Putnam 811-7237
Balanced
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-02
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
The aftermath of the September terrorist attacks and continued stock
market volatility combined with an already difficult economic
environment during Putnam Balanced Fund's semiannual period, which ended
March 31, 2002. On the following pages, your management team explains
how your fund fared in this environment and discusses expectations for
the future.
This economic climate has also given Putnam pause and after several
lengthy working sessions between Management and the Board of Trustees
your Trustees have agreed to recommend the mergers of several funds. The
intent of the mergers is to provide shareholders with more focused
products that will play a consistent role in a broad investment plan.
Your fund has been proposed for merger into The George Putnam Fund of
Boston, which has a similar investment objective and strategy. For more
details, see page 5.
As you read this report, you may notice that we are now listing the team
that manages your fund. We do this to reflect more accurately how your
fund is managed as well as Putnam's firm belief in the value of team
management. The individuals who comprise the management team are shown
at the end of Management's discussion of performance.
We know that Putnam Investments values its relationship with you and its
other shareholders and appreciates your loyalty during these times of
restructuring of staff and products in the pursuit of superior
investment performance for the future.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
May 8, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the
Putnam Large-Cap Growth and Core Fixed-Income teams
During the first half of Putnam Balanced Fund's 2002 fiscal year, U.S.
financial markets demonstrated both their resilience and their potential
for volatility. While stocks rallied significantly after their September
lows, they became more turbulent in the final months of the period as
investors remained concerned about corporate profits and the
well-publicized Enron/Arthur Andersen accounting scandal. For the six
months ended March 31, 2002, your fund delivered a positive return at
net asset value, but lagged its Lipper peer group as well as its stock
market benchmarks, the S&P 500 Index and Russell 1000 Growth Index. This
underperformance is due in part to disappointing results from some
health-care holdings and an underweight position in the utilities
sector, which performed well. Despite market volatility and investor
skittishness, we remained focused on the fund's long-term objectives and
continued to target stocks that we believe will reward investors over
time.
Total return for 6 months ended 3/31/02
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -----------------------------------------------------------------------
6.15% -0.01% 5.81% 0.81% 5.77% 4.77% 5.88% 2.18%
- -----------------------------------------------------------------------
Past performance does not indicate future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* PERIOD MARKED BY RECOVERY AND NERVOUS INVESTORS
Your fund's fiscal year began just weeks after the September 11
terrorist attacks on New York and Washington -- unprecedented and tragic
events that caused severe declines across all stock market sectors.
Despite their profound impact, however, evidence of the U.S. market's
resilience became apparent as early as October, when stocks began to
recover. At the same time, the Federal Reserve Board continued its
aggressive stance. It enacted a total of 11 interest-rate cuts in 2001,
bringing short-term rates to their lowest level in four decades.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Pharmaceuticals 9.8%
Retail 5.6%
Electronics 5.3%
Software 4.4%
Conglomerates 2.9%
Footnote reads:
*Based on net assets as of 3/31/02. Holdings will vary over time.
During the final three months of 2001, the market environment continued
to improve and stocks surged as investors reacted enthusiastically to
government efforts to stimulate the economy and positive military
reports from Afghanistan. Investors also began to shift back into more
aggressive growth stocks in anticipation of a recovery. In many cases,
stocks that had been hurt most earlier in the year staged the most
dramatic rebounds. In early 2002, however, the market rally came to an
end, even as the economic picture brightened considerably. Evidence
began to emerge that recovery was underway, the unemployment rate
stopped rising, and the manufacturing sector grew for the first time in
nearly two years. While these positive economic reports prompted several
rallies, they often gave way to subsequent declines as concerns about
corporate profits lingered. The effects of the ongoing Enron
investigation also hurt investors' confidence. After significant
strength in late 2001, stock market performance in the first three
months of 2002 was generally flat.
* SOME HEALTH-CARE STOCKS WERE WEAK; SEMICONDUCTORS, FINANCIALS WERE STRONG
During the semiannual period, fund performance was dampened by weakness
in some health-care holdings. Biotechnology company Invitrogen
Corporation and drug companies King Pharmaceuticals and Schering-Plough
experienced declines in the period. Pharmaceutical companies have faced
a number of challenges recently, including a slower and more stringent
FDA approval process, disappointing sales for several highly anticipated
drugs, and an increasing number of medicines whose patent protection
will soon expire. When patents expire for brand-name drugs, the
companies that produce them often experience sales declines as consumers
turn to the less expensive generic versions of the drugs. However, we
remain optimistic about the long-term prospects for these companies,
which we believe are fundamentally strong, and about prospects for the
health-care sector as a whole. Hospital admissions are on the rise for
the first time in years and the reimbursement environment has improved.
Shifting demographics and growing support for patients' rights should
provide attractive investment opportunities in the health-care industry
for years to come.
Fund Profile
Putnam Balanced Fund seeks capital growth and current income by
investing mainly in stocks of rapidly growing companies and in
fixed-income securities such as U.S. Treasuries and mortgage-backed
issues. The fund may be appropriate for investors who are seeking the
growth potential of stocks combined with bond investments, which may
offset the risk of downturns in the equity market. The fund typically
targets a 60% allocation to stocks and a 40% position in bonds.
Stocks across many sectors of the fund's portfolio contributed
positively to performance during the period. As encouraging signs
emerged for semiconductor and semiconductor-equipment stocks, fund
holdings Marvell Technology Group, Maxim Integrated Products, and
Integrated Device Technology all performed well. EchoStar
Communications, which offers direct broadcast satellite television
service, boosted fund performance, as did financial stocks such as
Citigroup Inc. and Fifth Third Bancorp. While these holdings, and others
discussed in this report, were viewed favorably at the end of the fiscal
period, all are subject to review in accordance with the fund's
investment strategy and may vary in the future.
* INVESTMENTS IN BONDS REMAINED KEY TO FUND STRATEGY
A key component of your fund's strategy is its investment in
high-quality fixed-income securities, which are designed to cushion the
blow of downturns in the stock market. The fund typically divides its
assets between U.S. Treasury securities and mortgage-backed securities
issued by government-sponsored agencies. During the period, timely
adjustments to the bond portfolio's interest-rate sensitivity and its
greater focus on mortgage-backed securities helped make a positive
contribution to the fund's performance.
[GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS]
TOP 10 EQUITY HOLDINGS
Microsoft Corp.
Software
Pfizer, Inc.
Pharmaceuticals
General Electric Co.
