UNITED STATES SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
FORM N-CSR |
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES |
Investment Company Act file number: | (811-00058) |
Exact name of registrant as specified in charter: | George Putnam Balanced Fund |
Address of principal executive offices: | One Post Office Square, Boston, Massachusetts 02109 |
Name and address of agent for service: | Beth S. Mazor, Vice President One Post Office Square Boston, Massachusetts 02109 |
Copy to:     | John W. Gerstmayr, Esq. Ropes & Gray LLP 800 Boylston Street Boston, Massachusetts 02199-3600 |
Registrant’s telephone number, including area code: | (617) 292-1000 |
Date of fiscal year end: | July 31, 2011 |
Date of reporting period: | August 1, 2010 — July 31, 2011 |
Item 1. Report to Stockholders: |
The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940: |
George Putnam
Balanced
Fund
Annual report
7 | 31 | 11
Message from the Trustees | 1 | ||
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About the fund | 2 | ||
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Performance snapshot | 4 | ||
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Interview with your fund’s portfolio managers | 5 | ||
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Your fund’s performance | 10 | ||
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Your fund’s expenses | 13 | ||
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Terms and definitions | 15 | ||
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Trustee approval of management contract | 16 | ||
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Other information for shareholders | 21 | ||
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Financial statements | 22 | ||
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Federal tax information | 54 | ||
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About the Trustees | 55 | ||
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Officers | 57 | ||
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Message from the Trustees
Dear Fellow Shareholder:
In early August, equity markets around the world were rocked by indications of slowing economic growth and worsening debt issues in Europe and the United States. Significantly, Standard & Poors downgraded U.S. sovereign debt to AA+ from AAA on August 5. Markets did show signs of stabilizing after the initial shock wore off, but it seems clear that volatility will be with us in the near term.
Putnams investment team believes the downgrade will have limited impact on the real economy today and that many investment opportunities still exist. Long-term investors are wise to seek the counsel of their financial advisors during volatile times and to remember that market volatility historically has served as an opportunity for nimble managers to both guard against risk and pursue new opportunities. We believe that Putnams active, research-intensive investment approach offers shareholders a potential advantage in this environment.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancys Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See pages 5 and 10–12 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.
* The fund’s benchmarks (Russell 1000 Value Index and George Putnam Blended Index) were introduced on 12/31/78 and its Lipper group (Balanced Funds) was introduced on 12/31/59; they all post-date the inception of the fund’s class A shares.
George Putnam Blended Index is an unmanaged index administered by Putnam Management, 60% of which is the Russell 1000 Value Index and 40% of which is the Barclays Capital U.S. Aggregate Bond Index.
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Interview with your fund’s portfolio managers
David M. Calabro and Raman Srivastava, CFA
In what was a volatile period for both stocks and bonds, how did George Putnam Balanced Fund perform?
David: Because stocks posted strong returns for the period, the fund, which invests in both stocks and bonds, lagged its all-stock primary benchmark. The fund also lagged the return of its peer group average to a lesser extent, largely as a result of some technology-sector-related positions that suffered what we consider to be temporary setbacks in the market. The fund performed in line with its custom-blended benchmark — a 60%/40% mix of stock and bond indexes. Sector allocation was the primary driver of the fund’s results, particularly the fund’s underweight position in financials, while our stock selection in the consumer staples sector gave a solid boost to returns.
How would you characterize U.S. stock and bond markets during the period?
David: For about three quarters of the period, U.S. markets generally benefited from strong corporate fundamentals and the gradual, if occasionally questioned, U.S. economic recovery. Notably, certain developments earlier this year, including supply-chain disruptions from the crisis in Japan and political turmoil in the Middle East and North Africa, failed to set the recovery back in a material way. However, beginning in May 2011, volatility became more pronounced and widespread investor uncertainty was renewed. This was due primarily to eurozone debt issues that continued to fracture European economic stability, as well as the debt-ceiling debate in the United States, where political gridlock appeared to be heading in the direction of a U.S. debt downgrade at the close of July.
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 7/31/11. See pages 4 and 10–12 for additional fund performance information. Index descriptions can be found on page 15.
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Since the close of the fiscal year, stocks have experienced a pullback, stemming largely from investors’ concerns over the uncertain political climate. In early August, a last-minute agreement to raise the federal debt ceiling was followed closely by Standard & Poor’s unprecedented downgrade of U.S. Treasury debt from AAA to AA+. The Federal Reserve, meanwhile, stated that its near-zero interest-rate policy would remain in place through the middle of 2013, and many market watchers saw this as a response to increased U.S. economic weakness.
Raman: In the bond markets, which were up by nearly 5% for the period, pockets of volatility existed over the year, but as with stocks, the more dramatic swings occurred toward period-end. The yield curve and interest rates remained relatively stable. From March to June, mortgage-related areas suffered significant downward pressure. Interestingly, the U.S. government’s second round of “quantitative easing,” implemented between November 2010 and June 2011, turned out to be a non-event for the bond markets: Investors quickly shifted their focus to developed-market sovereign debt issues, problem areas that dwarfed any concerns about the impact of recent government intervention in the securities markets.
How did the fund’s balanced approach help it weather volatility?
David: Without question, the fund’s focus on both stocks and bonds helped insulate it from the volatility we experienced during the year, whether these periods proceeded from short-lived, if shocking, events like Japan’s earthquake, or from deep-seated questions of sovereign insolvency at home or abroad. Whenever markets saw reasons to be hopeful, the fund’s equity investments generally reflected that optimism, and when markets experienced broad-based flights to safety, the bond portion of the portfolio provided a cushion from the equity losses. In addition, the fund’s general bias toward higher-quality securities among both
Allocations are represented as a percentage of the fund’s net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings and allocations may vary over time.
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stocks and bonds helped it across changing market environments.
Among the equity holdings and strategies that delivered positive results, what were some highlights?
David: The single largest contributor to performance was our strategically lower-than-benchmark weighting to financial stocks. The slow growth environment, coupled with increases in government regulation, has made it more difficult to make money in financial stocks.
In consumer staples, our positions in Philip Morris and Procter & Gamble also helped performance. In our view, both companies are well run and possess admirable earnings profiles, and yet they remain relatively undervalued.
Another large contributor to the fund’s results was Exxon Mobil, the nation’s largest oil company, which we discussed at the fund’s most recent semiannual period-end. It benefited not only from rising energy prices, which continued to increase during much of the period, but also from strong business execution and the delivery of solid earnings amid a competitive industry landscape.
How did the fund’s bond exposures help performance?
Raman: We de-emphasized certain bond sectors that experienced headwinds at times during the period, such as Treasury and agency mortgage-backed securities. Also, we experienced positive results by emphasizing several areas within higher-rated, investment-grade corporate credit, where our security selection proved helpful. Lastly, we made allocations to commercial mortgage-backed securities [CMBS] and agency collateralized mortgage obligations, two types of bond investments
This table shows the fund's top 10 equity holdings by percentage of the fund's net assets as of 7/31/11. Short-term holdings are excluded. Holdings will vary over time.
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that we believe currently offer attractive income characteristics.
By period-end, we retained our benchmark-relative overweight position in corporate bonds, which continue, in our view, to offer relatively attractive current income as well as lower sensitivity to the risk of rising interest rates. Also, we began looking to gradually reduce the fund’s exposure to the CMBS market.
Where among the fund’s stock investments did you see disappointing performance?
David: Technology was a positive contributor to performance on a sector basis, but some of the companies in which the fund held sizable positions performed poorly. These included tech infrastructure giant Cisco and computer company Hewlett-Packard. These are both bellwether, large-cap names, and we continue to believe they are undervalued. We have maintained positions in both companies.
We had some success in the health insurance space — for example, by owning the stock of health-care-services company Aetna — but that did not fully offset our decision to avoid the stock of health insurer UnitedHealth.
What is your outlook for the equity and bond markets and the fund?
Raman: Because we focus on higher-quality areas of the markets, the fund remains well positioned to weather periods of stress. By the end of the period, we expected something would be done about the U.S. debt ceiling, but that it wouldn’t be enough to appease all the ratings agencies. Going forward, we expect to see stretches of heightened volatility in the stock and bond markets, as it is hard for market participants not to get distracted by the debt-related risks in both the United States and the eurozone.
Underlying these headline issues, however, a number of positive trends exist. We expect macroeconomic data to pick up modestly, which would support a better second half of 2011. Specifically, we hope to see an increase in real incomes. Nominal incomes are likely to
This chart shows how the fund’s top weightings have changed over the past six months. Weightings are shown as a percentage of net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings will vary over time.
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remain flat, but if inflation drops as a result of declining energy prices, which we expect may continue to be the case, real incomes should get a boost. This may support consumer spending, a critical area of economic output. The wild card will still be Europe, and markets are likely to remain distracted by activities of the so-called “super committee” that has been appointed to iron out the details of a U.S. plan for fiscal restraint. Though we are cautiously optimistic for equity markets, we respect the prevailing uncertainty, and thus maintain the fund’s sizable exposure to bonds and have increased our cash exposure.
David: Our investment philosophy and process remain the same. In terms of equities, we seek to own the stocks of high-quality, undervalued, well-capitalized companies that we consider to be solid franchises, regardless of the prevailing macroeconomic environment. When market conditions become increasingly volatile, we believe the best equity defense is to own companies with strong foundations that are insulated from headline risk relative to their peers.
Thank you, David and Raman, for bringing us up to date.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future. Current and future portfolio holdings are subject to risk.
Portfolio Manager David M. Calabro holds a B.A. from Williams College. David joined Putnam in 2008 and has been in the investment industry since 1982.
Portfolio Manager Raman Srivastava has an M.S. in Computational Finance from Carnegie Mellon University and a B.S. from the University of Waterloo. A CFA charterholder, he joined Putnam in 1999 and has been in the investment industry since 1997.
IN THE NEWS
Citing its belief that the U.S. deficit reduction plan “falls short” of what is needed to stabilize the federal debt situation, ratings agency Standard & Poor’s on August 5 reduced the credit rating of long-term U.S. debt to AA+, one notch below the top grade of AAA, with a negative outlook. U.S. short-term debt retained its top rating of A-1+. The historic action triggered a sell-off in global equity markets, adding to recent market volatility stemming from investor concerns regarding the European sovereign debt crisis. The downgrade came just days after Congress and the White House agreed to raise the federal debt ceiling by at least $2.1 trillion, removing the threat of default through 2012. The accord, reached after weeks of contentious debate, includes more than $900 billion in spending cuts during the next 10 years, and establishes a joint congressional committee to identify $1.5 trillion in additional cuts.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended July 31, 2011, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee 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 information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 7/31/11
Class A | Class B | Class C | Class M | Class R | Class Y | |||||
(inception dates) | (11/5/37) | (4/27/92) | (7/26/99) | (12/1/94) | (1/21/03) | (3/31/94) | ||||
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Before | After | Before | After | Net | Net | |||||
sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
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Annual average | ||||||||||
(life of fund) | 8.60% | 8.52% | 7.59% | 7.59% | 7.79% | 7.79% | 7.87% | 7.81% | 8.33% | 8.67% |
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10 years | 16.51 | 9.82 | 8.05 | 8.05 | 8.14 | 8.14 | 10.97 | 7.08 | 13.89 | 19.60 |
Annual average | 1.54 | 0.94 | 0.78 | 0.78 | 0.79 | 0.79 | 1.05 | 0.69 | 1.31 | 1.81 |
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5 years | –5.04 | –10.50 | –8.57 | –9.91 | –8.44 | –8.44 | –7.27 | –10.50 | –6.03 | –3.75 |
Annual average | –1.03 | –2.19 | –1.78 | –2.07 | –1.75 | –1.75 | –1.50 | –2.19 | –1.24 | –0.76 |
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3 years | –2.94 | –8.51 | –5.14 | –7.76 | –5.10 | –5.10 | –4.32 | –7.66 | –3.55 | –2.16 |
Annual average | –0.99 | –2.92 | –1.74 | –2.66 | –1.73 | –1.73 | –1.46 | –2.62 | –1.20 | –0.73 |
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1 year | 12.09 | 5.61 | 11.24 | 6.24 | 11.22 | 10.22 | 11.60 | 7.66 | 11.84 | 12.42 |
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of a maximum 5.75% and 3.50% sales charge, respectively, levied at the time of purchase. Class B share returns after the contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares, except for class Y shares, for which 12b-1 fees are not applicable.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
Class B share performance does not reflect conversion to class A shares.
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Comparative index returns For periods ended 7/31/11
Barclays Capital | Lipper | |||
Russell 1000 | U.S. Aggregate | George Putnam | Balanced Funds | |
Value Index | Bond Index | Blended Index† | category average‡ | |
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Annual average (life of fund) | —* | —* | —* | —* |
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10 years | 43.21% | 73.70% | 65.70% | 46.81% |
Annual average | 3.66 | 5.68 | 5.18 | 3.84 |
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5 years | –0.04 | 37.47 | 19.43 | 20.08 |
Annual average | –0.01 | 6.57 | 3.61 | 3.68 |
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3 years | 3.82 | 22.66 | 15.68 | 13.35 |
Annual average | 1.26 | 7.05 | 4.98 | 4.23 |
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1 year | 16.76 | 4.44 | 12.00 | 13.59 |
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Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* The fund’s benchmarks (Russell 1000 Value Index and George Putnam Blended Index) were introduced on 12/31/78. The Barclays Capital U.S. Aggregate Bond Index was introduced on 12/31/75, and the fund’s Lipper group (Balanced Funds) was introduced on 12/31/59. They all post-date the inception of the fund’s class A shares.
† George Putnam Blended Index is an unmanaged index administered by Putnam Management, 60% of which is the Russell 1000 Value Index and 40% of which is the Barclays Capital U.S. Aggregate Bond Index.
‡ Over the 1-year, 3-year, 5-year, and 10-year periods ended 7/31/11, there were 732, 691, 582, and 270 funds, respectively, in this Lipper category.
Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B and class C shares would have been valued at $10,805 and $10,814, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,650 after sales charge) would have been valued at $10,708 after sales charge. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $11,389 and $11,960, respectively.
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Fund price and distribution information For the 12-month period ended 7/31/11
Distributions | Class A | Class B | Class C | Class M | Class R | Class Y | ||
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Number | 4 | 4 | 4 | 4 | 4 | 4 | ||
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Income | $0.200 | $0.107 | $0.111 | $0.142 | $0.170 | $0.230 | ||
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Capital gains | — | — | — | — | — | — | ||
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Total | $0.200 | $0.107 | $0.111 | $0.142 | $0.170 | $0.230 | ||
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Before | After | Net | Net | Before | After | Net | Net | |
sales | sales | asset | asset | sales | sales | asset | asset | |
Share value | charge | charge | value | value | charge | charge | value | value |
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7/31/10 | $11.08 | $11.76 | $10.96 | $11.02 | $10.94 | $11.34 | $11.05 | $11.12 |
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7/31/11 | 12.21 | 12.95 | 12.08 | 12.14 | 12.06 | 12.50 | 12.18 | 12.26 |
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Before | After | Net | Net | Before | After | Net | Net | |
sales | sales | asset | asset | sales | sales | asset | asset | |
Current yield (end of period) | charge | charge | value | value | charge | charge | value | value |
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Current dividend rate 1 | 1.64% | 1.54% | 0.83% | 0.89% | 1.16% | 1.12% | 1.38% | 1.89% |
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Current 30-day SEC yield 2,3 | N/A | 1.63 | 0.97 | 0.97 | N/A | 1.18 | 1.48 | 1.98 |
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The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares and 3.50% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
1 Most recent distribution, excluding capital gains, annualized and divided by share price before or after sales charge at period-end.
2 For a portion of the period, this fund’s expenses were limited, without which yields would have been lower.
3 Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.
