-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LvnzRRszaLs17N6aUjqZqROUyImVDhlLfQuawRKQUpEPvazQbsl99Sq1vhHdov7R 9bDBvg4vkZBBQtM8JqUNdA== 0000928816-98-000205.txt : 19980727 0000928816-98-000205.hdr.sgml : 19980727 ACCESSION NUMBER: 0000928816-98-000205 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980724 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM INTERMEDIATE US GOVT INCOME FUND CENTRAL INDEX KEY: 0000869797 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046661044 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06257 FILM NUMBER: 98670932 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQUARE STREET 2: MAILSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 8002551581 MAIL ADDRESS: STREET 1: NULL FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM BALANCED GOVERNMENT FUND DATE OF NAME CHANGE: 19930121 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM BALANCED MORTGAGE FUND DATE OF NAME CHANGE: 19921223 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM FOCUS GROWTH FUND DATE OF NAME CHANGE: 19920703 N-30D 1 PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND Putnam Intermediate U.S. Government Income Fund SEMIANNUAL REPORT May 31, 1998 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * Putnam Intermediate U.S. Government Income Fund continues to provide above-average performance. For the 12-month period ended June 30, 1998, the fund's class A share total return ranked 14 out of 99 short/intermediate U.S. government funds tracked by Lipper Analytical Services, placing it in the top 14% of this category.* * "Inflation -- a bond buyer's worst enemy -- could fall as low as 1% this year, many economists say. Further Asian economic weakness could also help boost bonds in the months ahead." -- The Wall Street Journal, May 8, 1998 CONTENTS 4 Report from Putnam Management 8 Fund performance summary 12 Portfolio holdings 14 Financial statements * Past performance is not indicative of future results. Lipper Analytical Services, an independent research organization, ranks funds according to total-return performance. Its rankings vary over time and do not reflect the effects of sales charges. The fund's class A shares were ranked 6 out of 48 short/intermediate U.S. government funds for 5-year performance through 6/30/98. The fund's class A, class B, and class M shares were ranked 14, 38, and 23, respectively, for 1-year performance. From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: The rush of funds to the safety of the U.S. bond market during the first half of Putnam Intermediate U.S. Government Income Fund's fiscal year pulled down yields on most bonds -- as the brisk demand moved their prices higher. This was especially the case for the U.S. Treasury issues that make up more than two thirds of your fund's portfolio. The Federal Reserve Board kept close watch on the economy and the markets but in the end remained on the sidelines, apparently content that the U.S. economic engine was still sufficiently under control. During the period, Fund Manager Michael Martino focused on a strategy aimed at minimizing the effects of market volatility while maximizing the returns on Treasury securities. Toward the end of the period, he began increasing the fund's mortgage-backed security holdings. In the following report, Mike discusses the fund's strategy during the six months ended May 31, 1998, and looks at prospects for the fiscal year's second half. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees July 15, 1998 Report from the Fund Manager Michael Martino The U.S. bond markets enjoyed healthy rallies during the winter and spring of 1998, spurred by a positive economic backdrop in the United States and strong demand for U.S. dollar-denominated assets. For the six months ended May 31, 1998, Putnam Intermediate U.S. Government Income Fund provided a 3.32% return at net asset value for its class A shares. Taking the fund's maximum initial sales charge into account, the fund's class A shares provided a 0.05% return at public offering price. For more information on the fund's performance, including returns for other share classes, please see pages 8 and 9. * DURATION STRATEGY MAXIMIZES TREASURY RETURNS The fund's solid performance is largely the result of its stake in the Treasury sector. During the period, the prices of Treasury securities benefited from a combination of low inflation and heightened demand for U.S. dollar-denominated assets with intermediate Treasuries returning 3.5% as measured by the Lehman Brothers Intermediate Treasury Index. The economy grew at an annualized rate of 4.8% in the first quarter of 1998 and consumer spending soared, yet inflation recorded its smallest increase in 30 years. Investors took the rapid economic growth in stride, counting on the negative trade effects of the Asian slump to offset any price increases. In fact, the economic crisis in Asia added to the demand for U.S. dollar assets -- particularly Treasuries -- as investors from Japan and other Pacific Rim nations sought safer havens for their investments. With an intermediate-term focus, your fund strives to reduce unwanted fluctuations in net asset value by limiting its sensitivity to changes in interest rates. The fund's mix of securities is managed so that the portfolio's average duration -- a measure of interest-rate sensitivity -- remains between 2.5 and 4 years. Essentially, the shorter a portfolio's duration, the less likely the chance that its net asset value will be adversely affected by an increase in rates. The tradeoff for this protection is that a short duration restricts a fund's participation in market rallies. To make the most of the rally in Treasury prices during the period, we concentrated assets in relatively long-term Treasury notes -- those with durations greater than 4 years -- and cash. In particular, 5- and 10-year notes helped the fund achieve an above-average total return for the period, while a 12% cash position helped keep the fund's overall duration within the bounds of an intermediate-term investment vehicle. (The fund's duration was 2.7 years at the end of the period.) In May, we sold the fund's 10-year notes, with the view that a mild correction in that segment of the market was more