Conglomerates
Intel Corp.
Electronics
Wal-Mart Stores, Inc.
Retail
Cisco Systems, Inc.
Communications equipment
Johnson & Johnson
Pharmaceuticals
American International Group, Inc.
Insurance
Philip Morris Companies, Inc.
Tobacco
Lilly (Eli) & Co.
Pharmaceuticals
Footnote reads:
These holdings represent 18.3% of the fund's net assets as of 3/31/02.
Portfolio holdings will vary over time.
By the end of September and early October 2001, we felt the market had
overreacted to September 11 by becoming too pessimistic. In response, we
took on a defensive stance, shortening the bond portfolio's duration --
a measure of its sensitivity to changes in interest rates -- in order to
insulate it from the negative influence of the rising rates we
anticipated. We also built up holdings of mortgage-backed securities,
which typically perform better than Treasuries in a rising rate
environment. We believe those moves proved to be timely, as a steady
stream of emerging data indicated that the economy was indeed
recovering. By the end of February, we felt that market sentiment had
swung too far the other way, that market participants had become too
optimistic about growth, and that interest rates had risen too far too
fast. As a result, we reversed course and lengthened the duration of the
fixed-income portfolio. At the close of the period, approximately 42% of
your fund's portfolio was invested in the fixed-income market.
* FUND REMAINS COMMITTED TO BALANCED STRATEGY
Looking ahead to the second half of fiscal 2002, we believe the fund's
balanced strategy will be especially beneficial if the market remains
turbulent. We plan to take full advantage of the long-term growth
opportunities offered by the stock market while strategically selecting
fixed-income securities in an effort to reduce the fund's overall risk.
Although more volatility is likely, we believe that the global economic
rebound that has taken hold over the last several months will lead to an
improved outlook for corporate earnings in the second half of 2002. As
always, we believe that investors with patience and a long-term
perspective will be rewarded when we return to a more favorable
environment for stocks.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 3/31/02, there is no guarantee the fund will
continue to hold these securities in the future.
This fund is managed by the Putnam Large-Cap Growth and Core
Fixed-Income teams. The members of the Large-Cap Growth Team are C. Beth
Cotner, Bill DeRoche, Tony Elavia, Jeffrey Lindsey, David Santos, and
Anthony Sellitto. The members of the Core Fixed-Income Team are Kevin
Cronin, Rob Bloemker, Andrea Burke, Joanne Driscoll, D. William Kohli,
Krishna Memani, James Prusko, and David Waldman.
MERGER PROPOSED FOR PUTNAM BALANCED FUND
After careful study and lengthy working sessions with Putnam Investment
Management, your fund's Trustees have agreed to recommend the merger of
Putnam Balanced Fund into The George Putnam Fund of Boston. Completion
of the merger is subject to a number of conditions, including the
approval of shareholders. Proxy materials will be delivered within the
next few months so you can submit your vote.
The George Putnam Fund of Boston has an investment strategy that is
similar to Putnam Balanced Fund, investing in both stocks and bonds for
investors seeking a balanced objective of both capital growth and
current income. The George Putnam Fund of Boston focuses more on value
stocks, while Putnam Balanced Fund emphasizes growth stocks. If the
merger is approved, shareholders are expected to benefit from the more
conservative, value-oriented equity investment style offered by The
George Putnam Fund of Boston. In addition, shareholders are expected to
benefit from potentially lower expenses provided by a larger asset base
of the merged funds. We encourage you to vote on this important matter
by returning your completed proxy material.
Once a registration statement relating to a merger has been filed with
the SEC and is effective, you may call 1-800-225-1581 or visit the SEC
Web site (www.sec.gov) for a free copy of the prospectus/proxy
statement. It contains important information. Please read it carefully.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 3/31/02
Class A Class B Class C Class M
(inception dates) (1/3/95) (4/4/00) (4/4/00) (4/4/00)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 6.15% -0.01% 5.81% 0.81% 5.77% 4.77% 5.88% 2.18%
- ------------------------------------------------------------------------------
1 year -2.90 -8.46 -3.58 -8.36 -3.64 -4.59 -3.39 -6.74
- ------------------------------------------------------------------------------
5 years 47.12 38.69 41.88 39.96 41.91 41.91 43.55 38.62
Annual average 8.03 6.76 7.25 6.95 7.25 7.25 7.50 6.75
- ------------------------------------------------------------------------------
Life of fund 113.69 101.37 102.63 102.63 102.67 102.67 106.13 99.06
Annual average 11.05 10.15 10.24 10.24 10.25 10.25 10.50 9.97
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/02
Lehman
Intermediate Lehman
S&P 500 Russell 1000 Treasury Aggregate Consumer
Index Growth Index Bond Index Bond Index* price index
- -----------------------------------------------------------------------------------------------------------------------------
6 months 10.99% 12.16% -0.55% 0.14% 0.22%
- -----------------------------------------------------------------------------------------------------------------------------
1 year 0.24 -2.00 4.63 5.35 1.30
- -----------------------------------------------------------------------------------------------------------------------------
5 years 62.34 44.16 39.53 44.02 11.62
Annual average 10.18 7.59 6.89 7.57 2.22
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Life of fund 182.08 146.03 65.88 76.11 18.91
Annual average 15.40 13.24 7.23 8.13 2.42
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Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return and principal
value will fluctuate and you may have a gain or a loss when you sell
your shares
Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Performance for class B, C,
and M shares before their inception are derived from the historical
performance of class A shares, adjusted for the applicable sales charge
(or CDSC) and higher operating expenses for such shares. For a portion
of the period this fund was sold on a limited basis with limited assets
and expenses. Had expenses not been limited, returns would have been
lower.
*This index will replace the Lehman Intermediate Treasury Bond Index as a
benchmark for this fund. After a recent review of fund benchmarks, Putnam
management has determined that the securities tracked by this index more
accurately reflect the types of securities generally held by the fund.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/02
Class A Class B Class C Class M
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Distributions
(number) 2 2 2 2
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Income $0.080 $0.048 $0.045 $0.056
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Capital gains -- -- -- --
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Total $0.080 $0.048 $0.045 $0.056
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Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------
9/30/01 $9.10 $9.66 $9.08 $9.09 $9.10 $9.43
- ------------------------------------------------------------------------------
3/31/02 9.58 10.16 9.56 9.57 9.58 9.93
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TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption (except on
certain redemptions of shares bought without an initial sales charge).
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index* is an unmanaged index of common stock performance.
