $11.03 $10.56 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .11 .25 .29 .23
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.28 2.16 1.18 1.83
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.39 2.41 1.47 2.06
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.27) (.35) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.00) (1.27) (.65) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.25) (1.54) (1.00) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.04 $11.90 $11.03 $10.56
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) 13.31 * 24.58 15.01 24.24 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,168 $2,769 $2,246 $1,951
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a)(c) .35 * .71 .73 .54 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(a) .98 * 2.29 2.72 2.44 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 62.61 * 151.15 170.75 95.15 *
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0492 $.0494 $.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 March 31, 1998, September 30, 1997, 1996 and 1995 reflect a
reduction of $0.06, $0.12, $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 on security trades is presented for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
Notes to financial statements
March 31, 1998 (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. Discounts on stepped-coupon bonds are accreted according to the
yield-to-maturity basis.
Securities purchased or sold on a forward commitment 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 gains and losses are included with the
net realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign currencies
and the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
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 current 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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform. 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. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
H) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the six months ended March 31, 1998, the
fund had no borrowings against the line of credit.
I) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
J) 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.
K) 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.
L) 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.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through December 31, 1998, to the extent that
expenses of the fund (exclusive of brokerage commissions, 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 an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
As part of the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At March 31, 1998, the payable to the subcustodian bank represents the amount
due for cash advances for the settlement of a security purchased.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended March 31, 1998, fund expenses were reduced by $2,847
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $100 has
been allocated to the fund, 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 "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
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 on the plan.
For the six months ended March 31, 1998, 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 six months ended March 31, 1998, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $1,080,555 and $1,064,187, respectively. Purchases and sales of
U.S. government obligations aggregated $644,178 and $648,471, respectively. In
determining the net gain or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ------------------------------------------------------------
Written options
outstanding at
beginning of period $-- $--
- ------------------------------------------------------------
Options opened 2,000 63
- ------------------------------------------------------------
Options expired (2,000) (63)
- ------------------------------------------------------------
Options closed -- --
- ------------------------------------------------------------
Written options
outstanding at
end of period $-- $--
- ------------------------------------------------------------
Note 4
Capital shares
At March 31, 1998 there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1998
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 3,198 $38,010
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 28,258 294,923
- ------------------------------------------------------------
31,456 332,933
Shares
repurchased (854) (9,158)
- ------------------------------------------------------------
Net increase 30,602 $323,775
- ------------------------------------------------------------
Year ended
September 30, 1997
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 122 $1,342
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 31,412 312,859
- ------------------------------------------------------------
31,534 314,201
Shares
repurchased (2,556) (25,000)
- ------------------------------------------------------------
Net increase 28,978 $289,201
- ------------------------------------------------------------
At March 31, 1998 Putnam Investments Inc., owned 251,287 shares of the fund
(95.5% of shares outstanding) valued at $3,025,495.
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
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Carol McMullen
Vice President
John J. Morgan
Vice President
David J. Santos
Vice President and Fund Manager
James M. Prusko
Vice President and Fund Manager
David L. Waldman
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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 the principal amount
invested.
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