likely than any meaningful appreciation in the near future. * MORTGAGE-BACKED SECURITIES PERFORM WELL DESPITE HIGHER PREPAYMENTS Usually when Treasuries are this strong, mortgage-backed securities suffer because of prepayment concerns. As interest rates fall, many homeowners refinance their mortgages, returning the principal to mortgage investors. In addition to disrupting an investor's income stream, this prepayment of principal forces the investor to reinvest at lower prevailing rates. In January, mortgage refinancing reached an all-time high, as measured by the Mortgage Bankers Refinancing Index. [GRAPHIC OMITTED: horizontal bar chart of COMPARATIVE PORTFOLIO COMPOSITION] COMPARATIVE PORTFOLIO COMPOSITION* 11/30/97 5/31/98 Fixed-rate mortgage-backed securities 13.7% 36.4% Adjustable-rate mortgage-backed securities 1.5% 1.1% U.S. Treasury securities 66.8% 49.9% Cash and short-term investments 17.3% 11.9% Footnote reads: * Based on net assets. Composition will vary over time. [GRAPHIC OMITTED: vertical bar chart of EFFECTIVE MATURITY OVERVIEW] EFFECTIVE MATURITY OVERVIEW* 0-1 years 20.67% 1-5 years 58.02% 5+ years 21.31% Footnote reads: * Based on net assets as of 5/31/98. Measures of effective maturity are derived from calculations that incorporate assumptions about prepayment rates and cash flows of mortgage-backed securities. The actual, or effective, maturities of mortgage-backed securities are frequently shorter than their stated maturities. Effective maturities and the assumptions on which they are based will vary over time. Investors did not abandon mortgage-backed securities, however. Many, seeking the relatively higher yields offered by these securities, simply reinvested their prepaid principal, keeping demand strong. For the six-month period, the Lehman Brothers Mortgage-Backed Securities Index returned 3.82% while intermediate Treasuries returned 3.5% as measured by the Lehman Brothers Intermediate Treasury Index. Using cash and proceeds from the sale of 10-year Treasuries, we added to the fund's mortgage-backed weighting late in the period. To reduce prepayment risk, we focused on GNMA 7% coupon bonds and seasoned 8% coupon bonds. (A coupon is a bond's stated yield at issuance.) A 7% coupon bond is considered relatively safe from prepayment because the owner of that mortgage has little to gain by refinancing. Seasoned mortgages are those that could have been refinanced in the past but were not thus, they are not likely to be refinanced now. Traditionally the summer is a less volatile time for mortgage-backed securities, since homeowners tend to be more interested in taking vacations than refinancing their mortgages. We expect to increase the fund's mortgage-backed position again this summer. * BOND MARKET OUTLOOK FAVORABLE We are optimistic about the prospects for continued positive performance in the bond market. At this point, we believe inflation poses no real threat to fixed-income investors. In fact, we expect GDP growth in the second quarter of 1998 will slow to roughly half that of the first quarter, sparking renewed interest in the bond market. The widely anticipated federal budget surplus this year should also be a plus for bonds, since it means less Treasury issuance -- and therefore less supply relative to demand -- in the future. That said, if Treasuries rally much further this summer, we will rein in the fund's duration toward the low end of our designated range (approximately 2.5 years). As always, we will continue to seek opportunities for income and price appreciation in sectors of the bond market we believe will benefit from the current economic and interest-rate environment. 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 5/31/98, there is no guarantee the fund will continue to hold these securities in the future. While U.S. government backing of individual securities does not insure principal, which will fluctuate, it does guarantee that the fund's government-backed holdings will make timely payments of interest and principal. This fund includes investments in mortgage-backed securities, which are subject to prepayment risk. Performance summary This section provides information about your fund's performance, which should always be considered in light of its investment strategy. Putnam Intermediate U.S. Government Income Fund is designed for investors seeking as high a level of current income as is consistent with preservation of capital. TOTAL RETURN FOR PERIODS ENDED 5/31/98 Class A Class B Class M (inception date) (2/16/93) (2/16/93) (4/3/95) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------------ 6 months 3.32% 0.05% 3.00% 0.00% 3.23% 1.17% - ------------------------------------------------------------------------------ 1 year 8.10 4.63 7.44 4.44 7.92 5.73 - ------------------------------------------------------------------------------ 5 years 32.01 27.65 28.35 28.35 31.34 28.76 Annual average 5.71 5.00 5.12 5.12 5.60 5.19 - ------------------------------------------------------------------------------ Life of fund 33.43 29.04 29.52 29.52 32.51 29.93 Annual average 5.61 4.95 5.02 5.02 5.48 5.08 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/98 Lehman Bros. Intermediate Consumer Govt. Bond Index Price Index - ------------------------------------------------------------------------------ 6 months 4.09% 0.80% - ------------------------------------------------------------------------------ 1 year 11.23 1.69 - ------------------------------------------------------------------------------ 5 years 39.54 12.90 Annual average 6.89 2.46 - ------------------------------------------------------------------------------ Life of fund 40.93 13.77 Annual average 6.75 2.49 - ------------------------------------------------------------------------------ Past performance is not indicative of future results. Returns for class A and class M shares reflect the current maximum initial sales charges of 3.25% and 2.00%, respectively. Class B share returns for the 1-, 5-, and life-of-fund periods reflect the applicable contingent deferred sales charge (CDSC), which is 3.00% in the first year, declines to 1% in the fourth year, and is eliminated thereafter. Returns shown for class M shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect the initial sales charge currently applicable to class M shares, and the higher operating expenses applicable to such shares. Returns shown for class A shares have not been adjusted to reflect payments under the class A distribution plan prior to its implementation. All returns assume reinvestment of distributions at NAV. Investment return and principal value will fluctuate so that an investor's shares when redeemed may be worth more or less than their original cost. Performance data for periods before 4/10/95 do not reflect current investment policies. PRICE AND DISTRIBUTION INFORMATION 6 months ended 5/31/98 Class A Class B Class M - ------------------------------------------------------------------------------ Distributions (number) 6 6 6 - ------------------------------------------------------------------------------ Income $0.141000 $0.126102 $0.137272 - ------------------------------------------------------------------------------ Capital gains -- -- -- - ------------------------------------------------------------------------------ Total $0.141000 $0.126102 $0.137272 - ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV POP - ------------------------------------------------------------------------------ 11/30/97 $4.90 $5.06 $4.91 $4.91 $5.01 - ------------------------------------------------------------------------------ 5/31/98 4.92 5.09 4.93 4.93 5.03 - ------------------------------------------------------------------------------ Current return (end of period) - ------------------------------------------------------------------------------ Current dividend rate1 6.00% 5.80% 5.37% 5.83% 5.71% - ------------------------------------------------------------------------------ Current 30-day SEC yield2 5.00 4.84 4.67 5.16 5.06 - ------------------------------------------------------------------------------ 1Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. 2Based on investment income, calculated using SEC guidelines. TOTAL RETURN FOR PERIODS ENDED 6/30/98 (most recent calendar quarter) Class A Class B Class M (inception date) (2/16/93) (2/16/93) (4/3/95) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------------ 6 months 3.11% -0.34% 3.01% 0.01% 3.02% 0.97% - ------------------------------------------------------------------------------ 1 year 7.85 4.39 7.42 4.42 7.67 5.49 - ------------------------------------------------------------------------------ 5 years 32.08 27.72 28.42 28.42 31.37 28.80 Annual average 5.72 5.02 5.13 5.13 5.61 5.19 - ------------------------------------------------------------------------------ Life of fund 34.34 29.92 30.34 30.34 33.40 30.79 Annual average 5.65 5.00 5.06 5.06 5.51 5.13 - ------------------------------------------------------------------------------ Performance data represent past results, do not reflect future performance, and will differ for each share class. Investment returns and principal value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. See first page of performance section for performance calculation method. 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. Class A shares are generally subject to an initial sales charge. Class B shares may be subject to a sales charge upon redemption. 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. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. 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 3.25% maximum sales charge for class A shares and 2.00% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 3% maximum during the first year to 1% during the fourth year. After the fourth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS Lehman Brothers Intermediate Government Bond Index is composed of all bonds covered by the Lehman Brothers Government Bond Index with maturities between one and 9.9 years. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund. It is not possible to invest directly in an index. Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. WELCOME TO www.putnaminv.com Now you can use your PC to get up-to-date information about your funds, learn more about investing and retirement planning, and access market news and economic outlooks from Putnam. VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR: * the benefits of investing with Putnam * Putnam's money management philosophy * complete fund information, daily pricing and long-term performance * your current account value, portfolio value and transaction history * the latest on new funds and other Putnam news You can also read Putnam economist Dr. Robert Goodman's commentary and Putnam's Capital Markets outlook, search for a particular fund by name or objective, use our glossary to decode investment terms . . . and much more. The site can be accessed through any of the major online services (America Online, CompuServe, Prodigy) that offer web access. Of course, you can also access it via Netscape or Microsoft Internet Explorer, using an independent Internet service provider. New features will be added to the site regularly. So be sure to bookmark us at http://www.putnaminv.com Portfolio of investments owned May 31, 1998 (Unaudited)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (87.4%) (a) PRINCIPAL AMOUNT VALUE U.S. Government Agency Obligations (37.5%) - ------------------------------------------------------------------------------------------------------------- $ 2,757,837 Federal Home Loan Mortgage Corp. 7 1/2s, August 1, 2007 $ 2,841,427 Federal National Mortgage Association 29,300,000 5 3/4s, with due dates from April 15, 2003 to February 15, 2008 29,045,727 5,785,000 5 5/8s March 15, 2001 5,771,460 267,672 Federal National Mortgage Association Adjustable Rate Mortgage 6.237s, with due dates from November 1, 2024 to July 1, 2026 269,179 Federal National Mortgage Association Pass-Through Certificates 109,325 11 1/4s, October 1, 2010 124,015 484,029 8s, May 1, 2013 492,146 12,736,432 7s, Dwarf, with due dates from October 1, 2010 to January 1, 2013 12,987,088 692,916 Government National Mortgage Association 7s, May 15, 2028 703,739 3,541,174 Government National Mortgage Association Adjustable Rate Mortgage 7s, July 20, 2026 3,625,277 Government National Mortgage Association Pass-Through Certificates 3,515,860 8 1/2s, October 15, 2008 3,734,502 