Russell 1000 Growth Index* is an unmanaged index of those companies in
the Russell 1000 Index chosen for their growth orientation.
Lehman Intermediate Treasury Bond Index* is an unmanaged index of
Treasury bonds with maturities between 1 and up to 10 years.
Lehman Aggregate Bond Index* is an unmanaged index of U.S. fixed-income
securities.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper.
*Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these materials
to customers who share the same address. This change will automatically
apply to all shareholders except those who notify us. If you would prefer
to receive your own copy, please call Putnam at 1-800-225-1581.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios, and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate table
is provided for each share class.
THE FUND'S PORTFOLIO
March 31, 2002 (Unaudited)
COMMON STOCKS (50.6%) (a)
NUMBER OF SHARES VALUE
Aerospace and Defense (1.0%)
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36,300 Lockheed Martin Corp. $ 2,090,154
13,363 Northrop Grumman Corp. 1,510,687
-------------
3,600,841
Banking (1.3%)
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47,900 Bank of New York Company, Inc. (The) 2,012,758
22,900 Fifth Third Bancorp 1,545,292
45,700 U.S. Bancorp 1,031,440
-------------
4,589,490
Beverage (1.4%)
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19,600 Anheuser-Busch Companies, Inc. 1,023,120
37,200 Pepsi Bottling Group, Inc. (The) 962,364
56,100 PepsiCo, Inc. 2,889,150
-------------
4,874,634
Biotechnology (1.7%)
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54,600 Amgen, Inc. (NON) 3,258,528
41,600 Applera Corporation - Applied Biosystems Group 929,760
18,000 Invitrogen Corp. (NON) 617,760
32,060 MedImmune, Inc. (NON) 1,260,920
-------------
6,066,968
Broadcasting (1.1%)
- -------------------------------------------------------------------------------------------------------------------
26,700 Clear Channel Communications, Inc. (NON) 1,372,647
85,500 Echostar Communications Corp. Class A (NON) 2,421,360
-------------
3,794,007
Commercial and Consumer Services (0.1%)
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8,600 eBay, Inc. (NON) 487,104
Communications Equipment (1.9%)
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305,900 Cisco Systems, Inc. (NON) (SEG) 5,178,887
43,200 QUALCOMM, Inc. (NON) 1,626,048
-------------
6,804,935
Computers (1.6%)
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67,853 Dell Computer Corp. (NON) 1,771,642
33,400 EMC Corp. (NON) 398,128
8,500 IBM Corp. 884,000
32,900 McDATA Corp. Class A (NON) 390,523
32,600 Network Appliance, Inc. (NON) 664,388
18,200 QLogic Corp. (NON) 901,264
15,000 VeriSign, Inc. (NON) 405,000
-------------
5,414,945
Conglomerates (2.9%)
- -------------------------------------------------------------------------------------------------------------------
240,900 General Electric Co. (SEG) 9,021,705
30,565 Tyco International, Ltd. (Bermuda) 987,861
-------------
10,009,566
Consumer Finance (0.3%)
- -------------------------------------------------------------------------------------------------------------------
17,600 Household International, Inc. 999,680
Consumer Goods (0.3%)
- -------------------------------------------------------------------------------------------------------------------
20,700 Colgate-Palmolive Co. 1,183,005
Electronics (5.3%)
- -------------------------------------------------------------------------------------------------------------------
44,200 Alpha Industries, Inc. (NON) 674,050
24,300 Broadcom Corp. Class A (NON) 872,370
12,100 Brooks Automation, Inc. (NON) 549,824
21,000 Celestica, Inc. (Canada) (NON) 761,460
30,300 Integrated Device Technology, Inc. (NON) 1,007,172
237,200 Intel Corp. 7,213,252
32,300 Jabil Circuit, Inc. (NON) 760,019
33,400 Linear Technology Corp. 1,476,948
28,600 Marvell Technology Group, Ltd. (Bermuda) (NON) 1,252,680
27,100 Maxim Integrated Products, Inc. (NON) 1,509,741
28,100 Micron Technology, Inc. (NON) 924,490
30,600 PMC-Sierra, Inc. (NON) 498,168
56,300 RF Micro Devices, Inc. (NON) 1,007,770
-------------
18,507,944
Energy (0.4%)
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14,300 BJ Services Co. (NON) 492,921
42,600 Rowan Companies, Inc. (NON) 981,504
-------------
1,474,425
Entertainment (0.9%)
- -------------------------------------------------------------------------------------------------------------------
62,117 Viacom, Inc. Class B (NON) 3,004,599
Financial (1.1%)
- -------------------------------------------------------------------------------------------------------------------
52,200 Citigroup, Inc. 2,584,944
20,800 Freddie Mac 1,318,096
-------------
3,903,040
Food (0.3%)
- -------------------------------------------------------------------------------------------------------------------
28,900 Kraft Foods, Inc. Class A 1,116,985
Gaming & Lottery (0.2%)
- -------------------------------------------------------------------------------------------------------------------
11,900 International Game Technology (NON) 741,608
Health Care Services (0.7%)
- -------------------------------------------------------------------------------------------------------------------
21,400 HCA, Inc. 943,312
11,200 Trigon Healthcare, Inc. (NON) 826,784
9,800 Wellpoint Health Networks, Inc. (NON) 623,966
-------------
2,394,062
Insurance (1.2%)
- -------------------------------------------------------------------------------------------------------------------
57,600 American International Group, Inc. 4,155,264
Investment Banking/Brokerage (0.7%)
- -------------------------------------------------------------------------------------------------------------------
12,500 Goldman Sachs & Co. 1,128,125
23,800 Merrill Lynch & Company, Inc. 1,318,044
-------------
2,446,169
Leisure (0.4%)
- -------------------------------------------------------------------------------------------------------------------
22,200 Harley-Davidson, Inc. 1,223,886
Media (0.9%)
- -------------------------------------------------------------------------------------------------------------------
75,483 AOL Time Warner, Inc. (NON) 1,785,173
64,400 Fox Entertainment Group, Inc. Class A (NON) 1,523,060
-------------
3,308,233
Medical Technology (1.2%)
- -------------------------------------------------------------------------------------------------------------------