Fund performance as of most recent calendar quarter
Total return for periods ended 6/30/11
Class A | Class B | Class C | Class M | Class R | Class Y | |||||
(inception dates) | (11/5/37) | (4/27/92) | (7/26/99) | (12/1/94) | (1/21/03) | (3/31/94) | ||||
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Before | After | Before | After | Net | Net | |||||
sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
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Annual average | ||||||||||
(life of fund) | 8.64% | 8.55% | 7.62% | 7.62% | 7.82% | 7.82% | 7.90% | 7.85% | 8.37% | 8.70% |
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10 years | 18.83 | 11.98 | 10.16 | 10.16 | 10.25 | 10.25 | 13.20 | 9.23 | 16.10 | 21.95 |
Annual average | 1.74 | 1.14 | 0.97 | 0.97 | 0.98 | 0.98 | 1.25 | 0.89 | 1.50 | 2.00 |
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5 years | –2.57 | –8.17 | –6.28 | –7.65 | –6.15 | –6.15 | –4.89 | –8.23 | –3.64 | –1.34 |
Annual average | –0.52 | –1.69 | –1.29 | –1.58 | –1.26 | –1.26 | –1.00 | –1.70 | –0.74 | –0.27 |
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3 years | –1.78 | –7.44 | –4.05 | –6.70 | –3.96 | –3.96 | –3.16 | –6.53 | –2.38 | –1.00 |
Annual average | –0.60 | –2.54 | –1.37 | –2.29 | –1.34 | –1.34 | –1.06 | –2.23 | –0.80 | –0.33 |
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1 year | 19.20 | 12.31 | 18.26 | 13.26 | 18.20 | 17.20 | 18.54 | 14.39 | 18.84 | 19.43 |
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Your fund’s expenses
As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.
Expense ratios
Class A | Class B | Class C | Class M | Class R | Class Y | |
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Total annual operating expenses for the fiscal year | ||||||
ended 7/31/10* | 1.11% | 1.86% | 1.86% | 1.61% | 1.36% | 0.86% |
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Annualized expense ratio for the six-month period | ||||||
ended 7/31/11† | 1.01% | 1.76% | 1.76% | 1.51% | 1.26% | 0.76% |
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Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Restated to reflect projected expenses under the management contract effective January 1, 2010.
† For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from February 1, 2011, to July 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Class A | Class B | Class C | Class M | Class R | Class Y | |
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Expenses paid per $1,000*† | $5.04 | $8.77 | $8.77 | $7.53 | $6.29 | $3.80 |
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Ending value (after expenses) | $1,013.90 | $1,010.00 | $1,010.20 | $1,011.60 | $1,012.60 | $1,015.20 |
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* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 7/31/11. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
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Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended July 31, 2011, use the following calculation method. To find the value of your investment on February 1, 2011, call Putnam at 1-800-225-1581.
Compare expenses using the SEC’s method
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Class A | Class B | Class C | Class M | Class R | Class Y | |
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Expenses paid per $1,000*† | $5.06 | $8.80 | $8.80 | $7.55 | $6.31 | $3.81 |
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Ending value (after expenses) | $1,019.79 | $1,016.07 | $1,016.07 | $1,017.31 | $1,018.55 | $1,021.03 |
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* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 7/31/11. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
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Terms and definitions
Important terms
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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge 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 generally 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 over time 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.
Current yield is the annual rate of return earned from dividends or interest of an investment. Current yield is expressed as a percentage of the price of a security, fund share, or principal investment.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC 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 CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
George Putnam Blended Index is an unmanaged index administered by Putnam Management, 60% of which is based on the Russell 1000 Value Index and 40% of which is based on the Barclays Capital U.S. Aggregate Bond Index.
Russell 1000 Value Index is an unmanaged index of those companies in the large-cap Russell 1000 Index chosen for their value orientation.
S&P 500 Index is an unmanaged index of common stock performance.
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.
Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.
15
Trustee approval of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management (“Putnam Management”) and the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”).
The Board of Trustees, with the assistance of its Contract Committee, which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. Over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees on a number of occasions. At the Trustees’ June 17, 2011 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management and sub-management contracts, effective July 1, 2011. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds, and the costs incurred by Putnam Management in providing services, and
• That the fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the management arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. In reviewing management fees, the Trustees generally focus
16
their attention on material changes in circumstances — for example, changes in assets under management or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund.
Most of the open-end Putnam funds have new management contracts, with new fee schedules reflecting the implementation of more competitive fee levels for many funds, complex-wide breakpoints for the open-end funds, and performance fees for some funds. These new management contracts have been in effect for a little over a year — since January or, for a few funds, February, 2010. The Trustees approved the new management contracts on July 10, 2009, and fund shareholders subsequently approved the contracts by overwhelming majorities of the shares voted.
Because these management contracts had been implemented only recently, the Contract Committee had limited practical experience with the operation of the new fee structures. Under its new management contract, your fund has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Contract Committee observed that the complex-wide breakpoints of the open-end funds had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds, including your fund, had sufficiently low expenses that these expense limitations did not apply. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and extraordinary expenses). Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management and sub-management contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the 2nd quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the 3rd quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2010 (the first quintile representing the least expensive funds and the fifth quintile the most expensive funds). The fee and expense data reported by Lipper as of December 31, 2010 reflected the most recent fiscal year-end data available in Lipper’s database at that time.
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In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and mutual funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes are higher on average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
Investment performance
The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing each fund’s performance with various benchmarks and with the performance of competitive funds.
The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The
18
Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered that its class A share cumulative total return performance at net asset value was in the following quartiles of its Lipper Inc. peer group (Lipper Balanced Funds) for the one-year, three-year and five-year periods ended December 31, 2010 (the first quartile representing the best-performing funds and the fourth quartile the worst-performing funds):
One-year period | 3rd | ||
|
|||
Three-year period | 4th | ||
|
|||
Five-year period | 4th | ||
|
Over the one-year, three-year and five-year periods ended December 31, 2010, there were 758, 711 and 581 funds, respectively, in your fund’s Lipper peer group. (When considering performance information, shareholders should be mindful that past performance is not a guarantee of future results.)
The Trustees expressed continued concern about your fund’s general underperformance, and in particular its fourth quartile performance over the three- and five-year periods ended December 31, 2010, and considered the circumstances that may have contributed to this disappointing performance. The Trustees considered Putnam Management’s observation that the fund’s underperformance over these periods was due in significant part to the fund’s particularly weak performance in 2007 and 2008. They noted Putnam Management’s assessment that performance in 2007 was hurt by poor stock selection, particularly within the information technology, financials, and consumer discretionary sectors, and that performance in 2008 was hurt by the fund’s exposure to mortgage-backed securities and collateralized mortgage obligations. The Trustees also considered steps that Putnam Management had taken to support improved performance, noting in particular that, in November 2008, a new portfolio manager replaced the three individuals on the portfolio management team with responsibility for the fund’s equity investments and that the fund’s relative performance since then (December 1, 2008 through December 31, 2010) had improved to the second quartile. The Trustees also considered a number of other changes that Putnam Management had made in recent years in efforts to support and improve fund performance generally. These changes included Putnam Management’s efforts to increase accountability and to reduce complexity in the portfolio management process for the Putnam equity funds by moving generally from a portfolio management team structure to a decision-making process that vests full authority and responsibility with individual portfolio managers and by affirming its commitment to a fundamental-driven approach to investing. The Trustees noted that Putnam Management had also worked to strengthen its fundamental research capabilities by adding new investment personnel to the large-cap equity research team and by bringing U.S. and international research under common leadership. In addition, the Trustees recognized that Putnam Management has adjusted the compensation structure for portfolio managers and research analysts so that only those who achieve top-quartile returns over a rolling three-year basis are eligible for full bonuses.
As a general matter, the Trustees believe that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees noted that investors in
19
the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to performance issues, the Trustees concluded that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of engaging a new investment adviser for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.
Brokerage and soft-dollar allocations; investor servicing
The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management contract, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
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Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s website at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of July 31, 2011, Putnam employees had approximately $350,000,000 and the Trustees had approximately $74,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
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Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 liquidation preference of 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 year.
Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, 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 highlights table also includes the current reporting period.
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Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of
