ThZeal - The Zeal

425 1 ftf1.txt PUTNAM BALANCED RETIREMENT FUND Putnam 811-4242 Balanced Retirement Fund SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 4-30-02 [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Fellow Shareholder: Despite a market environment unsettled by the residual anxiety of the September 11 terrorist attacks, the collapse of Enron, and the new set of uncertainties created by unrest in the Middle East, Putnam Balanced Retirement Fund was able to post a modest gain at net asset value during the six months ended April 30, 2002. On the following pages, the report from your fund's management team will provide a full discussion of what has been driving the fund's performance as well as a view of prospects for the fiscal year's second half. You may notice as you read this report that we are now listing the team that manages your fund. We do this to reflect more accurately how your fund is managed as well as Putnam's firm belief in the value of team management. The names of the individuals who comprise the management team are shown at the end of Management's discussion of performance. This economic climate has also given Putnam pause and after a lengthy review of the Putnam family of funds as well as several working sessions with Putnam Investments, your Trustees are recommending the merger of several Putnam funds. The intent of the mergers is to provide shareholders with more consistent investment performance. Your fund has been proposed for merger into The George Putnam Fund of Boston. For more details, see page 6. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds June 19, 2002 REPORT FROM FUND MANAGEMENT This fund is managed by the Putnam Large-Cap Value and Core Fixed-Income teams The markets struggled to find firm footing during the first six months of Putnam Balanced Retirement Fund's 2002 fiscal year. Despite the widespread uncertainty, we are pleased to report that solid strategic decisions on the fixed-income side and the equity side of the portfolio enabled your fund to outperform both of its benchmarks, the Lehman Government/Credit Bond Index and the S&P 500 Index. In addition, the fund performed better than the average for its Lipper Balanced Funds category because it held a larger stake in bonds than most of its peers -- approximately 60%/40% bond/stock mix instead of 40%/60% -- during a period in which bonds outperformed stocks (see page 7 for more performance details). Total return for 6 months ended 4/30/02 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP ----------------------------------------------------------------------- 3.47% -2.44% 3.14% -1.86% 3.08% 2.08% 3.24% -0.39% ----------------------------------------------------------------------- Past performance does not indicate future results. Performance information for longer periods and explanation of performance calculation methods begin on page 7. * ANTICIPATION OF RECOVERY CAUSED RISE IN BOND YIELDS After two years of strong returns that outpaced those in the volatile equity markets, the results for the bond market were more mixed during this semiannual period. This is typical of a transitional environment and reflects the end of the Federal Reserve Board's easing cycle and the beginning of an economic recovery in the United States. Yields on Treasury bonds of all maturities rose during the period, with the sharpest rise occurring at the beginning of November. In the aftermath of September 11, investors poured money into bonds, especially short- to intermediate-maturity Treasuries. This brought yields, which were already low, to extremely low levels by the end of October. In the first two weeks of November, reports about a strengthening U.S. economy, a surging stock market, and positive news from the war in Afghanistan triggered the reversal in yields. [GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS* Banking 9.2% Oil and gas 5.0% Financial 4.8% Electric utilities 3.6% Insurance 2.7% Footnote reads: *Based on net assets as of 4/30/02. Holdings will vary over time. Since November, the bond market has been more volatile than normal, as uncertainty about the strength and timing of the recovery caused mixed reactions to reports of economic activity. A strengthening economy is viewed negatively by bond investors, because it generally sparks inflation, which diminishes the value of a bond's fixed payments. In addition, the Enron accounting scandal raised concerns about the ability of companies to make interest payments. As a result, the bond market seesawed during the first four months of 2002. In March, yields rose -- and prices declined -- as investors digested reports of stronger-than-expected economic growth as well as news that corporate accounting problems plagued more companies than just Enron. However, in April, yields dropped again and prices rose as the news about the economy turned more negative. Fund Profile Putnam Balanced Retirement Fund seeks high current return with relative stability of principal as a secondary objective. The fund balances its investments between