Putnam
Balanced
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-99
[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 3/31/99. Additional
details, including fund strategy, performance, and managers' outlook, will
be provided in the annual report, which will cover the 12 months ended
9/30/99.
<TABLE>
<CAPTION>
Portfolio of investments owned
March 31, 1999 (Unaudited)
COMMON STOCKS (63.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Biotechnology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
75 Quintiles Transnational Corp. (NON) $ 2,831
Broadcasting (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
320 Clear Channel Communications, Inc. (NON) 21,460
431 Comcast Corp. Class A 27,126
--------------
48,586
Business Equipment and Services (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
636 Cisco Systems, Inc. (NON) 69,682
315 Computer Sciences Corp. (NON) 17,384
400 EMC Corp. (NON) 51,100
200 MediaOne Group Inc. (NON) 12,700
--------------
150,866
Computer Equipment (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
280 Sun Microsystems, Inc. (NON) 35,018
Computer Services and Software (6.7%)
- --------------------------------------------------------------------------------------------------------------------------
256 Citrix Systems, Inc. (NON) 9,760
196 Comverse Technology, Inc. (NON) 16,660
266 IBM Corp. 47,149
417 IMS Health Inc. 13,813
130 Intuit, Inc. (NON) 13,228
1,460 Microsoft Corp. (NON) 130,853
750 Oracle Corp. (NON) 19,781
50 Yahoo! Inc. (NON) 8,419
--------------
259,663
Conglomerates (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
863 General Electric Co. 95,469
200 United Technologies Corp. 27,088
--------------
122,557
Consumer Non Durables (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
200 Clorox Co. 23,438
Consumer Related (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
346 Lowe's Cos., Inc. 20,933
Consumer Services (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
56 Amazon.com, Inc. (NON) 9,643
420 America Online, Inc. (NON) 61,320
200 Interpublic Group Cos., Inc. 15,575
--------------
86,538
Electronics and Electrical Equipment (5.4%)
- --------------------------------------------------------------------------------------------------------------------------
567 Applied Materials, Inc. 34,977
690 Intel Corp. 82,024
395 Jabil Circuit, Inc. (NON) 15,998
280 Micron Technology, Inc. (NON) 13,510
392 Solectron Corp. (NON) 19,037
329 Teradyne, Inc. (NON) 17,951
259 Texas Instruments, Inc. 25,706
--------------
209,203
Entertainment (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
300 Carnival Corp. Class A 14,569
509 Time Warner, Inc. 36,171
818 Viacom, Inc. Class B (NON) 34,750
--------------
85,490
Health Care (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
314 Cardinal Health, Inc. 20,724
Insurance and Finance (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
230 American International Group, Inc. 27,744
548 Citigroup, Inc. 35,004
212 Federal National Mortgage Association 14,681
299 Firstar Corp. 26,761
279 Morgan Stanley, Dean Witter, Discover and Co. 27,883
197 Providian Financial Corp. 21,670
230 Schwab (Charles) Corp. 22,109
--------------
175,852
Medical Supplies and Devices (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
300 Guidant Corp. 18,150
600 Tyco International Ltd. 43,050
60 VISX, Inc. (NON) 6,454
--------------
67,654
Oil and Gas (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
220 Enron Corp. 14,135
Pharmaceuticals (10.7%)
- --------------------------------------------------------------------------------------------------------------------------
240 Allergan, Inc. 21,090
200 American Home Products Corp. 13,050
360 Amgen Inc. 26,955
250 Biogen, Inc. 28,578
412 Genentech, Inc. 36,514
357 Lilly (Eli) & Co. 30,300
300 Merck & Co., Inc. 24,056
600 Pfizer, Inc. 83,250
784 Pharmacia & Upjohn, Inc. 48,902
890 Schering-Plough Corp. 49,228
850 Warner-Lambert Co. 56,259
--------------
418,182
Publishing (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
330 McGraw-Hill, Inc. 17,985
Restaurants (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
200 Tricon Global Restaurants, Inc. 14,050
Retail (10.1%)
- --------------------------------------------------------------------------------------------------------------------------