32,100 Baxter International, Inc. 1,910,592
41,500 Medtronic, Inc. 1,876,215
10,900 Zimmer Holdings, Inc. (NON) 371,145
-------------
4,157,952
Oil & Gas (0.3%)
- -------------------------------------------------------------------------------------------------------------------
27,500 EOG Resources, Inc. 1,115,400
Pharmaceuticals (9.8%)
- -------------------------------------------------------------------------------------------------------------------
15,900 Allergan, Inc. 1,027,935
23,600 Andrx Group (NON) 895,384
24,700 Enzon, Inc. (NON) 1,093,963
71,700 Johnson & Johnson 4,656,915
54,800 King Pharmaceuticals, Inc. (NON) 1,918,548
51,200 Lilly (Eli) & Co. 3,901,440
32,600 Merck & Company, Inc. 1,877,108
239,511 Pfizer, Inc. 9,518,167
35,600 Pharmacia Corp. 1,604,848
118,900 Schering-Plough Corp. 3,721,570
57,900 Wyeth 3,801,135
-------------
34,017,013
Regional Bells (0.2%)
- -------------------------------------------------------------------------------------------------------------------
14,800 SBC Communications, Inc. 554,112
Restaurants (0.4%)
- -------------------------------------------------------------------------------------------------------------------
59,088 Starbucks Corp. (NON) 1,366,705
Retail (5.6%)
- -------------------------------------------------------------------------------------------------------------------
57,300 Bed Bath & Beyond, Inc. (NON) 1,933,875
84,800 Foot Locker, Inc. (NON) 1,372,064
38,600 Home Depot, Inc. (The) 1,876,346
38,300 Kohl's Corp. (NON) 2,725,045
51,400 Lowe's Companies, Inc. 2,235,386
86,100 Office Depot, Inc. (NON) 1,709,085
39,700 Talbots, Inc. (The) 1,405,380
98,789 Wal-Mart Stores, Inc. 6,054,778
-------------
19,311,959
Semiconductor (1.1%)
- -------------------------------------------------------------------------------------------------------------------
18,600 Applied Materials, Inc. (NON) 1,009,422
7,900 Cymer, Inc. (NON) 392,314
23,900 KLA-Tencor Corp. (NON) 1,589,350
18,200 Novellus Systems, Inc. (NON) 985,348
-------------
3,976,434
Software (4.4%)
- -------------------------------------------------------------------------------------------------------------------
44,400 Check Point Software Technologies, Ltd. (Israel) (NON) 1,349,760
168,819 Microsoft Corp. (NON) 10,181,474
57,700 Oracle Corp. (NON) 738,560
19,400 PeopleSoft, Inc. (NON) 708,682
35,700 Siebel Systems, Inc. (NON) 1,164,177
24,216 VERITAS Software Corp. (NON) 1,061,387
-------------
15,204,040
Technology Services (0.8%)
- -------------------------------------------------------------------------------------------------------------------
29,300 Automatic Data Processing, Inc. 1,707,311
51,800 KPMG Consulting, Inc. (NON) 1,046,360
-------------
2,753,671
Tobacco (1.1%)
- -------------------------------------------------------------------------------------------------------------------
76,200 Philip Morris Companies, Inc. 4,013,454
-------------
Total Common Stocks (cost $181,649,298) $ 176,572,130
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (40.0%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (22.9%)
- -------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association Pass-Through Certificates
$ 15,682,367 7 1/2s, with due dates from December 1, 2029 to July 1, 2031 $ 16,260,529
3,255,000 7 1/4s, May 15, 2030 3,536,265
4,000,000 7 1/4s, January 15, 2010 4,335,640
1,805,000 TBA, 7s, April 1, 2017 1,868,735
17,455,354 6 1/2s, with due dates from March 1, 2016 to April 1, 2030 17,776,083
11,663,969 6 1/2s, with due dates from March 1, 2031 to February 1, 2032 11,622,795
111,262 6s, September 1, 2031 107,957
568,173 6s, with due dates from June 1, 2015 to April 1, 2016 567,697
Government National Mortgage Association Pass-Through Certificates
738,541 7s, with due dates from May 15, 2023 to February 15, 2030 757,293
23,162,202 6 1/2s, with due dates from September 15, 2024 to
February 15, 2032 23,135,534
-------------
79,968,528
U.S. Treasury Obligations (17.1%)
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
9,725,000 6 1/4s, May 15, 2030 10,089,688
2,665,000 5 1/4s, February 15, 2029 2,395,995
U.S. Treasury Notes
16,270,000 5s, August 15, 2011 15,725,931
15,475,000 4 7/8s, February 15, 2012 14,846,251
11,832,000 3 1/2s, November 15, 2006 11,190,469
21,845,000 U.S. Treasury Strip zero %, November 15, 2024 5,447,051
-------------
59,695,385
-------------
Total U.S. Government and Agency Obligations (cost $142,133,011) $ 139,663,913
Collateralized Mortgage Obligations (1.7%)
- -------------------------------------------------------------------------------------------------------------------
Freddie Mac
$ 10,709,693 Ser. 216, IO, 6s, 1/1/32 $ 3,440,489
8,050,049 Ser. 212, IO, 6s, 5/1/31 2,349,608
-------------
Total Collateralized Mortgage Obligations (cost $4,930,480) $ 5,790,097
PREFERRED STOCKS (--%) (a) (cost $16)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
250 TCR Holding Corp. Class E zero % pfd. $ 1
SHORT-TERM INVESTMENTS (8.5%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 1,500,000 Quincy Capital Corp. effective yield of 1.95%, May 14, 2002 $ 1,496,506
2,104,707 Short-term investments held as collateral for loaned securities with
yields ranging from 1.80% to 2.19% and due dates ranging from
April 1, 2002 to May 13, 2002 (d) 2,102,760
16,383,000 Interest in $715,000,000 joint tri-party repurchase agreement dated
March 28, 2002 with Goldman Sachs & Co. due April 1, 2002 with
respect to various U.S. Government obligations -- maturity value
of $16,386,495 for an effective yield of 1.92% 16,383,000
9,654,000 Interest in $750,000,000 joint repurchase agreement dated
March 28, 2002 with Morgan Stanley, Dean Witter & Co. due
April 1, 2002 with respect to various U.S. Government
obligations -- maturity value of $9,656,027 for an effective yield
of 1.89% 9,654,000
-------------
Total Short-term Investments (cost $29,636,266) $ 29,636,266
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $358,349,071) (b) $ 351,662,407
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $349,067,880.
(b) The aggregate identified cost on a tax basis is $367,025,209
resulting in gross unrealized appreciation and depreciation of
$12,138,287 and $27,501,089 respectively, or net unrealized depreciation
of $15,362,802.
(d) See footnote 1 to the financial statements.