value-oriented stocks and an array of fixed-income securities. This fund is suitable for investors looking to preserve capital and generate income. * FUND SHIFTED BOND-SECTOR ALLOCATIONS The fund's strong fixed-income showing also reflected our timely avoidance of troubled sectors. When rates rose, short- and intermediate-maturity Treasury bonds were the hardest hit, while the corporate sector was hurt by the accounting scandal. We took steps to reduce the fund's weightings in these sectors, which proved beneficial. In addition, we increased the fund's weighting in mortgage-backed securities and, to a lesser extent, in BB-rated high-yield bonds. The mortgage-backed holdings fared particularly well, as their attractive yields and comparative stability helped produce solid returns. Lipper Analytical Services ranked Putnam Balanced Retirement Fund's class A shares 22 out of 494 (5th percentile) balanced funds tracked for 1-year performance, as of 4/30/02. The fund's class A shares ranked 91 out of 296 and 22 out of 73 for the 5- and 10-year periods ending, respectively, as of 4/30/02. Past performance does not indicate future results. Lipper Inc. ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. We remained risk-averse and keenly aware of problem bond issues. As a result, the fund did not have any significant exposure to bonds that experienced difficulties. Certain industries in the corporate sector -- such as banking and brokerage and some industrial bonds -- performed well for some time. In response, we sold several issues that had a long run of strong performance because we did not believe there was much potential for further improvement. We allocated the proceeds from these sales to Treasuries and the mortgage- and asset-backed sectors, which we believe can still benefit. We also reduced our holdings in BB-rated corporate bonds after they performed well. * CONSERVATIVE APPROACH DROVE STOCK PERFORMANCE At the beginning of 2002, we started to transition the fund's stock holdings from a defensive positioning to a more cyclical one. To that end, we looked to gradually position the fund to benefit from the impending economic recovery by slowly allocating more investments into economically sensitive areas. However, we did so in a disciplined, careful, and conservative manner, paying strict attention to valuation parameters. This approach paid off, as it proved better to be more conservatively positioned in a market that was plagued by fits and starts and ended the period in negative territory. Stock investors remained uncertain about the pace of recovery in general, and business spending and possible accounting fiascoes in particular. Consumer spending held up fairly well, buoyed by falling energy prices, relatively low interest rates, 0% auto financing, and other compelling offers by retailers. [GRAPHIC OMITTED: TOP FIVE EQUITY HOLDINGS] TOP FIVE EQUITY HOLDINGS* Exxon Mobil Corp. Oil and gas Citigroup, Inc. Financial Bank of America Corp. Banking Philip Morris Companies, Inc. Tobacco U.S. Bancorp Financial [GRAPHIC OMITTED: TOP FIVE FIXED-INCOME HOLDINGS] TOP FIVE FIXED-INCOME HOLDINGS* Federal National Mortgage Association Pass-through certificates, 6 1/2s, various due dates from May 1, 2031, to April 1, 2032 Federal National Mortgage Association Pass-through certificates, 6 1/2s, various due dates from September 1, 2010, to February 1, 2017 Federal National Mortgage Association Pass-through certificates TBA, 7s, May 1, 2032 Government National Mortgage Association Pass-through certificates, TBA, 7s, May 1, 2032 U.S. Treasury Notes 3 3/8s, April 30, 2004 Footnote reads: *These holdings represent 27.3% of the fund's net assets as of 4/30/02. Portfolio holdings will vary over time. This environment created a stock picker's market, rather than one driven by the performance of particular sectors. That said, we kept an overweighted position in utilities, a move that turned out well due to these stocks' attractive defensive qualities, the high yields they offered in a low interest-rate environment, and their ability to rebound from depressed stock valuations. In finance, we favored property and casualty insurers benefiting from a positive pricing cycle. At the same time, we maintained a significantly underweighted position in the struggling technology and telecommunications sectors. Performance of the fund's equity holdings, like the fixed-income portion, benefited from what we didn't own or were underweight in, including IBM and Worldcom. Investments that provided positive performance included The Limited, which contributed positively due to the company's reduction of square footage to improve profits. Entergy, a utility, offered strong gains to boost the fund's performance as well. While these holdings, along with others discussed in this report, were viewed favorably at the end of the period, all portfolio holdings are subject to review and adjustment in accordance with the fund's strategy and may vary in the future. On the down side, holdings in Qwest Communications, Dynegy, and Tyco International