George Putnam Balanced Fund:
In our opinion, the accompanying statement of assets and liabilities, including the portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of George Putnam Balanced Fund (the “fund”) (formerly known as The George Putnam Fund of Boston) at July 31, 2011, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at July 31, 2011 by correspondence with the custodian and transfer agent provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 14, 2011
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The fund’s portfolio 7/31/11
COMMON STOCKS (57.7%)* | Shares | Value |
| ||
Banking (6.0%) | ||
Bank of America Corp. | 321,853 | $3,125,193 |
| ||
Bank of New York Mellon Corp. (The) | 239,900 | 6,023,889 |
| ||
BB&T Corp. | 98,900 | 2,539,752 |
| ||
Comerica, Inc. | 87,400 | 2,799,422 |
| ||
Fifth Third Bancorp | 131,100 | 1,658,415 |
| ||
JPMorgan Chase & Co. | 573,500 | 23,198,075 |
| ||
PNC Financial Services Group, Inc. | 61,200 | 3,322,548 |
| ||
State Street Corp. | 220,400 | 9,139,988 |
| ||
SunTrust Banks, Inc. | 48,600 | 1,190,214 |
| ||
U.S. Bancorp | 395,300 | 10,301,518 |
| ||
Wells Fargo & Co. | 397,700 | 11,111,738 |
| ||
74,410,752 | ||
Basic materials (1.8%) | ||
Alcoa, Inc. | 155,100 | 2,284,623 |
| ||
Dow Chemical Co. (The) | 69,100 | 2,409,517 |
| ||
E.I. du Pont de Nemours & Co. | 129,800 | 6,674,316 |
| ||
Nucor Corp. | 113,300 | 4,406,237 |
| ||
PPG Industries, Inc. | 63,400 | 5,338,280 |
| ||
Weyerhaeuser Co. R | 35,072 | 701,089 |
| ||
21,814,062 | ||
Capital goods (2.9%) | ||
Avery Dennison Corp. | 30,400 | 959,120 |
| ||
Deere & Co. | 32,800 | 2,575,128 |
| ||
Eaton Corp. | 67,900 | 3,255,805 |
| ||
Emerson Electric Co. | 28,500 | 1,399,065 |
| ||
Illinois Tool Works, Inc. | 73,400 | 3,655,320 |
| ||
Ingersoll-Rand PLC | 72,500 | 2,712,950 |
| ||
Lockheed Martin Corp. | 22,600 | 1,711,498 |
| ||
Northrop Grumman Corp. | 77,000 | 4,659,270 |
| ||
Parker Hannifin Corp. | 55,600 | 4,393,512 |
| ||
Raytheon Co. | 85,500 | 3,824,415 |
| ||
United Technologies Corp. | 86,000 | 7,124,240 |
| ||
36,270,323 | ||
Communication services (4.4%) | ||
AT&T, Inc. | 620,082 | 18,143,599 |
| ||
Comcast Corp. Class A | 298,800 | 7,177,176 |
| ||
DIRECTV Class A † | 42,600 | 2,158,968 |
| ||
DISH Network Corp. Class A † | 47,800 | 1,416,314 |
| ||
Time Warner Cable, Inc. | 49,200 | 3,606,852 |
| ||
Verizon Communications, Inc. | 495,500 | 17,486,195 |
| ||
Vodafone Group PLC ADR (United Kingdom) | 149,600 | 4,203,760 |
| ||
54,192,864 | ||
Conglomerates (2.3%) | ||
3M Co. | 34,100 | 2,971,474 |
| ||
General Electric Co. | 867,400 | 15,535,134 |
| ||
Honeywell International, Inc. | 111,900 | 5,941,890 |
| ||
Tyco International, Ltd. | 86,600 | 3,835,514 |
| ||
28,284,012 |
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COMMON STOCKS (57.7%)* cont. | Shares | Value |
| ||
Consumer cyclicals (5.3%) | ||
Carnival Corp. | 75,000 | $2,497,500 |
| ||
Ford Motor Co. † | 140,600 | 1,716,726 |
| ||
Home Depot, Inc. (The) | 78,600 | 2,745,498 |
| ||
Kimberly-Clark Corp. | 112,000 | 7,320,320 |
| ||
Limited Brands, Inc. | 31,800 | 1,203,948 |
| ||
Lowe’s Cos., Inc. | 65,200 | 1,407,016 |
| ||
Marriott International, Inc. Class A | 41,520 | 1,349,400 |
| ||
News Corp. Class A | 134,600 | 2,156,292 |
| ||
Omnicom Group, Inc. | 70,700 | 3,317,244 |
| ||
Staples, Inc. | 199,800 | 3,208,788 |
| ||
Target Corp. | 104,300 | 5,370,407 |
| ||
Time Warner, Inc. | 246,200 | 8,656,392 |
| ||
TJX Cos., Inc. (The) | 157,400 | 8,704,220 |
| ||
Viacom, Inc. Class B | 166,500 | 8,061,930 |
| ||
Wal-Mart Stores, Inc. | 45,900 | 2,419,389 |
| ||
Walt Disney Co. (The) | 154,600 | 5,970,652 |
| ||
66,105,722 | ||
Consumer finance (0.4%) | ||
American Express Co. | 91,000 | 4,553,640 |
| ||
4,553,640 | ||
Consumer staples (5.0%) | ||
Avon Products, Inc. | 81,700 | 2,142,991 |
| ||
Clorox Co. | 23,500 | 1,682,365 |
| ||
Coca-Cola Co. (The) | 49,500 | 3,366,495 |
| ||
Colgate-Palmolive Co. | 28,300 | 2,387,954 |
| ||
CVS Caremark Corp. | 219,200 | 7,967,920 |
| ||
General Mills, Inc. | 49,400 | 1,845,090 |
| ||
Hertz Global Holdings, Inc. † | 82,100 | 1,155,147 |
| ||
Kellogg Co. | 44,400 | 2,476,632 |
| ||
Kraft Foods, Inc. Class A | 139,962 | 4,811,894 |
| ||
Lorillard, Inc. | 15,200 | 1,614,544 |
| ||
Newell Rubbermaid, Inc. | 197,900 | 3,071,408 |
| ||
PepsiCo, Inc. | 37,500 | 2,401,500 |
| ||
Philip Morris International, Inc. | 204,900 | 14,582,733 |
| ||
Procter & Gamble Co. (The) | 163,300 | 10,041,317 |
| ||
SYSCO Corp. | 92,100 | 2,817,339 |
| ||
62,365,329 | ||
Energy (7.7%) | ||
Anadarko Petroleum Corp. | 20,800 | 1,717,248 |
| ||
Apache Corp. | 14,700 | 1,818,684 |
| ||
Chevron Corp. | 222,800 | 23,175,656 |
| ||
ConocoPhillips | 68,900 | 4,960,111 |
| ||
Devon Energy Corp. | 49,400 | 3,887,780 |
| ||
Exxon Mobil Corp. | 283,900 | 22,652,381 |
| ||
Hess Corp. | 40,900 | 2,804,104 |
| ||
Marathon Oil Corp. | 61,400 | 1,901,558 |
| ||
Marathon Petroleum Corp. † | 30,700 | 1,344,353 |
| ||
National Oilwell Varco, Inc. | 20,500 | 1,651,685 |
|
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COMMON STOCKS (57.7%)* cont. | Shares | Value |
| ||
Energy cont. | ||
Newfield Exploration Co. † | 49,900 | $3,364,258 |
| ||
Noble Corp. (Switzerland) | 78,100 | 2,879,547 |
| ||
Occidental Petroleum Corp. | 87,600 | 8,600,568 |
| ||
Schlumberger, Ltd. | 60,595 | 5,475,970 |
| ||
Total SA ADR (France) | 137,800 | 7,450,846 |
| ||
Valero Energy Corp. | 68,700 | 1,725,744 |
| ||
95,410,493 | ||
Financials (3.0%) | ||
Aflac, Inc. | 58,900 | 2,712,934 |
| ||
Citigroup, Inc. | 196,250 | 7,524,225 |
| ||
Goldman Sachs Group, Inc. (The) | 83,210 | 11,230,854 |
| ||
MetLife, Inc. | 68,400 | 2,818,764 |
| ||
Progressive Corp. (The) | 174,300 | 3,430,224 |
| ||
Prudential Financial, Inc. | 159,700 | 9,371,196 |
| ||
37,088,197 | ||
Health care (8.8%) | ||
Abbott Laboratories | 35,600 | 1,826,992 |
| ||
Aetna, Inc. | 160,600 | 6,663,294 |
| ||
Baxter International, Inc. | 158,400 | 9,214,128 |
| ||
Bristol-Myers Squibb Co. | 119,400 | 3,422,004 |
| ||
Celgene Corp. † | 63,900 | 3,789,270 |
| ||
Covidien PLC (Ireland) | 113,912 | 5,785,590 |
| ||
Johnson & Johnson | 299,900 | 19,430,521 |
| ||
McKesson Corp. | 15,000 | 1,216,800 |
| ||
Medtronic, Inc. | 94,400 | 3,403,120 |
| ||
Merck & Co., Inc. | 298,100 | 10,174,153 |
| ||
Novartis AG ADR (Switzerland) | 28,600 | 1,750,320 |
| ||
Pfizer, Inc. | 919,758 | 17,696,144 |
| ||
Quest Diagnostics, Inc. | 110,700 | 5,978,907 |
| ||
St. Jude Medical, Inc. | 106,900 | 4,970,850 |
| ||
Stryker Corp. | 60,500 | 3,287,570 |
| ||
Teva Pharmaceutical Industries, Ltd. ADR (Israel) | 37,400 | 1,744,336 |
| ||
Thermo Fisher Scientific, Inc. † | 110,300 | 6,627,927 |
| ||
WellPoint, Inc. | 25,600 | 1,729,280 |
| ||
108,711,206 | ||
Insurance (1.9%) | ||
ACE, Ltd. | 12,200 | 817,156 |
| ||
Allstate Corp. (The) | 166,500 | 4,615,380 |
| ||
Chubb Corp. (The) | 97,600 | 6,098,048 |
| ||
Marsh & McLennan Cos., Inc. | 138,300 | 4,078,467 |
| ||
RenaissanceRe Holdings, Ltd. | 23,300 | 1,621,447 |
| ||
Travelers Cos., Inc. (The) | 116,700 | 6,433,671 |
| ||
23,664,169 | ||
Investment banking/Brokerage (0.3%) | ||
Morgan Stanley | 190,040 | 4,228,390 |
| ||
4,228,390 | ||
Real estate (0.6%) | ||
CreXus Investment Corp. R | 132,500 | 1,392,575 |
| ||
Digital Realty Trust, Inc. R | 12,900 | 789,609 |
|
26
COMMON STOCKS (57.7%)* cont. | Shares | Value |
| ||
Real estate cont. | ||
Equity Residential Trust R | 37,048 | $2,290,307 |
| ||
ProLogis, Inc. R | 45,581 | 1,624,051 |
| ||
Simon Property Group, Inc. R | 14,162 | 1,706,663 |
| ||
7,803,205 | ||
Technology (4.5%) | ||
Adobe Systems, Inc. † | 78,900 | 2,187,108 |
| ||
Apple, Inc. † | 3,100 | 1,210,488 |
| ||
BMC Software, Inc. † | 24,200 | 1,045,924 |
| ||
Cisco Systems, Inc. | 448,700 | 7,165,739 |
| ||
EMC Corp. † | 220,200 | 5,742,816 |
| ||
Hewlett-Packard Co. | 189,800 | 6,673,368 |
| ||
IBM Corp. | 23,100 | 4,200,735 |
| ||
Intel Corp. | 193,300 | 4,316,389 |
| ||
KLA-Tencor Corp. | 51,600 | 2,054,712 |
| ||
L-3 Communications Holdings, Inc. | 22,200 | 1,756,464 |
| ||
Microsoft Corp. | 173,700 | 4,759,380 |
| ||
Oracle Corp. | 88,100 | 2,694,098 |
| ||
Qualcomm, Inc. | 91,500 | 5,012,370 |
| ||
SanDisk Corp. † | 56,000 | 2,381,680 |
| ||
Texas Instruments, Inc. | 100,600 | 2,992,850 |
| ||
Yahoo!, Inc. † | 116,700 | 1,528,770 |
| ||
55,722,891 | ||
Transportation (0.3%) | ||
FedEx Corp. | 15,200 | 1,320,576 |
| ||
United Parcel Service, Inc. Class B | 24,300 | 1,682,046 |
| ||
3,002,622 | ||
Utilities and power (2.5%) | ||
Ameren Corp. | 165,300 | 4,763,946 |
| ||
American Electric Power Co., Inc. | 108,400 | 3,995,624 |
| ||
Dominion Resources, Inc. | 31,800 | 1,540,710 |
| ||
Duke Energy Corp. | 60,000 | 1,116,000 |
| ||
Edison International | 138,300 | 5,265,081 |
| ||
Entergy Corp. | 93,700 | 6,259,160 |
| ||
Exelon Corp. | 20,400 | 899,028 |
| ||
NextEra Energy, Inc. | 39,600 | 2,187,900 |
| ||
PG&E Corp. | 127,550 | 5,284,397 |
| ||
31,311,846 | ||
Total common stocks (cost $629,392,064) | $714,939,723 | |
CORPORATE BONDS AND NOTES (16.7%)* | Principal amount | Value |
| ||
Basic materials (1.0%) | ||
Allegheny Technologies, Inc. sr. unsec. unsub. notes 9 3/8s, 2019 | $275,000 | $357,245 |
| ||
ArcelorMittal sr. unsec. unsub. 9.85s, 2019 (France) | 1,545,000 | 2,009,494 |
| ||
Dow Chemical Co. (The) sr. unsec. unsub. notes 8.55s, 2019 | 1,190,000 | 1,572,102 |
| ||
Freeport-McMoRan Copper & Gold, Inc. sr. unsec. notes 8 3/8s, | ||
2017 (Indonesia) | 1,450,000 | 1,576,875 |
| ||
Georgia-Pacific, LLC sr. unsec. unsub. notes 7 3/4s, 2029 | 850,000 | 1,022,530 |
| ||
International Paper Co. sr. unsec. notes 9 3/8s, 2019 | 1,018,000 | 1,348,208 |
|
27
CORPORATE BONDS AND NOTES (16.7%)* cont. | Principal amount | Value |
| ||
Basic materials cont. | ||
International Paper Co. sr. unsec. notes 8.7s, 2038 | $10,000 | $13,046 |
| ||
International Paper Co. sr. unsec. notes 7.95s, 2018 | 221,000 | 271,710 |
| ||
International Paper Co. sr. unsec. unsub. notes 7.3s, 2039 | 20,000 | 22,983 |
| ||
Rio Tinto Finance USA, Ltd. company guaranty sr. unsec. notes | ||
9s, 2019 (Australia) | 450,000 | 613,176 |
| ||
Rio Tinto Finance USA, Ltd. company guaranty sr. unsec. notes | ||
5.2s, 2040 (Australia) | 570,000 | 584,094 |
| ||
Rohm & Haas Co. sr. unsec. unsub. notes 7.85s, 2029 | 385,000 | 487,521 |
| ||
Sealed Air Corp. sr. notes 7 7/8s, 2017 | 585,000 | 636,260 |
| ||
Teck Resources Limited sr. notes 10 3/4s, 2019 (Canada) | 35,000 | 44,538 |
| ||
Teck Resources Limited sr. notes 10 1/4s, 2016 (Canada) | 51,000 | 61,200 |
| ||
Teck Resources Limited sr. notes 9 3/4s, 2014 (Canada) | 16,000 | 19,501 |
| ||
Teck Resources Limited sr. unsec. unsub. notes 7s, 2012 (Canada) | 30,000 | 31,770 |
| ||
Temple-Inland, Inc. sr. unsec. unsub. notes 6 5/8s, 2018 | 195,000 | 218,746 |
| ||
Union Carbide Corp. sr. unsec. unsub. bonds 7 3/4s, 2096 | 180,000 | 202,752 |
| ||
Xstrata Finance Canada, Ltd. 144A company guaranty 5.8s, | ||
2016 (Canada) | 735,000 | 827,631 |
| ||
11,921,382 | ||
Capital goods (0.3%) | ||
Allied Waste North America, Inc. company guaranty sr. unsec. notes | ||
6 7/8s, 2017 | 1,595,000 | 1,724,594 |
| ||
Legrand SA unsec. unsub. debs. 8 1/2s, 2025 (France) | 767,000 | 1,008,699 |
| ||
Parker Hannifin Corp. sr. unsec. unsub. notes Ser. MTN, 6 1/4s, 2038 | 975,000 | 1,163,982 |
| ||
Republic Services, Inc. company guaranty sr. unsec. unsub. notes | ||
5 1/2s, 2019 | 240,000 | 269,450 |
| ||
United Technologies Corp. sr. unsec. notes 5.7s, 2040 | 100,000 | 111,943 |
| ||
4,278,668 | ||
Communication services (1.5%) | ||
American Tower Corp. sr. unsec. notes 7 1/4s, 2019 | 800,000 | 951,548 |
| ||
American Tower Corp. sr. unsec. unsub. notes 4 5/8s, 2015 | 555,000 | 596,241 |
| ||
AT&T, Inc. company guaranty sr. unsec. unsub. notes 5.35s, 2040 | 351,000 | 349,598 |
| ||
AT&T, Inc. sr. unsec. unsub. bonds 5 1/2s, 2018 | 705,000 | 808,616 |
| ||
AT&T, Inc. sr. unsec. unsub. notes 6.3s, 2038 | 1,194,000 | 1,324,776 |
| ||
Bellsouth Capital Funding unsec. notes 7 7/8s, 2030 | 1,380,000 | 1,773,602 |
| ||
CenturyLink, Inc. sr. unsec. debs. bonds Ser. G, 6 7/8s, 2028 | 715,000 | 691,632 |
| ||
CenturyLink, Inc. sr. unsec. unsub. notes Ser. P, 7.6s, 2039 | 305,000 | 307,549 |
| ||
Comcast Cable Communications company guaranty sr. unsub. | ||
notes 8 7/8s, 2017 | 290,000 | 376,099 |
| ||
Comcast Corp. company guaranty sr. unsec. unsub. notes | ||
6.95s, 2037 | 225,000 | 264,041 |
| ||
Cox Communications, Inc. 144A notes 5 7/8s, 2016 | 289,000 | 333,486 |
| ||
Crown Castle Towers, LLC 144A company guaranty sr. notes | ||
4.883s, 2020 | 710,000 | 732,674 |
| ||
France Telecom notes 8 1/2s, 2031 (France) | 180,000 | 252,489 |