18,663,317 8s, with due dates from May 15, 2024 to March 15, 2028 19,411,170 539,330 7 1/2s, with due dates from April 15, 2026 to December 15, 2027 555,844 25,314 7s, with due dates from September 15, 2025 to May 15, 2028 49,760,801 -------------- 129,322,375 U.S. Treasury Obligations (49.9%) - ------------------------------------------------------------------------------------------------------------- 5,000,000 U.S. Treasury Bonds 5 7/8s, July 31, 1999 5,016,400 U.S. Treasury Notes 30,000,000 8 1/4s, July 15, 1998 30,112,500 10,000,000 8s, May 15, 2001 10,648,400 50,000,000 6s, July 31, 2002 50,703,000 25,000,000 5 3/4s, October 31, 2002 25,125,000 25,000,000 5 3/4s, November 15, 2000 25,105,500 25,000,000 5 5/8s, December 31, 2002 25,019,500 -------------- 171,730,300 -------------- Total U.S. Government and Agency Obligations (cost $301,264,987) $ 301,052,675 SHORT-TERM INVESTMENTS (11.9%) (a) (cost $41,012,619) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------- 41,000,000 Interest in $459,951,000 joint repurchase agreement dated May 29, 1998 with Morgan (J.P.) & Co., Inc. due June 1, 1998 with respect to various U.S. Treasury obligations -- maturity value of $41,018,928 for an effective yield of 5.54% $ 41,012,619 - ------------------------------------------------------------------------------------------------------------- Total Investments (cost $342,277,606) (b) $ 342,065,294 - ------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $344,273,857. (b) The aggregate identified cost on a tax basis is $342,683,075, resulting in gross unrealized appreciation and depreciation of $1,192,869 and $1,810,650, respectively, or net unrealized depreciation of $617,781. The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities May 31, 1998 (Unaudited) Assets - --------------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $342,277,606) (Note 1) $342,065,294 - --------------------------------------------------------------------------------------------------- Cash 516,929 - --------------------------------------------------------------------------------------------------- Interest receivable 3,624,589 - --------------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 1,650,131 - --------------------------------------------------------------------------------------------------- Total assets 347,856,943 Liabilities - --------------------------------------------------------------------------------------------------- Distributions payable to shareholders 152,938 - --------------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 2,528,255 - --------------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 508,070 - --------------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 60,818 - --------------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 10,442 - --------------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 1,100 - --------------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 121,614 - --------------------------------------------------------------------------------------------------- Payable for organization expenses (Note 1) 8,416 - --------------------------------------------------------------------------------------------------- Other accrued expenses 191,433 - --------------------------------------------------------------------------------------------------- Total liabilities 3,583,086 - --------------------------------------------------------------------------------------------------- Net assets $344,273,857 Represented by - --------------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) 347,028,230 - --------------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (1,105,041) - --------------------------------------------------------------------------------------------------- Accumulated net realized loss on investments (Note 1) (1,437,020) - --------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (212,312) - --------------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $344,273,857 Computation of net asset value and offering price - --------------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($147,054,098 divided by 29,869,489 shares) $4.92 - --------------------------------------------------------------------------------------------------- Offering price per class A share (100/96.75 of $4.92)* $5.09 - --------------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($80,009,310 divided by 16,236,814 shares)** $4.93 - --------------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($7,495,898 divided by 1,519,030 shares) $4.93 - --------------------------------------------------------------------------------------------------- Offering price per class M share (100/98.00 of $4.93)* $5.03 - --------------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($109,714,551 divided by 22,292,112 shares) $4.92 - --------------------------------------------------------------------------------------------------- * On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. The accompanying notes are an integral part of these financial statements.
Statement of operations Six months ended May 31, 1998 (Unaudited) Interest income $10,358,408 - -------------------------------------------------------------------------------------------------- Expenses: - -------------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 1,016,371 - -------------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 310,521 - -------------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 6,881 - -------------------------------------------------------------------------------------------------- Administrative services (Note 2) 3,287 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 191,033 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 297,053 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 13,217 - -------------------------------------------------------------------------------------------------- Amortization of organization expenses (Note 1) 2,575 - -------------------------------------------------------------------------------------------------- Other 13,901 - -------------------------------------------------------------------------------------------------- Total expenses 1,854,839 - -------------------------------------------------------------------------------------------------- Expense reduction (Note 2) (100,862) - -------------------------------------------------------------------------------------------------- Net expenses 1,753,977 - -------------------------------------------------------------------------------------------------- Net investment income 8,604,431 - -------------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 3,529,378 - -------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments during the period (1,041,782) - -------------------------------------------------------------------------------------------------- Net gain on investments 2,487,596 - -------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $11,092,027 - -------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Six months ended Year ended May 31 November 30 1998* 1997 - ---------------------------------------------------------------------------------------------------------------------- Increase in net assets - ---------------------------------------------------------------------------------------------------------------------- Operations: - ---------------------------------------------------------------------------------------------------------------------- Net investment income $ 8,604,431 $ 12,568,098 - ---------------------------------------------------------------------------------------------------------------------- Net realized gain on investments 3,529,378 827,510 - ---------------------------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (1,041,782) (425,668) - ---------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 11,092,027 12,969,940 - ---------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - ---------------------------------------------------------------------------------------------------------------------- From net investment income Class A (4,088,492) (7,851,870) - ---------------------------------------------------------------------------------------------------------------------- Class B (1,872,463) (3,172,610) - ---------------------------------------------------------------------------------------------------------------------- Class M (201,476) (264,827) - ---------------------------------------------------------------------------------------------------------------------- Class Y (3,547,041) (1,186,579) - ---------------------------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 12,425,039 125,105,135 - ---------------------------------------------------------------------------------------------------------------------- Total increase in net assets 13,807,594 125,599,189 Net assets - ---------------------------------------------------------------------------------------------------------------------- Beginning of period 330,466,263 204,867,074 - ---------------------------------------------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $1,105,041 and $- respectively) $344,273,857 $330,466,263 - ---------------------------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) CLASS A - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share May 31 Feb. 16, 1993+ operating performance (Unaudited) Year ended November 30 to Nov. 30 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $4.90 $4.90 $4.92 $4.60 $4.91 $5.00 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .13 (a) .28 .29 .27 .27 (b) .21 (a)(b) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .03 -- (.02) .35 (.32) (.09) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .16 .28 .27 .62 (.05) .12 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.14) (.28) (.26) (.29) (.24) (.21) - ------------------------------------------------------------------------------------------------------------------------------------ Return of capital -- -- -- (.01) (.02) -- - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- -- (.03) -- (e) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.14) (.28) (.29) (.30) (.26) (.21) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.92 $4.90 $4.90 $4.92 $4.60 $4.91 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(c) 3.32* 5.98 5.71 13.85 (1.12) 2.44* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $147,054 $135,283 $143,575 $57,049 $53,831 $19,088 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(d) .53* 1.15 1.22 1.20 1.09 (b) 1.05(b)* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.58* 5.77 5.54 5.78 5.59 (b) 3.13(b)* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 98.45* 188.39 367.19 383.88 351.62 309.80* - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the periods. (b) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect a reduction of approximately $0.01 per share for class A and class B for the periods ended November 30, 1993 and 1994. (c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charge. (d) The ratio of expenses to average net assets for the periods ended November 30, 1995 and thereafter, includes amounts paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2). (e) Distributions in excess of net investment income were less than $0.01 per share.
Financial highlights (For a share outstanding throughout the period) CLASS B - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share May 31 Feb. 16, 1993+ operating performance (Unaudited) Year ended November 30 to Nov. 30 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $4.91 $4.90 $4.92 $4.60 $4.91 $5.00 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .11(a) .26 .26 .24 .24(b) .18(a)(b) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .04 - (.02) .35 (.32) (.08) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .15 .26 .24 .59 (.08) .10 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.13) (.25) (.24) (.26) (.21) (.19) - ------------------------------------------------------------------------------------------------------------------------------------ Return of capital -- -- -- (.01) (.02) -- - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- -- (.02) -- (e) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.13) (.25) (.26) (.27) (.23) (.19) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.93 $4.91 $4.90 $4.92 $4.60 $4.91 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(c) 3.00* 5.56 5.08 