held back fund performance. Concern about the firms' accounting practices hurt these companies, but we maintained our positions because we believed they would offer significant profit opportunities once they emerged from this cloud of concern. * A PROLONGED WEAK RECOVERY IS EXPECTED On the fixed-income side, we believe that the market will continue to waver in the face of slow, choppy, but generally positive economic growth. With respect to stocks, we remain cautiously optimistic. We intend to carefully pursue opportunities to increase the economic sensitivity of the portfolio, looking for more consistent signs of steady, significant economic growth. We are bullish on the economy's direction, but do not want to position the fund more aggressively until we see valuation opportunities and early signs that the recovery is underway. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 4/30/02, there is no guarantee the fund will continue to hold these securities in the future. This fund is managed by the Putnam Large-Cap Value and Core Fixed-Income teams. The members of the Large-Cap Value Team are Deborah Kuenstner, Michael Abata, Bart Geer, David King, Cole Lannum, Christopher Miller, Jeanne Mockard, and Hugh Mullin. The members of the Core Fixed-Income Team are Kevin Cronin, Rob Bloemker, Andrea Burke, Joanne Driscoll, D. William Kohli, Krishna Memani, James Prusko, and David Waldman. MERGER PROPOSED FOR PUTNAM BALANCED RETIREMENT FUND After careful study and lengthy working sessions with Putnam Investment Management, your fund's Trustees have agreed to recommend the merger of Putnam Balanced Retirement Fund into The George Putnam Fund of Boston. Completion of the merger is subject to a number of conditions, including the approval of shareholders. Proxy materials will be delivered within the next few months so you can submit your vote. The George Putnam Fund of Boston has a similar objective to that of your fund, investing in both stocks and bonds for investors seeking both growth and income. If the merger is approved, shareholders are expected to benefit from potentially lower expenses provided by a larger asset base of the merged funds.We encourage you to vote on this important matter by returning your completed proxy material. Once a registration statement relating to a merger has been filed with the SEC and is effective, you may call 1-800-225-1581 or visit www.sec.gov for a free copy of the prospectus/proxy statement. Please read this important information carefully. A NOTE ABOUT DUPLICATE MAILINGS In response to investors' requests, the SEC has modified mailing regulations for proxy statements, semiannual and annual reports, and prospectuses. Putnam is now able to send a single copy of these materials to customers who share the same address. This change will automatically apply to all shareholders except those who notify us. If you would prefer to receive your own copy, please call Putnam at 1-800-225-1581. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy. TOTAL RETURN FOR PERIODS ENDED 4/30/02 Class A Class B Class C Class M (inception dates) (4/19/85) (2/1/94) (7/26/99) (3/17/95) NAV POP NAV CDSC NAV CDSC NAV POP ------------------------------------------------------------------------------ 6 months 3.47% -2.44% 3.14% -1.86% 3.08% 2.08% 3.24% -0.39% ------------------------------------------------------------------------------ 1 year 3.63 -2.36 2.94 -2.02 2.84 1.85 3.15 -0.50 ------------------------------------------------------------------------------ 5 years 45.21 36.83 40.11 38.16 39.90 39.90 41.65 36.74 Annual average 7.75 6.47 6.98 6.68 6.94 6.94 7.21 6.46 ------------------------------------------------------------------------------ 10 years 159.46 144.61 141.06 141.06 140.76 140.76 146.99 138.39 Annual average 10.00 9.36 9.20 9.20 9.18 9.18 9.46 9.08 ------------------------------------------------------------------------------ Annual average (life of fund) 9.98 9.60 9.09 9.09 9.16 916 9.36 9.13 ------------------------------------------------------------------------------

Past performance does not indicate future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for classes A and M shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Performance for class B, C, and M shares before their inception are derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and higher operating expenses for such shares. LIPPER INFORMATION: The average cumulative return for the 511 funds in the Lipper Balanced Funds category over the 6 months ended 4/30/02 was 2.12%. Over the 1-, 5-, and 10-year periods ended 4/30/02, annualized returns for the category were -4.92%, 6.57%, and 9.22%, respectively. *These indices will replace the S&P 500 Index and the Lehman Government/Credit Index as the benchmarks for this fund. After a recent review of fund benchmarks, Putnam Management has determined that the securities tracked by these indexes more accurately reflect the types of securities generally held by the fund. PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/02 Class A Class B Class C