482 Best Buy Co., Inc. 25,064
485 Costco Cos., Inc. 44,408
600 CVS Corp. 28,500
480 Gap, Inc. (The) 32,310
732 Home Depot, Inc. (The) 45,567
300 Kohls Corp. 21,263
436 Kroger Co. 26,106
677 Safeway, Inc. (NON) 34,739
1,161 TJX Cos., Inc. (The) 39,474
764 Wal-Mart Stores, Inc. 70,431
922 Walgreen Co. 26,047
--------------
393,909
Telecommunications (5.8%)
- --------------------------------------------------------------------------------------------------------------------------
148 Ascend Communications, Inc. 12,386
600 Lucent Technologies, Inc. 64,650
779 MCI WorldCom, Inc. 68,990
170 QUALCOMM, Inc. 21,144
290 Qwest Communications International, Inc. 20,907
322 Sprint PCS 14,269
250 Tellabs, Inc. 24,438
--------------
226,784
Textiles (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
300 Shaw Industries, Inc. 5,550
Transportation (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
240 FDX Corp. 22,275
Utilities (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
515 AT&T Corp. (NON) 27,102
350 Sprint Corp. 34,344
--------------
61,446
--------------
Total Common Stocks (cost $1,729,934) $ 2,483,669
CORPORATE BONDS AND NOTES (17.0%) (a)
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
$ 5,000 Boeing Co. deb. 6 5/8s, 2038 $ 4,752
10,000 Raytheon Co notes 6.45s, 2002 10,166
5,000 Raytheon Co. deb. 7s, 2028 4,997
--------------
19,915
Banks (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 4,778
5,000 Bank United Ser. A 8s, 2009 5,002
5,000 Colonial Bank sub. notes 8s, 2009 4,968
5,000 Sovereign Bancorp, Inc. sr. notes 6 5/8s, 2001 4,988
--------------
19,736
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 American Standard Companies, Inc. sr. notes
7 3/8s, 2008 4,906
Broadcasting (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 5,300
5,000 News America Holdings, Inc. deb. 7 3/4s, 2045 5,145
5,000 News America Holdings, Inc. deb. 7.7s, 2025 5,218
--------------
15,663
Building and Construction (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Owens Corning notes 7s, 2009 4,923
Chemicals (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Nova Chemicals Corp. deb. 7s, 2026 (Canada) 4,998
Computer Services and Software (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 Dell Computer Corp. deb. 7.1s, 2028 14,683
5,000 IBM Corp. deb. 7 1/8s, 2096 5,169
--------------
19,852
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 TCI Communications Inc deb. 8 3/4s, 2015 6,077
Energy-related (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 KN Capital Trust III company guaranty 7.63s, 2028 5,000
Entertainment (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Time Warner Entertainment co. notes 8 7/8s, 2012 5,985
15,000 Time Warner Entertainment co. notes 8 3/8s, 2033 17,493
15,000 Walt Disney Co. (The) med. term notes 5.62s, 2008 14,475
--------------
37,953
Health Care (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Tenet Healthcare Corp. sr. notes 8s, 2005 4,938
5,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 5,025
--------------
9,963
Insurance and Finance (7.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 4,468
5,000 AFC Capital Trust company guaranty
Ser. B, 8.207s, 2027 5,376
10,000 American General Institute 144A company guaranty
8 1/8s, 2046 11,143
5,000 Bear Stearns & Cos. Inc. sr. notes 6.15s, 2004 4,978
5,000 Bombardier Capital Inc. 144A notes 6s, 2002 4,965
5,000 Capital One Financial Corp. notes 7 1/4s, 2003 4,957
5,000 Conseco Inc. med-term notes 6 1/2s, 2002 4,797
5,000 Dime Bancorp, Inc. sr. notes 6 3/8s, 2001 4,966
25,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 26,568
5,000 Executive Risk Capital Trust company guaranty
Ser. B, 8.675s, 2027 5,417
5,000 Finova Capital Corp. med-term notes 6.11s, 2003 4,962
5,000 Finova Capital Corp. notes 7.4s, 2007 5,259
5,000 Finova Capital Corp. notes 6 1/4s, 2002 5,031
3,000 First Citizens Bank Capital Trust I company guaranty
8.05s, 2028 2,933
5,000 Firstar Capital Trust I company guaranty
Ser. B, 8.32s, 2026 5,172
5,000 Florida Windstorm Underwriting Association
144A sec. notes MBIA, 7 1/8s, 2019 5,024
6,000 Ford Motor Credit Corp. sr. notes 6s, 2003 6,022
10,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 9,606
5,000 General Motors Acceptance Corp. sr. unsub.