| ||
Koninklijke (Royal) KPN NV sr. unsec. unsub. bonds 8 3/8s, | ||
2030 (Netherlands) | 70,000 | 91,192 |
| ||
NBC Universal, Inc. 144A notes 6.4s, 2040 | 380,000 | 422,069 |
| ||
NBC Universal, Inc. 144A notes 5.15s, 2020 | 295,000 | 319,685 |
|
28
CORPORATE BONDS AND NOTES (16.7%)* cont. | Principal amount | Value |
| ||
Communication services cont. | ||
Rogers Communications, Inc. company guaranty sr. unsec. bonds | ||
8 3/4s, 2032 (Canada) | $95,000 | $129,588 |
| ||
Rogers Communications, Inc. sec. notes 6 3/8s, 2014 (Canada) | 122,000 | 137,977 |
| ||
SBA Tower Trust 144A company guaranty asset backed notes | ||
5.101s, 2017 | 1,125,000 | 1,185,283 |
| ||
TCI Communications, Inc. company guaranty 7 7/8s, 2026 | 2,395,000 | 3,122,735 |
| ||
Telecom Italia Capital SA company guaranty sr. unsec. unsub. notes | ||
6.999s, 2018 (Italy) | 320,000 | 337,255 |
| ||
Telefonica Emisones SAU company guaranty 6.221s, 2017 (Spain) | 845,000 | 927,213 |
| ||
Time Warner Cable, Inc. company guaranty sr. notes 7.3s, 2038 | 640,000 | 765,130 |
| ||
Time Warner Cable, Inc. company guaranty sr. unsec. notes | ||
7 1/2s, 2014 | 150,000 | 173,344 |
| ||
Time Warner Cable, Inc. company guaranty sr. unsec. unsub. notes | ||
6 3/4s, 2039 | 355,000 | 406,869 |
| ||
Verizon Communications, Inc. sr. unsec. unsub. notes 8 3/4s, 2018 | 110,000 | 147,455 |
| ||
Verizon New Jersey, Inc. debs. 8s, 2022 | 770,000 | 950,104 |
| ||
Verizon Pennsylvania, Inc. debs. 8.35s, 2030 | 980,000 | 1,226,249 |
| ||
19,104,499 | ||
Consumer cyclicals (0.9%) | ||
Advance Auto Parts, Inc. company guaranty sr. unsec. notes | ||
5 3/4s, 2020 | 475,000 | 514,887 |
| ||
CBS Corp. company guaranty sr. unsec. notes 7 7/8s, 2030 | 730,000 | 891,744 |
| ||
Choice Hotels International, Inc. company guaranty sr. unsec. unsub. | ||
notes 5.7s, 2020 | 430,000 | 448,504 |
| ||
DIRECTV Holdings, LLC/DIRECTV Financing Co., Inc. company | ||
guaranty sr. unsec. notes 6.35s, 2040 | 370,000 | 403,327 |
| ||
DIRECTV Holdings, LLC/DIRECTV Financing Co., Inc. company | ||
guaranty sr. unsec. unsub. notes 5 7/8s, 2019 | 820,000 | 935,113 |
| ||
Expedia, Inc. company guaranty sr. unsec. notes 7.456s, 2018 | 325,000 | 361,563 |
| ||
Expedia, Inc. company guaranty sr. unsec. unsub. notes 5.95s, 2020 | 555,000 | 554,870 |
| ||
Expedia, Inc. 144A company guaranty sr. notes 8 1/2s, 2016 | 800,000 | 871,000 |
| ||
FUEL Trust 144A company guaranty asset backed notes | ||
4.207s, 2016 | 1,245,000 | 1,265,599 |
| ||
Grupo Televisa SA sr. unsec. bonds 6 5/8s, 2040 (Mexico) | 300,000 | 329,935 |
| ||
Grupo Televisa SA sr. unsec. notes 6s, 2018 (Mexico) | 290,000 | 324,999 |
| ||
Lender Processing Services, Inc. company guaranty sr. unsec. unsub. | ||
notes 8 1/8s, 2016 | 846,000 | 858,690 |
| ||
News America Holdings, Inc. company guaranty 7 3/4s, 2024 | 1,045,000 | 1,260,031 |
| ||
Owens Corning company guaranty sr. unsec. notes 9s, 2019 | 324,000 | 390,420 |
| ||
Time Warner Entertainment Co., LP debs. 8 3/8s, 2023 | 170,000 | 222,855 |
| ||
Time Warner, Inc. company guaranty sr. unsec. bonds 7.7s, 2032 | 520,000 | 650,913 |
| ||
Time Warner, Inc. company guaranty sr. unsec. notes 4.7s, 2021 | 120,000 | 125,638 |
| ||
Time Warner, Inc. debs. 9.15s, 2023 | 340,000 | 471,227 |
| ||
10,881,315 | ||
Consumer staples (1.4%) | ||
Altria Group, Inc. company guaranty sr. unsec. notes 9.7s, 2018 | 375,000 | 505,451 |
| ||
Altria Group, Inc. company guaranty sr. unsec. notes 9 1/4s, 2019 | 595,000 | 794,052 |
| ||
Anheuser-Busch InBev Worldwide, Inc. company guaranty sr. unsec. | ||
unsub. notes 8.2s, 2039 | 165,000 | 240,535 |
|
29
CORPORATE BONDS AND NOTES (16.7%)* cont. | Principal amount | Value |
| ||
Consumer staples cont. | ||
Anheuser-Busch InBev Worldwide, Inc. company guaranty sr. unsec. | ||
unsub. notes 7 3/4s, 2019 | $1,730,000 | $2,254,335 |
| ||
Bacardi, Ltd. 144A unsec. notes 4 1/2s, 2021 (Bermuda) | 495,000 | 518,159 |
| ||
Campbell Soup Co. debs. 8 7/8s, 2021 | 855,000 | 1,184,013 |
| ||
CVS Caremark Corp. jr. unsec. sub. bonds FRB 6.302s, 2037 | 2,293,000 | 2,235,675 |
| ||
CVS Pass-Through Trust 144A company guaranty notes | ||
7.507s, 2032 | 744,039 | 883,695 |
| ||
CVS Pass-Through Trust 144A pass-through certificates | ||
6.117s, 2013 | 144,677 | 152,250 |
| ||
Darden Restaurants, Inc. sr. unsec. unsub. notes 6.8s, 2037 | 810,000 | 933,173 |
| ||
Diageo Investment Corp. company guaranty 8s, 2022 (Canada) | 820,000 | 1,086,429 |
| ||
Fortune Brands, Inc. sr. unsec. unsub. notes 3s, 2012 | 850,000 | 861,537 |
| ||
General Mills, Inc. sr. unsec. notes 5.65s, 2019 | 130,000 | 150,932 |
| ||
H.J. Heinz Finance Co. 144A company guaranty 7 1/8s, 2039 | 360,000 | 445,056 |
| ||
Kraft Foods, Inc. sr. unsec. unsub. notes 6 1/2s, 2040 | 2,009,000 | 2,332,434 |
| ||
Kroger Co. company guaranty 6 3/4s, 2012 | 275,000 | 286,273 |
| ||
Kroger Co. company guaranty 6.4s, 2017 | 500,000 | 598,420 |
| ||
McDonald’s Corp. sr. unsec. Ser. MTN, 6.3s, 2038 | 535,000 | 653,070 |
| ||
McDonald’s Corp. sr. unsec. notes 5.7s, 2039 | 600,000 | 672,368 |
| ||
Tyson Foods, Inc. sr. unsec. notes 8 1/4s, 2011 | 285,000 | 285,713 |
| ||
WPP Finance UK company guaranty sr. unsec. notes 8s, 2014 | ||
(United Kingdom) | 690,000 | 808,064 |
| ||
17,881,634 | ||
Energy (0.9%) | ||
Anadarko Finance Co. company guaranty sr. unsec. unsub. notes | ||
Ser. B, 7 1/2s, 2031 | 985,000 | 1,181,910 |
| ||
BP Capital Markets PLC company guaranty sr. unsec. unsub. notes | ||
4.742s, 2021 (United Kingdom) | 655,000 | 711,773 |
| ||
BP Capital Markets PLC company guaranty sr. unsec. unsub. notes | ||
4 1/2s, 2020 (United Kingdom) | 175,000 | 187,148 |
| ||
Chesapeake Energy Corp. sr. unsec. notes 7 5/8s, 2013 | 10,000 | 10,925 |
| ||
El Paso Pipeline Partners Operating Co., LP company guaranty | ||
sr. unsec. notes 6 1/2s, 2020 | 235,000 | 266,431 |
| ||
Ente Nazionale Idrocarburi (ENI) SpA 144A sr. unsec. notes 4.15s, | ||
2020 (Italy) | 825,000 | 791,315 |
| ||
EOG Resources, Inc. sr. unsec. notes 5 5/8s, 2019 | 205,000 | 237,588 |
| ||
Kerr-McGee Corp. company guaranty sr. unsec. unsub. notes | ||
7 7/8s, 2031 | 340,000 | 422,299 |
| ||
Motiva Enterprises, LLC 144A sr. notes 5.2s, 2012 | 225,000 | 234,851 |
| ||
Motiva Enterprises, LLC 144A sr. unsec. notes 6.85s, 2040 | 220,000 | 265,469 |
| ||
Newfield Exploration Co. sr. sub. notes 6 5/8s, 2016 | 650,000 | 671,125 |
| ||
Noble Holding International, Ltd. company guaranty sr. unsec. notes | ||
6.05s, 2041 | 390,000 | 417,056 |
| ||
Petrobras International Finance Co. company guaranty sr. unsec. | ||
notes 6 3/4s, 2041 (Brazil) | 300,000 | 336,481 |
| ||
Petrobras International Finance Co. company guaranty sr. unsec. | ||
notes 5 3/8s, 2021 (Brazil) | 825,000 | 878,712 |
| ||
Petrobras International Finance Co. company guaranty sr. unsec. | ||
notes 3 7/8s, 2016 (Brazil) | 355,000 | 368,120 |
|
30
CORPORATE BONDS AND NOTES (16.7%)* cont. | Principal amount | Value |
| ||
Energy cont. | ||
Pride International, Inc. sr. unsec. notes 7 7/8s, 2040 | $760,000 | $967,100 |
| ||
Ras Laffan Liquefied Natural Gas Co., Ltd. 144A company guaranty | ||
sr. notes 5 1/2s, 2014 (Qatar) | 675,000 | 743,344 |
| ||
Spectra Energy Partners LP sr. unsec. notes 4.6s, 2021 | 245,000 | 251,736 |
| ||
Statoil ASA company guaranty sr. unsec. notes 5.1s, 2040 (Norway) | 480,000 | 498,044 |
| ||
Weatherford Bermuda company guaranty sr. unsec. notes 9 5/8s, | ||
2019 (Switzerland) | 180,000 | 240,961 |
| ||
Weatherford International, Inc. company guaranty sr. unsec. unsub. | ||
notes 6.8s, 2037 | 245,000 | 276,984 |
| ||
Weatherford International, Inc. company guaranty sr. unsec. unsub. | ||
notes 6.35s, 2017 | 280,000 | 323,949 |
| ||
Weatherford International, Ltd. sr. notes 5 1/2s, 2016 (Switzerland) | 455,000 | 507,591 |
| ||
10,790,912 | ||
Financials (7.0%) | ||
Aflac, Inc. sr. unsec. notes 6.9s, 2039 | 500,000 | 540,282 |
| ||
Aflac, Inc. sr. unsec. notes 6.45s, 2040 | 345,000 | 358,041 |
| ||
American Express Bank FSB notes Ser. BKN1, 5.55s, 2012 | 1,160,000 | 1,220,278 |
| ||
American Express Bank FSB sr. unsec. FRN Ser. BKNT, 0.486s, 2017 | 545,000 | 517,030 |
| ||
American International Group, Inc. jr. sub. bonds FRB 8.175s, 2058 | 300,000 | 327,000 |
| ||
American International Group, Inc. sr. unsec. Ser. MTN, 5.85s, 2018 | 665,000 | 705,034 |
| ||
AON Corp. jr. unsec. sub. notes 8.205s, 2027 | 1,150,000 | 1,338,623 |
| ||
Assurant, Inc. sr. unsec. notes 6 3/4s, 2034 | 525,000 | 535,492 |
| ||
Banco do Brasil SA 144A unsec. sub. notes 5 7/8s, 2022 (Brazil) | 950,000 | 965,881 |
| ||
Bank Nederlandse Gemeenten 144A bonds 1 3/4s, | ||
2015 (Netherlands) | 12,100,000 | 12,136,684 |
| ||
Bank of America NA sub. notes Ser. BKNT, 5.3s, 2017 | 315,000 | 325,348 |
| ||
Bank One Corp. unsec. unsub. notes 5.9s, 2011 | 1,000,000 | 1,014,698 |
| ||
BankAmerica Capital III bank guaranteed jr. unsec. FRN 0.819s, 2027 | 2,755,000 | 2,021,900 |
| ||
Barclays Bank PLC jr. unsec. sub. notes FRN 6.278s, 2049 | ||
(United Kingdom) | 145,000 | 118,175 |
| ||
Barclays Bank PLC 144A jr. unsec. sub. notes FRN 6.86s, 2049 | ||
(United Kingdom) | 280,000 | 248,500 |
| ||
Barclays Bank PLC 144A sub. notes 10.179s, 2021 (United Kingdom) | 804,000 | 996,960 |
| ||
Barclays Bank PLC 144A unsec. sub. notes 6.05s, 2017 | ||
(United Kingdom) | 1,415,000 | 1,479,258 |
| ||
Bear Stearns Cos., Inc. (The) sr. notes 6.4s, 2017 | 500,000 | 580,388 |
| ||
Bear Stearns Cos., Inc. (The) sr. unsec. notes 7 1/4s, 2018 | 331,000 | 398,223 |
| ||
Bosphorus Financial Services, Ltd. 144A sr. notes FRN 2.061s, 2012 | 445,875 | 444,248 |
| ||
Camden Property Trust sr. unsec. notes 4 7/8s, 2023 R | 1,040,000 | 1,056,041 |
| ||
Capital One Bank USA NA sub. notes 8.8s, 2019 | 385,000 | 483,880 |
| ||
Capital One Capital III company guaranty 7.686s, 2036 | 320,000 | 327,200 |
| ||
Capital One Capital V company guaranty jr. unsec. sub. notes | ||
10 1/4s, 2039 | 450,000 | 476,100 |
| ||
Citigroup, Inc. sr. unsec. sub. FRN 0.522s, 2016 | 123,000 | 111,701 |
| ||
Citigroup, Inc. sub. notes 5s, 2014 | 1,369,000 | 1,441,081 |
| ||
Citigroup, Inc. unsec. sub. notes 6 1/8s, 2036 | 200,000 | 198,421 |
| ||
Citigroup, Inc. unsec. sub. notes 5 5/8s, 2012 | 290,000 | 301,934 |
| ||
CNA Financial Corp. sr. unsec. unsub. notes 5 3/4s, 2021 | 210,000 | 223,617 |
|
31
CORPORATE BONDS AND NOTES (16.7%)* cont. | Principal amount | Value |
| ||
Financials cont. | ||
CNA Financial Corp. unsec. notes 6 1/2s, 2016 | $435,000 | $494,353 |
| ||
Commonwealth Bank of Australia 144A sr. unsec. notes 3 3/4s, | ||
2014 (Australia) | 1,220,000 | 1,289,717 |
| ||
Corrections Corporation of America company guaranty sr. notes | ||
7 3/4s, 2017 | 279,000 | 302,715 |
| ||
Credit Suisse Guernsey sr. unsec. notes 5.3s, 2019 | 475,000 | 512,202 |
| ||
Credit Suisse Guernsey, Ltd. jr. unsec. sub. notes FRN 5.86s, 2017 | ||
(United Kingdom) | 934,000 | 868,620 |
| ||
Deutsche Bank AG/London sr. unsec. notes 3 7/8s, 2014 | ||
(United Kingdom) | 635,000 | 670,347 |
| ||
Deutsche Bank Capital Funding Trust VII 144A jr. unsec. sub. bonds | ||
FRB 5.628s, 2016 | 470,000 | 404,200 |
| ||
Developers Diversified Realty Corp. sr. unsec. unsub. notes | ||
7 7/8s, 2020 R | 605,000 | 715,932 |
| ||
Duke Realty LP sr. unsec. notes 6 1/2s, 2018 R | 361,000 | 406,763 |
| ||
Duke Realty LP sr. unsec. notes 6 1/4s, 2013 R | 19,000 | 20,439 |
| ||
Erac USA Finance, LLC 144A sr. notes 4 1/2s, 2021 | 785,000 | 801,995 |
| ||
Fleet Capital Trust V bank guaranteed jr. sub. FRN 1.247s, 2028 | 1,057,000 | 823,359 |
| ||
GATX Financial Corp. notes 5.8s, 2016 | 560,000 | 623,334 |
| ||
GE Capital Trust I unsec. sub. bonds FRB 6 3/8s, 2067 | 355,000 | 362,100 |
| ||
General Electric Capital Corp. sr. unsec. 5 5/8s, 2018 | 260,000 | 290,224 |
| ||
General Electric Capital Corp. sr. unsec. FRN Ser. MTN, 0.466s, 2016 | 455,000 | 434,389 |
| ||
General Electric Capital Corp. sr. unsec. notes Ser. MTN, 6 7/8s, 2039 | 1,589,000 | 1,841,878 |
| ||
Genworth Financial, Inc. sr. unsec. unsub. notes 7 5/8s, 2021 | 1,410,000 | 1,346,550 |
| ||
Goldman Sachs Group, Inc. (The) sr. notes 7 1/2s, 2019 | 805,000 | 947,424 |
| ||
Goldman Sachs Group, Inc. (The) sub. notes 6 3/4s, 2037 | 745,000 | 749,624 |
| ||
Hartford Financial Services Group, Inc. (The) sr. unsec. unsub. | ||
notes 6 5/8s, 2040 | 1,540,000 | 1,619,153 |
| ||
HBOS PLC 144A unsec. sub. bonds 6s, 2033 (United Kingdom) | 890,000 | 660,947 |
| ||
Highwood Realty LP sr. unsec. bonds 5.85s, 2017 R | 1,005,000 | 1,112,665 |
| ||
HSBC Finance Capital Trust IX FRN 5.911s, 2035 | 2,000,000 | 1,850,000 |
| ||
HSBC Holdings PLC sub. notes 6 1/2s, 2037 (United Kingdom) | 905,000 | 940,180 |
| ||