Class M ------------------------------------------------------------------------------ Distributions (number) 2 2 2 2 ------------------------------------------------------------------------------ Income $0.220 $0.184 $0.189 $0.195 ------------------------------------------------------------------------------ Capital gains -- -- -- -- ------------------------------------------------------------------------------ Total $0.220 $0.184 $0.189 $0.195 ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV NAV POP ------------------------------------------------------------------------------ 10/31/01 $10.23 $10.85 $10.12 $10.17 $10.16 $10.53 ------------------------------------------------------------------------------ 4/30/02 10.36 10.99 10.25 10.29 10.29 10.66 ------------------------------------------------------------------------------ Current return (end of period) ------------------------------------------------------------------------------ Current dividend rate 1 4.25% 4.00% 3.59% 3.65% 3.81% 3.68% ------------------------------------------------------------------------------ Current 30-day SEC yield 2 3.56 3.36 2.81 2.81 3.06 2.95 ------------------------------------------------------------------------------ 1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period. 2 Based only on investment income, calculated using SEC guidelines. TOTAL RETURN FOR PERIODS ENDED 3/31/02 (most recent calendar quarter) Class A Class B Class C Class M (inception dates) (4/19/85) (2/1/94) (7/26/99) (3/17/95) NAV POP NAV CDSC NAV CDSC NAV POP ------------------------------------------------------------------------------ 6 months 4.28% -1.71% 3.85% -1.15% 3.89% 2.88% 3.95% 0.28% ------------------------------------------------------------------------------ 1 year 5.65 -0.46 4.87 -0.13 4.86 3.86 5.08 1.40 ------------------------------------------------------------------------------ 5 years 48.85 40.34 43.51 41.52 43.49 43.49 45.22 40.08 Annual average 8.28 7.01 7.49 7.19 7.49 7.49 7.75 6.97 ------------------------------------------------------------------------------ 10 years 165.38 150.18 146.50 146.50 146.23 146.23 152.55 143.59 Annual average 10.25 9.60 9.44 9.44 9.43 9.43 9.71 9.31 ------------------------------------------------------------------------------ Annual average (life of fund) 10.05 9.67 9.15 9.15 9.23 9.23 9.42 9.20 ------------------------------------------------------------------------------ Past performance does not indicate future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares. TERMS AND DEFINITIONS Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. The NAV is calculated by dividing the net value of all the fund's assets by the number of outstanding shares. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund's class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase. Class A shares are generally subject to an initial sales charge and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge). Class B shares are not subject to an initial sales charge and may be subject to a sales charge upon redemption. Class C shares are not subject to an initial sales charge and are subject to a contingent deferred sales charge only if the shares are redeemed during the first year. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge). COMPARATIVE BENCHMARKS The Lehman Aggregate Bond Index* is an unmanaged index used as a general measure of U.S. fixed-income securities. The Lehman Government/Credit Bond Index* is an unmanaged index of U.S fixed-income securities. The S&P 500 Index* is an unmanaged index of common stock performance. The S&P/Barra 500 Value Index* is an unmanaged index of capitalization-weighted stocks chosen for their value orientation. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Lipper Inc. is a third-party industry ranking entity that ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. *Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, constitute the fund's financial statements. The fund's portfolio lists all the fund's investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification. Statement of assets and liabilities shows how the fund's net assets and share price are determined. All investment and noninvestment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the net assets allocated to remarketed preferred shares.) Statement of operations shows the fund's net investment gain or loss. This is done by first adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings -- as well as any unrealized gains or losses over the period -- is added to or subtracted from the net investment result to determine the fund's net gain or loss for the fiscal period. Statement of changes in net assets shows how the fund's net assets were affected by distributions to shareholders and by changes in the number of the fund's shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Financial highlights provide an overview of the fund's investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period. For open-end funds, a separate table is provided for each share class.