(NON) Non-income-producing security.
(SEG) A portion of these securities were pledged and segregated with the
custodian to cover margin requirements for futures contracts at March
31, 2002.
TBA after the name of a security represents to be announced
securities (Note 1).
- ------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 2002
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
S&P 500 Index
(Short) $4,596,800 $4,683,332 June-02 $ 86,532
U.S. Treasury Note
10 yr.(Long) 5,225,105 5,390,279 June-02 (165,174)
- ------------------------------------------------------------------------------
$ (78,642)
- ------------------------------------------------------------------------------
TBA Sales Commitments at March 31, 2002
(proceeds receivable $6,998,361)
Settlement Market
Agency Principal Amount Date Value
- ------------------------------------------------------------------------------
FNMA, 6 1/2s,
April 2032 $7,017,000 4/16/02 $6,979,740
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2002 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value, including $2,041,819 of securities on loan
(identified cost $358,349,071) (Note 1) $351,662,407
- -------------------------------------------------------------------------------------------
Cash 20,518
- -------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,284,627
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 22,374,068
- -------------------------------------------------------------------------------------------
Receivable for securities sold 20,966,788
- -------------------------------------------------------------------------------------------
Total assets 396,308,408
Liabilities
- -------------------------------------------------------------------------------------------
Payable for variation margin (Note 1) 30,697
- -------------------------------------------------------------------------------------------
Payable for securities purchased 36,530,638
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 633,113
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 523,475
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 175,275
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,075
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,162
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 168,757
- -------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $6,998,361)
(Note 1) 6,979,740
- -------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 2,102,760
- -------------------------------------------------------------------------------------------
Other accrued expenses 87,836
- -------------------------------------------------------------------------------------------
Total liabilities 47,240,528
- -------------------------------------------------------------------------------------------
Net assets $349,067,880
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $443,675,950
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (720,349)
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (87,141,036)
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (6,746,685)
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $349,067,880
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($254,656,719 divided by 26,584,560 shares) $9.58
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $9.58)* $10.16
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($24,408,581 divided by 2,553,879 shares)** $9.56
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class C share ($4,005,814
divided by 418,616 shares)** $9.57
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,053,326 divided by 214,334 shares) $9.58
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $9.58)* $9.93
- -------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($63,943,440 divided by 6,673,476 shares) $9.58
- -------------------------------------------------------------------------------------------
* 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.
** Redemption price per share is equal to net asset value less any
applicable contingent sales charge.
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended March 31, 2002 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------------------
Interest income $ 3,471,622
- -------------------------------------------------------------------------------------------
Dividends 569,497
- -------------------------------------------------------------------------------------------
Securities lending 13,121
- -------------------------------------------------------------------------------------------
Total investment income 4,054,240
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,045,594
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 537,351
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,949
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,411
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 285,815
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 111,649
- -------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 20,299
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 7,893
- -------------------------------------------------------------------------------------------
Other 126,179
- -------------------------------------------------------------------------------------------
Total expenses 2,144,140
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (27,000)
- -------------------------------------------------------------------------------------------
Net expenses 2,117,140
- -------------------------------------------------------------------------------------------
Net investment income 1,937,100
- -------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (11,266,189)
- -------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (389,824)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts and
TBA sales commitments during the period 27,438,918
- -------------------------------------------------------------------------------------------
Net gain on investments 15,782,905
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $17,720,005
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
March 31 September 30
2002* 2001
- -------------------------------------------------------------------------------------------------------
Increase in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 1,937,100 $ 4,541,008
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments (11,656,013) (74,724,725)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 27,438,918 (37,234,970)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 17,720,005 (107,418,687)
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (1,904,630) (3,058,174)
- -------------------------------------------------------------------------------------------------------
Class B (117,882) (160,314)
- -------------------------------------------------------------------------------------------------------
Class C (19,073) (28,580)
- -------------------------------------------------------------------------------------------------------
Class M (12,139) (16,831)
- -------------------------------------------------------------------------------------------------------
Class Y (610,468) (1,492,959)
- -------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A -- (544,028)
- -------------------------------------------------------------------------------------------------------
Class B -- (63,566)
- -------------------------------------------------------------------------------------------------------
Class C -- (13,400)
- -------------------------------------------------------------------------------------------------------
Class M -- (3,795)
- -------------------------------------------------------------------------------------------------------
Class Y -- (549,989)
- -------------------------------------------------------------------------------------------------------
From return of capital
Class A -- (131,505)
- -------------------------------------------------------------------------------------------------------
Class B -- (12,651)
- -------------------------------------------------------------------------------------------------------
Class C -- (2,595)
- -------------------------------------------------------------------------------------------------------
Class M -- (855)
- -------------------------------------------------------------------------------------------------------
Class Y -- (110,920)
- -------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 40,215,506 281,856,323
- -------------------------------------------------------------------------------------------------------
Total increase in net assets 55,271,319 168,247,474
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 293,796,561 125,549,087
- -------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed net investment income
of $720,349 and $6,743, respectively) $349,067,880 $293,796,561
- -------------------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $9.10 $14.30 $12.63 $11.92 $11.90 $11.03
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income .06(a) .19(a)(d) .34(a)(d) .25(a)(d) .22(d) .25(d)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .50 (5.10) 3.06 2.02 1.05 2.16
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .56 (4.91) 3.40 2.27 1.27 2.41
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.20) (.33) (.22) (.25) (.27)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.08) (1.40) (1.34) (1.00) (1.27)
- ------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.29) (1.73) (1.56) (1.25) (1.54)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.58 $9.10 $14.30 $12.63 $11.92 $11.90
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 6.15* (34.70) 28.40 20.25 12.18 24.58
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $254,657 $210,305 $72,565 $3,967 $3,147 $2,769
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .66* 1.21(d) .91(d) .78(d) .77(d) .71(d)
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .61* 1.65(d) 2.00(d) 2.05(d) 1.82(d) 2.29(d)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 72.58*(e) 210.37(e) 275.49 123.90 139.55 151.15
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the year. As a
result of such limitation, expenses for the fund reflect a reduction
based on average net assets of 0.02%, 0.15%, 1.55%, 1.05% and 1.12% for
the years ended September 30, 2001, September 30, 2000, September 30,
1999, September 30, 1998 and September 30, 1997, respectively (Note 2).