ING Bank NV 144A sr. unsec. notes FRN 1.297s, 2013 (Netherlands) | 1,535,000 | 1,535,098 |
| ||
International Lease Finance Corp. sr. unsec. notes 6 1/4s, 2019 | 275,000 | 271,563 |
| ||
JPMorgan Chase Bank NA sub. notes Ser. BKNT, 6s, 2017 | 1,000,000 | 1,126,326 |
| ||
JPMorgan Chase Capital XVIII bonds Ser. R, 6.95s, 2036 | 499,000 | 511,753 |
| ||
JPMorgan Chase Capital XXIII company guaranty jr. unsec. sub. | ||
notes FRN 1.261s, 2047 | 2,443,000 | 1,908,420 |
| ||
JPMorgan Chase Capital XXV bonds Ser. Y, 6.8s, 2037 | 523,000 | 530,193 |
| ||
Liberty Mutual Group, Inc. 144A company guaranty jr. sub. notes | ||
FRB 10 3/4s, 2058 | 1,285,000 | 1,696,200 |
| ||
Liberty Mutual Insurance Co. 144A notes 7.697s, 2097 | 1,060,000 | 1,009,989 |
| ||
Lloyds TSB Bank PLC bank guaranty sr. unsec. unsub. notes 6 3/8s, | ||
2021 (United Kingdom) | 280,000 | 294,703 |
| ||
Lloyds TSB Bank PLC company guaranty sr. unsec. sub. notes | ||
Ser. MTN, 6 1/2s, 2020 (United Kingdom) | 1,850,000 | 1,834,442 |
| ||
Macquarie Bank Ltd. 144A unsec. sub. notes 6 5/8s, 2021 (Australia) | 1,020,000 | 1,053,101 |
|
32
CORPORATE BONDS AND NOTES (16.7%)* cont. | Principal amount | Value |
| ||
Financials cont. | ||
Massachusetts Mutual Life Insurance Co. 144A notes 8 7/8s, 2039 | $815,000 | $1,156,450 |
| ||
Merrill Lynch & Co., Inc. jr. sub. bonds 7 3/4s, 2038 | 1,565,000 | 1,712,529 |
| ||
MetLife Capital Trust IV 144A jr. sub. debs. 7 7/8s, 2037 | 1,300,000 | 1,425,688 |
| ||
MetLife, Inc. jr. unsec. sub. notes 6.4s, 2036 | 590,000 | 584,711 |
| ||
Metropolitan Life Global Funding I 144A notes 3.65s, 2018 | 100,000 | 101,915 |
| ||
Nationwide Financial Services notes 5 5/8s, 2015 | 465,000 | 504,366 |
| ||
Nationwide Mutual Insurance Co. 144A notes 8 1/4s, 2031 | 415,000 | 472,855 |
| ||
Nordea Bank AB 144A jr. unsec. sub. notes FRN 5.424s, | ||
2015 (Sweden) | 525,000 | 513,188 |
| ||
Nordea Bank AB 144A sub. notes 4 7/8s, 2021 (Sweden) | 1,300,000 | 1,277,306 |
| ||
OneAmerica Financial Partners, Inc. 144A bonds 7s, 2033 | 370,000 | 355,600 |
| ||
OneBeacon US Holdings, Inc. company guaranty sr. unsec. notes | ||
5 7/8s, 2013 | 125,000 | 130,669 |
| ||
Pacific LifeCorp 144A sr. notes 6s, 2020 | 365,000 | 399,195 |
| ||
Progressive Corp. (The) jr. unsec. sub. notes FRN 6.7s, 2037 | 2,020,000 | 2,085,650 |
| ||
Prudential Financial, Inc. sr. notes 7 3/8s, 2019 | 600,000 | 727,218 |
| ||
Prudential Financial, Inc. sr. notes 6.2s, 2015 | 190,000 | 214,114 |
| ||
Prudential Holdings LLC sr. notes FRN Ser. AGM, 1.122s, 2017 | 210,000 | 199,268 |
| ||
Royal Bank of Scotland Group PLC sr. unsec. unsub. notes 6.4s, 2019 | ||
(United Kingdom) | 355,000 | 368,656 |
| ||
Santander Issuances S.A. Unipersonal 144A bank guaranty unsec. | ||
sub. notes 5.911s, 2016 (Spain) | 900,000 | 929,636 |
| ||
Simon Property Group LP sr. unsec. unsub. notes 10.35s, 2019 R | 216,000 | 304,438 |
| ||
Simon Property Group LP sr. unsec. unsub. notes 5.65s, 2020 R | 361,000 | 404,779 |
| ||
Societe Generale SA 144A jr. unsec. sub. bonds FRB 0.996s, | ||
2017 (France) | 385,000 | 270,566 |
| ||
Standard Chartered PLC 144A jr. sub. bonds FRB 7.014s, 2049 | ||
(United Kingdom) | 800,000 | 788,079 |
| ||
State Street Capital Trust IV company guaranty jr. unsec. sub. bonds | ||
FRB 1.247s, 2037 | 1,790,000 | 1,467,727 |
| ||
Tanger Properties, LP sr. unsec. notes 6 1/8s, 2020 R | 265,000 | 300,089 |
| ||
TD Ameritrade Holding Corp. company guaranty sr. unsec. unsub. | ||
notes 5.6s, 2019 | 480,000 | 521,406 |
| ||
Teachers Insurance & Annuity Association of America 144A | ||
notes 6.85s, 2039 | 750,000 | 886,377 |
| ||
Vornado Realty LP sr. unsec. unsub. notes 4 1/4s, 2015 R | 555,000 | 583,082 |
| ||
Wachovia Bank NA sub. notes Ser. BKNT, 6s, 2017 | 1,060,000 | 1,201,345 |
| ||
Wachovia Corp. sr. unsec. notes 5 3/4s, 2017 | 145,000 | 164,953 |
| ||
WEA Finance LLC/WT Finance Aust. Pty. Ltd. 144A company | ||
guaranty sr. unsec. notes 6 3/4s, 2019 | 1,050,000 | 1,215,992 |
| ||
Wells Fargo Bank NA unsec. sub. notes FRN 0.471s, 2016 | 710,000 | 665,842 |
| ||
Westpac Capital Trust III 144A unsec. sub. notes FRN 5.819s, | ||
2013 (Australia) | 1,010,000 | 1,002,243 |
| ||
Willis Group Holdings PLC company guaranty sr. unsec. unsub. notes | ||
5 3/4s, 2021 (United Kingdom) | 710,000 | 740,142 |
| ||
ZFS Finance USA Trust V 144A bonds FRB 6 1/2s, 2037 | 159,000 | 159,000 |
| ||
86,587,990 |
33
CORPORATE BONDS AND NOTES (16.7%)* cont. | Principal amount | Value |
| ||
Government (0.4%) | ||
International Bank for Reconstruction & Development unsec. unsub. | ||
bonds 7 5/8s, 2023 | $4,000,000 | $5,627,404 |
| ||
5,627,404 | ||
Health care (0.2%) | ||
Aetna, Inc. sr. unsec. unsub. notes 6 3/4s, 2037 | 95,000 | 114,024 |
| ||
Coventry Health Care, Inc. sr. unsec. notes 5.45s, 2021 | 450,000 | 474,725 |
| ||
Quest Diagnostics, Inc. company guaranty sr. unsec. notes | ||
6.95s, 2037 | 335,000 | 394,014 |
| ||
Quest Diagnostics, Inc. company guaranty sr. unsec. notes | ||
4 3/4s, 2020 | 121,000 | 128,778 |
| ||
UnitedHealth Group, Inc. sr. unsec. notes 5.8s, 2036 | 180,000 | 190,059 |
| ||
Ventas Realty LP/Capital Corp. sr. notes 6 3/4s, 2017 R | 470,000 | 503,076 |
| ||
WellPoint, Inc. notes 7s, 2019 | 155,000 | 189,441 |
| ||
1,994,117 | ||
Technology (0.2%) | ||
Computer Sciences Corp. sr. unsec. notes 6 1/2s, 2018 | 281,000 | 306,907 |
| ||
Dell, Inc. sr. unsec. notes 5 7/8s, 2019 | 715,000 | 822,741 |
| ||
KLA-Tencor Corp. sr. unsec. notes 6.9s, 2018 | 915,000 | 1,052,748 |
| ||
Xerox Corp. sr. unsec. notes 4 1/2s, 2021 | 395,000 | 406,869 |
| ||
2,589,265 | ||
Transportation (0.4%) | ||
Burlington Northern Santa Fe Corp. debs. 5 3/4s, 2040 | 145,000 | 156,625 |
| ||
Burlington Northern Santa Fe Corp. sr. unsec. notes 4.7s, 2019 | 176,000 | 191,719 |
| ||
Burlington Northern Santa Fe, LLC sr. unsec. notes 5.4s, 2041 | 605,000 | 628,955 |
| ||
Continental Airlines, Inc. pass-through certificates Ser. 97-4A, | ||
6.9s, 2018 | 167,734 | 178,008 |
| ||
Continental Airlines, Inc. pass-through certificates Ser. 98-1A, | ||
6.648s, 2017 | 388,751 | 412,076 |
| ||
Norfolk Southern Corp. sr. unsec. notes 6s, 2111 | 390,000 | 405,663 |
| ||
Northwest Airlines Corp. pass-through certificates Ser. 00-1, | ||
7.15s, 2019 | 1,369,008 | 1,370,788 |
| ||
Southwest Airlines Co. pass-through certificates Ser. 07-1, | ||
6.15s, 2022 | 744,175 | 805,570 |
| ||
Union Pacific Corp. 144A pass-through certificates 5.214s, 2014 | 590,000 | 646,219 |
| ||
4,795,623 | ||
Utilities and power (2.5%) | ||
AEP Texas North Co. sr. notes Ser. B, 5 1/2s, 2013 | 500,000 | 531,436 |
| ||
Appalachian Power Co. sr. notes Ser. L, 5.8s, 2035 | 510,000 | 532,580 |
| ||
Atmos Energy Corp. sr. unsub. notes 6.35s, 2017 | 1,230,000 | 1,447,340 |
| ||
Beaver Valley Funding Corp. sr. bonds 9s, 2017 | 493,000 | 536,680 |
| ||
Boardwalk Pipelines LP company guaranty 5 7/8s, 2016 | 975,000 | 1,109,517 |
| ||
Bruce Mansfield Unit pass-through certificates 6.85s, 2034 | 2,229,339 | 2,457,765 |
| ||
Commonwealth Edison Co. 1st mtge. 6.15s, 2017 | 275,000 | 325,458 |
| ||
Commonwealth Edison Co. 1st mtge. sec. bonds 5 7/8s, 2033 | 500,000 | 545,625 |
| ||
Consolidated Natural Gas Co. sr. notes Ser. A, 5s, 2014 | 530,000 | 587,614 |
| ||
DCP Midstream, LLC 144A sr. unsec. notes 5.35s, 2020 | 375,000 | 406,876 |
| ||
Dominion Resources, Inc. jr. sub. notes FRN Ser. 06-B, 6.3s, 2066 | 2,310,000 | 2,249,940 |
| ||
Dominion Resources, Inc. sr. unsec. unsub. notes Ser. 07-A, 6s, 2017 | 10,000 | 11,787 |
| ||
EDP Finance BV 144A sr. unsec. unsub. notes 6s, 2018 | ||
(Netherlands) | 685,000 | 611,118 |
|
34
CORPORATE BONDS AND NOTES (16.7%)* cont. | Principal amount | Value |
| ||
Utilities and power cont. | ||
El Paso Natural Gas Co. sr. unsec. unsub. bonds 8 3/8s, 2032 | $490,000 | $637,442 |
| ||
Electricite de France 144A notes 6.95s, 2039 (France) | 655,000 | 802,020 |
| ||
Electricite de France 144A sr. notes 5.6s, 2040 (France) | 640,000 | 671,252 |
| ||
Electricite de France 144A sr. notes 4.6s, 2020 (France) | 440,000 | 470,158 |
| ||
Enel Finance Intl. SA 144A company guaranty sr. unsec. notes 5 1/8s, | ||
2019 (Luxembourg) | 360,000 | 359,449 |
| ||
Energy Transfer Partners LP sr. unsec. unsub. notes 6.05s, 2041 | 850,000 | 850,212 |
| ||
Energy Transfer Partners LP sr. unsec. unsub. notes 4.65s, 2021 | 280,000 | 279,907 |
| ||
Enterprise Products Operating, LLC company guaranty sr. unsec. | ||
unsub. notes 5.95s, 2041 | 435,000 | 453,732 |
| ||
Enterprise Products Operating, LLC company guaranty sr. unsec. | ||
unsub. notes 3.2s, 2016 | 610,000 | 630,979 |
| ||
FirstEnergy Corp. notes Ser. B, 6.45s, 2011 | 164,000 | 166,541 |
| ||
Iberdrola International BV company guaranty sr. unsec. unsub. | ||
notes 6 3/4s, 2036 | 185,000 | 193,790 |
| ||
ITC Holdings Corp. 144A notes 5 7/8s, 2016 | 272,000 | 315,188 |
| ||
ITC Holdings Corp. 144A sr. unsec. notes 6.05s, 2018 | 365,000 | 414,030 |
| ||
Kansas Gas & Electric bonds 5.647s, 2021 | 328,828 | 355,115 |
| ||
KCP&L Greater Missouri Operations Co. sr. unsec. unsub. notes | ||
11 7/8s, 2012 | 735,000 | 806,197 |
| ||
Nevada Power Co. mtge. sec. notes 7 1/8s, 2019 | 295,000 | 360,964 |
| ||
NiSource Finance Corp. company guaranty sr. unsec. notes | ||
10 3/4s, 2016 | 360,000 | 475,629 |
| ||
Pacific Gas & Electric Co. sr. unsec. notes 6.35s, 2038 | 350,000 | 406,541 |
| ||
Pacific Gas & Electric Co. sr. unsub. 5.8s, 2037 | 140,000 | 152,884 |
| ||
Potomac Edison Co. 144A 1st mtge. 5.8s, 2016 | 331,000 | 378,935 |
| ||
Power Receivable Finance, LLC 144A sr. notes 6.29s, 2012 | 367,608 | 367,931 |
| ||
PPL Energy Supply LLC bonds Ser. A, 5.7s, 2015 | 50,000 | 54,590 |
| ||
PPL WEM Holdings PLC 144A sr. unsec. notes 5 3/8s, 2021 | ||
(United Kingdom) | 1,285,000 | 1,353,817 |
| ||
Puget Sound Energy, Inc. jr. sub. FRN Ser. A, 6.974s, 2067 | 656,000 | 670,760 |
| ||
Spectra Energy Capital, LLC company guaranty sr. unsec. unsub. | ||
notes 6.2s, 2018 | 1,080,000 | 1,247,656 |
| ||
Spectra Energy Capital, LLC sr. notes 8s, 2019 | 820,000 | 1,033,019 |
| ||
Teco Finance, Inc. company guaranty sr. unsec. unsub. notes | ||
6.572s, 2017 | 110,000 | 130,645 |
| ||
Texas-New Mexico Power Co. 144A 1st mtge. sec. 9 1/2s, 2019 | 1,024,000 | 1,340,514 |
| ||
Trans-Canada Pipelines, Ltd. jr. unsec. sub. notes FRN 6.35s, | ||
2067 (Canada) | 975,000 | 998,695 |
| ||
Union Electric Co. 1st mtge. sr. sec. bonds 6.7s, 2019 | 960,000 | 1,155,001 |
| ||
Wisconsin Energy Corp. jr. unsec. sub. notes FRN 6 1/4s, 2067 | 1,945,000 | 1,960,560 |
| ||
30,847,889 | ||
Total corporate bonds and notes (cost $192,011,789) | $207,300,698 |
35
U.S. GOVERNMENT AND AGENCY | ||
MORTGAGE OBLIGATIONS (11.2%)* | Principal amount | Value |
| ||
U.S. Government Guaranteed Mortgage Obligations (2.6%) | ||
Government National Mortgage Association | ||
Pass-Through Certificates | ||
4 1/2s, May 20, 2041 | $19,957,379 | $21,296,707 |
4s, February 20, 2041 | 10,857,318 | 11,225,025 |
| ||
32,521,732 | ||
U.S. Government Agency Mortgage Obligations (8.6%) | ||
Federal Home Loan Mortgage Corporation Pass-Through Certificates | ||
6s, March 1, 2035 | 10,608 | 11,790 |
3 1/2s, January 1, 2041 | 555,848 | 543,645 |
| ||
Federal National Mortgage Association Pass-Through Certificates | ||
6s, TBA, August 1, 2041 | 24,000,000 | 26,388,749 |
5 1/2s, with due dates from July 1, 2033 to November 1, 2038 | 9,888,131 | 10,752,388 |
5s, with due dates from August 1, 2033 to January 1, 2039 | 5,515,464 | 5,906,109 |
4 1/2s, TBA, August 1, 2041 | 59,000,000 | 61,590,457 |
3 1/2s, December 1, 2040 | 962,422 | 942,723 |
| ||
106,135,861 | ||
Total U.S. government and agency mortgage obligations (cost $136,731,398) | $138,657,593 | |
U.S. GOVERNMENT AGENCY OBLIGATIONS (0.4%)* | Principal amount | Value |
| ||
Morgan Stanley 2s, FDIC guaranteed notes, September 22, 2011 | $2,500,000 | $2,506,505 |
| ||
Wells Fargo & Co. | ||
3s, FDIC guaranteed notes, December 9, 2011 | 1,100,000 | 1,110,995 |
2 1/8s, FDIC guaranteed notes, June 15, 2012 | 1,400,000 | 1,421,850 |
| ||
Total U.S. government agency obligations (cost $5,010,356) | $5,039,350 | |
U.S. TREASURY OBLIGATIONS (1.5%)* | Principal amount | Value |
| ||
U.S. Treasury Notes | ||
3 1/8s, April 30, 2013 | $11,700,000 | $12,271,061 |
1 1/4s, April 15, 2014 | 3,100,000 | 3,164,785 |
0 5/8s, February 28, 2013 | 2,700,000 | 2,712,656 |
| ||
Total U.S. treasury obligations (cost $18,093,359) | $18,148,502 | |
CONVERTIBLE PREFERRED STOCKS (1.5%)* | Shares | Value |
| ||
Apache Corp. Ser. D, $3.00 cv. pfd. | 58,652 | $3,819,712 |
| ||
General Motors Co. Ser. B, $2.375 cv. pfd. | 78,496 | 3,635,346 |
| ||
Hartford Financial Services Group, Inc. (The) $1.182 cv. pfd. | 145,819 | 3,517,883 |
| ||