NOTES TO FINANCIAL STATEMENTS April 30, 2002 (Unaudited) Note 1 Significant accounting policies Putnam Balanced Retirement Fund (the "fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks high current return by investing in a diversified portfolio of equity and debt securities, with secondary objective of stability of principle. The fund offers class A, class B, class C, class M and class Y shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares are subject to the same fees and expenses as class B shares, except that class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class M shares are sold with a maximum front-end sales charge of 3.50% and pay an ongoing distribution fee that is higher than class A shares but lower than class B and class C shares. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C and class M shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that invest at least $150 million in a combination of Putnam funds and other accounts managed by affiliates of Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned subsidiary of Putnam, LLC. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if that fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sales price on its principal exchange, or if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value. Other investments, including restricted securities, are stated at fair value following procedures approved by the Trustees. Market quotations are not considered to be readily available for certain debt obligations; such investments are stated at fair value on the basis of valuations furnished by an independent pricing service or dealers, approved by the Trustees, which determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and variable relationships, generally recognized by institutional traders, between securities. B) Joint trading account The fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded 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. All premiums/discounts are amortized/accreted on a yield-to-maturity basis. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. F) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as "variation margin." Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. G) TBA purchase commitments The fund may enter into "TBA" (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitments will not fluctuate more than 0.01% from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under "Security valuation" above. Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for their portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. H) TBA sale commitments The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security valuation" above. The contract is "marked-to-market" daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. I) Security lending The fund may lend securities, through its agent Citibank N.A., to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by Citibank N.A., the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At April 30, 2002, the value of securities loaned amounted to $5,306,924. The fund received cash collateral of $5,546,035, which is pooled with collateral of other Putnam funds into 36 issuers of high-grade short-term investments. J) Line of credit The fund has entered into a committed line of credit with certain banks. This line of credit agreement includes restrictions that the fund maintains an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the six months ended April 30, 2002, the fund had no borrowings against the line of credit. K) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. L) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. Note 2 Management fee, administrative services and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and 0.38% thereafter. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam, LLC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. The fund also reduced expenses through brokerage service arrangements. For the six months ended April 30, 2002, the fund's expenses were reduced by $126,259 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $1,029 has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B, class C and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management at an annual rate up to 0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of the average net assets attributable to class A, class B, class C and class M shares, respectively. For the six months ended April 30, 2002, Putnam Retail Management, acting as underwriter received net commissions of $147,216 and $2,658 from the sale of class A and class M shares, respectively, and received $169,457 and $2,540 in contingent deferred sales charges from redemptions of class B and class C shares, respectively. A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the six months ended April 30, 2002, Putnam Retail Management, acting as underwriter received $1,372 and no monies on class A and class M redemptions, respectively. Note 3 Purchases and sales of securities During the six months ended April 30, 2002, cost of purchases and proceeds from sales of investment securities other than U.S. government obligations and short-term investments aggregated $510,284,877 and $449,635,440, respectively. Purchases and sales of U.S. government obligations aggregated $1,171,233,066 and $1,152,285,414, respectively. Written option transactions during the period are summarized as follows: Contract Premiums