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Year ended April 4, 2000+
operating performance (Unaudited) Sept. 30 to September 30
- ---------------------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------
Net asset value,
beginning of period $9.08 $14.29 $14.27
- ---------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------
Net investment income (a) .02 .10(d) .07(d)
- ---------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .51 (5.09) .01
- ---------------------------------------------------------------------------
Total from
investment operations .53 (4.99) .08
- ---------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------
From net
investment income (.05) (.13) (.06)
- ---------------------------------------------------------------------------
From net realized gain
on investments -- (.08) --
- ---------------------------------------------------------------------------
From return of capital -- (.01) --
- ---------------------------------------------------------------------------
Total distributions (.05) (.22) (.06)
- ---------------------------------------------------------------------------
Net asset value,
end of period $9.56 $9.08 $14.29
- ---------------------------------------------------------------------------
Total return at
net asset value (%)(b) 5.81* (35.24) 0.53*
- ---------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $24,409 $17,433 $6,215
- ---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.03* 1.96(d) .88(d)*
- ---------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .23* .90(d) .58(d)*
- ---------------------------------------------------------------------------
Portfolio turnover (%) 72.58*(e) 210.37(e) 275.49
- ---------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the periods. As a
result of such limitation, expenses for the fund reflect a reduction
based on average net assets of 0.02% and 0.15% for the periods ended
September 30, 2001 and September 30, 2000, respectively (Note 2).
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS C
- ---------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Year ended April 4, 2000+
operating performance (Unaudited) Sept. 30 to September 30
- ---------------------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------
Net asset value,
beginning of period $9.09 $14.28 $14.27
- ---------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------
Net investment income (a) .02 .10(d) .07(d)
- ---------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .51 (5.08) .01
- ---------------------------------------------------------------------------
Total from
investment operations .53 (4.98) .08
- ---------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------
From net
investment income (.05) (.11) (.07)
- ---------------------------------------------------------------------------
From net realized gain
on investments -- (.08) --
- ---------------------------------------------------------------------------
From return of capital -- (.02) --
- ---------------------------------------------------------------------------
Total distributions (.05) (.21) (.07)
- ---------------------------------------------------------------------------
Net asset value,
end of period $9.57 $9.09 $14.28
- ---------------------------------------------------------------------------
Total return at
net asset value (%)(b) 5.77* (35.22) 0.55*
- ---------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,006 $3,769 $918
- ---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.03* 1.96(d) .88(d)*
- ---------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .24* .94(d) .58(d)*
- ---------------------------------------------------------------------------
Portfolio turnover (%) 72.58*(e) 210.37(e) 275.49
- ---------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the periods. As a
result of such limitation, expenses for the fund reflect a reduction
based on average net assets of 0.02% and 0.15% for the periods ended
September 30, 2001 and September 30, 2000, respectively (Note 2).
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Year ended April 4, 2000+
operating performance (Unaudited) Sept. 30 to September 30
- ---------------------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------
Net asset value,
beginning of period $9.10 $14.30 $14.27
- ---------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------
Net investment income (a) .04 .13(d) .09(d)
- ---------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .50 (5.09) --
- ---------------------------------------------------------------------------
Total from
investment operations .54 (4.96) .09
- ---------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------
From net
investment income (.06) (.14) (.06)
- ---------------------------------------------------------------------------
From net realized gain
on investments -- (.08) --
- ---------------------------------------------------------------------------
From return of capital -- (.02) --
- ---------------------------------------------------------------------------
Total distributions (.06) (.24) (.06)
- ---------------------------------------------------------------------------
Net asset value,
end of period $9.58 $9.10 $14.30
- ---------------------------------------------------------------------------
Total return at
net asset value (%)(b) 5.88* (35.04) 0.61*
- ---------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,053 $1,972 $562
- ---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .91* 1.71(d) .76(d)*
- ---------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .36* 1.12(d) .70(d)*
- ---------------------------------------------------------------------------
Portfolio turnover (%) 72.58*(e) 210.37(e) 275.49
- ---------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the periods. As a
result of such limitation, expenses for the fund reflect a reduction
based on average net assets of 0.02% and 0.15% for the periods ended
September 30, 2001 and September 30, 2000, respectively (Note 2).
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS Y
- ---------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Year ended August 2, 2000+
operating performance (Unaudited) Sept. 30 to September 30
- ---------------------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------
Net asset value,
beginning of period $9.10 $14.30 $13.95
- ---------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------
Net investment income (a) .07 .22(d) .05(d)
- ---------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .50 (5.10) .34
- ---------------------------------------------------------------------------
Total from
investment operations .57 (4.88) .39
- ---------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------
From net
investment income (.09) (.22) (.04)
- ---------------------------------------------------------------------------
From net realized gain
on investments -- (.08) --
- ---------------------------------------------------------------------------
From return of capital -- (.02) --
- ---------------------------------------------------------------------------
Total distributions (.09) (.32) (.04)
- ---------------------------------------------------------------------------
Net asset value,
end of period $9.58 $9.10 $14.30
- ---------------------------------------------------------------------------
Total return at
net asset value (%)(b) 6.28* (34.55) 2.82*
- ---------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $63,943 $60,317 $45,289
- ---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .53* .96(d) .13(d)*
- ---------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .74* 1.93(d) .37(d)*
- ---------------------------------------------------------------------------
Portfolio turnover (%) 72.58*(e) 210.37(e) 275.49
- ---------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the periods. As a
result of such limitation, expenses for the fund reflect a reduction
based on average net assets of 0.02% and 0.15% for the periods ended
September 30, 2001 and September 30, 2000, respectively (Note 2).
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 (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 fund offers class A, class B, class C, class M and class Y shares.
Class A shares are sold with a maximum front-end sales charge of 5.75%.
Class B shares, which convert to class A shares after approximately
eight years, do not pay a front-end sales charge but pay a higher
ongoing distribution fee than class A shares, and are subject to a
contingent deferred sales charge, if those shares are redeemed within
six years of purchase. Class C shares are subject to the same fees and
expenses as class B shares, except that class C shares have a one-year
1.00% contingent deferred sales charge and do not convert to class A
shares. Class M shares are sold with a maximum front end sales charge of
3.50% and pay an ongoing distribution fee that is higher than class A
shares but lower than class B and class C shares. Class Y shares, which
are sold at net asset value, are generally subject to the same expenses
as class A, class B, class C and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans
that invest at least $150 million in a combination of Putnam funds and
other accounts managed by affiliates of Putnam Investment Management,
LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned
subsidiary of Putnam, LLC.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
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 accounting
principles generally accepted in the United States of America and requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and the
reported amounts of increases and decreases in net assets from operations
during the reporting period. 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 sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Short-term investments
having remaining maturities of 60 days or less are stated at amortized
cost, which approximates market value. Other investments, including
restricted securities, are stated at fair value following procedures
approved by the Trustees.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are stated at fair value on the basis
of valuations furnished by an independent pricing service or dealers,
approved by the Trustees, which determine valuations for normal
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and variable
relationships, generally recognized by institutional traders, between
securities.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Management. 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). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Non-cash dividends, if any, are recorded
at the fair market value of the securities received. All premiums/discounts
are amortized/accreted on a yield-to-maturity basis.