5.85s, 2009 4,814
5,000 Hartford Life, Inc. deb. 7.65s, 2027 5,427
5,000 Household Finance Corp. notes 6 1/2s, 2008 4,990
5,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 4,762
5,000 Lehman Brothers Holdings, Inc. notes 6 1/4s, 2003 4,950
5,000 Markel Capital Trust I company guaranty
Ser. B, 8.71s, 2046 4,721
5,000 Merrill Lynch & Co., Inc. notes 6s, 2009 4,825
5,000 Newcourt Credit Group Inc. 144A notes
6 7/8s, 2005 5,095
5,000 Newcourt Credit Group, Inc. 144A
company guaranty 7 1/8s, 2003 5,184
5,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 4,953
15,000 Paine Webber Group, Inc. sr. med. term notes
6.52s, 2005 14,775
5,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 4,810
5,000 Phoenix Home Life Mutual Insurance Co.
144A notes 6.95s, 2006 4,979
5,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 5,000
5,000 Provident Companies, Inc. bonds 7.405s, 2038 5,051
5,000 Prudential Insurance Co. 144A 6 7/8s, 2003 5,058
5,000 Salomon, Inc. sr. notes 7.3s, 2002 5,201
10,000 Salomon, Inc. sr. notes 6 3/4s, 2003 10,244
10,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 9,138
10,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 9,831
5,000 Sprint Capital Corp. company guaranty 5.7s, 2003 4,935
5,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 4,979
10,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 10,269
5,000 The CIT Group, Inc. notes 5 1/2s, 2001 4,970
5,000 Tig Capital Trust I 144A bonds 8.597s, 2027 4,459
5,000 Toyota Motor Credit Corp. notes 5 5/8s, 2003 4,943
5,000 Transamerica Capital III bonds 7 5/8s, 2037 5,190
5,000 Trenwick Capital Trust I company guaranty
8.82s, 2037 4,686
5,000 Webster Capital Trust I 144A bonds 9.36s, 2027 5,074
5,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 5,103
5,000 Zurich Capital Trust I 144A company guaranty
8.376s, 2037 5,359
--------------
305,419
Medical Supplies and Devices (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Tyco International Ltd. company guaranty
6 1/4s, 2003 5,033
Oil and Gas (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Coastal Corp. bonds 6.95s, 2028 4,869
3,000 Enron Corp. notes 6.4s, 2006 2,992
2,998 Express Pipeline Ltd. 144A sub. notes Ser. B,
7.39s, 2019 (Canada) 2,712
5,000 Gulf Canada Resources, Ltd. sr. notes
8.35s, 2006 (Canada) 4,939
5,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 4,907
10,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 9,309
10,000 Transamerican Energy sr. disc. Ser. B notes
stepped-coupon, zero % (13s, 6/15/99), 2002 (STP) 2,513
5,000 Union Oil Company of California company
guaranty 7 1/2s, 2029 5,094
--------------
37,335
Packaging and Containers (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,000 Ball Corp. 144A sr. notes 7 3/4s, 2006 7,210
Real Estate (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 EOP Operating L.P. notes 6.8s, 2009 4,985
5,000 EOP Operating L.P. notes 6 3/8s, 2002 4,990
5,000 EOP Operating L.P. sr. notes 6 3/4s, 2008 4,941
5,000 Equity Residential Properties notes
6.63s, 2005 (R) 4,938
5,000 Omega Healthcare Investors, Inc. notes
6.95s, 2002 (R) 4,841
--------------
24,695
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 5,116