Amounts Received --------------------------------------------------------------------------- Written options outstanding at beginning of period $ -- $ -- --------------------------------------------------------------------------- Options opened 2,155,000 192,204 --------------------------------------------------------------------------- Options expired -- -- --------------------------------------------------------------------------- Options closed (2,155,000) (192,204) --------------------------------------------------------------------------- Written options outstanding at end of period $ -- $ -- --------------------------------------------------------------------------- Note 4 Capital shares At April 30, 2002, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended April 30, 2002 --------------------------------------------------------------------------- Class A Shares Amount --------------------------------------------------------------------------- Shares sold 9,325,742 $ 96,242,634 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,059,852 10,794,149 --------------------------------------------------------------------------- 10,385,594 107,036,783 Shares repurchased (5,823,998) (60,096,533) --------------------------------------------------------------------------- Net increase 4,561,596 $ 46,940,250 --------------------------------------------------------------------------- Year ended October 31, 2001 --------------------------------------------------------------------------- Class A Shares Amount --------------------------------------------------------------------------- Shares sold 19,538,905 $ 202,597,163 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,731,039 17,912,555 --------------------------------------------------------------------------- 21,269,944 220,509,718 Shares repurchased (10,129,303) (104,604,943) --------------------------------------------------------------------------- Net increase 11,140,641 $ 115,904,775 --------------------------------------------------------------------------- Six months ended April 30, 2002 --------------------------------------------------------------------------- Class B Shares Amount --------------------------------------------------------------------------- Shares sold 6,898,048 $ 70,419,279 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 364,376 3,674,433 --------------------------------------------------------------------------- 7,262,424 74,093,712 Shares repurchased (2,771,431) (28,300,974) --------------------------------------------------------------------------- Net increase 4,490,993 $ 45,792,738 --------------------------------------------------------------------------- Year ended October 31, 2001 --------------------------------------------------------------------------- Class B Shares Amount --------------------------------------------------------------------------- Shares sold 11,460,841 $117,175,320 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 508,334 5,211,132 --------------------------------------------------------------------------- 11,969,175 122,386,452 Shares repurchased (5,773,898) (58,954,897) --------------------------------------------------------------------------- Net increase 6,195,277 $ 63,431,555 --------------------------------------------------------------------------- Six months ended April 30, 2002 --------------------------------------------------------------------------- Class C Shares Amount --------------------------------------------------------------------------- Shares sold 918,835 $ 9,405,661 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 24,077 243,977 --------------------------------------------------------------------------- 942,912 9,649,638 Shares repurchased (181,024) (1,858,274) --------------------------------------------------------------------------- Net increase 761,888 $ 7,791,364 --------------------------------------------------------------------------- Year ended October 31, 2001 --------------------------------------------------------------------------- Class C Shares Amount --------------------------------------------------------------------------- Shares sold 1,009,151 $10,361,159 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 15,038 155,551 --------------------------------------------------------------------------- 1,024,189 10,516,710 Shares repurchased (114,842) (1,176,599) --------------------------------------------------------------------------- Net increase 909,347 $ 9,340,111 --------------------------------------------------------------------------- Six months ended April 30, 2002 --------------------------------------------------------------------------- Class M Shares Amount --------------------------------------------------------------------------- Shares sold 434,877 $ 4,460,038 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 35,107 355,263 --------------------------------------------------------------------------- 469,984 4,815,301 Shares repurchased (279,778) (2,878,513) --------------------------------------------------------------------------- Net increase 190,206 $ 1,936,788 --------------------------------------------------------------------------- Year ended October 31, 2001 --------------------------------------------------------------------------- Class M Shares Amount --------------------------------------------------------------------------- Shares sold 746,580 $ 7,672,745 