E) 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. Futures contracts are
valued at the quoted daily settlement prices established by the exchange
on which they trade. The Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of
the futures contract. Such receipts or payments are known as "variation
margin". 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.
F) 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 0.01% 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.
G) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it owns
under delayed delivery arrangements. Proceeds of TBA sale commitments are
not received until the contractual settlement date. During the time a TBA
sale commitment is outstanding, equivalent deliverable securities, or an
offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is
"marked-to-market" daily and the change in market value is recorded by
the fund as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
fund realizes a gain or loss. If the fund delivers securities under the
commitment, the fund realizes a gain or a loss from the sale of the
securities based upon the unit price established at the date the
commitment was entered into.
H) Security lending The fund may lend securities, through its agent
Citibank N.A., to qualified borrowers in order to earn additional
income. The loans are collateralized by cash and/or securities in an
amount at least equal to the market value of the securities loaned. The
market value of securities loaned is determined daily and any additional
required collateral is allocated to the fund on the next business day. The
risk of borrower default will be borne by Citibank N.A., the fund will bear
the risk of loss with respect to the investment of the cash collateral.
Income from securities lending is included in investment income on the
Statement of operations. At March 31, 2002, the value of securities loaned
amounted to $2,041,819. The fund received cash collateral of $2,102,760
which is pooled with collateral of other Putnam funds into 35 issuers of
high grade short-term investments.
I) 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 maintains an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended March 31, 2002, the fund had no borrowings against the line of
credit.
J) 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.
At September 30, 2001, the fund had a capital loss carryover of
approximately $712,000 available to the extent allowed by tax law to
offset future net capital gain, if any, which will expire on September
30, 2009.
K) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, 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.
L) 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.
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.
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 Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used
to reduce a portion of the fund's expenses. The fund also reduced
expenses through brokerage service arrangements. For the six months
ended March 31, 2002 the fund's expenses were reduced by $27,000 under
these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $627 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. 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
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 a 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 distribution plans (the "Plans") with respect to its
class A, class B, class C and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam,
LLC and Putnam Retail Management GP, Inc., for services provided and
expenses incurred by it in distributing shares of the fund. The Plans
provide for payments by the fund to Putnam Retail Management at an annual
rate up to 0.35%, 1.00%, 1.00% and 1.00% of the average net assets
attributable to class A, class B, class C and class M shares, respectively.
The Trustees have approved payment by the fund at an annual rate of 0.25%,
1.00%, 1.00% and 0.75% of the average net assets attributable to class A,
class B, class C and class M shares, respectively.
For the six months ended March 31, 2002, Putnam Retail Management, acting
as underwriter received net commissions of $33,254 and $109 from the sale
of class A and class M shares, respectively, and received $26,206 and
$1,036 in contingent deferred sales charges from redemptions of class B and
class C shares, respectively. A deferred sales charge of up to 1.00% and
0.65% is assessed on certain redemptions of class A and class M shares,
respectively. For the six months ended March 31, 2002 Putnam Retail
Management, acting as underwriter received $17 and no monies on class A and
class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended March 31, 2002, cost of purchases and proceeds
from sales of investment securities other than U.S. government obligations
and short-term investments aggregated $240,744,328 and $217,910,686
respectively. Purchases and sales of U.S. government obligations aggregated
$923,475,893 and $912,787,115 respectively.
Note 4
Capital shares
At March 31, 2002, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares
were as follows:
Six months ended March 31, 2002
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 5,794,272 $ 55,942,496
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 194,304 1,884,268
- ---------------------------------------------------------------------------
5,988,576 57,826,764
Shares repurchased (2,510,441) (24,327,519)
- ---------------------------------------------------------------------------
Net increase 3,478,135 $ 33,499,245
- ---------------------------------------------------------------------------
Year ended September 30, 2001
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 22,885,420 $263,651,555
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 351,900 3,699,165
- ---------------------------------------------------------------------------
23,237,320 267,350,720
Shares repurchased (5,204,260) (55,890,444)
- ---------------------------------------------------------------------------
Net increase 18,033,060 $211,460,276
- ---------------------------------------------------------------------------
Six months ended March 31, 2002
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,007,894 $ 9,820,315
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 11,191 108,311
- ---------------------------------------------------------------------------
1,019,085 9,928,626
Shares repurchased (384,256) (3,727,441)
- ---------------------------------------------------------------------------
Net increase 634,829 $ 6,201,185
- ---------------------------------------------------------------------------
Year ended September 30, 2001
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,902,902 $21,951,997
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 19,566 217,635
- ---------------------------------------------------------------------------
1,922,468 22,169,632
Shares repurchased (438,457) (4,643,116)
- ---------------------------------------------------------------------------
Net increase 1,484,011 $17,526,516
- ---------------------------------------------------------------------------
Six months ended March 31, 2002
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 104,499 $1,034,686
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 1,636 15,878
- ---------------------------------------------------------------------------
106,135 1,050,564
Shares repurchased (102,000) (987,389)
- ---------------------------------------------------------------------------
Net increase 4,135 $ 63,175
- ---------------------------------------------------------------------------
Year ended September 30, 2001
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 838,316 $10,119,934
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 3,400 38,448
- ---------------------------------------------------------------------------
841,716 10,158,382
Shares repurchased (491,560) (5,697,532)
- ---------------------------------------------------------------------------
Net increase 350,156 $ 4,460,850
- ---------------------------------------------------------------------------
Six months ended March 31, 2002
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 31,321 $ 302,953
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 1,237 11,993
- ---------------------------------------------------------------------------
32,558 314,946
Shares repurchased (34,833) (338,199)
- ---------------------------------------------------------------------------
Net decrease (2,275) $ (23,253)
- ---------------------------------------------------------------------------
Year ended September 30, 2001
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 226,236 $2,381,248
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 1,960 20,780
- ---------------------------------------------------------------------------
228,196 2,402,028
Shares repurchased (50,852) (518,627)
- ---------------------------------------------------------------------------
Net increase 177,344 $1,883,401
- ---------------------------------------------------------------------------
Six months ended March 31, 2002
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 773,188 $ 7,518,182
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 62,938 610,463
- ---------------------------------------------------------------------------
836,126 8,128,645
Shares repurchased (787,539) (7,653,491)
- ---------------------------------------------------------------------------
Net increase 48,587 $ 475,154
- ---------------------------------------------------------------------------
Year ended September 30, 2001
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 5,610,991 $ 70,730,005
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 190,998 2,153,868
- ---------------------------------------------------------------------------
5,801,989 72,883,873
Shares repurchased (2,343,291) (26,358,593)
- ---------------------------------------------------------------------------
Net increase 3,458,698 $ 46,525,280
- ---------------------------------------------------------------------------
Note 5
Actions by Trustees
In April 2002, the Trustees approved the merger of Putnam Balanced Fund
into The George Putnam Fund of Boston. The transaction is currently
scheduled to occur in September 2002. It is subject to a number of
conditions and there is no guarantee it will occur.