Retail (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Federated Department Stores, Inc. sr. notes
8 1/2s, 2003 5,440
Telecommunications (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 AirTouch Communications, Inc. notes 6.65s, 2008 5,137
15,000 MCI WorldCom, Inc. sr. notes 6.4s, 2005 15,175
5,000 WorldCom, Inc. sr. notes 6.95s, 2028 5,078
--------------
25,390
Telephone Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 U S West, Inc. notes 5 5/8s, 2008 4,817
Tobacco (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Imperial Tobacco Global sr. unsub. 7 1/8s, 2009 4,974
5,000 Philip Morris Companies Inc. notes 6.8s, 2003 5,141
--------------
10,115
Transportation (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 5,039
5,000 Continental Airlines, Inc. pass-through certificates
Ser. 981C, 6.541s, 2008 4,904
10,000 CSX Corp. deb. 7.95s, 2027 10,942
9,998 Federal Express Corp. Pass-thru Certificates
Ser. 1998-1A, 6.72s, 2022 9,890
5,000 Northwest Airlines Corp. Pass-thru Certificates
Ser. 1999-1A, 6.81s, 2020 4,950
--------------
35,725
Utilities (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 5,170
5,000 AT&T Capital Corp. med. term notes 6.6s, 2005 5,082
5,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 5,126
5,000 Israel Electric Corp., Ltd. 144A sr. notes
7 1/4s, 2006 (Israel) 4,934
2,147 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 2,283
3,173 Northeast Utilities System notes Ser. B, 8.38s, 2005 3,274
10,000 Public Service Co. of New Mexico sr. notes Ser. B,
7 1/2s, 2018 9,534
5,000 Texas New Mexico Power Utilities 1st mtge.
9 1/4s, 2000 5,231
5,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 5,332
5,000 Texas Utilities Electric Capital Trust V company
guaranty 8.175s, 2037 5,057
--------------
51,023
--------------
Total Corporate Bonds and Notes (cost $677,587) $ 666,304
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (14.4%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (9.0%)
- --------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association
Pass-through Certificates
$ 20,622 7s, Dwarf, February 1, 2012 $ 21,067
93,376 6 1/2s, with due dates from May 1, 2028 to
April 15, 2029 92,939
24,886 6s, Dwarf, June 1, 2012 24,700
10,000 5 1/8s, December 12, 2005 9,820
Government National Mortgage Association
40,000 8s, TBA, April 15, 2029 41,675
Government National Mortgage Association
Pass-through Certificates
81,670 7s, with due dates from May 15, 2023 to
June 15, 2028 82,968
79,268 6 1/2s, with due dates from September 15, 2024
to February 15, 2029 78,920
--------------
352,089
U.S. Treasury Obligations (5.4%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
26,000 6 1/8s, November 15, 2027 26,983
2,000 5 1/2s, August 15, 2028 1,914
U.S. Treasury Notes
175,000 5 3/8s, February 15, 2001 176,094
5,000 4 3/4s, February 15, 2004 4,923
--------------
209,914
--------------
Total U.S. Government and Agency Obligations
(cost $562,822) $ 562,003
COLLATERALIZED MORTGAGE OBLIGATIONS (1.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 4,652 Chase Mortgage Finance Corp. Ser. 93-3,
Class B13, 7.461s, 2024 $ 4,375
25,000 GMAC Commercial Mortgage Securities Inc.