MetLife, Inc. $3.75 cv. pfd. | 30,500 | 2,377,170 |
| ||
PPL Corp. $4.75 cv. pfd. | 55,331 | 3,130,628 |
| ||
PPL Corp. $4.375 cv. pfd. | 43,000 | 2,361,130 |
| ||
Total convertible preferred stocks (cost $18,430,135) | $18,841,869 | |
MORTGAGE-BACKED SECURITIES (0.8%)* | Principal amount | Value |
| ||
CS First Boston Mortgage Securities Corp. Ser. 04-C1, Class B, | ||
4.855s, 2037 | $1,407,000 | $1,430,134 |
| ||
Federal Home Loan Mortgage Corp. | ||
Ser. T-56, Class A, IO, 0.524s, 2043 | 5,936,444 | 107,598 |
Ser. T-56, Class 3, IO, 0.471s, 2043 | 6,935,635 | 3,251 |
36
MORTGAGE-BACKED SECURITIES (0.8%)* cont. | Principal amount | Value |
| ||
Federal Home Loan Mortgage Corp. | ||
Ser. T-56, Class 1, IO, 0.292s, 2043 | $9,253,084 | $5,783 |
Ser. T-56, Class 2, IO, 0.119s, 2043 | 8,311,953 | 775 |
| ||
Federal National Mortgage Association Ser. 01-79, Class BI, IO, | ||
0.311s, 2045 | 1,966,692 | 20,896 |
| ||
GMAC Commercial Mortgage Securities, Inc. 144A Ser. 99-C3, | ||
Class G, 6.974s, 2036 | 208,043 | 189,319 |
| ||
GS Mortgage Securities Corp. II 144A Ser. 98-C1, Class F, 6s, 2030 | 946,542 | 956,007 |
| ||
JPMorgan Chase Commercial Mortgage Securities Corp. | ||
Ser. 07-LDPX, Class A2, 5.434s, 2049 | 984,480 | 1,028,533 |
| ||
LB Commercial Conduit Mortgage Trust 144A | ||
Ser. 99-C1, Class F, 6.41s, 2031 | 715,303 | 726,033 |
Ser. 99-C1, Class G, 6.41s, 2031 | 765,731 | 723,616 |
Ser. 98-C4, Class H, 5.6s, 2035 | 1,074,000 | 1,146,916 |
| ||
Merrill Lynch Mortgage Investors, Inc. FRB Ser. 98-C3, Class E, | ||
6.83s, 2030 | 644,000 | 685,973 |
| ||
Morgan Stanley Capital I | ||
FRB Ser. 07-HQ12, Class A2, 5.592s, 2049 | 1,529,741 | 1,561,820 |
FRB Ser. 07-HQ12, Class A2FL, 0.437s, 2049 | 703,919 | 628,670 |
| ||
PNC Mortgage Acceptance Corp. 144A Ser. 00-C1, Class J, | ||
6 5/8s, 2033 | 456,000 | 18,240 |
| ||
Structured Adjustable Rate Mortgage Loan Trust 144A Ser. 04-NP2, | ||
Class A, 0.537s, 2034 | 386,960 | 298,926 |
| ||
Wachovia Bank Commercial Mortgage Trust 144A FRB | ||
Ser. 05-WL5A, Class L, 3.487s, 2018 | 771,000 | 462,600 |
| ||
Total mortgage-backed securities (cost $9,962,968) | $9,995,090 | |
INVESTMENT COMPANIES (0.6%)* | Shares | Value |
| ||
Utilities Select Sector SPDR Fund | 213,900 | $7,092,924 |
| ||
Total investment companies (cost $5,522,769) | $7,092,924 | |
MUNICIPAL BONDS AND NOTES (0.2%)* | Principal amount | Value |
| ||
CA State G.O. Bonds (Build America Bonds), 7 1/2s, 4/1/34 | $215,000 | $261,677 |
| ||
IL State G.O. Bonds | ||
4.421s, 1/1/15 | 420,000 | 437,405 |
4.071s, 1/1/14 | 1,250,000 | 1,305,213 |
| ||
North TX, Thruway Auth. Rev. Bonds (Build America Bonds), | ||
6.718s, 1/1/49 | 350,000 | 409,301 |
| ||
OH State U. Rev. Bonds (Build America Bonds), 4.91s, 6/1/40 | 275,000 | 273,303 |
| ||
Total municipal bonds and notes (cost $2,511,508) | $2,686,899 | |
CONVERTIBLE BONDS AND NOTES (0.1%)* | Principal amount | Value |
| ||
Omnicare, Inc. cv. sr. sub. notes 3 3/4s, 2025 | $619,000 | $800,058 |
| ||
Total convertible bonds and notes (cost $619,000) | $800,058 | |
ASSET-BACKED SECURITIES (0.1%)* | Principal amount | Value |
| ||
First Plus Home Loan Trust Ser. 97-3, Class B1, 7.79s, 2023 | ||
(In default) † | $194,241 | $19 |
| ||
G-Star, Ltd. 144A FRB Ser. 02-2A, Class BFL, 2.187s, 2037 | 308,000 | 238,700 |
| ||
GE Business Loan Trust 144A Ser. 04-2, Class D, 2.937s, 2032 | 415,101 | 78,869 |
|
37
ASSET-BACKED SECURITIES (0.1%)* cont. | Principal amount | Value |
| ||
Structured Asset Securities Corp. 144A Ser. 98-RF3, | ||
Class A, IO, 6.1s, 2028 | $1,301,008 | $195,242 |
| ||
TIAA Real Estate CDO, Ltd. Ser. 03-1A, Class E, 8s, 2038 | 1,805,291 | 216,635 |
| ||
Total asset-backed securities (cost $740,598) | $729,465 | |
FOREIGN GOVERNMENT BONDS AND NOTES (0.1%)* | Principal amount | Value |
| ||
Hungary (Republic of) sr. unsec. unsub. notes 7 5/8s, 2041 | $226,000 | $241,578 |
| ||
Korea Development Bank sr. unsec. unsub. notes 4s, 2016 | 450,000 | 465,767 |
| ||
Total foreign government bonds and notes (cost $683,904) | $707,345 | |
SHORT-TERM INVESTMENTS (15.8%)* | Shares | Value |
| ||
Putnam Money Market Liquidity Fund 0.05% e | 195,723,889 | $195,723,889 |
| ||
Total short-term investments (cost $195,723,889) | $195,723,889 | |
TOTAL INVESTMENTS | ||
| ||
Total investments (cost $1,215,433,737) | $1,320,663,405 |
Key to holding’s abbreviations
ADR | American Depository Receipts |
FDIC Guaranteed | Federal Deposit Insurance Corp. Guaranteed |
FRB | Floating Rate Bonds |
FRN | Floating Rate Notes |
G.O. Bonds | General Obligation Bonds |
IO | Interest Only |
MTN | Medium Term Notes |
SPDR | S&P Depository Receipts |
TBA | To Be Announced Commitments |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from August 1, 2010 through July 31, 2011 (the reporting period).
* Percentages indicated are based on net assets of $1,239,838,802.
† Non-income-producing security.
e See Note 5 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
R Real Estate Investment Trust.
At the close of the reporting period, the fund maintained liquid assets totaling $87,532,500 to cover certain forward commitments.
Debt obligations are considered secured unless otherwise indicated.
144A after the name of an issuer represents securities exempt from registration under Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
ADR after the name of a foreign holding represents ownership of foreign securities on deposit with a custodian bank.
See Note 1 to the financial statements regarding TBA’s.
The rates shown on FRB and FRN are the current interest rates at the close of the reporting period.
The dates shown on debt obligations are the original maturity dates.
38
Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
Valuation inputs | ||||
| ||||
Investments in securities: | Level 1 | Level 2 | Level 3 | |
| ||||
Common stocks: | ||||
| ||||
Basic materials | $21,814,062 | $— | $— | |
| ||||
Capital goods | 36,270,323 | — | — | |
| ||||
Communication services | 54,192,864 | — | — | |
| ||||
Conglomerates | 28,284,012 | — | — | |
| ||||
Consumer cyclicals | 66,105,722 | — | — | |
| ||||
Consumer staples | 62,365,329 | — | — | |
| ||||
Energy | 95,410,493 | — | — | |
| ||||
Financials | 151,748,353 | — | — | |
| ||||
Health care | 108,711,206 | — | — | |
| ||||
Technology | 55,722,891 | — | — | |
| ||||
Transportation | 3,002,622 | — | — | |
| ||||
Utilities and power | 31,311,846 | — | — | |
| ||||
Total common stocks | $714,939,723 | $— | $— | |
Asset-backed securities | — | 729,465 | $— | |
| ||||
Convertible bonds and notes | — | 800,058 | — | |
| ||||
Convertible preferred stocks | — | 18,841,869 | — | |
| ||||
Corporate bonds and notes | — | 207,300,698 | — | |
| ||||
Foreign government bonds and notes | — | 707,345 | — | |
| ||||
Investment Companies | 7,092,924 | — | — | |
| ||||
Mortgage-backed securities | — | 9,995,090 | — | |
| ||||
Municipal bonds and notes | — | 2,686,899 | — | |
| ||||
U.S. Government Agency Obligations | — | 5,039,350 | — | |
| ||||
U.S. Government and Agency Mortgage Obligations | — | 138,657,593 | — | |
| ||||
U.S. Treasury Obligations | — | 18,148,502 | — | |
| ||||
Short-term investments | 195,723,889 | — | — | |
| ||||
Totals by level | $917,756,536 | $402,906,869 | $— |
The accompanying notes are an integral part of these financial statements.
39
Statement of assets and liabilities 7/31/11
ASSETS | |
| |
Investment in securities, at value (Note 1): | |
Unaffiliated issuers (identified cost $1,019,709,848) | $1,124,939,516 |
Affiliated issuers (identified cost $195,723,889) (Note 5) | 195,723,889 |
| |
Cash | 95,937 |
| |
Dividends, interest and other receivables | 6,104,287 |
| |
Receivable for shares of the fund sold | 268,024 |
| |
Receivable for investments sold | 8,478,784 |
| |
Total assets | 1,335,610,437 |
LIABILITIES | |
| |
Payable for investments purchased | 3,880,112 |
| |
Payable for purchases of delayed delivery securities (Note 1) | 87,646,250 |
| |
Payable for shares of the fund repurchased | 2,326,704 |
| |
Payable for compensation of Manager (Note 2) | 571,029 |
| |
Payable for investor servicing fees (Note 2) | 196,402 |
| |
Payable for custodian fees (Note 2) | 14,636 |
| |
Payable for Trustee compensation and expenses (Note 2) | 471,800 |
| |
Payable for administrative services (Note 2) | 6,577 |
| |
Payable for distribution fees (Note 2) | 327,709 |
| |
Other accrued expenses | 330,416 |
| |
Total liabilities | 95,771,635 |
Net assets | $1,239,838,802 |
| |
REPRESENTED BY | |
| |
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $2,089,002,649 |
| |
Undistributed net investment income (Note 1) | 1,066,153 |
| |
Accumulated net realized loss on investments (Note 1) | (955,459,668) |
| |
Net unrealized appreciation of investments | 105,229,668 |
| |
Total — Representing net assets applicable to capital shares outstanding | $1,239,838,802 |
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
| |
Net asset value and redemption price per class A share | |
($1,034,828,461 divided by 84,722,983 shares) | $12.21 |
| |
Offering price per class A share (100/94.25 of $12.21)* | $12.95 |
| |
Net asset value and offering price per class B share ($39,030,510 divided by 3,232,077 shares)** | $12.08 |
| |
Net asset value and offering price per class C share ($22,013,493 divided by 1,813,045 shares)** | $12.14 |
| |
Net asset value and redemption price per class M share ($75,159,943 divided by 6,232,929 shares) | $12.06 |
| |
Offering price per class M share (100/96.50 of $12.06)* | $12.50 |
| |
Net asset value, offering price and redemption price per class R share | |
($1,216,233 divided by 99,843 shares) | $12.18 |
| |
Net asset value, offering price and redemption price per class Y share | |
($67,590,162 divided by 5,514,700 shares) | $12.26 |
|
* On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
40
Statement of operations Year ended 7/31/11
INVESTMENT INCOME | |
| |
Dividends (net of foreign tax of $90,855) | $20,914,828 |
| |
Interest (including interest income of $140,987 from investments in affiliated issuers) (Note 5) | 13,203,551 |
| |
Total investment income | 34,118,379 |
EXPENSES | |
| |
Compensation of Manager (Note 2) | 6,924,911 |
| |
Investor servicing fees (Note 2) | 2,784,051 |
| |
Custodian fees (Note 2) | 29,182 |
| |
Trustee compensation and expenses (Note 2) | 113,896 |
| |
Administrative services (Note 2) | 39,160 |
| |
Distribution fees — Class A (Note 2) | 2,700,114 |
| |
Distribution fees — Class B (Note 2) | 483,815 |
| |
Distribution fees — Class C (Note 2) | 230,369 |
| |
Distribution fees — Class M (Note 2) | 598,186 |
| |
Distribution fees — Class R (Note 2) | 7,023 |
| |
Other | 540,493 |
| |
Total expenses | 14,451,200 |
Expense reduction (Note 2) | (32,004) |
| |
Net expenses | 14,419,196 |
Net investment income | 19,699,183 |
| |
Net realized gain on investments (Notes 1 and 3) | 106,963,794 |
| |
Net unrealized appreciation of investments and TBA sales during the year | 23,125,657 |
| |
Net gain on investments | 130,089,451 |
Net increase in net assets resulting from operations | $149,788,634 |
|
The accompanying notes are an integral part of these financial statements.
41
Statement of changes in net assets
DECREASE IN NET ASSETS | Year ended 7/31/11 | Year ended 7/31/10 |
| ||
Operations: | ||
Net investment income | $19,699,183 | $31,482,845 |
| ||
Net realized gain on investments | 106,963,794 | 57,899,301 |
| ||
Net unrealized appreciation of investments | 23,125,657 | 74,204,562 |
| ||
Net increase in net assets resulting from operations | 149,788,634 | 163,586,708 |
| ||
Distributions to shareholders (Note 1): | ||
From ordinary income | ||
Net investment income | ||
| ||
Class A | (18,171,051) | (23,990,906) |
| ||
Class B | (451,746) | (1,095,926) |
| ||
Class C | (216,716) | (334,513) |
| ||
Class M | (967,653) | (1,379,889) |
| ||
Class R | (20,173) | (27,793) |
| ||
Class Y | (1,374,319) | (2,304,612) |
| ||
From return of capital | ||
Class A | — | (2,565,707) |
| ||
Class B | — | (117,204) |
| ||
Class C | — | (35,775) |
| ||
Class M | — | (147,572) |
| ||
Class R | — | (2,972) |
| ||
Class Y | — | (246,467) |
| ||
Increase in capital from settlement payments (Note 6) | 476,149 | — |
| ||
Redemption fees (Note 1) | 1 | 1,216 |
| ||
Decrease from capital share transactions (Note 4) | (196,021,434) | (267,358,125) |
| ||
Total decrease in net assets | (66,958,308) | (136,019,537) |
NET ASSETS | ||
| ||
Beginning of year | 1,306,797,110 | 1,442,816,647 |
| ||
End of year (including undistributed net investment | ||
income of $1,066,153 and $0, respectively) | $1,239,838,802 | $1,306,797,110 |
|
The accompanying notes are an integral part of these financial statements.