13.17 (1.71) 1.95* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $80,009 $68,137 $56,889 $23,201 $21,243 $4,317 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(d) .83* 1.75 1.80 1.81 1.69(b) .67(b)* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.29* 5.16 4.94 5.17 4.98(b) 3.53(b)* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 98.45* 188.39 367.19 383.88 351.62 309.80* - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the periods. (b) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect a reduction of approximately $0.01 per share for class A and class B for the periods ended November 30, 1993 and 1994. (c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charge. (d) The ratio of expenses to average net assets for the periods ended November 30, 1995 and thereafter, includes amounts paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2). (e) Distributions in excess of net investment income were less than $0.01 per share.
Financial highlights (For a share outstanding throughout the period) CLASS M - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share May 31 Year ended Apr. 3, 1995+ operating performance (Unaudited) November 30 to Nov. 30 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $4.91 $4.90 $4.93 $4.68 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .12(a) .28 .27 .12(a) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .04 .01 (.02) .32 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .16 .29 .25 .44 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.14) (.28) (.26) (.18) - ------------------------------------------------------------------------------------------------------------------------------------ Return of capital -- -- -- (.01) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- -- (.02) --(e) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.14) (.28) (.28) (.19) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.93 $4.91 $4.90 $4.93 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(c) 3.23* 6.03 5.33 9.63* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $7,496 $7,158 $4,404 $1,058 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(d) .60* 1.30 1.35 .87* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.51* 5.55 5.28 3.37* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 98.45* 188.39 367.19 383.88 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the periods. (b) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect a reduction of approximately $0.01 per share for class A and class B for the periods ended November 30, 1993 and 1994. (c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charge. (d) The ratio of expenses to average net assets for the periods ended November 30, 1995 and thereafter, includes amounts paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2). (e) Distributions in excess of net investment income were less than $0.01 per share.
Financial highlights (For a share outstanding throughout the period) CLASS Y - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share May 31 Oct. 1, 1997+ operating performance (Unaudited) to Nov. 30 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $4.90 $4.90 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .13 (a) .05 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .04 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .17 .05 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.15) (.05) - ------------------------------------------------------------------------------------------------------------------------------------ Return of capital -- -- - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.15) (.05) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.92 $4.90 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(c) 3.45* 1.03* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $109,715 $119,889 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(d) .40* .15* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.70* .96* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 98.45* 188.39 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the periods. (b) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect a reduction of approximately $0.01 per share for class A and class B for the periods ended November 30, 1993 and 1994. (c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charge. (d) The ratio of expenses to average net assets for the periods ended November 30, 1995 and thereafter, includes amounts paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2). (e) Distributions in excess of net investment income were less than $0.01 per share.
Notes to financial statements May 31, 1998 (Unaudited) Note 1 Significant accounting policies Putnam Intermediate U.S. Government Income 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 income consistent with preservation of capital, through investments primarily in U.S. government securities. The fund offers class A, class B, class M and class Y shares. Class A shares are sold with a maximum front-end sales charge of 3.25%. Class B shares, which convert to class A shares within approximately six to 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 four years of purchase. Class M shares are sold with a maximum front end sales charge of 2.00% and pay an ongoing distribution fee that is higher than class A shares but lower than class B shares. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A shares, class B and class M shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that invest at least $250 million in a combination of Putnam Funds and other accounts managed by affiliates of Putnam Management. 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 generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments are stated at fair market value following procedures approved by the Trustees. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. E) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. At November 30, 1997, the fund had a capital loss carryover of approximately $22,832,000. This amount includes approximately $21,210,000 of capital loss carryovers acquired in connection with the fund's acquisition of the net assets of Putnam Adjustable Rate U.S. Government Fund in 1996. The amount of the capital loss carryover that can be used to offset realized capital gains by the fund in any one year may be limited by the Internal Revenue Code and Regulations. To the extent that capital loss carryovers are used to offset realized capital gains, it is unlikely that gains so offset would be distributed to shareholders since any such distribution might be taxable as ordinary income. Loss Carryover Expiration - ------------------ ------------------------ $ 7,198,000 November 30, 2000 13,497,000 November 30, 2001 1,622,000 November 30, 2002 515,000 November 30, 2003 F) Distributions to shareholders The fund declares a distribution each day based upon the projected net investment income, for a specified period, calculated as if earned prorata throughout the period on a daily basis. Such distributions are recorded daily and paid monthly. Capital gain distributions, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. G) Unamortized organization expenses Expenses incurred by the fund in connection with its organization, its registration with the Securities and Exchange Commission and with various states and the initial public offering of its shares were $49,893. The expenses have been fully amortized over a five year period as of May 31, 1998. 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: 0.60% of the first $1 billion of average net assets, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and 0.38% thereafter. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the six months ended May 31, 1998, fund expenses were reduced by $100,862 under expense offset arrangements with PFTC. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Each Trustee of the fund receives an annual Trustee fee, of which $550 has been allocated to the fund, and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in certain Putnam accordance with the Deferral Plan. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B 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 Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 0.85% and 1.00% of the average net assets attributable to class A, class B and class M shares, respectively. The Trustees currently limit payment by the fund to an annual rate of 0.25%, 0.85% and 0.40% of the average net assets attributable to class A, class B and class M shares respectively. For the six months ended May 31, 1998, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $29,837 and $1,184 from the sale of class A and class M shares, respectively and $55,984 in contingent deferred sales charges from redemptions of class B shares. A deferred sales charge of up to 1% is assessed on certain redemptions of class A shares. For the six months ended May 31, 1998, Putnam Mutual Funds Corp., acting as underwriter received $12,527 on class A redemptions. Note 3 Purchase and sales of securities During the six months ended May 31, 1998, purchases and sales of U.S. government and agency obligations other than short-term investments aggregated $436,563,182 and $290,628,618, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 4 Capital shares At May 31, 1998, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended May 31, 1998 - ------------------------------------------------------------ Class A Shares Amount - ------------------------------------------------------------ Shares sold 15,301,938 $75,407,336 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 591,035 2,913,657 - ------------------------------------------------------------ 15,892,973 78,320,993 Shares repurchased (13,612,085) (67,073,109) - ------------------------------------------------------------ Net increase 2,280,888 $11,247,884 - ------------------------------------------------------------ Year ended November 30, 1997 - ------------------------------------------------------------ Class A Shares Amount - ------------------------------------------------------------ Shares sold 33,183,898 $161,148,766 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 1,158,074 5,623,653 - ------------------------------------------------------------ 34,341,972 166,772,419 Shares repurchased (36,082,598) (175,289,231) - ------------------------------------------------------------ Net decrease (1,740,626) $(8,516,812) - ------------------------------------------------------------ Six months ended May 31, 1998 - ------------------------------------------------------------ Class B Shares Amount - ------------------------------------------------------------ Shares sold 13,393,462 $66,061,725 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 301,069 1,484,255 - ------------------------------------------------------------ 13,694,531 67,545,980 Shares repurchased (11,346,261) (55,943,583) - ------------------------------------------------------------ Net increase 2,348,270 $11,602,397 - ------------------------------------------------------------ Year ended November 30, 1997 - ------------------------------------------------------------ Class B Shares Amount - ------------------------------------------------------------ Shares sold 13,830,235 $67,106,523 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 525,298, 2,552,021 - ------------------------------------------------------------ 14,355,533 69,658,544 Shares repurchased (12,088,083) (58,652,639) - ------------------------------------------------------------ Net increase 2,267,450 $11,005,905 - ------------------------------------------------------------ Six months ended May 31, 1998 - ------------------------------------------------------------ Class M Shares Amount - ------------------------------------------------------------ Shares sold 560,773 $2,766,826 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 35,007 172,883 - ------------------------------------------------------------ 595,780 2,939,709 Shares repurchased (533,966) (2,634,934) - ------------------------------------------------------------ Net increase 61,814 $304,775 - ------------------------------------------------------------ Year ended November 30, 1997 - ------------------------------------------------------------ Class M Shares Amount - ------------------------------------------------------------ Shares sold 1,807,401 $8,795,356 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 47,321 230,423 - ------------------------------------------------------------ 1,854,722 9,025,779 Shares repurchased (1,296,199) (6,300,796) - ------------------------------------------------------------ Net increase 558,523 $2,724,983 - ------------------------------------------------------------ Six months ended May 31, 1998 - ------------------------------------------------------------ Class Y Shares Amount - ------------------------------------------------------------ Shares sold 2,993,377 $14,691,814 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 710,252 3,547,041 - ------------------------------------------------------------ 3,703,629 18,238,855 Shares repurchased (5,874,928) (28,968,872) - ------------------------------------------------------------ Net decrease (2,171,299) $(10,730,017) - ------------------------------------------------------------ For the period October 1, 1997 (commencement of operations) to November 30, 1997 - ------------------------------------------------------------ Class Y Shares Amount - ------------------------------------------------------------ Shares sold 26,232,360 $128,541,407 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 241,958 1,186,579 - ------------------------------------------------------------ 26,474,318 129,727,986 Shares repurchased (2,010,907) (9,836,927) - ------------------------------------------------------------ Net increase 24,463,411 $119,891,059 - ------------------------------------------------------------ PUTNAM GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund [DBL. DAGGER] Capital Opportunities Fund Diversified Equity Trust Europe Growth Fund Global Growth Fund Global Natural Resources Fund Growth Opportunities Fund Health Sciences Trust International Growth Fund International New Opportunities Fund Investors Fund New Opportunities Fund [DBL. DAGGER] OTC & Emerging Growth Fund Research Fund Vista Fund Voyager Fund Voyager Fund II PUTNAM GROWTH AND INCOME FUNDS Balanced Retirement Fund Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston Global Growth and Income Fund The Putnam Fund for Growth and Income Growth and Income Fund II International Growth and Income Fund New Value Fund Utilities Growth and Income Fund PUTNAM INCOME FUNDS American Government Income Fund Diversified Income Trust Strategic Income Fund * High Quality Bond Fund + Global Governmental Income Trust High Yield Advantage Fund [DBL. DAGGER] High Yield Total Return Fund High Yield Trust [DBL. DAGGER] High Yield Trust II Income Fund Money Market Fund ** Intermediate U.S. Government Income Fund Preferred Income Fund U.S. Government Income Trust PUTNAM TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax Exempt Money Market Fund** Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds [SECTION MARK] Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania State tax-free money market funds [SECTION MARK] California, New York LIFESTAGE SM FUNDS Putnam Asset Allocation Funds--three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio *Formerly Putnam Diversified Income Trust II +Formerly Putnam Federal Income Trust [DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact Putnam for details. [SECTION MARK] Not available in all states. **An investment in a money market fund is neither insured nor guaranteed by the U.S. government. These funds are managed to maintain a price of $1.00 per share, although there is no assurance that this price will be maintained in the future. Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. Fund information INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President William J. Curtin Vice President Michael Martino Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam Intermediate U.S. Government Income Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam Investments' website: http://www.putnaminv.com. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution; are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency; and involve risk, including the possible loss of the principal amount invested. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - -------------------- Bulk Rate U.S. Postage PAID Putnam Investments - -------------------- SA036-43762/398/428/674 7/98 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] - ------------------------------------------------------------------------ Putnam Intermediate U.S. Government Income Fund Supplement to Semiannual Report dated May 31, 1998 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 defined contribution plans investing $250 million or more in one or more of Putnamis funds or private accounts. 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, and M shares, which are discussed more extensively in the semiannual report. SEMIANNUAL RESULTS AT A GLANCE - ------------------------------------------------------------------------ Total return: NAV Six months ended 5/31/98 3.40% One year ended 5/31/98 8.25 Annual average (since class A inception, 2/16/93) 5.65 - ------------------------------------------------------------------------ Share value: NAV 11/30/97 $4.90 5/31/98 4.92 - ------------------------------------------------------------------------ Distributions: No. Income Capital gains Total 6 $0.145003 $0.0000 $0.145003 - ------------------------------------------------------------------------ Current return (end of period) Total Current dividend rate1 6.28% Current 30-day SEC yield2 5.40 1Income portion of most recent distribution, annualized and divided by NAV at end of period. 2Based only on investment income, calculated using SEC guidelines. Class Y shares are offered without an initial sales charge or CDSC. The class Y share returns shown for periods before their inception October 1, 1997 are derived from the historical performance of class A shares for such periods, but have not been adjusted to reflect differences in expenses, which are lower for class Y shares than for class A shares. All returns assume reinvestment of distributions at NAV and represent past performance; they do not guarantee future results. Investment return will fluctuate and may involve the loss of principal. Performance of other share classes will vary. 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. -----END PRIVACY-ENHANCED MESSAGE-----