Ser. 98-C2, Class A2, 6.42s, 2008 25,065
5,221 Housing Securities Inc. Ser. 93-F, Class F9M2, 7s, 2023 5,133
4,804 Prudential Home Mortgage Securities 144A
Ser. 93-31, Class B2, 6s, 2000 4,372
22,341 Ryland Mortgage Securities Corp. Ser. 94-7C,
Class B1, 7.359s, 2025 22,244
--------------
Total Collateralized Mortgage Obligations
(cost $57,601) $ 61,189
FOREIGN GOVERNMENT BONDS AND NOTES (0.5%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 5,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 $ 4,853
15,000 Ontario (Province of) sr. unsub. 5 1/2s, 2008 14,452
--------------
Total Foreign Government Bonds and Notes
(cost $19,902) $ 19,305
PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
5 Centaur Funding Corp 144A $9.08 pfd.
(Cayman Islands) $ 5,337
250 TCR Holding Corp. Class E, zero % pfd. 16
--------------
Total Preferred Stocks (cost $5,016) $ 5,353
SHORT-TERM INVESTMENTS (6.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 111,000 Interest in $400,000,000 joint repurchase agreement
dated March 31, 1999, with Warburg Securities
due April 1, 1999 with respect to various U.S.
Treasury obligations -- maturity value of
$111,015 for an effective yield of 4.90%. $ 111,000
125,000 Interest in $241,753,000 joint tri-party repurchase
agreement dated March 31, 1999 with Credit
Suisse First Boston due April 1, 1999 with
respect to various U.S. Treasury obligations --
maturity value of $125,017 for an effective
yield of 4.89%. 125,000
--------------
Total Short-Term Investments (cost $236,000) $ 236,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,288,862) (b) $ 4,033,823
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,900,736.
(b) The aggregate identified cost on a tax basis is $3,290,470, resulting in gross unrealized appreciation and
depreciation of $785,702 and $42,349, respectively, or net unrealized appreciation of $743,353.
(NON) Non-income-producing security.
(STP) 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.
(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.
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at March 31, 1999 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- -------------------------------------------------------------------------------
Euro Dollars $36,701 $37,237 6/16/99 $(536)
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at March 31, 1999 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -------------------------------------------------------------------------------
Euro Dollars $35,297 $35,868 6/16/99 $571
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,288,862) (Note 1) $4,033,823
- -----------------------------------------------------------------------------------------------
Cash 5,717
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 11,917
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 74,291
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 571
- -----------------------------------------------------------------------------------------------
Receivable from Manager (Note 2) 3,079
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 2,714
- -----------------------------------------------------------------------------------------------
Total assets 4,132,112
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 210,303
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 289
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,776
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 10
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 6,425
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 536
- -----------------------------------------------------------------------------------------------
Other accrued expenses 12,037
- -----------------------------------------------------------------------------------------------
Total liabilities 231,376
- -----------------------------------------------------------------------------------------------
Net assets $3,900,736
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,937,496
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 18,383
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investment (Note 1) 199,826
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 745,031
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,900,736
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($3,900,736 divided by 311,976 shares) $12.50
- -----------------------------------------------------------------------------------------------
Offering price (100/94.25 of $12.50)* $13.26
- -----------------------------------------------------------------------------------------------
* 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, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $28) $ 5,193
- -----------------------------------------------------------------------------------------------
Interest income 44,628
- -----------------------------------------------------------------------------------------------
Total investment income 49,821
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 11,367
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,387
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,207
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 20
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 532
- -----------------------------------------------------------------------------------------------
Reports to shareholders 3,424
- -----------------------------------------------------------------------------------------------
Registration fees 147
- -----------------------------------------------------------------------------------------------
Auditing 12,998
- -----------------------------------------------------------------------------------------------
Legal 1,884
- -----------------------------------------------------------------------------------------------
Postage 515
- -----------------------------------------------------------------------------------------------
Other 7
- -----------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (22,716)
- -----------------------------------------------------------------------------------------------
Total expenses 12,772
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,485)
- -----------------------------------------------------------------------------------------------
Net expenses 10,287
- -----------------------------------------------------------------------------------------------