PUTNAM IS A LEADER IN GLOBAL MONEY MANAGEMENT
Putnam Investments traces its heritage to the early 19th century when
ship captains hired trustees to manage their money while they were away
at sea. In a landmark 1830 decision that involved one such trustee,
Massachusetts Supreme Judicial Court Justice Samuel Putnam established
The Prudent Man Rule, a legal foundation for responsible money
management. In 1937, his great-great grandson founded Putnam with The
George Putnam Fund of Boston, the first fund to offer a balanced
portfolio of stocks and bonds. Today, Putnam Investments is one of the
largest investment management firms in the world, and this balanced
approach remains the foundation of everything we do.
With 65 years of experience, Putnam now has over $305 billion in assets
under management, over 100 mutual funds, more than 14 million
shareholder accounts, and nearly 3,000 institutional and 401(k) clients.
We're one of the largest mutual fund companies in the United States.
Putnam has won the DALBAR award for service ten times in the past eleven
years. Putnam offers products in every investment category, including
growth, value, and blend as well as international and fixed-income.
Teamwork is a cornerstone of Putnam's investment philosophy. Our funds
are managed by teams in a collaborative environment that promotes an
active exchange of information.
Putnam's disciplined investment philosophy is based on style
consistency. We aim for less volatility over the short term and strong,
consistent performance over time. Our truth in labeling approach ensures
that we adhere to every fund's stated objective, style, and risk
positioning.
We are committed to helping financial advisors provide sound, sensible
guidance, information, and expertise to help investors reach their
financial goals.
SERVICES FOR SHAREHOLDERS
HELP YOUR INVESTMENT GROW
Set up a program for systematic investing with as little as $25 a month
from a Putnam fund or from your own savings or checking account.
(Regular investing does not guarantee a profit or protect against loss
in a declining market.)
SWITCH FUNDS EASILY
You can move money from one Putnam fund to another within the same class
of shares without a service charge. (This privilege is subject to change
or termination.)
ACCESS YOUR MONEY EASILY
You can have checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares. Class B and class C shares carry a sales
charge that is applied to certain withdrawals.
HOW TO BUY ADDITIONAL SHARES
You may buy shares through your financial advisor or directly from
Putnam. To open an account by mail, send a check made payable to the
name of the fund along with a completed fund application. To add to an
existing account, complete the investment slip found at the top of your
Confirmation of Activity statement and return it with a check payable to
your fund.
VISIT US AT WWW.PUTNAMINVESTMENTS.COM
A secure section of our Web site contains complete information on your
account, including balances and transactions, updated daily. You may
also conduct transactions, such as exchanges, additional investments,
and address changes. Log on today to get your password.
USE OUR TOLL-FREE NUMBER
1-800-225-1581 Ask a helpful Putnam representative or your financial
advisor for details about any of these or other services, or see your
prospectus.
THE PUTNAM FAMILY OF FUNDS
The following is a complete list of Putnam's open-end mutual funds.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
GROWTH FUNDS
Balanced Fund *
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund
New Century Growth Fund *
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Technology Fund *
Vista Fund
Voyager Fund
Voyager Fund II
BLEND FUNDS
Asia Pacific Growth Fund *
Capital Appreciation Fund
Capital Opportunities Fund
Emerging Markets Fund *
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
International Growth Fund
International Voyager Fund
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
VALUE FUNDS
Balanced Retirement Fund *
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund *
The Putnam Fund for Growth and Income
International Growth and Income Fund
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund +
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund +
High Yield Trust
High Yield Trust II *
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund [SECTION MARK]
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund [SECTION MARK]
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
*In anticipation of mergers expected later this year, these funds are
closed to new investors.
+Closed to new investors.
[SECTION MARK] An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although the funds seek to
preserve your investment at $1.00 per share, it is possible
to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark
of a well-rounded financial program. We presently manage over 100 mutual
funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Richard G. Leibovitch
Vice President
Richard A. Monaghan
Vice President
Michael T. Healy
Vice President
John R. Verani
Vice President
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 and
Putnam's Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
Visit www.putnaminvestments.com or call a representative at 1-800-225-1581.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA072-79274 318 5/02
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Balanced Fund
Supplement to Semiannual Report dated 3/31/02
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares
are offered exclusively to clients that meet the eligibility requirements
specified in the fund's prospectus for such shares. Performance of class Y
shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, C, and M shares, which are discussed more extensively in the annual
report.
SEMIANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 3/31/02
NAV
6 months 4.41%
1 year -2.66
5 years 47.69
Annual average 8.11
Life of fund (since class A inception, 1/3/95) 114.51
Annual average 11.11
Share value: NAV
9/30/01 $9.10
3/31/02 $9.58
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 $0.092 -- $0.092
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results. More
recent returns may be more or less than those shown. Returns shown for
class Y shares for periods prior to their inception are derived from the
historical performance of class A shares, and are not adjusted to reflect
the initial sales charge currently applicable to class A shares. These
returns have not been adjusted to reflect differences in operating expenses
which, for class Y shares, typically are lower than the operating expenses
applicable to class A shares. All returns assume reinvestment of
distributions at net asset value. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than
their original cost. See full report for information on comparative
benchmarks. If you have questions, please consult your fund prospectus or
call Putnam toll free at 1-800-752-9894.