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 51,924 554,718 --------------------------------------------------------------------------- 798,504 8,227,463 Shares repurchased (316,249) (3,238,938) --------------------------------------------------------------------------- Net increase 482,255 $ 4,988,525 --------------------------------------------------------------------------- Six months ended April 30, 2002 --------------------------------------------------------------------------- Class Y Shares Amount --------------------------------------------------------------------------- Shares sold 207,556 $2,151,355 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 8,184 83,344 --------------------------------------------------------------------------- 215,740 2,234,699 Shares repurchased (86,831) (899,110) --------------------------------------------------------------------------- Net increase 128,909 $1,335,589 --------------------------------------------------------------------------- Year ended October 31, 2001 --------------------------------------------------------------------------- Class Y Shares Amount --------------------------------------------------------------------------- Shares sold 233,827 $ 2,379,323 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 10,767 111,599 --------------------------------------------------------------------------- 244,594 2,490,922 Shares repurchased (107,700) (1,109,848) --------------------------------------------------------------------------- Net increase 136,894 $ 1,381,074 --------------------------------------------------------------------------- Note 5 Actions by Trustees In April 2002, the Trustees approved the merger of Putnam Balanced Retirement Fund into The George Putnam Fund of Boston. The transaction is scheduled to occur in September 2002. It is subject to a number of conditions and there is no guarantee it will occur. FUND INFORMATION ABOUT PUTNAM INVESTMENTS One of the largest mutual fund families in the United States, Putnam Investments has a heritage of investment leadership dating back to Judge Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and practice since 1830. Founded 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We presently manage over 100 mutual funds in growth, value, blend, fixed income, and international. INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam, III President Charles E. Porter Executive Vice President and Treasurer Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President Deborah F. Kuenstner Vice President Richard G. Leibovitch Vice President Richard A. Monaghan Vice President Michael T. Healy Vice President John R. Verani Vice President This report is for the information of shareholders of Putnam Balanced Retirement Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary and Putnam's Quarterly Ranking Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. The fund's Statement of Additional Information contains additional information about the fund's Trustees and is available without charge upon request by calling 1-800-225-1581. Visit www.putnaminvestments.com or call a representative at 1-800-225-1581. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 --------------------- PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com SA018-79305 034/243/908/ 6/02 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] ---------------------------------------------------------------------------- Putnam Balanced Retirement Fund Supplement to Semiannual Report dated 4/30/02 The following information has been prepared to provide class Y shareholders with a performance overview specific to their holdings. Class Y shares are offered exclusively to clients that meet the eligibility requirements specified in the fund's prospectus for such shares. Performance of class Y shares, which incur neither a front-end load, distribution fee, nor contingent deferred sales charge, will differ from performance of class A, B, C, and M shares, which are discussed more extensively in the annual report. SEMIANNUAL RESULTS AT A GLANCE ---------------------------------------------------------------------------- Total return for periods ended 4/30/02 NAV 6 months 3.60% 1 year 3.98 5 years 46.53 Annual average 7.94 10 years 161.82 Annual average 10.10 Life of fund (since class A inception, 4/19/85) Annual average 10.04 Share value: NAV 10/31/01 $10.24 4/30/02 $10.37 ---------------------------------------------------------------------------- Distributions: No. Income Capital gains Total 2 $0.233 -- $0.233 ---------------------------------------------------------------------------- Please note that past performance is not indicative of future results. More recent returns may be more or less than those shown. Returns shown for class Y shares for periods prior to their inception are derived from the historical performance of class A shares, and are not adjusted to reflect the initial sales charge currently applicable to class A shares. These returns have not been adjusted to reflect differences in operating expenses which, for class Y shares, typically are lower than the operating expenses applicable to class A shares. All returns assume reinvestment of distributions at net asset value. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. See full report for information on comparative benchmarks. If you have questions, please consult your fund prospectus or call Putnam toll free at 1-800-752-9894.