42
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43
Financial highlights (For a common share outstanding throughout the period)
INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | |||||||||||||||
| |||||||||||||||||
Ratio | |||||||||||||||||
of expenses | Ratio of net | ||||||||||||||||
to average | investment | ||||||||||||||||
Net asset | Net | Net realized | Ratio | net assets | income (loss) | ||||||||||||
value, | investment | and unrealized | Total from | From | From | From | Total | Non-recurring | Net asset | Total return | Net assets, | of expenses | excluding | to average | Portfolio | ||
beginning | income | gain (loss) | investment | net investment | net realized gain | return | distribu- | Redemption | reimburse- | value, end | at net asset | end of period | to average | interest | net assets | turnover | |
Period ended | of period | (loss) a | on investments | operations | income | on investments | of capital | tions | fees b | ments | of period | value (%) c | (in thousands) | net assets (%) d | expense (%) d | (%) | (%) e |
| |||||||||||||||||
Class A | |||||||||||||||||
July 31, 2011 | $11.08 | .19 | 1.14 | 1.33 | (.20) | — | — | (.20) | — | — f | $12.21 | 12.09 | $1,034,828 | 1.05 | 1.05 | 1.57 | 176 |
July 31, 2010 | 10.14 | .25 | .93 | 1.18 | (.22) | — | (.02) | (.24) | — | — | 11.08 | 11.83 | 1,077,209 | 1.13 h | 1.13 h | 2.27 | 341 |
July 31, 2009 | 13.99 | .27 | (3.49) | (3.22) | (.44) | (.09) | (.10) | (.63) | — | — g | 10.14 | (22.58) | 1,146,770 | 1.34 i,j | 1.14 j | 2.61 j | 233 |
July 31, 2008 | 18.10 | .61 | (2.55) | (1.94) | (.64) | (1.53) | — | (2.17) | — | — | 13.99 | (11.84) | 2,173,291 | 1.00 j | 1.00 j | 3.80 j | 124 |
July 31, 2007 | 18.21 | .48 | 1.46 | 1.94 | (.52) | (1.53) | — | (2.05) | — | — | 18.10 | 10.99 | 3,184,271 | .96 j | .96 j | 2.61 j | 144 |
| |||||||||||||||||
Class B | |||||||||||||||||
July 31, 2011 | $10.96 | .10 | 1.13 | 1.23 | (.11) | — | — | (.11) | — | — f | $12.08 | 11.24 | $39,031 | 1.80 | 1.80 | .82 | 176 |
July 31, 2010 | 10.02 | .17 | .94 | 1.11 | (.15) | — | (.02) | (.17) | — | — | 10.96 | 11.09 | 56,880 | 1.88 h | 1.88 h | 1.54 | 341 |
July 31, 2009 | 13.83 | .19 | (3.46) | (3.27) | (.37) | (.09) | (.08) | (.54) | — | — g | 10.02 | (23.23) | 86,981 | 2.09 i,j | 1.89 j | 1.85 j | 233 |
July 31, 2008 | 17.90 | .48 | (2.52) | (2.04) | (.50) | (1.53) | — | (2.03) | — | — | 13.83 | (12.50) | 206,269 | 1.75 j | 1.75 j | 2.99 j | 124 |
July 31, 2007 | 18.02 | .33 | 1.46 | 1.79 | (.38) | (1.53) | — | (1.91) | — | — | 17.90 | 10.15 | 413,532 | 1.71 j | 1.71 j | 1.82 j | 144 |
| |||||||||||||||||
Class C | |||||||||||||||||
July 31, 2011 | $11.02 | .10 | 1.13 | 1.23 | (.11) | — | — | (.11) | — | — f | $12.14 | 11.22 | $22,013 | 1.80 | 1.80 | .82 | 176 |
July 31, 2010 | 10.08 | .16 | .95 | 1.11 | (.15) | — | (.02) | (.17) | — | — | 11.02 | 11.06 | 22,814 | 1.88 h | 1.88 h | 1.52 | 341 |
July 31, 2009 | 13.90 | .19 | (3.47) | (3.28) | (.37) | (.09) | (.08) | (.54) | — | — g | 10.08 | (23.17) | 23,296 | 2.09 i,j | 1.89 j | 1.86 j | 233 |
July 31, 2008 | 17.97 | .49 | (2.52) | (2.03) | (.51) | (1.53) | — | (2.04) | — | — | 13.90 | (12.41) | 46,134 | 1.75 j | 1.75 j | 3.03 j | 124 |
July 31, 2007 | 18.09 | .34 | 1.45 | 1.79 | (.38) | (1.53) | — | (1.91) | — | — | 17.97 | 10.16 | 69,893 | 1.71 j | 1.71 j | 1.86 j | 144 |
| |||||||||||||||||
Class M | |||||||||||||||||
July 31, 2011 | $10.94 | .13 | 1.13 | 1.26 | (.14) | — | — | (.14) | — | — f | $12.06 | 11.60 | $75,160 | 1.55 | 1.55 | 1.07 | 176 |
July 31, 2010 | 10.01 | .19 | .94 | 1.13 | (.18) | — | (.02) | (.20) | — | — | 10.94 | 11.33 | 79,010 | 1.63 h | 1.63 h | 1.77 | 341 |
July 31, 2009 | 13.82 | .21 | (3.44) | (3.23) | (.40) | (.09) | (.09) | (.58) | — | — g | 10.01 | (22.99) | 81,025 | 1.84 i,j | 1.64 j | 2.13 j | 233 |
July 31, 2008 | 17.89 | .53 | (2.52) | (1.99) | (.55) | (1.53) | — | (2.08) | — | — | 13.82 | (12.23) | 128,094 | 1.50 j | 1.50 j | 3.31 j | 124 |
July 31, 2007 | 18.02 | .38 | 1.45 | 1.83 | (.43) | (1.53) | — | (1.96) | — | — | 17.89 | 10.42 | 176,993 | 1.46 j | 1.46 j | 2.10 j | 144 |
| |||||||||||||||||
Class R | |||||||||||||||||
July 31, 2011 | $11.05 | .16 | 1.14 | 1.30 | (.17) | — | — | (.17) | — | — f | $12.18 | 11.84 | $1,216 | 1.30 | 1.30 | 1.32 | 176 |
July 31, 2010 | 10.11 | .22 | .94 | 1.16 | (.20) | — | (.02) | (.22) | — | — | 11.05 | 11.59 | 1,345 | 1.38 h | 1.38 h | 2.03 | 341 |
July 31, 2009 | 13.94 | .24 | (3.47) | (3.23) | (.42) | (.09) | (.09) | (.60) | — | —g | 10.11 | (22.71) | 1,493 | 1.59 i,j | 1.39 j | 2.30 j | 233 |
July 31, 2008 | 18.04 | .57 | (2.54) | (1.97) | (.60) | (1.53) | — | (2.13) | — | — | 13.94 | (12.04) | 4,274 | 1.25 j | 1.25 j | 3.66 j | 124 |
July 31, 2007 | 18.15 | .44 | 1.46 | 1.90 | (.48) | (1.53) | — | (2.01) | — | — | 18.04 | 10.76 | 2,044 | 1.21 j | 1.21 j | 2.38 j | 144 |
| |||||||||||||||||
Class Y | |||||||||||||||||
July 31, 2011 | $11.12 | .22 | 1.15 | 1.37 | (.23) | — | — | (.23) | — | — f | $12.26 | 12.42 | $67,590 | .80 | .80 | 1.82 | 176 |
July 31, 2010 | 10.17 | .28 | .95 | 1.23 | (.25) | — | (.03) | (.28) | — | — | 11.12 | 12.18 | 69,539 | .88 h | .88 h | 2.55 | 341 |
July 31, 2009 | 14.04 | .29 | (3.50) | (3.21) | (.47) | (.09) | (.10) | (.66) | — | — g | 10.17 | (22.42) | 103,251 | 1.09 i,j | .89 j | 2.87 j | 233 |
July 31, 2008 | 18.15 | .66 | (2.55) | (1.89) | (.69) | (1.53) | — | (2.22) | — | — | 14.04 | (11.57) | 257,459 | .75 j | .75 j | 4.05 j | 124 |
July 31, 2007 | 18.26 | .53 | 1.46 | 1.99 | (.57) | (1.53) | — | (2.10) | — | — | 18.15 | 11.24 | 385,361 | .71 j | .71 j | 2.86 j | 144 |
|
See notes to financial highlights at the end of this section.
The accompanying notes are an integral part of these financial statements.
44 | 45 |
Financial highlights (Continued)
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Amount represents less than $0.01 per share.
c Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
d Includes amounts paid through expense offset and brokerage/service arrangements (Note 2).
e Portfolio turnover excludes dollar roll transactions.
f Reflects a non-recurring reimbursement related to restitution amounts in connection with a distribution plan approved by the Securities and Exchange Commission (SEC) which amounted to less than $0.01 per share outstanding on July 21, 2011. Also reflects a non-recurring reimbursal related to short-term trading related lawsuits, which amounted to less than $0.01 per share outstanding on May 11, 2011 (Note 6).
g Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Bear Stearns & Co., Inc. and Bear Stearns Securities Corp., which amounted to less than $0.01 per share outstanding as of May 21, 2009.
h Excludes the impact of a current period reduction to interest expense related to the resolution of certain terminated derivatives contracts, which amounted to 0.02% of average net assets as of July 31, 2010.
i Includes interest accrued in connection with certain terminated derivative contracts, which amounted to 0.20% of average net assets as of July 31, 2009 (Note 2).
j Reflects an involuntary contractual expense limitation in effect during the period. For periods prior to July 31, 2009, certain fund expenses were waived in connection with the fund’s investment in Putnam Prime Money Market Fund. As a result of such limitation and/or waivers, the expenses of each class reflect a reduction of the following amounts:
Percentage of | |
average net assets | |
| |
July 31, 2009 | 0.01% |
| |
July 31, 2008 | <0.01 |
| |
July 31, 2007 | <0.01 |
|
The accompanying notes are an integral part of these financial statements.
46
Notes to financial statements 7/31/11
Note 1: Significant accounting policies
George Putnam Balanced Fund (the fund) (formerly known as The George Putnam Fund of Boston) is a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks a balanced investment producing both capital growth and current income by investing primarily in value-oriented stocks of large companies and government, corporate and mortgage-backed bonds. The fund may invest a significant portion of its assets in securitized debt instruments, including mortgage-backed and asset-backed investments. The yields and values of these investments are sensitive to changes in interest rates, the rate of principal payments on the underlying assets and the market’s perception of the issuers. The market for these investments may be volatile and limited, which may make them difficult to buy or sell.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
Prior to August 2, 2010, a 1.00% redemption fee applied to certain shares that were redeemed (either by selling or exchanging into another fund) within 7 days of purchase. The redemption fee was accounted for as an addition to paid-in-capital. Effective August 2, 2010, this redemption fee no longer applies to shares redeemed.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.
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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from August 1, 2010 through July 31, 2011.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Market quotations are not considered to be readily available for certain debt obligations and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities
47
(which considers such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) 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. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings.
C) Security transactions and related investment income Security transactions are recorded on the trade date (the 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, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain. All premiums/discounts are amortized/accreted on a yield-to-maturity basis.
Securities purchased or sold on a delayed delivery basis may be settled a month or more after the trade date; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
D) Stripped securities The fund may invest in stripped securities which represent a participation in securities that may be structured in classes with rights to receive different portions of the interest and principal. Interest-only securities receive all of the interest and principal-only securities receive all of the principal. If the interest-only securities experience greater than anticipated prepayments of principal, the fund may fail to recoup fully its initial investment in these securities. Conversely, principal-only securities increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The market value of these securities is highly sensitive to changes in interest rates.
E) TBA purchase commitments The fund may enter into TBA (to be announced) 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, it is anticipated that the amount of the commitments will not significantly differ from the principal amount. The fund holds, and maintains until settlement
48
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 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 funds other assets. Unsettled TBA purchase commitments are valued at fair value of the underlying securities, 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.
Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for its 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.
F) 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 fair 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 TBA 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. TBA sale commitments outstanding at period end, if any, are listed after the funds portfolio.
G) Dollar rolls To enhance returns, the fund may enter into dollar rolls (principally using TBAs) in which the fund sells securities for delivery in the current month and simultaneously contracts to purchase similar securities on a specified future date. During the period between the sale and subsequent purchase, the fund will not be entitled to receive income and principal payments on the securities sold. The fund will, however, retain the difference between the initial sales price and the forward price for the future purchase. The fund will also be able to earn interest on the cash proceeds that are received from the initial sale on settlement date. The fund may be exposed to market or credit risk if the price of the security changes unfavorably or the counterparty fails to perform under the terms of the agreement.
H) Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each funds investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
I) Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the funds borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
J) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the 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 Code. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for
49
excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
At July 31, 2011, the fund had a capital loss carryover of $949,794,002 available to the extent allowed by the Code to offset future net capital gain, if any. The amounts of the carryovers and the expiration dates are:
Loss carryover | Expiration | |
| ||
$310,017,859 | July 31, 2017 | |
| ||
639,776,143 | July 31, 2018 | |
|
Under the recently enacted Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carry forwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
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. These differences include temporary and/or permanent differences of losses on wash sale transactions and interest only securities. 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. For the reporting period ended, the fund reclassified $2,568,628 to decrease distribution in excess of net investment income and $570,869 to decrease paid-in-capital, with an increase to accumulated net realized losses of $1,997,759.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
Unrealized appreciation | $136,450,258 |
Unrealized depreciation | (36,886,257) |
| |
Net unrealized appreciation | 99,564,001 |
Undistributed ordinary income | 1,066,153 |
Capital loss carryforward | (949,794,002) |
Cost for federal income tax purposes | $1,221,099,404 |
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
0.680% | of the first $5 billion, |
0.630% | of the next $5 billion, |
0.580% | of the next $10 billion, |
0.530% | of the next $10 billion, |
0.480% | of the next $50 billion, |
0.460% | of the next $50 billion, |
0.450% | of the next $100 billion, |
0.445% | of any excess thereafter. |
Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate
50
of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average net assets of the portion of the fund managed by PIL.
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. The fund also reduced expenses through brokerage/service arrangements. For the reporting period, the fund’s expenses were reduced by $4,886 under the expense offset arrangements and by $27,118 under the brokerage/service arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $877, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
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 and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the Plans) with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b–1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $63,883 and $431 from the sale of class A and class M shares, respectively, and received $37,364 and $694 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 reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received $28 and no monies on class A and class M redemptions, respectively.
51
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $2,073,641,170 and $2,394,887,969, respectively. These figures include the cost of purchases and proceeds from sales of long-term U.S. government securities of $293,705,378 and $445,404,956, respectively.
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
Year ended 7/31/11 | Year ended 7/31/10 | |||
| ||||
Class A | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 5,472,625 | $65,405,057 | 7,157,334 | $78,048,797 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 1,397,797 | 16,355,108 | 2,245,104 | 23,924,226 |
| ||||
6,870,422 | 81,760,165 | 9,402,438 | 101,973,023 | |
| ||||
Shares repurchased | (19,352,341) | (230,270,993) | (25,337,071) | (275,336,040) |
| ||||
Net decrease | (12,481,919) | $(148,510,828) | (15,934,633) | $(173,363,017) |
| ||||
Year ended 7/31/11 | Year ended 7/31/10 | |||
| ||||
Class B | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 243,230 | $2,864,261 | 386,438 | $4,173,271 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 37,617 | 432,516 | 109,999 | 1,153,267 |
| ||||
280,847 | 3,296,777 | 496,437 | 5,326,538 | |
| ||||
Shares repurchased | (2,240,199) | (26,420,196) | (3,984,205) | (42,971,075) |
| ||||
Net decrease | (1,959,352) | $(23,123,419) | (3,487,768) | $(37,644,537) |
| ||||
Year ended 7/31/11 | Year ended 7/31/10 | |||
| ||||
Class C | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 179,473 | $2,124,913 | 253,971 | $2,769,571 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 17,193 | 200,066 | 31,584 | 333,793 |
| ||||
196,666 | 2,324,979 | 285,555 | 3,103,364 | |
| ||||
Shares repurchased | (454,627) | (5,374,980) | (526,722) | (5,706,290) |
| ||||
Net decrease | (257,961) | $(3,050,001) | (241,167) | $(2,602,926) |
| ||||
Year ended 7/31/11 | Year ended 7/31/10 | |||
| ||||
Class M | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 541,294 | $6,360,649 | 612,804 | $6,557,334 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 82,446 | 952,265 | 143,532 | 1,508,597 |
| ||||
623,740 | 7,312,914 | 756,336 | 8,065,931 | |
| ||||
Shares repurchased | (1,610,861) | (19,063,596) | (1,629,586) | (17,541,774) |
| ||||
Net decrease | (987,121) | $(11,750,682) | (873,250) | $(9,475,843) |
|
52
Year ended 7/31/11 | Year ended 7/31/10 | |||
| ||||
Class R | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 22,170 | $263,068 | 32,634 | $353,434 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 1,730 | 20,173 | 2,899 | 30,765 |
| ||||
23,900 | 283,241 | 35,533 | 384,199 | |
| ||||
Shares repurchased | (45,784) | (555,084) | (61,588) | (675,039) |
| ||||
Net decrease | (21,884) | $(271,843) | (26,055) | $(290,840) |
| ||||
Year ended 7/31/11 | Year ended 7/31/10 | |||
| ||||
Class Y | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 714,819 | $8,287,925 | 582,706 | $6,333,794 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 116,179 | 1,362,985 | 236,812 | 2,532,185 |
| ||||
830,998 | 9,650,910 | 819,518 | 8,865,979 | |
| ||||
Shares repurchased | (1,570,037) | (18,965,571) | (4,718,963) | (52,846,941) |
| ||||
Net decrease | (739,039) | $(9,314,661) | (3,899,445) | $(43,980,962) |
|
Note 5: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $140,987 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $701,884,900 and $573,715,264, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 6: Regulatory matters and litigation
In late 2003 and 2004, Putnam Management settled charges brought by the SEC and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. In July 2011, the fund recorded a receivable of $465,203 related to restitution amounts in connection with a distribution plan approved by the SEC. This amount is reported in the Increase in capital from settlement payments line on the Statement of changes in net assets. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. In May 2011, the fund received a payment of $10,946 related to settlement of those lawsuits. This amount is reported in the Increase in capital from settlement payments line on the Statement of changes in net assets. Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.