Net investment income 39,534
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 203,626
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (494)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 613
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
during the period 364,504
- -----------------------------------------------------------------------------------------------
Net gain on investments 568,249
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $607,783
- -----------------------------------------------------------------------------------------------
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
1999* 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 39,534 $ 55,650
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 203,132 361,798
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies 365,117 (78,192)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 607,783 339,256
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (58,593) (59,126)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments (357,149) (235,797)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 561,254 334,405
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 753,295 378,738
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 3,147,441 2,768,703
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $18,383 and $37,442, respectively) $3,900,736 $3,147,441
- ---------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.92 $11.90 $11.03 $10.56 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .14(c) .22(c) .25 .29 .23
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.00 1.05 2.16 1.18 1.83
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.14 1.27 2.41 1.47 2.06
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.25) (.27) (.35) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.34) (1.00) (1.27) (.65) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.56) (1.25) (1.54) (1.00) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.50 $11.92 $11.90 $11.03 $10.56
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 19.02* 12.18 24.58 15.01 24.24*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,901 $3,147 $2,769 $2,246 $1,951
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a)(c) .36* .77 .71 .73 .54*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(a) 1.13* 1.82 2.29 2.72 2.44*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 72.54* 139.55 151.15 170.75 95.15*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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, 1999, September 30, 1998, 1997, 1996 and 1995
reflect a reduction of $0.08, $0.13, $0.12, $0.15, and $0.23 per share, respectively.
(b) Total 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).
</TABLE>
Notes to financial statements
March 31, 1999 (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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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.
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) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the unit
price has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 1.0%
from the principal amount. The fund holds, and maintains until settlement
date, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or the fund may enter into offsetting contracts for
the forward sale of other securities it owns. Income on the securities
will not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the
procedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with
the intention of acquiring securities for their portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of
a commitment prior to settlement if Putnam Management deems it appropriate
to do so.
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, 1999, 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 next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and
0.38% thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through December 31, 1999, 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 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.
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, 1999, fund expenses were reduced by
$2,485 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.
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, 1999, Putnam Mutual Funds Corp., acting
as underwriter received no net commissions from the sale of shares of the
fund.
Note 3
Purchases and sales of securities
During the six months ended March 31, 1999, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $1,822,516 and $1,505,634, respectively.
Purchases and sales of U.S. government obligations aggregated $816,266 and
$1,002,249, 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, 1999 there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1999
- -----------------------------------------------------------------------------
Shares Amount
- -----------------------------------------------------------------------------
Shares sold 12,498 $151,606
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 35,933 415,742
- -----------------------------------------------------------------------------
48,431 567,348
Shares
repurchased (499) (6,094)
- -----------------------------------------------------------------------------
Net increase 47,932 $561,254
- -----------------------------------------------------------------------------
Year ended
September 30, 1998
- -----------------------------------------------------------------------------
Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,039 $ 48,660
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 28,249 294,923
- -----------------------------------------------------------------------------
32,288 343,583
Shares
repurchased (857) (9,178)
- -----------------------------------------------------------------------------
Net increase 31,431 $334,405
- -----------------------------------------------------------------------------
Putnam Management owned 285,190 shares of the fund (91.4% of shares
outstanding) valued at $3,564,875.
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
John J. Morgan, Jr.
Vice President
Manuel Weiss Herrero
Vice President and Fund Manager
James M. Prusko
Vice President and Fund Manager
Richard A. Monaghan
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' Web site:
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.
51854 318 5/99