Note 7: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
53
Federal tax information (Unaudited)
The fund designated 86.50% of ordinary income distributions as qualifying for the dividends received deduction for corporations. For its tax year ended July 31, 2011, the fund hereby designates 91.39%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
For the tax year ended July 31, 2011, pursuant to §871(k) of the Internal Revenue Code, the fund hereby designates $9,341,132 of distributions paid as qualifying to be taxed as interest-related dividends.
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
54
About the Trustees
Independent Trustees
Name | ||
Year of birth | ||
Position held | Principal occupations during past five years | Other directorships |
| ||
Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
Shields, a multi-product investment management firm | focused on private | |
with over $40 billion in assets under management. | equity advisory services; | |
RAGE Frameworks, | ||
Inc., a private software | ||
company | ||
| ||
Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
College and member of the Investment Committee for the | company; UniSource | |
college’s endowment. Former Chair and current board | Energy Corporation, | |
member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
refiner and fertilizer | ||
manufacturer; Cody | ||
Resources Management, | ||
LLP, a privately held | ||
energy, ranching, and | ||
commercial real estate | ||
company | ||
| ||
Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
since 2011 | ||
| ||
Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
for Strategic and International Studies. Member of the | ||
Council on Foreign Relations. | ||
| ||
Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
Johnson & Johnson’s Chief Financial Officer for a decade. | ||
| ||
John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
of the Millstein Center for Corporate Governance and | ||
Performance at the Yale School of Management. | ||
|
55
Name | ||
Year of birth | ||
Position held | Principal occupations during past five years | Other directorships |
| ||
Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
Trustee since 1997 | on research and education on issues related to science, | company focused on |
technology, and economic performance. Elizabeth and | natural gas transmission | |
James Killian Professor of Economics, Emeritus at the | and power services; | |
Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
2007, served as the Director of the Center for Energy and | energy company focused | |
Environmental Policy Research at MIT. | on power services | |
| ||
Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
Massachusetts. Until November 2010, director of Ruder | ||
Finn Group, a global communications and advertising firm. | ||
| ||
Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
Joslin Diabetes Center. | ||
| ||
George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
Born 1951 | of financial advisory and other research services, and | |
Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
a registered investment advisor to private funds. | ||
Director of The Boston Family Office, LLC, a registered | ||
investment advisor. | ||
| ||
W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
packaging products. | ||
| ||
Interested Trustee | ||
| ||
Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
Born 1952 | Investments since 2008. Prior to joining Putnam | |
Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
President of the Putnam | Operating Officer of Fidelity Investments from | |
Funds since July 2009 | 2000 to 2007. | |
|
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of July 31, 2011, there were 106 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
56
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
Officer, Treasurer and Compliance Liaison | Since 2011 |
Since 2004 | General Counsel, Putnam Investments and |
Putnam Management | |
Steven D. Krichmar (Born 1958) | |
Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
Since 2002 | Vice President |
Chief of Operations, Putnam Investments and | Since 2004 |
Putnam Management | Director of Trustee Relations, |
Putnam Investments and Putnam Management | |
Janet C. Smith (Born 1965) | |
Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
Since 2007 | Since 1993 |
Director of Fund Administration Services, | |
Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
Vice President, Senior Associate Treasurer and | |
Beth S. Mazor (Born 1958) | Assistant Clerk |
Vice President | Since 2010 |
Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
Investments and Putnam Management | Management (2007–2008); Senior Financial |
Analyst, Putnam Investments (1999–2007) | |
Robert R. Leveille (Born 1969) | |
Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
Since 2007 | Vice President, Assistant Clerk, Assistant |
Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
Putnam Management, and Putnam Retail | Since 2000 |
Management | |
Susan G. Malloy (Born 1957) | |
Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
Vice President and BSA Compliance Officer | Since 2007 |
Since 2002 | Director of Accounting & Control Services, |
Director of Operational Compliance, | Putnam Management |
Putnam Investments and Putnam | |
Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
57
The Putnam family of funds
The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial advisor at 1-800-225-1581 and ask for a prospectus. Please read the prospectus carefully before investing.
Growth | Value |
Growth Opportunities Fund | Convertible Securities Fund |
International Growth Fund | Prior to September 30, 2010, the fund was known as |
Multi-Cap Growth Fund | Putnam Convertible Income-Growth Trust |
Prior to September 1, 2010, the fund was known as | Equity Income Fund |
Putnam New Opportunities Fund | George Putnam Balanced Fund |
Small Cap Growth Fund | Prior to September 30, 2010, the fund was known as |
Voyager Fund | The George Putnam Fund of Boston |
The Putnam Fund for Growth and Income | |
Blend | International Value Fund |
Asia Pacific Equity Fund | Multi-Cap Value Fund |
Capital Opportunities Fund | Prior to September 1, 2010, the fund was known as |
Capital Spectrum Fund | Putnam Mid Cap Value Fund |
Emerging Markets Equity Fund | Small Cap Value Fund |
Equity Spectrum Fund | |
Europe Equity Fund | Income |
Global Equity Fund | American Government Income Fund |
International Capital Opportunities Fund | Diversified Income Trust |
International Equity Fund | Floating Rate Income Fund |
Investors Fund | Global Income Trust |
Multi-Cap Core Fund | High Yield Advantage Fund |
Research Fund | High Yield Trust |
Income Fund | |
Money Market Fund* | |
U.S. Government Income Trust |
* 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 fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
58
Tax-free income | Asset Allocation |
AMT-Free Municipal Fund | Putnam Asset Allocation Funds — portfolios |
Tax Exempt Income Fund | with allocations to stocks, bonds, and |
Tax Exempt Money Market Fund* | money market instruments that are adjusted |
Tax-Free High Yield Fund | dynamically within specified ranges as |
market conditions change. | |
State tax-free income funds: | |
Arizona, California, Massachusetts, Michigan, | Asset Allocation: Balanced Portfolio |
Minnesota, New Jersey, New York, Ohio, | Asset Allocation: Conservative Portfolio |
and Pennsylvania | Asset Allocation: Growth Portfolio |
Absolute Return | Putnam RetirementReady Funds — portfolios |
Absolute Return 100 Fund | with automatically adjusting allocations to |
Absolute Return 300 Fund | stocks, bonds, and money market instruments, |
Absolute Return 500 Fund | becoming more conservative over time. |
Absolute Return 700 Fund | |
Putnam RetirementReady 2055 Fund | |
Global Sector | Putnam RetirementReady 2050 Fund |
Global Consumer Fund | Putnam RetirementReady 2045 Fund |
Global Energy Fund | Putnam RetirementReady 2040 Fund |
Global Financials Fund | Putnam RetirementReady 2035 Fund |
Global Health Care Fund | Putnam RetirementReady 2030 Fund |
Global Industrials Fund | Putnam RetirementReady 2025 Fund |
Global Natural Resources Fund | Putnam RetirementReady 2020 Fund |
Global Sector Fund | Putnam RetirementReady 2015 Fund |
Global Technology Fund | |
Global Telecommunications Fund | Putnam Retirement Income Lifestyle |
Global Utilities Fund | Funds — portfolios with managed |
allocations to stocks, bonds, and money | |
market investments to generate | |
retirement income. | |
Putnam Retirement Income Lifestyle 1 | |
Prior to June 16, 2011, the fund was known as Putnam | |
RetirementReady Maturity Fund | |
Putnam Retirement Income Lifestyle 2 | |
Putnam Retirement Income Lifestyle 3 | |
Prior to June 16, 2011, the fund was known as Putnam | |
Income Strategies Fund |
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund's prospectus.
Check your account balances and the most recent month-end performance in the Individual Investors section at putnam.com.
59
Services for shareholders
Investor services
Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.
Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.
Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.
Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.
Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.
Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.
Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.
Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.
For more information
Visit the Individual Investors section at putnam.com A secure section of our website 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.
Call us toll free at 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.
60
Fund information
Founded over 70 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 manage over 100 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
Investment Manager | John A. Hill | Mark C. Trenchard |
Putnam Investment | Paul L. Joskow | Vice President and |
Management, LLC | Kenneth R. Leibler | BSA Compliance Officer |
One Post Office Square | Robert E. Patterson | |
Boston, MA 02109 | George Putnam, III | Robert T. Burns |
Robert L. Reynolds | Vice President and | |
Investment Sub-Manager | W. Thomas Stephens | Chief Legal Officer |
Putnam Investments Limited | ||
57–59 St James’s Street | Officers | James P. Pappas |
London, England SW1A 1LD | Robert L. Reynolds | Vice President |
President | ||
Marketing Services | Judith Cohen | |
Putnam Retail Management | Jonathan S. Horwitz | Vice President, Clerk and |
One Post Office Square | Executive Vice President, | Assistant Treasurer |
Boston, MA 02109 | Principal Executive | |
Officer, Treasurer and | Michael Higgins | |
Custodian | Compliance Liaison | Vice President, Senior Associate |
State Street Bank | Treasurer and Assistant Clerk | |
and Trust Company | Steven D. Krichmar | |
Vice President and | Nancy E. Florek | |
Legal Counsel | Principal Financial Officer | Vice President, Assistant Clerk, |
Ropes & Gray LLP | Assistant Treasurer and | |
Janet C. Smith | Proxy Manager | |
Independent Registered | Vice President, Assistant | |
Public Accounting Firm | Treasurer and Principal | Susan G. Malloy |
PricewaterhouseCoopers LLP | Accounting Officer | Vice President and |
Assistant Treasurer | ||
Trustees | Beth S. Mazor | |
Jameson A. Baxter, Chair | Vice President | |
Ravi Akhoury | ||
Barbara M. Baumann | Robert R. Leveille | |
Charles B. Curtis | Vice President and | |
Robert J. Darretta | Chief Compliance Officer | |
This report is for the information of shareholders of George Putnam Balanced Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. 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.
Item 2. Code of Ethics: |
(a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund’s investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
(c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
Item 3. Audit Committee Financial Expert: |
The Funds’ Audit and Compliance Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification. |
Item 4. Principal Accountant Fees and Services: |
The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor: |
Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
July 31, 2011 | $213,382 | $-- | $9,375 | $ — | |
July 31, 2010 | $219,196 | $-- | $9,166 | $1,921* |
* | Includes fees of $1,921 billed by the fund’s independent auditor to the fund for procedures necessitated by regulatory and litigation matters for the fiscal year ended July 31, 2010. These fees were reimbursed to the fund by Putnam Investment Management, LLC (“Putnam Management”). |
For the fiscal years ended July 31, 2011and July 31, 2010, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $181,757 and $416,246 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
Audit Fees represent fees billed for the fund’s last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
All Other Fees represent procedures necessitated by regulatory and litigation matters. |
Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. |
Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
July 31, 2011 | $ — | $173,510 | $ — | $ — | |
July 31, 2010 | $ — | $249,107 | $ — | $ — |
Item 5. Audit Committee of Listed Registrants |
Not applicable |
Item 6. Schedule of Investments: |
The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above. |
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies: |
Not applicable |
Item 8. Portfolio Managers of Closed-End Investment Companies |
Not Applicable |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers: |
Not applicable |
Item 10. Submission of Matters to a Vote of Security Holders: |
Not applicable |
Item 11. Controls and Procedures: |
(a) The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. |
(b) Changes in internal control over financial reporting: Not applicable |
Item 12. Exhibits: |
(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith. |
(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith. |
SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
George Putnam Balanced Fund |
By (Signature and Title): |
/s/Janet C. Smith Janet C. Smith Principal Accounting Officer |
Date: September 28, 2011 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
By (Signature and Title): |
/s/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
Date: September 28, 2011 |
By (Signature and Title): |
/s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
Date: September 28, 2011 |
Certifications | |
I, Jonathan S. Horwitz, the Principal Executive Officer of the funds listed on Attachment A, certify that: | |
1. I have reviewed each report on Form N-CSR of the funds listed on Attachment A: | |
2. Based on my knowledge, each report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by each report; | |
3. Based on my knowledge, the financial statements, and other financial information included in each report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in each report; | |
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: | |
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which each report is being prepared; | |
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of each report based on such evaluation; and | |
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
5. The registrant’s other certifying officer and I have disclosed to each registrant’s auditors and the audit committee of each registrant’s board of directors (or persons performing the equivalent functions): | |
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect each registrant’s ability to record, process, summarize, and report financial information; and | |
b) any fraud, whether or not material, that involves management or other employees who have a significant role in each registrant’s internal control over financial reporting. | |
Date: September 27, 2011 | |
/s/ Jonathan S. Horwitz | |
_______________________ | |
Jonathan S. Horwitz | |
Principal Executive Officer | |
Certifications | |
I, Steven D. Krichmar, the Principal Financial Officer of the funds listed on Attachment A, certify that: | |
1. I have reviewed each report on Form N-CSR of the funds listed on Attachment A: | |
2. Based on my knowledge, each report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by each report; | |
3. Based on my knowledge, the financial statements, and other financial information included in each report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in each report; | |
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: | |
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which each report is being prepared; | |
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of each report based on such evaluation; and | |
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
5. The registrant’s other certifying officer and I have disclosed to each registrant’s auditors and the audit committee of each registrant’s board of directors (or persons performing the equivalent functions): | |
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect each registrant’s ability to record, process, summarize, and report financial information; and | |
b) any fraud, whether or not material, that involves management or other employees who have a significant role in each registrant’s internal control over financial reporting. | |
Date: September 27, 2011 | |
/s/ Steven D. Krichmar | |
_______________________ | |
Steven D. Krichmar | |
Principal Financial Officer | |
Attachment A | |
N-CSR | |
Period (s) ended July 31, 2011 | |
Putnam Premier Income Trust | |
Putnam Research Fund | |
Putnam Investors Fund | |
Putnam Voyager Fund | |
Putnam Tax Free High Yield Fund | |
Putnam AMT-Free Insured Municipal Fund | |
Putnam Growth Opportunities Fund | |
George Putnam Balanced Fund | |
Putnam RetirementReady – Funds: | |
Putnam RetirementReady – 2055 | |
Putnam RetirementReady – 2050 | |
Putnam RetirementReady – 2045 | |
Putnam RetirementReady – 2040 | |
Putnam RetirementReady – 2035 | |
Putnam RetirementReady – 2030 | |
Putnam RetirementReady – 2025 | |
Putnam RetirementReady – 2020 | |
Putnam RetirementReady – 2015 | |
Putnam Retirement Income Fund Lifestyle 1 |
Section 906 Certifications | |
I, Jonathan S. Horwitz, the Principal Executive Officer of the Funds listed on Attachment A, certify that, to my knowledge: | |
1. The form N-CSR of the Funds listed on Attachment A for the period ended July 31, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
2. The information contained in the Form N-CSR of the Funds listed on Attachment A for the period ended July 31, 2011 fairly presents, in all material respects, the financial condition and results of operations of the Funds listed on Attachment A. | |
Date: September 27 2011 | |
/s/ Jonathan S. Horwitz | |
______________________ | |
Jonathan S. Horwitz | |
Principal Executive Officer | |
Section 906 Certifications | |
I, Steven D. Krichmar, the Principal Financial Officer of the Funds listed on Attachment A, certify that, to my knowledge: | |
1. The form N-CSR of the Funds listed on Attachment A for the period ended July 31, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
2. The information contained in the Form N-CSR of the Funds listed on Attachment A for the period ended July 31, 2011 fairly presents, in all material respects, the financial condition and results of operations of the Funds listed on Attachment A. | |
Date: September 27 2011 | |
/s/ Steven D. Krichmar | |
______________________ | |
Steven D. Krichmar | |
Principal Financial Officer | |
Attachment A | |
N-CSR | |
Period (s) ended July 31, 2011 | |
Putnam Premier Income Trust | |
Putnam Research Fund | |
Putnam Investors Fund | |
Putnam Voyager Fund | |
Putnam Tax Free High Yield Fund | |
Putnam AMT-Free Insured Municipal Fund | |
Putnam Growth Opportunities Fund | |
George Putnam Balanced Fund | |
Putnam RetirementReady – Funds: | |
Putnam RetirementReady – 2055 | |
Putnam RetirementReady – 2050 | |
Putnam RetirementReady – 2045 | |
Putnam RetirementReady – 2040 | |
Putnam RetirementReady – 2035 | |
Putnam RetirementReady – 2030 | |
Putnam RetirementReady – 2025 | |
Putnam RetirementReady – 2020 | |
Putnam RetirementReady – 2015 | |
Putnam Retirement Income Fund Lifestyle 1 |
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